MK Property Forum 27.09.12
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Economic Outlook Presentation, David Page, lloyds TSB Commercial

Economic Outlook Presentation, David Page, lloyds TSB Commercial

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  • 1. WHOLESALE BANKING & MARKETSECONOMIC OUTLOOKMORE STIMULUS AS GROWTH STRUGGLESBreakfast Seminar, Milton KeynesDavid Page: Senior Economist26th September 2012
  • 2. KEY ISSUES AFFECTING UK ECONOMY• Global growth soft year end, but more resilient for 2013? – Domestic factors and soft global aggregate demand are slowing global growth in close of 2012. Interest rate cuts and other policy stimulus to warm recovery in 2013.• UK economy stagnated for last two years – domestic growth constrained over past two years as global (Euro area) weakness has impacted, compounding domestic economy engaged in fiscal restraint and ongoing domestic balance sheet adjustment• Fiscal versus Monetary Stimulus – learning where the focus of policy should lie?• The UK employment puzzle – employment is rising at a pace historically associated with strong economic expansion – an open question as to why• Household sector sees relative boost - Falling inflation, Funding for Lending Scheme and easing credit conditions as Euro area fears fade should all make for happier UK households over coming quarters. 1 1
  • 3. EVENT RISK IN EURO AREA STILL LOOMS LARGE10-yr govt bond yield, % Greece 21%16 Hopes of a Germany decisive plan!14 Spain12 Portugal Italy10 UK 8 6 4 2 0 2008 2009 2010 2011 2012 2Source: Bloomberg
  • 4. EURO AREA GROWTH PROSPECTS STILL SOFT % 1.5 60 0.5 50 -0.5 40 -1.5 30 Eurozone GDP (qoq, LHS) Services PMI (qtr avg, RHS) Manu PMI (qtr avg, RHS) -2.5 20 1999 Q1 2002 Q2 2005 Q3 2008 Q4 2012 Q1 3 3Source: Markit, Eurostat
  • 5. US ACTIVITY HAS SOFTENED Mixed outlook for US economy Fed worried that unemployment is still too high 000s % Labour Force 400 12 Saar, % Employment Change 3mma RHS 6 200 60 10 4 0 55 8 2 -200 50 6 0 -400 Unemployment rate 4 45 -2 -600 3mma RHS US GDP (LHS) 40 -800 2 -4 ISM (qtr avg, RHS) Non-mfg ISM (qtr avg, RHS) -6 35 -1000 0 Q1 2002 Q3 2004 Q1 2007 Q3 2009 Q1 2012 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Markit, Haver 4 4
  • 6. ECONOMIC DATA GLOBALLY HAS BEEN MIXED Developed Economies Manufacturing PMIs BRICs Manufacturing PMIs Diffusion Index (+50 = Expansion) Diffusion Index (+50 = Expansion)65 6560 UK 60 India55 5550 US 50 China45 Euro area 45 Brazil40 4035 3530 Russia25 Japan 3020 25 2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012 Source: Markit 5
  • 7. GLOBAL GROWTH HITS A SOFT PATCHGDP %12 World Advanced economies Euro area China Japan United States10 Asian economies Latin America 8 6 4 2 0-2 2010 2011 2012 2013 2014 6 6Source: IMF
  • 8. RECESSIONS COMPAREDCumulative % change in GDP 1973-76 2 1930-34 1 1990-93 1979-83 2008- 0 -1 -2 -3 -4 -5 -6 -7 -8 -9 0 6 12 18 24 30 36 42 48 54 60 66 72 78 Months since start of recession 7 Source: ONS/LB WBM
  • 9. FLAT UNDERLYING GROWTH PICTURE DISGUISED BYRECENT DISTORTIONS UK GDP growth % forecast 3 2 %Yr 1 0 Q/Q% -1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011 2012 2013 Source: ONS & Lloyds Bank WBM Research 8
  • 10. UK EXPORTS REORIENTATE FROM EU250 Index 2000 Q1=100230210 Other Exports190170150130 Exports to the EU110 90 70 50 2000 2002 2004 2006 2008 2010 2012 9 9Source: ONS
  • 11. GLOBAL SOFTNESS PUTS REBALANCING ON HOLD% point contribution to UK GDP growth3 forecast210-1-2-3 Domestic demand Net Exports-4 UK GDP growth %yr-5-6 2009 2010 2011 2012 2013 10Source: ONS/LB WBM
  • 12. FISCAL POLICY PLANNED TO RESUME TIGHTENINGNEXT YEAR % GDP 1.0 Mar-12 Nov-11 0.5 Nov-12 0.0 -0.5 -1.0 -1.5 -2.0 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 11Source: ONS/LB WBM
  • 13. BoE ATTEMPTS TO OFFSET FISCAL SQUEEZE WITH HISTORIC EASING % £bn -1200 16.5 LB WBM forecast QE target (rev scale, RHS) -1000 Bank Rate (LHS) Series4 -800 10.5 -600 -400 4.5 -200 0 -1.5 1980 Q1 Q1 1986 Q1 1992 Q1 1998 Q1 2004 Q1 2010 200 400 -7.5 12Source: BoE/LB WBM
  • 14. EASING IN BANK FUNDING COSTS SHOULD EASE CREDITCONDITIONS % 5yr CDS premia (maj UK lenders) 8 LIBOR spread Marginal Funding Rate Bank Rate 6 4 2 0 Jan-02 Apr-03 Jul-04 Oct-05 Jan-07 Apr-08 Jul-09 Oct-10 Jan-12 13Source: BoE/LB WBM/Bloomberg
  • 15. THE EMPLOYMENT PUZZLE102 Rebased (Q1-08 = 100)100 98 Employment 96 GDP 94 92 90 2008 2009 2010 2011 2012 14Source: ONS/LB WBM
  • 16. CHANGING COMPOSITION OF WORKFORCE110 Actual employment - rebased Jun-08 = 100 140 Actual employment - rebased Jun-08 = 100108 Part-time 130 Aged 65+106104 120102 Self-employed100 110 98 100 96 Full-time Aged 16 to 24 94 90 92 90 80 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 15Source: Bloomberg
  • 17. SLOWER PRODUCTIVITYProductivity index120115 Productivity loss110 due to financial Trend productivity line downturn105 (12%)100 Estimated degree of 95 spare capacity (3-4%) Actual productivity 90 85 80 75 70 1997 1999 2001 2003 2005 2007 2009 2011 16Source: LB WBM
  • 18. LOWER INFLATION EASES PRESSURE ONHOUSEHOLD INCOMES % yr 7 LB WBM Forecast 6 5 4 3 RPI CPI 2 CPI target RPIX 1 0 -1 -2 2006 2007 2008 2009 2010 2011 2012 2013 2014 17Source: National Statistics
  • 19. STABILISATION IN HOUSEHOLD INCOMES SUPPORTSHOUSEHOLD SPENDING % yoy 6 HH Spending Real disposable income 4 2 0 -2 -4 1991 1995 1999 2003 2007 2011 18Source: ONS/LB WBM
  • 20. SAVING INCREASES REFLECTS PRECAUTIONARY MOTIVE % Disposable % income 14 1800 Saving ratio 12 Net w orth % disposable income 2000 10 2200 8 2400 6 2600 4 2800 2 3000 0 3200 -2 Q1 1987 Q2 1992 Q3 1997 Q4 2002 Q1 2008 19Source: National Statistics
  • 21. SUMMARY• Global recovery soft phase looks likely to continue to year-end. Satisfied US „fiscal cliff‟, fading Euro area fears and Chinese stimulus should encourage rebound in 2013.• UK growth outlook remains fragile, but recovery set to gain traction over the medium term. Impressed that balance of risks still tilted to the downside.• The correct policy mix remains under discussion: continue to see further monetary policy accommodation offsetting continued fiscal tightening, but breaking with conventional wisdom – a fiscal U-turn might not be far away if growth falters again. We are all students of economics.• Employment remains remarkably firm given reported economic weakness. While this may create other problems, should create positive feedback.• Household sector has seen pressures ease across 2012, primarily with drop in inflation. FLS, easier credit conditions and rising sentiment should all boost spending over the coming quarters. 20
  • 22. DISCLAIMERThis presentation does not constitute or imply an offer or commitment whatsoever on the part of Lloyds TSB Bank plc (“Lloyds TSB”). Any such offer may only be made after the negotiation of satisfactory documentation and only after appropriate credit authorityhas been obtained. The pricing discussed herein is based on our view of current market conditions and is for discussion purposes only.This presentation and all ancillary documents relating to it (together the "Presentation") was prepared by Lloyds TSB exclusively for you for the purpose of analysing certain potential transactions. The Presentation is being made available on a strictlyconfidential basis to you and is intended only for the internal use of authorised recipients (“Recipients”) and no part of it may be disclosed to any third party. This Presentation and the information contained herein are the property of Lloyds TSB. Recipients arehereby notified that photocopying, scanning, or any other form of reproduction, or distribution - in whole or in part - to any other person at any time is strictly prohibited without the prior written consent of Lloyds TSB.The information in this Presentation reflects prevailing conditions and our judgment as of this date, all of which are subject to change or amendment without notice and the delivery of such amended information at any time does not imply that the information(whether amended or not) contained in this Presentation is correct as of any time subsequent to its date. Whilst Lloyds TSB have exercised reasonable care in preparing this presentation and any views or information expressed or presented are based onsources they believe to be accurate and reliable, neither Lloyds TSB, nor any of their officers, servants, agents, employees or advisors make any representation or warranty, express or implied, as to the fairness, accuracy, adequacy, completeness orcorrectness of such information, nor as to the achievement or reasonableness of any projections, targets, estimates, or forecasts and nothing in this Presentation should be relied upon as a promise or representation as to the future. Neither Lloyds TSB nor anyof their officers, servants, agents, employees or advisors or any affiliate or any person connected with them accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this Presentation or its contents orotherwise arising in connection therewith. Lloyds TSB undertakes no obligation to update or correct any information contained herein or otherwise to advise as to any future changes to it. Applicable tax, accounting and legal considerations are subject tochange and in all cases independent professional advice should be sought in those areas.This Presentation is provided for information purposes only: there has been no independent verification of the contents of this Presentation. It does not constitute or contain investment advice. It is not and shall not be construed as an offer, invitation,recommendation or solicitation to sell, issue, purchase or subscribe for any securities in any jurisdiction or to enter into any transaction. It is not and shall not be construed as an offer to arrange, underwrite, finance, purchase or sell any security, financialinstrument, assets, business, or otherwise provide monies to any party. Such offers may only be provided in writing after satisfactory legal, financial, tax, accounting and commercial due diligence, as well as approval from the relevant business and creditcommittees of Lloyds TSB and/or their affiliates. The information contained in this Presentation is in summary form for the convenience of presentation and may therefore not be complete.Products and services that may be referenced in the Presentation maybe provided through affiliates of Lloyds TSB or any person connected with them.Lloyds TSB and their affiliates prohibits employees from offering a favourable research rating or specific price target or changing a rating or target to get a mandate and Lloyds TSB and their affiliates prohibit research analysts from being compensated forinvolvement in investment banking transactions, except to the extent that such participation is intended to benefit investor clients. Lloyds TSB, their affiliates, their respective directors or officers or persons connected with them may have an interest in anyfinancial instrument mentioned in this Presentation.Lloyds Bank, Lloyds TSB Corporate Markets and Lloyds TSB are trading names of Lloyds TSB Bank plc and Lloyds TSB Scotland plc. Lloyds Bank and Lloyds TSB Corporate Markets are trading names of Bank of Scotland plc. Lloyds TSB Bank plc. RegisteredOffice: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065. Lloyds TSB Scotland plc. Registered Office: Henry Duncan House, 120 George Street, Edinburgh EH2 4LH. Registered in Scotland no. 95237. Bank of Scotland plc.Registered Office: The Mound, Edinburgh EH1 1YZ. Registered in Scotland no. SC327000. Authorised and regulated by the Financial Services Authority under registration numbers 119278, 191240 and 169628 respectively. 21