Alan Bridle, Bank of Ireland head of Economics and Research

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Presentation made by Alan Bridle, head of Economics and Research at the CBI Northern Ireland May 2009 ecomonic presentation and lunch.

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Alan Bridle, Bank of Ireland head of Economics and Research

  1. 1. “Green Shoots and False Dawns” Alan Bridle Head of Economics & Research CBI Economic Luncheon 20th May 2009
  2. 2. The Recession “made in Northern Ireland”
  3. 3. Where did the growth come from? (Contribution to GVA by industry groups) 30 Slower Growth Segments 27.9 Faster Growth Segments 26.4 25 20.8 20.8 20 17.6 16.6 15.6 15 2001 15 2006 10 8.5 7.1 5.6 4.9 5 4.1 3.9 3 2.4 0 Agri/ Forestry/ Manufacturing/ Transport Public Sector Other Services Construction Wholesale/ Retail Estate & Mining Utilities Retail Hotels & Financial Rests Intermediate 3 Source: ONS
  4. 4. Contributed to our first real property cycle Transactions & House Prices 3000 Q4 2002- Q1 2009 250000 2500 200000 2000 No of Transactions 1963 House Price (£) £158,519 1500 150000 1000 100000 500 0 50000 02 2 3 3 3 4 3 1 3 2 4 3 4 4 4 1 4 2 5 3 5 4 5 1 5 2 6 3 6 4 6 1 6 2 7 3 7 4 7 1 7 2 8 3 8 4 8 1 8 09 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 4 1 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Average House Price No of Transactions House Prices 4 Source: BoI HPI Average Transactions
  5. 5. NI Housing – “Supply response” to spell of overdrive and 20000 rampant land inflation New Dwellings Completed 18000 Projected Need (HGI RDS 1998-2015, Revised 2006) 16000 25 yr Average 14000 12000 10000 8000 6000 4000 2000 0 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 (e) Sources:NI Housing Statistics & 5 NI Regional Development Strategy
  6. 6. Collateral damage to Business & Financial Services…..Manufacturing resilient until Q4 2008 Services, Manufacturing & Construction Output Q1 2001- Q4 2008 130 125 120 115 110 105 100 95 90 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 Services Manufacturing Construction 6 Source: DFP/ DETI
  7. 7. Not everything has moved down Manufacturing & Services performance de-composed M anufactur ing Output (s e le cte d) 10 8.9 5 0 Total Manuf acturing Food, Drink & Engineering & A llied Electrical & Optical Transport Equipment Other Manuf acturing % yoy Tobacco Industries -0.2 -5 -6.3 -10 -9.8 -10.5 -11.8 -15 Se r vice s 4 3.1 2 0 A ll Services Wholesale/ Retail Hotels & Restaurants Transport, Storage & Business service & Com sm Finance % yoy -2 -2.7 -4 -3.4 -4.7 -6 -7 -8 7 Source: DETI Index of Production/ Index of Services y/y q4 2008
  8. 8. Falling employment & rising inactivity Annual % Change in Employee Jobs (by selected sector) 4 Dec 07- Dec 08 1.5 2 0 0 Agriculture Manuf acturing Construction Services Wholesale/ Hotels/ Real Estate/ Public Sector Total -2 -1.1 -1.1 Retail Restaurants Renting/ Business -2 -4 -3.5 -3.5 % -4.5 -6 -8 -10 -12 -11.4 -14 Economica lly Ina ctive 580 575 573 570 565 559 560 '000 555 550 550 545 545 540 535 530 Q2 08 Q3 08 Q4 08 Q1 09 8 Source: QES, DETINI
  9. 9. Registration of new cars in NI has fallen dramatically Annua l Cha nge in Ne w Ca r Re gistra tions Q1 07- Q4 08 1050 1100 900 780 700 458 477 500 285 302 300 206 106 100 -100 Ja n- Fe b- Ma r- Apr- Ma y- Jun- Jul- Aug- Se p- Oct- Nov- De c- Ja n- Fe b- Ma r- Apr- Ma y- Jun- Jul- Aug- Se p- Oct- Nov- De c- -300 07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 -241 -54 -64 -298 -314 -214 Annual Change -500 -451 -700 -573 -900 -1100 -1150 -1300 -1219 -1342 -1320 -1500 -1700 -1601 -1698 -1735 -1900 -2100 -2300 -2500 -2700 Regional New Car Registrations figures for March 2009 -2682 yoy % Change +/- 0 Northe rn Ire la nd Engla nd Scotla nd Wa le s UK -5 -10 % Change yoy -15 -20 -21.84 -22.82 -25 -27.35 -30 -30.58 -31.75 -35 Source: DRDNI/ SMMT 9
  10. 10. NI Corporate Insolvencies rising yoy- the non-property/real economy bad debt cycle has some way to go Annual 2004 2005 2006 2007 2008 2009(f) Figures 121 138 128 164 209 c300 70 60 50 40 30 20 10 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 10 Source: The Insolvency Service
  11. 11. Recession impact on the island economy Estimate of Cross-Border Shopping Cross-Border Trade Gap (mid-points) ROI E xpor t s NI E xpor t s Єm 575 600 450 Єm 16 12 14 3 4 400 275 150 0 200 0 0 - 150 0 - 12 55 - 1159 2007 2008 2009 2007 2008 Source: CSO (Feb 2009) Source: CSO Average Income Per Capita Container Port Traffic 2007-2008 NI 27% 30% 0 18% 20% Belfast Warrenpoint NI ROI -5 10% -3.7 -4.3 0% -10 -7.3 1953 1969 2005 -10% -11 -20% -15 Source: IMDO Source: BOI Analysis -21% -30% 11 ROI
  12. 12. Residential property market adjustment well advanced but what will follow? 300000 250000 • Temporary overhang of excess supply • Transition to affordable housing well advanced 200000 • Average prices have further to fall – 10%? (the adjustment in “new builds” is near complete) 150000 £ • Recovery signs- transactions before prices • Peak- Trough- Peak 2007- 2017? 100000 • Confidence? 50000 0 8 97 97 98 99 00 00 01 02 03 03 04 05 06 06 07 09 09 10 11 12 12 00 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 22 1 4 3 2 1 4 3 2 1 4 3 2 1 4 3 1 4 3 2 1 4 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q FORECAST HISTORIC 12 Source: QHPI & BOI
  13. 13. First Time Buyers hold the key FTB & Affordability 6,000 25.0 5,000 20.0 Median Interest Payments as a % of Income 4,000 No of FTB Loans 15.0 3,000 Median Deposit: 13% 10.0 2,000 5.0 1,000 - 0.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Number of Loans (LHS) Median Interest Payments as a % of income (RHS) 13 Source: CML & BOI Analysis
  14. 14. House builders- comfort for the medium term? Population & household projections 2050 Population 000's (LHS) 2.60 Average Household Size (RHS) 2000 2.55 1950 2.50 Avg Household Size 2.45 1900 Population 2.40 1850 2.35 1800 2.30 1750 2.25 1700 2.20 1650 2.15 1600 2.10 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 14 Source: NISRA
  15. 15. Confidence levels in NI stabilising? 45 NI Elections & Devolution of Power (March 07) 25 US Slowdown, falling 5 IT Shares NI Assembly Suspended -15 Housing market slowdown -35 Global credit crisis, increased prices for Gulf War II food. Fuel etc September 11th -55 -75 Qtr 1 2000 Qtr 2 2000 Qtr 3 2000 Qtr 4 2000 Qtr 1 2001 Qtr 2 2001 Qtr 3 2001 Qtr 4 2001 Qtr 1 2002 Qtr 2 2002 Qtr 3 2002 Qtr 4 2002 Qtr 1 2003 Qtr 2 2003 Qtr 3 2003 Qtr 4 2003 Qtr 1 2004 Qtr 2 2004 Qtr 3 2004 Qtr 4 2004 Qtr 1 2005 Qtr 2 2005 Qtr 3 2005 Qtr 4 2005 Qtr 1 2006 Qtr 2 2006 Qtr 3 2006 Qtr 4 2006 Qtr 1 2007 Qtr 2 2007 Qtr 3 2007 Qtr 4 2007 Qtr 1 2008 Qtr 2 2008 Qtr 3 2008 Qtr 4 2009 Qtr 1 2009 NI Net Personal Economic Circumstances NI Net General Economy ROI Personal Economic Circumstances ROI General Economy 15 Source: Ipsos-MORI MFS Q4 2008
  16. 16. Redundancy fears much lower in NI than in ROI & GB Fear of redundancy in NI Very concerned 7% Fairly concerned 11% Not at all concerned 54% 26% Not very concerned 16 Source: Ipsos-MORI MFS Q4 2008
  17. 17. Tentative evidence of beginning of some regional household B/S adjustment Assets Liabilities ISAs Savings Mortgages Credit Cards Personal Loans 60 80 50 9 8 9 60 8 40 7 37 36 31 34 30 36 35 33 30 26 40 28 20 20 10 15 17 18 20 17 25 27 27 28 26 0 0 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Savings & ISAs Consumer Credit- Secured & Unsecured 17 Source: BOI Analysis of Ipsos MORI data
  18. 18. Key indicators- Planning assumptions 2008 (y/e) 2009 (y/e) 2010 (y/e) NI GVA Growth % 0.25 -2.50 0.00 yoy Claimant 36k 57k 61k Unemployment Average House 168k 140k 145k Prices Financial Variables (y/e) UK Base Rate 2.0 0.5 1.5 Euro Repo 2.5 1.0 1.0 US Fed Funds 0-0.25 0-0.25 0.75 Euro/ GBP 94p 85p 80p GBP/ USD 1.49 1.47 1.58 18
  19. 19. Facing New Realities
  20. 20. Challenge- An already stretched regional balance sheet in an era of de-leveraging 60 “Donor- Dependency” 50 Financial Group Subvention 40 £bn 30 20 Fiscal Deficit 10 0 Total Public Spending Regional Tax Revenues Lending Deposits Public Sector Financial Sector 20 Source: BOI Analysis
  21. 21. Challenge - The new Fiscal Dispensation post April 11- one scenario UK Plans Potential Regional Impact Average Annual % real increase Average Annual % Real increase 2 0.7 AME- Non-discretionary NI “at risk” 10 0 8.4 - Demand-driven “Discretionary” -2 8 Total Spending Investment Current Spending -4 -0.1 Spending 6 -6 -8 4 % -10 1.7 1.9 2 -12 -14 0 -16 Debt Interest Social Other AME DEL -2 -18 Security & Tax -17.3 -2.3 -20 -4 Credits 21 Source: UK Budget 2009/ IFS Analysis
  22. 22. The changing profile of public expenditure (outturn & plans) Cur r e nt Expe nditur e 9500 8972 8972 9000 8597 8500 8309 8036 £m 8000 7500 7546 ? 7000 6500 2006/07 2007/08 2008/09 2009/10 2010/11 11/12/13/14 Capital Expe nditur e 1600 1409 1393 1412 1400 1318 1156 1200 1058 998 1015 994 1000 803 £m 800 600 400 200 ? 0 2006/07 2007/08 2008/09 2009/10 2010/11 11/12/13/14 Capital DE Budge t L Capital Inve s tm e nt (ne t of r e ce ipts ) 22 Source: NI Budget 2008-11/ Public Expenditure Analyses 2008
  23. 23. Current expenditure allocations by department 09/10 & 10/11 2009/10 2010/2011 +/- -10 -8 -6 -4 -2 0 2 4 6 8 10 1.7 DARD 2.9 2.8 DCAL 5.3 5.8 DENI 4.4 5.3 DEL 6.2 4.5 DETI 2.6 DFP -1.2 -9.8 3.2 DHSSPS 4.8 -0.7 DOE -0.8 7.5 DRD 8.4 -1.3 DSD -0.05 OFMDFM 0 NI Assembly 0 0.4 Other Depts 2.3 23 Source: NI Budget 2008-11
  24. 24. Claimant unemployment returns to 10 year peaks Structural vs cyclical? Claimant Unemployemnt in NI, 1984- March 2008 - quarterly from 2007 140000 120000 100000 80000 60000 40000 20000 0 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2007 2007 2007 2007 2007 2007 2008 2008 2008 2008 2008 2008 2009 2009 Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr 24 Source: ONS
  25. 25. Our changing demographics Projected % Change in age cohorts in NI, 2006- 2031 130.0% 110.0% 90.0% 70.0% 50.0% 30.0% 10.0% Under 20 20-34 35-49 50-64 65-79 80+ -10.0% 25 Source: NISRA
  26. 26. Opportunities – as the storms subside • Sterling has lost c 25% of its value on a trade-weighted basis – UK post-ERM experience 1993 - • More balanced growth – C+I+G+(X-M) ? • Manufacturing – a mini-revival ? • Service exports – a very low base (tourism) • Import substitution • Greater role in Public Service provision – health, education, transport • Exploiting potential growth segments • Environment / Renewables / Online distribution / Regulatory and Legal agenda, Healthcare • Construction – a gradual pick-up in house building from 2010/11 - key infrastructure projects • Enterprise – a higher rate of business formation? 26
  27. 27. Challenges • Job retention • Legacy of “credit crunch” and “asset price bubble” – capital constraints – new financing models / funding mix? • “Scars” of recession – repairing confidence • “Long Squeeze” on UK public finances • Pains of Transition – weaning off PE / greater self-financing / capacity of tax base ? Does NI need a new “Social Contract” or “Big Conversation” ? For businesses … • Positioning for the upturn • Leaner & Fitter – sustaining “cost efficiencies” post-recession • Profit – from maximise to optimise? • Strategy – more tortoise and less hare? 27
  28. 28. Concluding Thoughts (and Questions !) • A growth challenge – short & medium term. Resumption in 2010 but of the sober variety – risks of a “jobless recovery” • Swollen ranks of unemployed and inactive (18-30 yrs old) – training, re- skill, up-skill – identifying future needs for global recovery • Policy priorities – tension between “jobs” and “productivity” goals? • Spending priorities – tension between “current” and “capital”? • Future engagement with our Donors (HMT,EU) – “more fish” or “ a fishing rod” ? • Where does our comparative advantage lie – lower wage and property costs and available labour pool? • PfG and the economy – what type? Wedded to a “social/welfare economy” model ? “Too few producers” • L-T competitiveness and prosperity still rests on our ability to trade. 28
  29. 29. Manufacturing still matters! Share of Total Exports 2007/ 09 (£5.9bn) Destination of Manufacturing Sales 07/08 (p) Construction quot;Servicesquot; 3.4% Manufacturing quot;Servicesquot; 0.9% High Potential Services NI 3.1% 25.0% GB 39.9% ROW 15.7% Manufacturing 92.6% ROI Rest of EU 10.7% 8.7% Source: NI Manufacturing Sales & Exports Survey 07/08 29 Exporting NI Services Study
  30. 30. “Pessimism is a luxury that (we) can never allow ourselves” Golda Meir PM Israel 1969-74
  31. 31. Thank You. Alan Bridle E: alan.bridle@boini.com T: 028 90433519

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