presentation to the act / iact event

14th

October 2014

Richard Ramsey

Chief Economist Northern Ireland

[email protected]

Twitter @UB_Economics

ACT / IACT Event Merchant Hotel

mailto:[email protected]

The hills are alive with the sound of recovery

Slide 3

3The Bank Rate 1700‐2013

The Bank of England will not keep its bank rate at a record low forever…

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

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

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

All sectors within the Eurozone have been losing momentum in recent months

Eurozone PMIs: Output

25

3035

4045

50

5560

65


Composite (M&S) Manufacturing Services

Construction Retail No Change

Source: Markit Economics ExpansionC

ontraction

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


Source: Markit Economics PMIs

Contraction

Expansion

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%

NI & RoI Recovery Checklist

• New Car Sales Up

• Unemploymentfalling

• Business activity up

• Mortgage activity up

• Employment up

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**

…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

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%

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


Source: ONS, CSO & DFP, *NI & UK unadjusted employee jobs

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


ExpansionC

ontraction

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


Manufacturing Services Construction No Change


Contraction

Expansion

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

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

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

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


Source: SMMT & SIMI

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

But a recovery in housing starts required

Housing StartsRolling Annual Sum 2006=100

Q4 2013 36% 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

…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

…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

Source: Peter Brookes @BrookesTimes 1st October 2014

Fiscal challenges remain at home & abroad

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

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

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 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

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 32

And don’t forget this gets added to the totaliser…

Slide 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

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

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

Scottish Referendum is the beginning of a new source of political risk for the UK…

An Ice Bucket Challenge for English Nationalism

Frank Field, Labour MP for Birkenhead 19th September 2014

£ 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 39

Economic growth will be an uphill challenge with plenty of scope for surprises

Source:

The Economist

?

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 41

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Slide 42

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