Upload
richard-ramsey
View
67
Download
2
Embed Size (px)
DESCRIPTION
Presentation to the ACT / IACT Event at the Merhcnat Hotel on Tuesday October 14, 2014
Citation preview
14th
October 2014
Richard Ramsey
Chief Economist Northern Ireland
Twitter @UB_Economics
ACT / IACT Event Merchant Hotel
Slide 2
The hills are alive with the sound of recovery
Slide 3Slide 3
3The Bank Rate 1700‐2013
The Bank of England will not keep its bank rate at a record low forever…
Slide 4
Economic growth picking up everywhere…
GDP Forecasts September 2014
-8
-6
-4
-2
0
2
4
6
US EZGerm
any
France UK
Italy
Spain
Greece RoI
Portug
al NI*
% Y/Y
2013 2014 2015
Source:Consensus Economics & *Ulster Bank
Slide 5
Remember levels are important. Some economies are larger than their pre‐recession peaks
GDP Relative to Pre-Recession Peaks
80
85
90
95
100
105
110
Peak 1yr 2yrs 3yrs 4yrs 5yrs 6yrs 7yrs
Source: Bloomberg & UB Calculations
Slide 6
Global manufacturing & services output growth eases in September
Global Output - PMI
25
30
35
40
45
50
55
60
65
Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14
Total Manufacturing Services
Source: Markit Economics
ExpansionC
ontraction
Slide 7
All sectors within the Eurozone have been losing momentum in recent months
Eurozone PMIs: Output
25
3035
4045
50
5560
65
Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14
Composite (M&S) Manufacturing Services
Construction Retail No Change
Source: Markit Economics ExpansionC
ontraction
Slide 8
Eurozone’s economic difficulties are now a core problem as opposed to the periphery
Composite PMIs (Manufacturing & Services ** Excludes Construction**)
25
30
35
40
45
50
55
60
65
Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14
Source: Markit Economics PMIs
Contraction
Expansion
Slide 9
Inflation not a problem…but ECB wary of deflation / inflation too low for too long
Annual CPI Inflation Rates
-4
-2
0
2
4
6
8
Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14
%
US Japan EZ UK RoI China
Source: Bloomberg
0.0% -0.3%
-0.2%
0.0%
-1.1%
Slide 10
NI & RoI Recovery Checklist
• New Car Sales Up
• Unemploymentfalling
• Business activity up
• Mortgage activity up
• Employment up
Slide 11
Firms in the UK & RoI signal an easing in their rates of growth in output but NI’s pace of growth picks up
Private Sector Business Activity - PMIs
30
35
40
45
50
55
60
65
Sep-04 May-06 Jan-08 Sep-09 May-11 Jan-13 Sep-14
NI UK RoI
Source: Markit & Ulster Bank NI PMI50 = threshold between expansion / contraction
Expansion
Contraction
**PMI Surveys Exclude Agriculture & Public Sector**
Slide 12
…boosted by a return in employment growth
Full-Time Annual Employment Growth Employee Jobs*
3.0%
2.3%2.5%
-15%
-10%
-5%
0%
5%
10%
Jun-94 Dec-96 Jun-99 Dec-01 Jun-04 Dec-06 Jun-09 Dec-11 Jun-14
Y/YUK NI RoI
Source: CSO, DFP & Nomis, *RoI refers to employment not Employee Jobs
Slide 13
But remember think of
levels
not growth rates!
Employment Recession / Recovery as of Q2 2014 Pre-Recession Peaks Indexed = 100
+1.1%
-11.8%
80
85
90
95
100
105
110
Peak 1 year 2yrs 3yrs 4yrs 5yrs 6yrsTime Since Pre-Recession Peak
NI UK RoI Pre-Recession Peak
Source: ONS, DFP & UB Calculations, NI & UK peaks (Q2 2008) & RoI Q1 2008. NI & UK refer to Employee Jobs. RoI refers to overall employment.
-2.8%
Slide 14
But remember think of
levels
not growth rates!
NI v UK v RoI Full-Time Employment Levels* Pre-Recession Peaks Indexed = 100
-4.5%
-17.7%
75
80
85
90
95
100
105
110
Peak 1yr 2yrs 3yrs 4yrs 5yrs 6yrs 7yrsTime Since Pre-Recession Peak
Index
NI UK RoI Pre-Recession Peak
Source: ONS, CSO & DFP, *NI & UK unadjusted employee jobs
Slide 15
UK services & construction still reporting strong growth but is manufacturing indicating global slowdown?
UK Business Activity / Output - PMIs
20
30
40
50
60
70
Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14
Services Manufacturing Construction
Source: Markit Economics
ExpansionC
ontraction
Slide 16
RoI output growth accelerates within services & construction but eases within the manufacturing sector
RoI Business Activity - PMIsMonthly
20
25
30
35
40
45
50
55
60
65
70
Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14
Manufacturing Services Construction No Change
Source: Markit Economics
Contraction
Expansion
Slide 17
NI’s services & construction sectors saw output growth ease in Q3 relative to Q2
Northern Ireland Private Sector Output 3 month moving average
30
35
40
45
50
55
60
65
70
Sep-04 May-06 Jan-08 Sep-09 May-11 Jan-13 Sep-14
Manufacturing Services Construction
Source: Markit Economics & Ulster Bank NI PMI
Expansion
Contraction
Slide 18
Sterling has been in recovery mode too
Sterling Effective Exchange Rate (Trade Weighted Index)
85.9
87.722/10/08
70
75
80
85
90
95
100
105
110
Oct-04 Jan-06 Apr-07 Jul-08 Oct-09 Jan-11 Apr-12 Jul-13 Oct-14
Index
30% Depreciation
€1 13
Source: Bloomberg, BoE January 2005=100
Slide 19
Consumer confidence has improved…
NI v UK v RoI New Car Sales 3 months / YY% Change
-75%
-50%
-25%
0%
25%
50%
75%
100%
125%
Feb-07 Mar-08 Apr-09 May-10 Jun-11 Jul-12 Aug-13 Sep-14
Y/Y
NI UK RoI
Source: SMMT & SIMI
Slide 20
But remember look at levels not growth rates
New Car Registrations12 month Rolling Sum Indexed 2007 =100
-18%
+1.3%
-49%
0
20
40
60
80
100
120
Dec-07 Sep-08 Jun-09 Mar-10 Dec-10 Sep-11 Jun-12 Mar-13 Dec-13 Sep-14
Index
NI UK RoI Pre-Recession Peak
Source: SMMT & SIMI
Slide 21
2013 the year that house prices stopped falling
Residential Property Price IndicesQuarterly
52% below peak & 5%
below Q1 2005
37% above peak & 78%
above Q1 2005
44% belowpeak & 26% below
Q1 200550
75
100
125
150
175
200
2005 Q2 2006 Q4 2008 Q2 2009 Q4 2011 Q2 2012 Q4 2014 Q2
Index Q1 2005 = 100
Belfast London*Dublin* 2005 Levels
Source: DFP, CSO, ONS, * includes mortgages only
Recovery Checklist
• Insolvencies rising
• Retail vacancies
• Disposable income
• Construction jobs
• Housing starts
• Public finances
Slide 23
But a recovery in housing starts required
Housing StartsRolling Annual Sum 2006=100
Q4 2013 36% below peak
Q1 2014 66% below peak
Q4 2013 94% below peak
0
25
50
75
100
125
2006 Q3 2008 Q1 2009 Q3 2011 Q1 2012 Q3 2014 Q1
Index 2006=100
UK NI RoI
Source: DSD, DCLG & DoE
Slide 24
…explains why there has been no recovery in construction employment
NI Employee Jobs Recovery by Sector as of Q2 2014Pre-Recession Peaks Indexed = 100
8% below peak
35% below peak
60
70
80
90
100
110
Peak 1 year 2yrs 3yrs 4yrs 5yrs 6yrs 7yrsTime Since Pre-Recession Peak
Index
Services Manufacturing Construction Pre-Recession Peak
Source: DFP & UB Calculations
Slide 25
…the squeeze on the consumers finances continues...low inflation but even lower pay growth
UK Average Weekly Earnings & CPI InflationAnnual % Change
0.7%
1.5%
0
1
2
3
4
5
6
Aug-02 Aug-04 Aug-06 Aug-08 Aug-10 Aug-12 Aug-14
%
Average Weekly Earnings CPI Inflation
Income squeeze'NICE'
Decade
Source: ONS & Earnings excluding bonuses
Cumulative % Change in UK Consumer Prices since 'Credit Crunch' began (Aug-07 to Aug-14)
11.4%
22.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
ElectricityGas & Other
Fuels
Food TransportServices
TransportFuels &
Lubricants
Total CPI AverageEarnings
Source: ONS, Earnings refers to Jun-14
Slide 2626
Source: Peter Brookes @BrookesTimes 1st October 2014
Fiscal challenges remain at home & abroad
Slide 27
Government Net Borrowing as a % of GDP2014
0
1
2
3
4
5
6
7
German
yEsto
niaLu
xembo
urgLa
tvia
Denmark
Sweden
Bulgari
aAus
triaRom
ania
Greece
Lithu
aniaFinl
and
Italy
Euro ar
eaBelg
iumMalt
aEU
Czech
Rep.
Hungary
Netherl
ands
Slovakia
Slovenia
France
Portug
alIre
land
Poland UK
Cyprus
Spain
% of GDP
€
EU Stability & Growth Pact Annual Deficit Ceiling
Source: European Commission Winter Forecast February 2014 & OBR March 2014.
‘But it is still one of the highest [deficits] in the world’. Within the EU, only Spain & Cyprus have higher deficits in 2014
Slide 28
Gross General Government Debt as a % of GDP2014
0
20
40
60
80
100
120
140
160
180
200
Estonia
Bulgari
aLu
xembo
urgLa
tvia
Roman
iaDen
markSwed
enLit
huania
Czech
Rep.
Poland
Slovakia
Finlan
dMalt
aAus
triaNeth
erland
sSlove
niaGerm
any
Hungary EU UK
Euro ar
eaFranc
eSpa
inBelg
iumIre
land
Cyprus
Portug
alIta
lyGree
ce
% of GDP
Source:European Commission Winter Forecast February 2014 & OBR March 2014. Uses the Maastricht Treaty definition
€EU Stability & Growth Pact Debt Ceiling
The UK’s overall debt to national income ratio is not quite as high as the Eurozone using the Maastricht Treaty debt definition
Slide 29
Both the UK and Republic of Ireland will remain above the EU’s Stability & Growth Pact ceiling for quite some time yet
UK General Government Gross Debt as a % of GDPusing Maastricht Treaty definition
0
20
40
60
80
100
120
140
1976-77 1983-84 1990-91 1997-98 2004-05 2011-12 2018-19
% of GDP
Budget 2014 (March) EU Stability & Growth Pact Debt Ceiling Republic of Ireland*
Source: ONS, OBR March 2014, * refers to calendar years, DoF & EC Winter Forecast Feb-14
Slide 30Slide 30
But until 2018/19 the government has to borrow…a lot!
£572 bn*
* Source: OBR March 2014 refers to 2011/12 to 2017/18
£572,000,000,000
Slide 31
UK Public Sector Net Borrowing (PSNB)
-200
20406080
100120140160
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
£bn
Source:OBR Budget 2014
£572bn in 7 years to 2017/18 or 20 times the annual output of the
NI economy or running the UK NHS (£140bn p.a.) for 4 years
£5bn Surplus
The deficit is falling = our borrowing is falling not our debt!
Slide 32Slide 32
And don’t forget this gets added to the totaliser…
Slide 33Slide 33
A recovery in the public finances a long way off
UK Public Sector Net Debt
0
250
500
750
1000
1250
1500
1750
2000
2001-02 2003-04 2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18
£Bn
Source: ONS, OBR March 2014
One Trillion Pounds of Debt
1.5 Trillion Pounds of Debt
Slide 34
UK Public Services Spending in real terms*
1997-98
2009-10
0
100
200
300
400
500
600
1948-49 1958-59 1968-69 1978-79 1988-89 1998-99 2008-09 2018-19
£bn
Source: IFS March 2014, *refers to public expenditure less spending on welfare benefits & debt interest. Measure is wider than DEL as includes public service pensions, transfers to the EU and locally-financed expenditure.
+76%
‐17%
UK public services spending rose by 76% in 12 years from 1997/98 and is set to fall by 17% in 9 years to 2018/19
Slide 35
Cuts in Resource DEL in 2016/17 & 2017/18 (5% p.a.) will be twice the rate that occurred on average between 2011/12 to 2015/16
Change in Departmental DEL Spending in Real Terms
-6%-5%-4%-3%-2%-1%0%1%2%3%4%
Annual Average 2011/12 to 2015/16
2016/17 2017/18 2018/19
%
DEL Resource DEL Capital DEL
Source: OBR March 2014
Slide 36
Scottish Referendum is the beginning of a new source of political risk for the UK…
Slide 37
An Ice Bucket Challenge for English Nationalism
Frank Field, Labour MP for Birkenhead 19th September 2014
Slide 38
£ per head Index (UK identifiable expenditure = 100)
2008-09outturn
2009-10outturn
2010-11outturn
2011-12outturn
2012-13outturn
2008-09outturn
2009-10outturn
2010-11outturn
2011-12outturn
2012-13outturn
North East 8,930 9,547 9,583 9,189 9,419 110 110 110 106 107North West 8,551 9,122 9,171 9,003 9,252 105 105 105 104 105Yorkshire and the Humber 7,889 8,470 8,490 8,467 8,610 97 97 97 98 98East Midlands 7,385 7,964 7,970 7,937 8,118 91 91 91 92 92West Midlands 7,972 8,446 8,437 8,356 8,498 98 97 97 97 97East 7,116 7,808 7,830 7,689 7,865 87 90 90 89 89London 9,097 9,876 9,809 9,439 9,435 112 113 112 109 107South East 7,070 7,514 7,554 7,440 7,638 87 86 86 86 87South West 7,413 7,956 7,956 8,013 8,219 91 91 91 93 94England 7,911 8,498 8,508 8,368 8,529 97 97 97 97 97Scotland 9,332 9,841 9,868 9,941 10,152 115 113 113 115 116Wales 8,955 9,504 9,612 9,710 9,709 110 109 110 113 110Northern Ireland 9,996 10,506 10,572 10,665 10,876 123 121 121 124 124UK identifiable expenditure 8,142 8,718 8,735 8,631 8,788 100 100 100 100 100
Table 9.2 Total identifiable expenditure on services by country and region, per head 2008-09 to 2012-13
National Statistics National Statistics
Source: HMT PESA 1 August 2014
Interregional public expenditure differentials will be a defining issue for the 2015 General Election
North East & North West
Slide 39Slide 39
Economic growth will be an uphill challenge with plenty of scope for surprises
Source:
The Economist
?
Slide 40
Conclusion
A broad‐based economic recovery is well underway
But a recovery in the household & public finances remains a long way off
Star performers likely to include: ICT / Software; food & drink, tourism and pharmaceuticals
NI & RoI set to record their strongest year since 2007
Geopolitical risks and threats surrounding an economic slowdown mounting
Slide 41Slide 41Slide 41
Please send us a mail at:
if you would like to receive our research,
which is also available via Twitter:
@UB_Economics
Slide 42Slide 42
Disclaimer
This document is issued for information purposes only for clients of Ulster Bank Group who are eligible counterparties or professional customers, and does not constitute an offer or invitation to purchase or sell any instrument or to provide any service in any jurisdiction where the required authorisation is not held. Ulster Bank and/or its associates and/or its employees may have a position or engage in transactions in any of the instruments mentioned.
The information including any opinions expressed and the pricing given, is indicative, and constitute our judgement at time of publication and are subject to change without notice. The information contained herein should not be construed as advice, and is not intended to be construed as such. This publication provides only a brief review of the complex issues discussed and readers should not rely on information contained here without seeking specific advice on matters that concern them. Ulster Bank make no representations or warranties with respect to the information and disclaim all liability for use the recipient or their advisors make of the information. Over-the-counter (OTC) derivates can involve a number of significant and complex risks which are dependent on the terms of the particular transaction and your circumstances. In the event the market has moved against the transaction you have undertaken, you may incur substantial costs if you wish to close out your position.
Ulster Bank Limited Registered Number: R733 Northern Ireland. Registered Office: 11-16 Donegall Square East, Belfast BT1 5UB.Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Member of The Royal Bank of Scotland Group.
Calls may be recorded.