CBI economic outlook: challenges of the coming cycle

509
-1

Published on

Presentation by CBI chief economic adviser Ian MacCafferty. Belfast, Northern Ireland, May 2010.

Published in: Business, Economy & Finance
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
509
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
9
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

CBI economic outlook: challenges of the coming cycle

  1. 1. Economic Outlook: Challenges of the coming cycle Ian McCafferty Chief Economic Adviser CBI
  2. 2. The shape of the recovery? • Pattern of recovery Shocks and Recessions • U, V, W, √ ? Big 5 financial crises Financial crises • Financial recessions External demand shock linger Oil shocks • Impact of the financial crisis Monetary policy tightens Output loss % from peak on long term performance Duration (quarters) Fiscal policy contraction • Desynchronised recovery 0 1 2 3 4 5 6 7 8 Source: IMF % yoy World GDP growth & inflation Rebound from Recession GDP 6.0 3.0 5.0 2.5 4.0 2.0 ? 3.0 1.5 2.0 1.0 1.0 0.5 0.0 0.0 1995 1997 1999 2001 2003 2005 2007
  3. 3. The coming cycle: access to finance Bank Lending to Private Sector Productivity %yoy % yoy US UK Eurozone 20 Eurozone UK USA 6 5 15 4 3 10 2 5 1 0 0 -1 -2 -5 -3 -4 -10 -5 2001 2002 2003 2004 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 %yoy Corporate Profitability • Flow of capital from banks still constrained 40 UK US Eurozone 30 • Productivity recovering, and corporate 20 profits being rebuilt 10 0 -10 -20 -30 2001 2002 2003 2004 2005 2006 2007 2008 2009
  4. 4. The coming cycle: fiscal challenge • Large structural budget deficits Structural Budget Deficits in 2010 % GDP 0 • Dramatic increase in govt debt issuance -1 • Concerns over crowding out -2 -3 • Upward pressure on yields -4 -5 -6 • Downgrades and defaults? -7 -8 • Impact on the euro? -9 UK US Japan France Germany Source: IMF Net Interest Payments Government Debt Issuance % of Fiscal Revenue USD Trillions 16 4.0 2007 14 3.5 2008 12 3.0 2009 2007 10 2.5 2014 2010 8 2.0 6 1.5 4 1.0 2 0.5 0.0 0 OECD North America Eurozone UK USA Germany Source: IMF Source: OECD
  5. 5. The coming cycle: inflation or deflation? • Underlying conditions deflationary % yoy CPI Inflation • Spare capacity – output gaps 6.0 UK US Eurozone • High unemployment holding down wages 5.0 4.0 • Some inflation concerns in LDCs (India, 3.0 Russia, Turkey) but not widespread 2.0 1.0 • But higher energy and metals prices 0.0 • Policy error? or intention? -1.0 -2.0 • Central Bank independence -3.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Commodity prices (2003=100) Output Gaps % of potential GDP 500 Food Metals Oil 3 UK US Eurozone 450 2 400 1 350 0 300 -1 250 -2 200 150 -3 100 -4 50 -5 0 -6 Source: IMF
  6. 6. Global outlook 2010-2011 2010-2011: strengthening, but % yoy World GDP Growth unbalanced growth Forecasts • Recession over, but global economy short of full health • Less synchronised recovery • G3 constrained by legacies of credit crunch • EMEs picking up rapidly Risks/potential weaknesses • Elevated degree of uncertainty • Structural imbalances pose threats to World GDP Growth – by Major Region sustainability of recovery • Coordinated fiscal tightening 2009 2010 2011 World -0.9 3.7 4.3 • Sovereign debt risk Advanced economies -3.0 2.1 2.5 • Economic nationalism Developing economies: • Raw material prices Africa 2.7 3.5 5.0 Latin America -0.5 3.8 4.5 • Financial market volatility China 8.7 9.6 9.2 India 6.7 7.3 8.8
  7. 7. Improving UK economic news % qoq UK GDP CBI forecast • Two quarters of positive GDP • Inventory cycle turning • Confidence improving • Housing market stabilised • Prospects for Q2 look good • Improving export orders • Industrial production picking up • Consumer spending improving % balance Volume of stocks +15 +10 • Outlook into 2011? +5 0 -5 -10 -15 -20 CBI Industrial Trends Survey -25 -30 -35 Raw materials Work in progress Finished goods
  8. 8. UK: Exports 2010: positive contribution % qoq oya UK exports % q/q oya • Global economy recovering Services (rhs) • Unsynchronised recovery • EMEs picking up rapidly • EU12: already emerging from recession Goods (lhs) • US: bottoming out • Weaker sterling will help competitiveness Manufacturing export orders Jan Sterling EER 2005=100 % balance 110 105 100 95 90 85 80 CBI Industrial Trends Survey 75 70 2004 2005 2006 2007 2008 2009 2010
  9. 9. UK: Consumer spending constrained Consumer spending Savings ratio %qoq % 11.0 CBI forecast CBI forecast 9.0 7.0 5.0 3.0 1.0 -1.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 % balance GfK Consumer confidence % Unemployment rate 9.0 8.5 8.0 7.5 CBI Forecast 7.0 6.5 6.0 5.5 5.0 4.5 4.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
  10. 10. UK: Investment headwinds % qoq oya Business investment % qoq oya Residential investment Constraints on investment Industrial Trends Survey – % % balance investment intentions
  11. 11. UK public finances • Dramatic deterioration in fiscal position Public sector net borrowing % of GDP Structural Cyclical • 2010-11: spending up to 48%, taxes 14 down to 35% of GDP 12 10 • Structural deficit to hit 9% of GDP 8 6 • UK debt to double to 80% by 2014 4 • Political uncertainty; sovereign debt rating 2 0 at risk; risk to sterling? -2 • Fiscal austerity to come *figures from 2015/16 onwards are CBI estimates Growth in planned public spending Net debt % GDP Real % rise Past 4.2% real pa 90.0 Now & future real 1.2% pa 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 2009/10 2014/15 1974/75 1979/80 1984/85 1989/90 1994/95 1999/00 2004/05
  12. 12. UK Inflation & Monetary Policy • CPI inflation forecast to be below target %yoy Consumer prices by end of 2010 and throughout 2011 • Risks of higher energy and commodity prices • Price pressures vs spare capacity • Monetary policy likely to remain easy • Unwinding of QE: when and how? %yoy Output Price of Manufactured Goods £ Billion Reserve Balances at BoE 180 12.0 160 10.0 140 8.0 120 6.0 100 4.0 80 60 2.0 40 0.0 20 -2.0 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Source: Haver Analytics
  13. 13. UK overview 2010-11 % yoy UK GDP 2009 2010 2011 Forecasts GDP -4.9 1.0 2.5 Household Consumption -3.1 0.7 1.9 Manufacturing output -10.5 1.4 2.3 Consumer Prices 2.2 2.4 1.6 Unemployment (%) 7.6 8.5 8.3 2010/11: Recovery to be sluggish Comparison of recessions and recoveries Cumulative GDP % • Few obvious sources of domestic demand change from peak growth in near term • Business investment weak • Fiscal austerity • Shift in consumer behaviour? • Sterling weakness to boost exports • Credit constraints still a concern • Firmer growth rates after unemployment peaks in autumn Time in quarters, peak GDP = 1
  14. 14. Economic Outlook Ian McCafferty Chief Economic Adviser CBI

×