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Bumping along….Bumping along….
Dennis Turner
HSBC Bank plc
UK ECONOMIC OUTLOOK
September 2010
THE RECESSION IS OVERTHE RECESSION IS OVER
A deep recession
-6.0
-4.0
-2.0
0.0
2.0
4.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
%
QUARTERLY
ANNUAL
Long-term average
ALL THE LEVERS PULLEDALL THE LEVERS PULLED
Fiscal policy loosened
Government finances already in deficit
-200
-150
-100
-50
0
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
And deteriorated rapidly
-200
-150
-100
-50
0
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
March 2010 Budget Report
Net debt (as a % of GDP) soaring
25
30
35
40
45
50
55
60
65
70
75
80
1990 1994 1998 2002 2006 2010 2114
% o
f G
DP
Sustainable Investment Rule
March 2010 Budget
Interest rates fall to historic lows
The lowest for over 300 years
0
1
2
3
4
5
6
7
2002 2003 2004 2005 2006 2007 2008 2009 2010
%
And sterling plummeted
Sterling takes a pounding
1.40
1.50
1.60
1.70
1.80
1.90
2.00
2.10
2005 2006 2007 2008 2009 2010
$/£
1.00
1.10
1.20
1.30
1.40
1.50
1.60
€/£
US dollar / £ (L axis)
euro / £ (R axis)
STRAWS IN THE WINDSTRAWS IN THE WIND
An end to destocking
-3
-2
-1
0
1
2
Q1 2007 Q1 2008 Q1 2009 Q1 2010
% q
ua
rte
rly
ch
an
ge
-6
-4
-2
0
2
4£
billio
ns
GDP (L axis)
Change in stocks (Raxis)
Key PMI surveys in positive territory
25
35
45
55
65
2006 2007 2008 2009 2010
% b
ala
nc
e
Manufacturing
Services
Construction
expansion
contraction
Housing market fragile but improving
0
50
100
150
200
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
mo
nth
ly t
ota
l, 0
00
s
-20
-10
01
02
03
0
an
nu
al %
ch
an
ge
Mortgage approvals (L axis)
House prices (R axis)
rising
falling
House prices:
Exports starting to respond
-30
-20
-10
0
10
20
30
40
50
Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
Goods
Services
An
nu
al P
erc
en
tag
e c
ha
ng
e
A slow recovery is underway
-6.0
-4.0
-2.0
0.0
2.0
4.0
2006 2007 2008 2009 2010
%
QUARTERLY
ANNUAL
Long-term average
Forecast
RISKSRISKS
a) Debt overhang
Consumers were the driving force
-3
-2
-1
0
1
2
3
4
5
6
7
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
% C
HA
NG
E
CONSUMER SPENDING RETAIL SALES
But underpinned by borrowing
-1
1
3
5
7
9
11
13
15
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
%
75
85
95
105
115
125
135
145
155
165
INTEREST REPAYMENTS/DISPOSABLE INCOMES(LHS)
DEBT / DISPOSABLE INCOMES(RHS)
%
b) Fragile consumer sector
So real earnings squeezed
-3
-2
-1
0
1
2
3
4
5
6
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Average earnings growthConsumer price inflation
Real earnings growth
%
A slower recovery than the last recession
-3.5
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
4.5
5.5
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
% C
HA
NG
E
CONSUMER Forecast
Consumer confidence still weak
-35.0
-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
% Long-term average
c) Public sector spending cuts
Planned government spending cuts (£bn)
0
25
50
75
100
125
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
Darling Osborne
Total
£bn
Govt receipts and spending (% of GDP)
35
40
45
50
55
2009-10 2011-12 2013-14 2015-16
% of
GDP
d) Slow growth in key export markets
Euro Area growth forecast
-6
-4
-2
0
2
2008 2009 2010 2011
%
-6
-4
-2
0
2
%
Germany France
Italy Spain
Euro Area
Annual GDP growth:
Euro Area growth forecast 2
-8
-6
-4
-2
0
2
2008 2009 2010 2011
%
-8
-6
-4
-2
0
2
%
Greece Portugal
Spain Ireland
Euro Area
Annual GDP growth:
Exports are starting to respond
80
90
100
110
120
Q1 2007 Q1 2008 Q1 2009
ind
ex
(2
00
5 =
10
0)
80
90
100
110
120
ind
ex
(20
05
= 1
00
)
EU Non-EU
Volume of UK goods exports:
f) Banking and credit problems
Funding issues
0
100
200
300
400
500
600
700
800
2001 2002 2003 2004 2005 2006 2007 2008
£ b
illi
on
0
100
200
300
400
500
600
700
800£
billio
n
Customer funding gap*
Interbank deposits from abroad
An injection of £200bn via QE
0
3
6
9
12
15
Mar 09 May 09 Jul 09 Sep 09 Nov 09 Jan 10
% o
f G
DP
0
50
100
150
200
£ b
illion
Stock of holdings (R axis)
% of GDP (L axis)
Credit growth still very subdued
-10
-5
0
5
10
15
20
25
Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10
%
-10
-5
0
5
10
15
20
25
%
Lending to households
Lending to businesses
Annualized growth in outstanding lending
SHORT-TERM OUTLOOKSHORT-TERM OUTLOOK
Slow fragile growth
-8
-6
-4
-2
0
2
4
6
8
1988 1991 1994 1997 2000 2003 2006 2009
%
QUARTERLY ANNUAL
LONG TERM AVERAGE
Inflation – higher for longerInflation – higher for longer
-2
-1
0
1
2
3
4
5
6
2009 2010 2011
% c
ha
ng
e m
on
th o
n m
on
th
CPI RPI
Forecast
Target
Range
And interest rates start to turn
0
1
2
3
4
5
6
7
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
%
Forecast
The exchange rate is favourable
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2005 2006 2007 2008 2009 2010 2011
$/£
1.0
1.1
1.2
1.3
1.4
1.5
€/£
Sterling weaker
US$ / £ (L axis)
euro / £
(R axis)
HSBC forecast
THE NEW AGENDATHE NEW AGENDA
Where will growth come from?
-10
-5
0
5
10
15
20
25
30
35
40
45
1993-2000 2001-2007
Industrial production (19)
Transport and comms (8)
Construction (6)
Distribution, e tc. (15)
Property & business (24)
Financial Service s (3)
Public service s (24)
Manufacturing output
100
150
200
250
1950 1960 1970 1980 1990 2000
ind
ex
(1
95
0 =
10
0)
100
150
200
250in
de
x (1
95
0 =
10
0)
Volume of output, 1950-2009
Manufacturing output
Manufacturing vs services
0
50
100
150
200
250
300
350
400
450
500
1950 1960 1970 1980 1990 2000
ind
ex
(1
95
0 =
10
0)
0
50
100
150
200
250
300
350
400
450
500in
de
x (1
95
0 =
10
0)
GDP
Services
Volume of output, 1950-2009
Manufacturing
THANK YOUTHANK YOU