NI Economic Performance and Prosepcts May 2013


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NI Economic Performance and Prosepcts May 2013

  1. 1. NRC Northern Regional CollegeAcumen Business Leadership EventNorthern Ireland Economic Performance & Prospects30th May 2013Richard RamseyChief Economist Northern
  2. 2. Slide 2Global Output - PMI253035404550556065Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13Total Manufacturing ServicesSource: Markit EconomicsExpansionContractionWith the global economy still growing…
  3. 3. Slide 3… & equities at or near record highs: is everything OK?“Yeah, but, no but, yeah but…”Economists sound likeVicky Pollard 
  4. 4. Slide 4“Look into my eyes, the eyes, not around the eyes, look into my eyes, you’re under”If there’s doom & gloom… perhaps its time for a hypnotist
  5. 5. Slide 5One chart should remind us where we areSlide 5
  6. 6. Slide 6Slide 6The UK economy is not in great shapeSource: Financial Times 12th March 2013
  7. 7. Slide 7Europe has become a key issue in politics & economicsFinancial Times 16 May 2013
  8. 8. Slide 8May 31, 2013 – Page 8 © Ulster BankThe European issues of the last the last 3 years have not gone away…?
  9. 9. Slide 9And we have had some new ones too!
  10. 10. Slide 10Concern in Europe has shifted from financial to economic indicators… economic growthGDP Consensus Forecasts April 2013-8-6-4-20246USEZGermanyFranceUKItalySpainGreeceRoIPortugalNI*% Y/Y2012 2013 2014Source:Consensus Economics & *Ulster Bank
  11. 11. Slide 11Recovery well under way in some economies – focus on levels of GDP not just growth ratesRecession & Recoveries(% GDP Change Since Pre-Recession Peak as of Q1 2013, *is Q4 2012)-3.3%+3.2%-2.6%-7.7% or -9.4%using GNP-12%-10%-8%-6%-4%-2%0%2%4%0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21Time in Quarters, Pre-Recession GDP Peak = 0US EZ UK RoI*Source: Bloomberg & CSO
  12. 12. Slide 12Spain, Portugal, Greece and Italy are still contracting!Recession & Recoveries(% GDP Change Since Pre-Recession Peak as of Q4 2012)-12%-10%-8%-6%-4%-2%0%2%4%0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20Time in Quarters, Pre-Recession GDP Peak = 0Portugal Ireland Italy Spain Germany FranceSource: Bloomberg & UB Calculations @ -25%
  13. 13. Slide 13The human recession is becoming politically unbearable€€Source:
  14. 14. Slide 14Slide 14No quick‐fix – the ‘Juncker Conundrum’“We all know what we need to do, we just don’t know how to get re‐elected after doing it”Jean‐Claude Juncker – Former President of the Euro Group (January 2005 – January 2013) & current Luxembourg Prime Minister.  Quote November 2012.
  15. 15. Slide 15Non-Inflationary Continuous Expansion• Unbroken employment & economic growth• Unemployment rate hit record low in 2007• Public Expenditure, Property & Celtic Tiger Booms• Average house price up 260% (UK=160%)• NI’s brand image improved in the eyes of the world1998-2007 N.Ireland’s ‘NICE’ decade
  16. 16. Slide 16NI receives a RUDE awakening in 2008-09…Rising Unemployment & Declining Economic Activity• Simultaneous slowdown on a range of fronts- Property market & wider private sector- Public expenditure growth- Rapid deterioration in RoI & UK economies- Collapse in global trade & external economic conditionsAll occurring within a wider credit crunchNI’s first recession since the early 1980s
  17. 17. Slide 17NI enjoyed Southern Comfort through the Celtic Tiger yearsWealthTrade Tourism Investment WealthWealthTradeTrade TourismTourism InvestmentInvestment
  18. 18. Slide 18Eurozone’s fastest growing economy was on NI’s doorstep.  But what went up ……• ISEQ +101% & +231%(5yr/10yr prior to Feb‐2007 peak)• House Completions +162%(10yr prior to 2006 peak)• 33% rise in employment (Q3 1998 – Q3 2007)• Annual GDP growth 6.7%(1998‐2007; averaged 5% 2002‐2007)• House prices +269%(10 years prior to Sep‐2007 peak)• NI manufacturing exports to RoI +81%(6 years to 2007/08)
  19. 19. Slide 19TradeTourism WealthInvestmentTradeTradeTourismTourism WealthWealthInvestmentInvestment
  20. 20. Slide 20ISEQ ‐81% / ‐62%House Completions ‐91% / ‐91%Unemployment Rate* (*peak U% rate)15.0% / 14.1%Employment ‐15.1% / ‐14.7%GDP ‐9.9% /‐7.7% House Prices ‐50% / ‐50%NI manufacturing exports to RoI‐34% / ‐32%NI manufacturing excl. Food & Drink‐58% / ‐58%Peak to Trough Decline* / Latest PositionSouthern Discomfort hangover continues
  21. 21. N.Ireland downturn by numbers 10 Facts1. Unemployment (claimant count) up 41,500 (Mar 2012)2. Workforce jobs have fallen by almost 55,000 in 4 yrs to June 20123. Personal insolvencies have doubled since 2007 & still rising4. Corporate insolvencies have doubled since 2007 & still rising5. House prices down 56% from peak (by Q4 2012)6. House completions down 66% from 2006 peak & still falling7. Mortgages for home movers at lowest level since 19748. Almost 1 in 4 retail outlets are vacant in Belfast9. New car sales are 30% below 2007 levels10. Consumer prices (UK CPI) up 20% since August 2007
  22. 22. So it is cabsEconomic Advicefor hireIt’s the economy so it is!
  23. 23. Slide 23Slide 23What changes has “So it is” cabs seen over the last 5 years?-21%2007-2012-31%2008-2012-32%2007-2011-83%2007-2011
  24. 24. Slide 24NI Composite Economic Index: Private Sector2nd recessionarydip3rd recessionary dip1st recessionarydip-4%-3%-2%-1%0%1%2%3%4%2002 Q4 2004 Q4 2006 Q4 2008 Q4 2010 Q4 2012 Q4Q/Q Growth859095100105110115120Index 2009 = 100Q/Q IndexSource: DFP, Index 2009 = 100Private sector recovery underway?  Look at levels of output!
  25. 25. Slide 25Construction output over 40% below peakNICEI Private Sector Relative to Pre-Recession PeaksAs of Q4 2012 (Peak = 0)-13.5%-11.0%-15.3%-41.2%-50%-40%-30%-20%-10%0%10%0 2 4 6 8 10 12 14 16 18 20 22 24Time in Quarters Since Pre-Recession Output PeakPrivate Sector Private Sector ServicesIndustrial Production Construction
  26. 26. Slide 26NI’s economic recovery has quite a bit to go!NI Composite Economic Index & Component Indices-50%-40%-30%-20%-10%0%10%20%IndustrialProductionConstruction Private SectorServicesPrivate Sector Public Sector NICEI%Peak to Trough Recovery from Trough Q4 2012 Relative to PeakSource: DFPPeak Q4 2007Peak Q2 2007Peak Q2 2007Peak Q3 2006Peak Q2 2007Peak Q3 2009
  27. 27. Slide 27‘Winners’ during the downturn…Slide 27Industrial Group % ChangeRecession Winners ↑↑↑Other Services 50.2%Chemicals & Pharmaceutical Products  26.9%Utilities (Electricity & Gas) 24.3%Food, Drink & Tobacco 9.9%Transport, Storage & Communications 5.5%Wholesale & Retail Distribution, Accommodation & Food Service 1.4%Agriculture (Gross annual output in real terms 2007‐12) 0.5%Source: DFP Indices of Production, Services and Construction, DARD & Ulster Bank calculationsChange in NI Private Sector OutputQ2 2007 ‐ Q4 2012
  28. 28. Slide 28….outnumbered by ‘losers’ & ‘big losers’Slide 28Construction /propertyrelatedConstruction /propertyrelatedIndustrial Group % ChangeRecession Losers    ↓↓↓Utilities (Water Supply & Waste Management) ‐4.2%All Production Industries ‐9.3%Engineering & Allied Industries ‐10.2%All Private Sector Services ‐10.6%All Manufacturing ‐14.4%Total Private Sector Output (Construction + Production + Private Services) ‐14.5%Recession Big Losers    ↓↓↓Basic Metals & Fabricated Metal Products ‐20.7%Total Other Manufacturing ‐29.3%Textiles & Textile Products ‐29.7%Mining & Quarrying ‐33.3%Wood & Paper Products ‐34.9%Rubber, Plastics & non‐metal Products ‐39.5%Construction ‐44.8%Business Services & Finance ‐47.7%Source: DFP Indices of Production, Services and Construction, DARD & Ulster Bank calculationsChange in NI Private Sector OutputQ2 2007 ‐ Q4 2012
  29. 29. Slide 29Decreases in output leads to declines in employmentSlide 29Northern Ireland Employee Jobs693,340613,250Q2 1998733,050500,000550,000600,000650,000700,000750,000Q2 1993 Q4 1995 Q2 1998 Q4 2000 Q2 2003 Q4 2005 Q2 2008 Q2 2010 Q4 2012Source: DFPDiscontinuity in Series
  30. 30. Slide 30Declining DisposableIncomes / ProfitabilityChallenge 1
  31. 31. Slide 31Household incomes  recovery remains a long way offUK Average Weekly Earnings & CPI Inflation0.8%2.4%0123456Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13%Ave Weekly Earnings 3m Y/Y % (Excl. Bonuses) CPI Y/YSource: ONSIncomesqueezeDoes not include taxesor changes to benefits
  32. 32. Slide 32Fuel is eating up more of our disposable incomes…UK Fuel Prices - Tank* of Petrol / Diesel(*60 Litres)£51.3£80£83£88.830405060708090100May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13£Petrol Tank Diesel Tank56%riseSource: ONS**Note Northern Ireland Prices are traditionally the highest of all UK regions**Credit CrunchbeginsJune Budget2010
  33. 33. Slide 33So is food…Cumulative % Change in UK Consumer Pricessince Credit Crunch began (Aug 07 to Apr 13)8.2%20.2%0%10%20%30%40%50%60%70%Food &Non-AlcoholicBeveragesFood ElectricityGas &OtherFuelsTransportFuels &LubricantsTransportServicesTotal CPI AverageEarnings*Source: ONS, *Average Earnings as of March 2013
  34. 34. Slide 34Some well known casualties from the downturn
  35. 35. Slide 35Strong input cost inflation coupled with output price deflation means the profitability squeeze continuesNI Private Sector Profit Squeeze3 Month Moving Average304050607080Apr-04 Oct-05 Apr-07 Oct-08 Apr-10 Oct-11 Apr-13Output Prices Input Prices No ChangeInflationDeflationSource: Markit Economics & Ulster Bank NI PMIProfitssqueezePrice of goods &services falling
  36. 36. Slide 36Slide 36Ben Bernanke (US Fed)Mario Draghi (ECB)Mark Carney (BoE)Haruhiko Kuroda (BoJ)Sterling weakness has hit consumer & businesses
  37. 37. Slide 37‘Currency Wars’ partly explains NI’s sales & export performance…NI Sales & Exports 2011/12relative to 2007/08 export peak*-40%-30%-20%-10%0%10%20%RoIExportsAllExportsRest ofEUNI Rest ofWorldAll Sales ExternalsalesGB SalesDue largely to Food &Drink & Large CompaniesSource: DFP, % Changes based on figures in constant prices. *Total Manufacturing Sales peak was 2008/09
  38. 38. Slide 38Overall exports to the RoI down 30% but FDT up 40%?NI Food, Drink & Tobacco Sales & Exports 2011/12relative to 2007/08 peak40 %-60%-45%-30%-15%0%15%30%45%60%Rest ofWorldRest ofEUExportsExports ExternalSalesTotalSalesGB Sales NI Sales RoIExportsSource: DFP, figures are in constant prices
  39. 39. Slide 39Outside of Food & Drink, NI faces a lack of demandNI Manufacturing (Non-FDT) Sales & Exports2011/12 relative to 2007/08 peak-70%-60%-50%-40%-30%-20%-10%0%10%RoIExportsNI Sales Exports TotalSalesExternalSalesRest ofEUExportsRest ofWorldGB SalesSource: DFP Manufacturing Sales & Exports Survey, figures are in constant prices
  40. 40. Slide 40Labour MarketChallenge 2
  41. 41. Slide 41No recovery in construction sector so farNorthern Ireland Employment(Employee Jobs)-40%-30%-20%-10%0%10%All Sectors Services Manufacturing ConstructionPeak to Trough Recovery from Trough Q4 2012 Relative to PeakSource: DFP, QES
  42. 42. Slide 42NI can expect a 1980s‐style employment recoveryNI Employee Jobs Recessions / RecoveriesPre-Recession Peaks Indexed = 1001980s10yrs after downturnemployment returns to peak1990s10yrs after peakemployment rose by 19%80859095100105110115120125Peak 1 year 2yrs 3yrs 4yrs 5yrs 6yrs 7yrs 8yrs 9yrs 10yrsTime Since Pre-Recession PeakIndex1980s 1990s 2008-2012Employment troughed (-7.5%)13 quartersafter 1979 Q4 peak & was 6.9% below peakafter 18 quarters2008-201215 quarters of decline before job losseslevelling off. 18 quarters after 2008 Q2 peakNI jobs have fallen by 5.4% as of Q4 2012 Q2In 1990 UK recession, NI employmentfell slightly & troughed 2 years after thepre-recession peakSource: DFP & UB Calculations
  43. 43. Slide 43FiscalChallengeChallenge 3
  44. 44. Slide 44Slide 44‘The deficit is coming down’??????UK Public Sector Net Borrowing (PSNB)Excluding Royal Mail & Asset Purchase Facility Transfers+5bn+32bn +60bn+71bn+46bn+76bn+42bn0204060801001201401602011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18£bnJune 2010 Forecast March 2013 Forecast (excluding Transfers)Source:OBR£332bn extra borrowing required relative to June 2010forecast required over 7 years would fund the NHS for 2.5
  45. 45. Slide 45Slide 45Paying off debt mountain = higher taxes & spending cutsUK Public Sector Net Debt0250500750100012501500175020002001-02 2003-04 2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18£BnSource: ONS, OBR March 2013One Trillion Pounds of Debt1.5 Trillion Pounds of Debt
  46. 46. Slide 46Slide 4612‐yr public spending feast followed by 7‐year famineUK Public Spending Growth in Real Terms(excluding Debt Interest & Social Security)-10%-5%0%5%10%15%1951-52 1962-63 1973-74 1984-85 1995-96 2006-07 2017-18Y/YSource: IFS February 2013We are here18.6% cut in 7yrs @60% ofDepartmental cuts have been made
  47. 47. Slide 47Decade ahead will HURTDownside risks to NI growth (EZ crisis & Credit Crunch 2)Unemployment to stay higher for longer…. a lost decade for the under 25’s?Households face devaluation in S.O.L, debt de-leverageFactors present in ‘NICE’ era have gone into reverse - Next decade ahead will HURT– Higher Unemployment Rising Taxes / TariffsFiscal austerity in NI – To be continued….
  48. 48. Slide 48Slide 48Economic Growth will be an uphill challenge…Source: The Economist?
  49. 49. Slide 49Slide 49…with a ‘spreadsheet recovery’Source: The EconomistComputer says Yes.  But consumer says No!
  50. 50. Slide 50“Three, two, one…You’re back in the room”
  51. 51. Slide 51Slide 51Reasons to be cheerful!Far-off fields (e.g. BRICs & Emerging markets) are greener …… diversify exportbaseNI’s private sector employee jobs increased by 2,000 in 2012NI’s Pharmaceuticals output is currently at a record highGlobal demand for food & pharmaceuticals to rise well into the futureNI’s public expenditure cuts are do-able……. spare a thought for the SouthRecent FDI into NI & expansion of indigenous firms: e.g. Allstate, Wrightbus2012 was a record year for the tourism industryCity of Culture / World Fire & Police Games 2013, G-8, All-Ireland FleadhICT / software sector is boomingOpportunity to radically change the economy for the better…. but will it be grasped?NI requires a relentless focus on cost – the level of public expenditure, how it isspent & where. A forensic analysis of current public expenditure & publicservice delivery is urgently required
  52. 52. Slide 52Slide 52Not all decades have been lost! Look at Laganside!Laganside 1994 Source: Invest NI
  53. 53. Slide 53Slide 53Laganside todaySource: Invest NITitanic QuarterTitanic Quarter
  54. 54. Slide 54Slide 54DisclaimerThis document is issued for information purposes only for clients of Ulster Bank Group who are eligible counterparties or professional customers, and doesnot 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 tochange without notice. The information contained herein should not be construed as advice, and is not intended to be construed as such. This publicationprovides only a brief review of the complex issues discussed and readers should not rely on information contained here without seeking specific advice onmatters that concern them. Ulster Bank make no representations or warranties with respect to the information and disclaim all liability for use the recipient ortheir advisors make of the information. Over-the-counter (OTC) derivates can involve a number of significant and complex risks which are dependent on theterms of the particular transaction and your circumstances. In the event the market has moved against the transaction you have undertaken, you may incursubstantial costs if you wish to close out your position.Ulster Bank Limited Registered Number R733 Northern Ireland. Registered Office 11-16 Donegal Square East, Belfast, BT1 5UB. Authorised and regulated bythe Financial Services Authority. Member of The Royal Bank of Scotland Group.Ulster Bank Ireland Limited, a private company limited by shares, trading as Ulster Bank, Ulster Bank Group and Bank Uladh. Registered No. 25766.Registered Office Ulster Bank Group Centre, George’s Quay, Dublin 2. Ulster Bank Ireland Limited is regulated by the Financial Regulator. Member of TheRoyal Bank of Scotland Group.Calls may be recorded.