The UK economy in a global context

Philip ShawChief Economist, Investec

WMEF ‘Entrepreneurship, Innovation & Growth’ Conference21 June 2013

Global economic trends…

Global growth: Actual & projections……

Source: IMF World Economic Outlook April 2013

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0% ForecastsAnnual GDP Growth

Shares of global growth have shifted

Source: IMF World Economic Outlook April 2013

Contributions to global growth (percentage points)

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

China India Japan US EU27 RoW Global GDP

Key economies - GDP growth recent and forecast…

Source: IMF World Economic Outlook April 2013

China India US Japan Germany UK EU17

-2%

0%

2%

4%

6%

8%

10%

2012 2013 2014

Annual GDP growth

A few points on global growth

20y ago the US and EU

accounted for half of world GDP growth – now it is less than 20%

China and India’s share in 2012 -

44%! Rising trend should remain in place in Emerging

Markets generally

Chinese growth has cooled – could be less

than 8% this year (!) – down from peak of 14% in

2007

Global GDP growth of 4%-5% is not the norm –

long-term average is 3%-

3.5%

This is a super cycle – it is not the world ‘New Normal’

The UK economy in a global context…

Sterling depreciation

Source: Bank of England

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

70

75

80

85

90

95

100

105

110

-17%

-24%

Trade weighted sterling

Euro crisis hits EU17 growth outturns…

EU17 Germany France Italy Spain Other

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

2011 2012 2013 - forecast 2014 - forecast

Annual GDP growth

Source: Datastream, Investec forecasts

UK trade export volumes weakened by Euro area crisis..

Source: ONS

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

-40%

-30%

-20%

-10%

0%

10%

20%

30%

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

Trade balance £bn (RHS) EU exports (LHS) Non-EU exports (LHS)

Export volumes (% change 3m yoy), trade balance (£bn)

Global GDP growth – weighted by UK trade shares

Source: IMF World Economic Outlook April 2013, Bank of England, Investec calculations

Annual GDP growth Forecasts

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

World GDP growth UK trade weighted world GDP growth

UK export growth to selected countries

Russia China India Brazil Japan Germany France US EU17 Italy Spain

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

Source: ONS

Change between 2009 and 2012 (£ values)

Other factors

Quarterly UK growth- contributions by sector

Source:

Q2 2004

Q3 2004

Q4 2004

Q1 2005

Q2 2005

Q3 2005

Q4 2005

Q1 2006

Q2 2006

Q3 2006

Q4 2006

Q1 2007

Q2 2007

Q3 2007

Q4 2007

Q1 2008

Q2 2008

Q3 2008

Q4 2008

Q1 2009

Q2 2009

Q3 2009

Q4 2009

Q1 2010

Q2 2010

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

Q3 2012

Q4 2012

Q1 2013

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

Agriculture Manufacturing Industrial production- ex mfg Construction Services GDP

Unwinding of Jubilee effect and Olympic boost

Diamond Jubilee

Royal Wedding

Collapse of Lehman Brothers

Various factors to watch for….

• New Bank of England Governor on 1 July.

More stimulus? QE? Interest rate guidance?

• An upturn in the housing market?

Bank of England Funding for Lending Scheme helped mortgage market.

Chancellor’s Help to Buy scheme to raise demand?

Government help to SME sector?

• New Euro area upturn??

• Is the eurozone financially more robust?

• Are individual countries less systemic? (Probably!)

• Attitudes to and UK relationship with the rest of ‘Europe’.

Referendum on the EU in the next parliament??

EU referendum opinion polls

Source: YouGov

Voting to stay in the EU (net balances)

Jan 10-11

Jan 17-18

Jan 20-21

Jan 23-24

Jan 24-25

Feb 17-18

Apr 7-8

May 9-10

May 12-13

Jun 9-10

-20

-10

0

10

20

30

40

To remain in EU To remain in EU on renegotiated terms

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