Planning for growth, dealing with slow-down

2008 GMFM forecasts

Neil GibsonDirector of Regional Services:

Oxford Economics

20th November 2008

Overview

The City Region economy Exposure to the slow-downLonger term prospectsDrilling down – the district prospectsRisks and strategic questionsSummary

The City Region Economy

Set in contextJust over 3.2 million people live in the City Region

district (47% of the region and 5% of the UK)1,66 million jobs are located in the City Region

(49% of the region and 5% of the UK)An estimated £5.5bn of GVA is produced in the

City Region (51% of the region and 5% of the UK)

The region has grown by 139,200 jobs over the last decade

Population has grown by 73,800 over the last decade

A largely urban structure

Note: Other includes agriculture, extraction, utilities, financial services and public admin

Business services19%

Hotels & catering6%

Other personal services

6%

Transport & comms7%

Construction7%

Education8%

Other8%

Health11%

Manufacturing11%

Distribution & retail17%

A remarkable decade for jobs

808590

95100105110

115120125

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Inde

x 19

81=1

00

UKCity RegionsNorth West

Total Employment, 1981=100

A more recent upturn in population

95

97

99

101

103

105

107

109

111

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Inde

x 19

81=1

00

UKCity RegionNorth West

Population, 1981=100

Public and professional services – key sources of jobs

Agriculture -1.7Extraction -0.6Manufacturing -89.1Utilities -4.4Construction 19.5Distribution & retail 1.7Hotels & catering 8.5Transport & comms 22.8Financial services 8.9Business services 86.6Public admin & defence 8.6Education 21.9Health 32.1Other personal services 24.3Total 139.2

City Region employment growth, 1998 - 2008 (000s)

Exposure to the slow-down

City Region exposure

More exposed Less exposed

Urban locations key service sector locations

Limited global finance activity

Affordability problems in many areas

Public sector important employer

Some back office functions (vulnerable)

Lower cost operation than London for some firms

Migrants a recent driving factor – job conditions and Sterling now less favourable

Diversity across the region

The problems of consumer confidence, borrowing restraints and lower demand for exports will all have an impact

Recession - vulnerability scores

Top 5 GB areasRank (out

of 408)City of London 1Tower Hamlets 2Chester 3Bournemouth 4Calderdale 5Macclesfield 17Trafford 24Warrington 35Stockport 55Vale Royal 58Manchester 97Bolton 112Rochdale 155Wigan 158Salford 173Oldham 199Tameside 265Bury 343Congleton 120High Peak 283

Recession for 2009

1500152015401560158016001620164016601680

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Empl

oym

ent (

000s

)

-1.5-1.0-0.50.00.51.01.52.02.53.03.54.0

GVA

gro

wth

(%)

GVA growth (%)

Employment and GVA growth, City Region, 2000 - 2010

A wide sectoral reach

City region (000s)

North West (000s)

Agriculture -0.1 -0.3Extraction 0.0 -0.1Manufacturing -11.2 -24.5Utilities 0.0 -0.1Construction -7.5 -13.5Distribution & retail -10.3 -20.7Hotels & catering -3.3 -8.6Transport & comms 0.3 0.2Financial services -4.2 -8.4Business services -11.4 -18.0Public admin & defence 0.6 1.0Education -0.2 -0.7Health 1.9 3.0Other personal services 0.5 0.8Total -44.9 -89.6

Job loss during the slow down in the City Region and the North West, 2008-2010

Unemployment rising steadily across the City Region

Unemployment Rate % (Oct

2008)

Unemployment Increase (Oct 08 -

Jan 08)Previously

HighestBolton 3.3 879 May 2000Bury 2.5 554 Jan 1999Manchester 3.9 1747 Sept 2006Oldham 3.4 574 Mar 2000Rochdale 3.5 590 May 2000Salford 3.3 825 Mar 2000Stockport 2.2 712 Mar 2000Tameside 3.0 682 Mar 2000Trafford 2.1 542 Feb 2007Wigan 3.2 1353 Mar 2000Greater Manchester 3.0 8458 Aug 2000Warrington 2.5 867 Apr 2000Macclesfield 1.5 348 Apr 2000Congleton 1.6 234 Jan 2003Vale Royal 2.3 324 Aug 2000High Peak 2.0 200 Jan 2001City Region 2.2 10431 Apr 2000

All districts to lose jobs

Bolton -3.6Bury -1.8Manchester -6.7Oldham -2.7Rochdale -2.6Salford -4.1Stockport -4.8Tameside -2.6Trafford -4.4Wigan -3.3Greater Manchester -36.6Warrington -3.2Macclesfield -2.6Congleton -1.0Vale Royal -0.8High Peak -0.6City Region -44.9

Jobs lost, 2008-10 (000s)

Summarising the impacts

With UK contracting at -0.9% in 2009 and 1% in 2010, City Region impacts:

45,000 jobs lostGVA falling negative in 2009 3.2 percentage point fall in city region

employment rateUnemployment to rise to 82,000 peopleAverage house prices to fall 11.8%

Longer term prospects

Growth returning post 2010

94

99

104

109

114

119

124

129

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

000s

UK

City Region

North West

Employment growth, 1981-2018 (1981=100)

City Region – continued move to ‘office jobs’

1998-2008 (000s)

2008-2018 (000s)

Agriculture -1.7 -0.5Extraction -0.6 -0.2Manufacturing -89.1 -41.2Utilities -4.5 -0.1Construction 19.5 4.9Distribution & hotels 10.2 10.4Transport & comms 22.8 5.9Financial & business 95.5 43.6Public admin & defence 9.7 2.3Education & health 54.0 20.0Other personal services 24.3 8.5Total 140.2 53.7

City Region – continued move to ‘office jobs’

0%

20%

40%

60%

80%

100%

1998 2008 2018

% E

mpl

oym

ent

Private Services

Public Services

Manufacturing

Rest of Production

Employment %, City Region, 98, 08, 18

GVA growth – positive by 2010GVA growth (%), City

Region, 2000 - 10

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

City Region

The crucial role of migration – North West

North West migration, 1991 - 2025

-25

-20

-15

-10

-5

0

5

10

15

20

25

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

000s

GMFM 2008

SNPP (2006)

SNPP (2004)

Natural increase also key…Natural increase, North West, 1992 - 2026

-5

0

5

10

15

20

25

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

000sGMFM 2008

SNPP (2006)

SNPP (2004)

Greater Manchester migrationGreater Manchester migration, 1991 - 2025

-12

-10

-8

-6

-4

-2

0

2

4

6

8

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

000s

GMFM 2008

SNPP (2006)

SNPP (2004)

Natural increase much larger in Greater Manchester

Greater Manchester natural increase, 1992 - 2026

0

2

4

6

8

10

12

14

16

18

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

000s

GMFM 2008

SNPP (2006)

SNPP (2004)

Employment rates to fall back in short term

Employment rates in City Region, North West and UK, 1994-2018

64

66

68

70

72

74

76

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

% 1

5-59

/64

popu

latio

n

City Region

North West

UK

Growth for most longer term…

2008-2010 2008-2018 2008-2010 2008-2018 Bolton -3.6 -0.8 1.0 6.5Bury -1.8 -0.4 1.0 7.1Manchester -6.7 37.8 10.2 62.7Oldham -2.7 -0.7 0.8 5.9Rochdale -2.6 0.4 0.8 6.7Salford -4.1 6.2 1.9 14.0Stockport -4.8 0.0 0.5 4.7Tameside -2.6 -2.8 0.6 4.9Trafford -4.4 4.3 2.0 11.0Wigan -3.3 0.5 1.5 8.5Greater Manchester -36.6 44.4 20.5 132.1Warrington -3.2 6.4 1.8 10.2Macclesfield -2.6 0.3 1.3 6.0Congleton -1.0 -0.3 0.9 4.1Vale Royal -0.8 1.9 0.6 4.0High Peak -0.6 0.8 1.2 5.5City Region -44.9 53.7 26.2 161.9

Population changeEmployment change

Continued industrial importance for some

Manufacturing employment, % of total, 2008

0

5

10

15

20

25

Tames

ide

High P

eak

Conglet

on

Maccle

sfield

Oldham

Rochda

le

Bolton

Wiga

n

Vale R

oyal

Bury

North W

est

City R

egion

Greater

Man

ches

ter

Stockp

ort

Traffor

d

Salford

Warr

ington

Manch

ester

% o

f tot

al e

mpl

oym

ent

UK = 9.9%

Service sector export base – concentrated in city

05

1015202530354045

Manch

ester

Warr

ington

Traffor

d

Salford

City R

egion

Greate

r Man

ches

ter

Stockp

ort

Vale R

oyal

Maccle

sfield

North W

est

Rochd

ale

Wiga

n

High P

eak

Congle

ton

Bolton

Bury

Oldham

Tames

ide

% o

f tot

al e

mpl

oym

ent

UK = 26.8%

Transport & comms, finance & business services employment, % of total, 2008

Manchester – professional services centre

Total employment and employment in financial & business services, 1981-2018

270

320

370

420

470

520

570

620

1981

1983

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1989

1991

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2011

2013

2015

2017

Tota

l (00

0s)

50

60

70

80

90

100

110

120

Fina

nce

& bu

sine

ss (0

00s)

Total (LHS)

Financial & business (RHS)

Forecasts raise many issuesWhat will be the impact on housing (increased

renting? a ‘squeeze’ in pick-up phase?)What will skills needs be? (pool of unemployment

workers, migrant flows – where will they go?, people put off service sector choices?)

What about transportation plans? (employment struggling back to 2008 levels)

Land needs – what impact a service sector slow down (falling rent costs?)

Environmental aspects (off the agenda? Forgone in interests of growth and cost?)

Impact on targets and performance metricsNote GMFM has (or will have) something to say empirically on each of these points

Risks and strategic questions

RisksUpside Downside

Government actions to work to stimulate demand

Population could be significantly lower

Direct government investment in region brought forward

Is a finance and business led growth path likely?

Sterling brings aid to tourist and export sectors (industry?)

Will London regain competitive advantage on staff and costs

Costs of development likely to fall

Could urban decay return and reverse recent gains

Will consumers ever ‘come back’ to spending as they did?

Will strategy shift from expansion to ‘managing decline’?

World demand

Probabilities of different outcomes

Probability Higher than base 15%Base 50%Lower than base 35%

Probability Higher than base 20%Base 50%Lower than base 30%

Slowdown

Longer term

Strategy during the downturn Holding nerve to long term aims key Whilst looking to aid employers where possible Banks landlords and creditors need to be sympathetic Chance to rebalance the staff books (including recruitment) Public sector needs to be sensitive to costs (e.g. speed of

planning applications, grant release and cost cutting internally)

Good return on public investment (regen, house building etc – as costs cheaper)

Advertising and marketing makes a greater impact during costs sensitive times

Recessions ‘focus the mind’ necessity forces brave decisions and culls inefficient firms

Use up past resources (if they exist!)

Planning for better A base case forecast is built around three factors:

■ The macro economic conditions (sectoral and regionally)■ The past performance of an area (no change in the relative

impact of policy / supply factors is built in)■ The relationships between economic factors (the fundamentals)

e.g. wages and spending, total employment and employment in supporting services

It does not set out the economic outcomes that an area may wish to see delivered (indeed a main purpose to highlight potential under-performance to allow policy development)

Building aspirational scenarios look to set out the desirable outcomes, perhaps through variation of supply side factors (skills, land, infrastructure) or success in performance of existing firms / attracting new firms

Where might opportunities lie? Financial and professional services still offer long term

growth prospects (exporting to the growing world – activities squeezed out of London)

Perhaps activities allied to health and education may offer opportunities hard to replace world class expertise)

Environmental sciences will ultimately be important The tourist offering also potential How to harness the spending power of the aging population Still a lot of regen design, construction and delivery to carry

out (image matters for location decisions) Remember for the UK – ultimately – it is the export base that

matters – a major conurbation and concentration of skills has clearly a role to play

Summary / Conclusions

Tougher times – uncertainty rising Tougher times (particularly in late 08 and 09) The real ‘impact’ being felt now Aggressive action is being taken – but impact unknown

(in new territory) Impact of slowdown on migration key – but unclear Greater volatility in outlooks (a lower outlook is possible) Recovery into 2010 projected – but uncertainties remain

■ The UK and London must ultimately remain the world financial and advanced professional services centre

■ Someone / something must spend and create demand (consumer, business or government)

Plan for a return to growth – but strategy needs plans B and C not just plan A.

Contact info:

Neil GibsonDirector of Regional Services, Oxford Economics0844 979235607803 728994ngibson@oxfordeconomics.com

Annex A – model details

Economic relationships - regionalRegionalIndustrial & OfficeProperty

Rents

UK Employment

(driven by macro factors)

Region’sNatural

Increase inWorking-AgePopulation

UK international

migration

ProductionEmployment

Service Employment

Employment Rate

Unemployment

Labour Force

Personal Income

Consumer’sExpenditure

Wages andSalaries

Regional GVA

Netinternational Migration ofWorking-Age

Working-AgePopulation

Population

UKHouse prices

UK Personal Income

UKConsumer’s Expenditure

UKUnemployment

UK Wagesand Salaries

UK Productivity

Endogenous

Exogenous

Bank’s Base Rate. Price of Consumers’Expenditure

Regional Occupations

UK Occupations

Productivity

House prices

NetDomestic

Migration ofWorking-Age

Economic relationships – GMFM (stylised)

Employment (workplace)

Regional trends

Productivity

Workplace wages

GVA

Migration (int. & domestic)

Commuting

PopulationIncomes

UnemploymentConstructionBusiness services (part)

Retail (part)Hotels (part)Other services (part)

Public services,Transport (part)

Resident wages

Natural increase

Regional trends

Regional trends

Resident employment

Households

Deprivation

Ethnicity