Currency Wars, Triple‐Dips & Politics to   Dominate in the Year of the Snake                  13 March 2013               ...
Depending on who you talk to things may not that bad…                 Muhammed Saeed al-Sahaf                       aka ‘C...
Global output growth continues…                                  Global Output - PMI65     Source: Markit Economics60     ...
US remains the best performer relative to China, UK & EZ                            Composite PMIs              (Manufactu...
The biggest threat to growth & financial markets is / was….sovereign debt dominos….                                       ...
Investor sentiment in sovereign debt markets has improved since Draghi’s ‘Whatever it takes’            %                 ...
Debt Mountain still has to be conquered and that applies to the US too                                               Sourc...
-                                           G                                                           -9                ...
But the concern in Europe and the UK has returned to economic rather financial indicators…economic growth                 ...
Recovery well under way in some economies – focus on levels of GDP not just growth rates                            Recess...
Last year saw Portugal, Italy, Spain & Greece continue to contract at a rapid rate                                     Rec...
The 2nd, 3rd & 4th largest economies within the eurozone are contracting at a rapid rate in 2013                          ...
After Greece, France & Italy post steepest falls in manufacturing output. Denmark posts strongest gain                    ...
It’s a similar story when it comes to services                            PMIs: Services Output February 2013             ...
France hitting the headlines for the wrong reasons                              ‘The Psycho-Dwarf’’  March / April 2012   ...
Les Misérable economy needs an economic revolution                                           Key Facts                    ...
…with the French getting used to 19th century growth rates                                         Source: www.zerohedge.c...
‘The Grizz’ blasts French work ethic                                       “The French worker can be as                   ...
Hollande must turn right and left!         Source: The Economist, 16 February 2013                                        ...
The Self Preservation Society or Grand Coalition?    The Self Preservation Society or a Grand Coalition?                  ...
Italy has its worst 7‐yr run of economic growth since 1861!                                          Source: www.zerohedge...
Italy not in great shape either, particularly the labour market              Key Facts • U‐Rate 11.7% Jan‐2013            ...
Italy has overtaken Portugal and its Youth unemployment is where Greece was 2 years ago                                   ...
No quick‐fix – the ‘Juncker Conundrum’ “We all know what we need to do, we just don’t know how  to get re‐elected after do...
Italy has overtaken Portugal and its Youth unemployment is where Greece was 2 years ago                                   ...
The eurozone is also at a distinct advantage with its        currency & outbreak of currency warsYen per €                ...
German & South Korean brands have gained market share since 2007. But so too have brands built in the UK                  ...
French & Italian brands losing significant market share in 2012 as their domestic economies battle recession              ...
UK Economy…from Triple A to Triple‐Dip?                     Source: Financial Times 12th March 2013                       ...
UK composite PMI suggests Q1 2013 GDP growth will be marginal at best                  UK GDP versus UK Composite PMI PMI ...
UK experiencing a weaker (GDP) recovery than the 1930s                UK Recessions & Recoveries Compared                 ...
A lack of a consumer recovery explains the UK’s  poor performance…                      UK GDP by Expenditure Category    ...
…and a lack of disposable income explains the lack of consumer spending…                                UK Disposable Inco...
With inflation set to go higher, UK consumer likely to remainon strike…UK CPI (annual average) above 2% for 10 years!!    ...
Weak sterling good for exports but UK struggling from weak demand in core export marketsIndex 2009 = 100               UK ...
Contrast UK performance with the RoI.  Consumer downturn not as bad but export recovery not as good…                    Ro...
Ireland is a small & extremely open economy…                          GDP Breakdown, % of Total                Ireland    ...
UK loses ‘Triple‐A’ rating….So what?                                                         10-Yr Government Bond Yields ...
UK recovery more evident within the labour market                                  UK Workforce Jobs                      ...
Weaker than expected growth means even more borrowing!£bn              UK Public Sector Net Borrowing (PSNB)160        Sou...
Almost £170bn more than what UK Government first expected   £bn             UK Public Sector Net Borrowing (PSNB) 160     ...
Public Sector Net Debt as a % of GDP not falling until 2016/17                  Public Sector Net Borrowing / Public Secto...
Meanwhile 12‐yr public spending feast followed by 7‐year famine                  UK Public Spending Growth in Real Terms  ...
And how is the Northern Ireland economy doing….                                            Slide 44
N.Ireland downturn by numbers 10 Facts1.    Unemployment (claimant count) up 41,500 (Jan 2013) 2.    Workforce jobs have f...
Remember its levels of output not growth rates that areimportant - private sector output still at 2003 levels             ...
Services sector output has now been below its pre-downturn peak for 24 quarters or 6 years       NI Private Sector Output ...
‘Winners’ during the downturn…                             Change in NI Private Sector Output                             ...
….outnumbered by ‘losers’ & ‘big losers’                                           Change in NI Private Sector Output     ...
Recent investments in 2011/12 – dominated by ‘the worst performing sector’ business services & finance         Jobs   Area...
And don’t forget NI 2012 ‘Our Time Our Place’                       Average Hotel Room Occupancy   %                      ...
UK workforce jobs are just 0.5% below their June 2008 peak whereas NI has not recouped any of its job losses              ...
Apart from manufacturing, NI’s job losses have been more severe than in the UK        Employee Jobs Q3 2012 relative to re...
No meaningful jobs recovery outside of manufacturing                       Northern Ireland Employment                    ...
Demand in NI remains weak in 2013 but pace of decline has eased…                        Private Sector Business Activity -...
… lack of demand still a problem for jobs                          NI PMI - Employment Index                              ...
NI enjoyed Southern Comfort through the Celtic Tiger years                         Trade   Tourism   Investment   Wealth  ...
Eurozone’s fastest growing economy was on NI’s doorstep.  But what went up ……                      • ISEQ +101% & +231%   ...
Tourism                WealthTrade                  Investment                                    Slide 59
Peak to Trough Decline*              / Latest PositionISEQ                                       ‐81% / ‐62%House Completi...
Inflationary Pressures & Declining Disposable Incomes         Challenge                          Slide 61
The RoI has gone from having the highest annual rates of inflation to the lowest %               Consumer Price Inflation ...
Ireland has become the poster child of low inflation with the UK experiencing the highest rises outside of Eastern Europe ...
Filling up an average family car with diesel now costs over £88.  One of the side‐effects of a weak currency     £        ...
Drinking, smoking & eating have become expensive pastimes particularly after duty rises – past, present & future          ...
After Hungary, the UK has posted the largest rise in food & drink prices (& the RoI the least) within the EU‐27 since Aug‐...
UK inflation still rising at a faster rate than earnings and prolonging the income squeeze %         UK Average Weekly Ear...
Discretionary spending hit with consumer confidencealso very weak…                21,200 fewer NI new car sales relative t...
….. following rise in dole queue & job insecurity                 NI Unemployment Claimant Count Levels  140,000  120,000 ...
NI has posted steepest decline in UK but new car sales in RoI remain 60% below peak…                               New Car...
Kia car sales more than treble, Hyundai up 58% & Skoda up 13%.  All post new record sales in 2012              Growth in N...
Brands gaining NI market share 2007‐2012Cool?             Seriously Cool?     Sub‐Zero?                 Value for Money?  ...
Brands experiencing falling NI market share 2007‐2012Uncool?                            Seriously Uncool?                 ...
N. Ireland premium brand new car sales have taken a hit 2007 (house price peak) 45       29      18       4     2     14  ...
Some retailers that have gone or are going                                             Slide 75
UK high street hit by changing consumer trends            UK Internet Sales as a % of Total Retail Sales*   %             ...
The Changing Face of the UK High Street 2012           Winners                                           Losers  Payday Lo...
Input cost inflation eases in February (but up over last 3 months) with output prices and charges still falling           ...
Unemployment a major problem within the <25s                         NI Youth Claimant Count Levels                       ...
Public sector employment boom has been & gone. A sustained period of job losses is anticipated going forward              ...
Decade ahead will HURT Downside risks to NI growth (EZ crisis linked to EZ politics) Unemployment to stay higher for longe...
Economic Growth will be an uphill challenge…                                          Source:                             ...
…with a ‘spreadsheet recovery’      Computer says Yes.  But consumer says No!                                             ...
In UK & NI we too face the  ‘Juncker Conundrum’ “We all know what we need to do, we just don’t know how  to get re‐elected...
Any Questions      ?                Slide 85
But NI is still better when I left school!Laganside 1994                              Source: Invest NI                   ...
Laganside today                  Titanic Quarter                  Source: Invest NI                             Slide 87
Websitewww.ulsterbankcapitalmarkets.comContact me (to be added to distribution lists)richard.ramsey@ulsterbankcm.comTel .n...
DisclaimerThis document is issued for information purposes only for clients of Ulster Bank Group who are eligible counterp...
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Currency wars triple dips and politics to dominate 2013

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Slides from a Guest Lecture for the University of Ulster's Business School.

2013 is the year of the snake, which seems appropriate from a UK perspective, as a low-level undulating crawl and a zig-zagging GDP profile look likely – with a triple-dip a strong possibility. At a Eurozone level, actions of central bankers have stabilised the debt crisis (OMT has avoided eurozone OMG!) and the threat of a eurozone break-up may have receded. But, the eerie financial market calm is at odds with incoming economic data. Meanwhile, elections in Italy & Germany will either help or hinder Eurozone fiscal integration. More widely, with all economies seeking to export their way out of trouble, ‘Currency Wars’ will be a key theme in 2013.

With regard to Northern Ireland, the UK is experiencing its weakest economic recovery in 100 years, which impacts upon performance and prospects locally. In 2013, the prospect of Northern Ireland escaping recession in its technical sense is probably 50:50. Any growth or further contraction is expected to be marginal. Talk of a recovery will be confined to economic anoraks and will refer to a ‘spreadsheet recovery’ rather than one that translates into a sustainable increase in consumer spending and wider consumer confidence.

Beyond this year, 2014 is the year of the horse. Those at the reins of the global economy will have a difficult task that year too, but assuming they aren’t flogging a dead horse, they should be able to get the economy off the ground and aim for a canter, if not a gallop. But there are plenty of fences to jump before we get there.This lecture will provide an overview of what's happening within financial markets and the various economies. Furthermore, an assessment will be made of the economic challenges that we face at a global, international, national and regional level.

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Currency wars triple dips and politics to dominate 2013

  1. 1. Currency Wars, Triple‐Dips & Politics to  Dominate in the Year of the Snake 13 March 2013 Richard Ramsey Chief Economist Northern Ireland
  2. 2. Depending on who you talk to things may not that bad… Muhammed Saeed al-Sahaf aka ‘Comical Ali’ Iraqi Information Minister 2003 Source:  The Economist Slide 2
  3. 3. Global output growth continues… Global Output - PMI65 Source: Markit Economics60 Expansion555045 Contraction403530 Total Manufacturing Services25 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Slide 3
  4. 4. US remains the best performer relative to China, UK & EZ Composite PMIs (Manufacturing & Services ** Excludes Construction**) 65 Eurozone US (ISM) China UK 60 Expansion 55 50 Contraction 45 40 Source: Markit Economics 35 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Slide 4
  5. 5. The biggest threat to growth & financial markets is / was….sovereign debt dominos…. ? Slide 5 March 14, 2013 – Page 5 © Ulster Bank
  6. 6. Investor sentiment in sovereign debt markets has improved since Draghi’s ‘Whatever it takes’ % 8-Yr Govt Bond Yields 18 16 14 12 Source: Bloomberg 10 8 6 4 2 12 10 11 2 3 0 1 12 11 10 9 2 0 1 -1 -1 -1 -1 -0 -1 -1 -1 n- n- n- p- p- p- ar ar ar ar ec ec ec ec Ju Ju Ju Se Se Se M M M M D D D D Slide 6
  7. 7. Debt Mountain still has to be conquered and that applies to the US too Source:  The Economist Slide 7
  8. 8. - G -9 -8 -7 -6 -5 -4 -3 -2 -1 er m an y Fi nl an E d Lu ston xe ia m bo ur g M al ta Source: IMF, Dept of Finance Ita ly Au st r Be ia N lg et iu he m rl a n Sl ds ov en % of GDP ia Fr an ce Sl ov Cy ak pr us R ep ub Po lic rt u Euro Area Budget Balances 2012, ga l Sp ai G n re ec e I re la nd - 20 40 60 80 100 120 140 160 180 G re ec e I ta ly Po rtu ga Ire l la n Be d lg iu Source: IMF, Dept of Finance m Sp ai n Fr an ce C yp ru G er s m an Au y st % of GDP ri a N M et al he ta rl a n Sl ds ov en Euro Area Debt Levels 2012, Sl ia ov Fin ak la Re nd Lu pub The fiscal challenges in the Eurozone remain… xe li m c bo ur Es g toSlide 8 ni a
  9. 9. But the concern in Europe and the UK has returned to economic rather financial indicators…economic growth GDP Forecasts February 2013 % Y/Y 6 2011 2012 2013 2014 4 2 0 -2 -4 -6 Source:Consensus Economics & *Ulster Bank -8 y e ly oI EZ ce I* K n l S ga an ec ai N U U Ita R an rtu Sp m re Fr er G Po G Slide 9
  10. 10. Recovery well under way in some economies – focus on levels of GDP not just growth rates Recession & Recoveries (% GDP Change Since Pre-Recession Peak as of Q4 2012*) 4% US EZ UK RoI +2.4% 2% 0% -2% -3.0% -4% -3.3% -6% -8% -7.7% or -9.5% using GNP-10% Source: Bloomberg, *RoI as of Q3 2012-12% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Time in Quarters, Pre-Recession GDP Peak = 0 Slide 10
  11. 11. Last year saw Portugal, Italy, Spain & Greece continue to contract at a rapid rate Recession & Recoveries (% GDP Change Since Pre-Recession Peak as of Q4 2012) 4% Portugal Ireland Italy Spain Germany France 2% +1.4% 0% -2% -1.1% -4% -6.6% -6.7% -6% -8% -7.7%-7.7% -10% Source: Bloomberg & UB Calculations @ -20% -12% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Time in Quarters, Pre-Recession GDP Peak = 0 Slide 11
  12. 12. The 2nd, 3rd & 4th largest economies within the eurozone are contracting at a rapid rate in 2013 Composite PMIs (Manufacturing & Services ** Excludes Construction**) 65 60 Expansion 55 50 Contraction 45 40 35 Source: Markit Economics PMIs 30 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Slide 12
  13. 13. After Greece, France & Italy post steepest falls in manufacturing output. Denmark posts strongest gain PMIs: Manufacturing Output February 2013 Denmark N.Zealand* US Switzerland India Mexico Brazil Turkey Russia NI South Africa Global NI, RoI & UK Canada Ireland China Germany Taiwan Netherlands Indonesia Czech S.Korea UK Vietnam Poland Austria Singapore EU Japan EZ Spain Australia Israel** Source: Markit Economics Output Indices, * Italy January, **December France Greece 35 40 45 50 55 60 65 Slide 13
  14. 14. It’s a similar story when it comes to services PMIs: Services Output February 2013 US* Russia Germany India Ireland Global Emerging Markets Brazil China UK Japan EU Australia EZ € NI Spain Source: Markit Economics Output Indices, * France US Non-manufacturing which is wider than Italy services 40 45 50 55 60 Slide 14
  15. 15. France hitting the headlines for the wrong reasons ‘The Psycho-Dwarf’’ March / April 2012 April / May 2012 November 2012
  16. 16. Les Misérable economy needs an economic revolution Key Facts • U‐Rate 10.6% Q4 2012                            (7.5%  Q1 2008) • <25yrs U‐Rate 25.2% Q4 2012 (17.2% Q1 2008 & 5.9% Q1 1975) • Employment Rate 51.1% (Male 56% & Female 46.6%) Starring Francois Hollande • Corporation tax rate 33.3% (EU average 20.5%) Slide 16
  17. 17. …with the French getting used to 19th century growth rates Source: www.zerohedge.com Slide 17
  18. 18. ‘The Grizz’ blasts French work ethic “The French worker can be as  productive as anyone else when he  works, but he is not working” “The French workers are paid high  wages but only work three  hours….they get one hour for breaks  & lunch, talk for three hours and  work for three”. Maurice ‘The Grizz’ Taylor “In five years, Michelin won’t be  Chairman of Titan International, a  producing tyres in France.  You can  US tyre giant asked by the French  keep your so‐called workers”.government to take over a Goodyear  plant in France. Comments made February 2013 Slide 18
  19. 19. Hollande must turn right and left! Source: The Economist, 16 February 2013 Slide 19
  20. 20. The Self Preservation Society or Grand Coalition? The Self Preservation Society or a Grand Coalition? € € € € ‘Rigor Montis’ the Technocrat ‘The Psycho-Dwarf’’ ‘Dead man talking’ The Comedian
  21. 21. Italy has its worst 7‐yr run of economic growth since 1861! Source: www.zerohedge.com Slide 21
  22. 22. Italy not in great shape either, particularly the labour market Key Facts • U‐Rate 11.7% Jan‐2013                                                             (5.8%  Apr‐07) • <25yrs U‐Rate 38.7% Jan‐2013 (17.2% Q1 2008 & 5.9% Q1 1975) Big political risk for  Eurozone as a whole • Employment Rate 51.1% (Male 56% & Female 46.6%) • Corporation tax rate 31.4% (EU average 20.5%) Slide 22
  23. 23. Italy has overtaken Portugal and its Youth unemployment is where Greece was 2 years ago € Source: www.zerohedge.com Slide 23
  24. 24. No 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. Slide 24
  25. 25. Italy has overtaken Portugal and its Youth unemployment is where Greece was 2 years ago € Source: www.zerohedge.com Slide 25
  26. 26. The eurozone is also at a distinct advantage with its  currency & outbreak of currency warsYen per € Euro / Yen Exchange Rate € Sterling / Euro Exchange Rate180 1.6 2007/08 €1.41 1.5160 Yen weakening / Euro strengthening 1.4 2008/09140 €1.20 2011/12 2010/11 €1.16 (86.3p) 1.3 2009/10 €1.18 €1.13120 1.2 Yen strengthening /100 Euro weakening 1.1434 1.1 Source: Bloomberg Source: Bloomberg 80 1.0 Mar-07 Nov-07 Jul-08 Mar-09 Nov-09 Jul-10 Mar-11 Nov-11 Jul-12 Mar-13 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Slide 26
  27. 27. German & South Korean brands have gained market share since 2007. But so too have brands built in the UK Change (PP) in Market Share in EU New Car Sales* 2007-2012 Toyota Opel (GM) Fiat Renault Honda Mazda Suzuki Citroen Land Rover, Mini & Ford Seats dominance in Spanish market, & Nissan are built in the Peugeot Seat severe downturn in UK so +ve for UK Alfa Romeo Spain explains economy Chevrolet brands declining Mercedes market share Volvo Land Rover Mini Skoda BMW Dacia Kia Audi Source: ACEA, *flags denote nationality of Hyundai Nissan manufacturer Volkswagen -3 -2 -1 +0 +1 +2 +3 Percentage Point Change Slide 27
  28. 28. French & Italian brands losing significant market share in 2012 as their domestic economies battle recession Change (PP) in Market Share in EU New Car Sales* 2011-2012 Renault Opel / Vauxhall Ford Fiat Peugeot Citroen Alfa Romeo French, Spanish (Seat Mitsubishi German owned) & Italian Seat Suzuki brands suffering as their Mazda domestic economies Jaguar, Land Rover, Volvo battle with recession Mini & Nissan are built Smart in the UK so +ve for Lancia/Chrysler UK economy GM (US) Lexus Jaguar Honda Mini Jeep Dacia Nissan Chevrolet Toyota Land Rover Mercedes Skoda BMW Source: ACEA, *flags denote nationality of VW Kia manufacturer Hyundai Audi -1.5 -1.0 -0.5 +0.0 +0.5 +1.0 Percentage Point Change Slide 28
  29. 29. UK Economy…from Triple A to Triple‐Dip? Source: Financial Times 12th March 2013 Slide 29
  30. 30. UK composite PMI suggests Q1 2013 GDP growth will be marginal at best UK GDP versus UK Composite PMI PMI Index GDP Q/Q 65 1.5 60 1 55 0.5 50 0 45 -0.5 40 -1 35 -1.5 30 -2 Source: ONS & Markit Economics, * refers to January & February 25 -2.5 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1* GDP Q/Q PMI PMI No Change Slide 30
  31. 31. UK experiencing a weaker (GDP) recovery than the 1930s UK Recessions & Recoveries Compared (% GDP change since pre-recession peak) 10% 1990/94 1973-77 5% UK economy 1930/34 expanding 1979/84 0% 2008… . -5% 2008… (as of Q4 2012) UK economy contracting 19 Quarters -10% Peak 2 4 6 8 10 12 14 16 18 20 Quarters After Pre-Recession GDP Peak Slide 31
  32. 32. A lack of a consumer recovery explains the UK’s  poor performance… UK GDP by Expenditure Category (% Change Since Pre-Recession Peak Q1 2008) 8% Household Final Consumption 6% Exports (Goods & Services) +4.7% 4% General Government Consumption Expenditure 2% 0% +0.8% -2% -4% -3.6% -6% -8% -10% -12% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Time in Quarters, Pre-Recession GDP Peak = 0 Slide 32
  33. 33. …and a lack of disposable income explains the lack of consumer spending… UK Disposable Income & CPI 120 +17.3% Gross National Disposable Income (GNDI) CPI 115 110 105 100 95 90 -7.3% 85 Source: ONS 80 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 Slide 33
  34. 34. With inflation set to go higher, UK consumer likely to remainon strike…UK CPI (annual average) above 2% for 10 years!! CPI inflation projection based on market interest rate expectations & £375 billion asset purchases 3 years of an overshoot Source: BoE QIR February 2013 Slide 34
  35. 35. Weak sterling good for exports but UK struggling from weak demand in core export marketsIndex 2009 = 100 UK Exports of Goods*140 44% above 2009 low Source: ONS,Excludes Oil & Erratics & 22% below pre-downturn level130120110100 12% below pre-downturn high 90 EU Non-EU Total 80 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 Slide 35
  36. 36. Contrast UK performance with the RoI.  Consumer downturn not as bad but export recovery not as good… RoI GNP by Expenditure Category (% Change Since Pre-Recession GNP Peak Q1 2007) +9.8% 10% 5% 0% -5% -10% -6.3% -15% Personal Consumption Expenditure -20% Exports (Goods & Services) -18% General Government Consumption Expenditure -25% 0 2 4 6 8 10 12 14 16 18 20 22 Time in Quarters, Pre-Recession GDP Peak = 0 Slide 36
  37. 37. Ireland is a small & extremely open economy… GDP Breakdown, % of Total Ireland UK Germany US Port Greece SpainConsumption 53 66 58 71 68 70 57Govt Spending 17 23 20 20 21 20 21Investment 12 15 17 12 19 16 24Exports 101 29 49 13 33 21 23Imports 82 33 43 17 41 27 26GDP 100 100 100 100 100 100 100 Slide 37
  38. 38. UK loses ‘Triple‐A’ rating….So what? 10-Yr Government Bond Yields Interest Reflects the cost (interest rate) of Government borrowing Rate % 6 5 4 Moodys downgrade 3 2 1 Source:Bloomberg 0 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Slide 38
  39. 39. UK recovery more evident within the labour market UK Workforce Jobs UK, NI & RoI Unemployment RatesMillions Source: ONS, Labour Force Survey & CSO Live Register32.2 15% 32.083 NI UK RoI 14.1% 32 13% After 2.6% PTT 31.94531.8 fall employment 11% 0.4% below peak31.6 NI & UK 9% 7.8%31.4 7%31.2 5% 31 Source: ONS30.8 3% Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Slide 39
  40. 40. Weaker than expected growth means even more borrowing!£bn UK Public Sector Net Borrowing (PSNB)160 Source:OBR March 2012 Forecast ABS Dec-12140 -5bn120 +1bn £541bn in 7 years or 19100 -12bn times the annual output of +13bn the NI economy 80 +19bn 60 +21bn 40 31bn 20 0 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Slide 40
  41. 41. Almost £170bn more than what UK Government first expected  £bn UK Public Sector Net Borrowing (PSNB) 160 Source:OBR June 2010 Forecast ABS Dec-12 140 +5bn 120 100 -9bn £169bn additional borrowing required over 6 years or £198bn over 7 years 80 +39bn 60 +51bn 40 +53bn +28bn 20 0 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Slide 41
  42. 42. Public Sector Net Debt as a % of GDP not falling until 2016/17  Public Sector Net Borrowing / Public Sector Net Debt as % of GDP PSNB PSNB Left Hand Scale PSND Right Hand Scale PSND 12 90 10 75 8 60 6 4 45 2 30 0 15 -2 Forecasts Source: ONS, OBR Nov 11 -4 0 1963-64 1972-73 1981-82 1990-91 1999-00 2008-09 2017-18 Slide 42
  43. 43. Meanwhile 12‐yr public spending feast followed by 7‐year famine UK Public Spending Growth in Real Terms Y/Y (excluding Debt Interest & Social Security) 15% 17% cut in 7yrs over 60% of Departmental cuts have been made 10% We are here 5% 0% -5% Source: IFS February 2013 -10% 1951-52 1962-63 1973-74 1984-85 1995-96 2006-07 2017-18 Slide 43
  44. 44. And how is the Northern Ireland economy doing…. Slide 44
  45. 45. N.Ireland downturn by numbers 10 Facts1. Unemployment (claimant count) up 41,500 (Jan 2013) 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 have fallen by one third relative to 2007 10. Consumer prices (UK CPI) up 19% since August 2007
  46. 46. Remember its levels of output not growth rates that areimportant - private sector output still at 2003 levels NI Private Sector Output Levels Composite of construction, production and services sectorsPSO Index **Excludes Agriculture**120115110 15.2% below peak & at 2003 levels105100 95 15.8% 90 fall 85 80 Source: Ulster Bank Private Sector Output Index (2009=100), using DFP output indices & ABI weights 75 2003 Q3 2005 Q1 2006 Q3 2008 Q1 2009 Q3 2011 Q1 2012 Q3 Slide 46
  47. 47. Services sector output has now been below its pre-downturn peak for 24 quarters or 6 years NI Private Sector Output Relative to Pre-Recession Peaks As of Q3 2012 (Peak = 0)10% Total Private Sector Output Private Sector Services Industrial Production Construction 0% -11.8%-10% -13.6% -15.2%-20%-30%-40% -42.3%-50% 0 2 4 6 8 10 12 14 16 18 20 22 24 Time in Quarters Since Pre-Recession Output Peak Slide 47
  48. 48. ‘Winners’ during the downturn… Change in NI Private Sector Output Q2 2007 ‐ Q3 2012 Industrial Group % Change Recession Winners ↑↑↑ Other Services 50.0% Chemicals & Pharmaceutical Products  26.8% Utilities (Electricity & Gas) 10.1% Transport, Storage & Communications 7.3% Food, Drink & Tobacco 5.8% Wholesale & Retail Distribution, Accommodation & Food Service 1.2% Agriculture (Gross annual output in real terms 2007‐11) 0.5% Source: DFP Indices of Production, Services and Construction, DARD & Ulster Bank calculations Slide 48
  49. 49. ….outnumbered by ‘losers’ & ‘big losers’ Change in NI Private Sector Output Q2 2007 ‐ Q3 2012 Industrial Group % Change Recession Losers    ↓↓↓ Utilities (Water Supply & Waste Management) ‐1.4% Engineering & Allied Industries ‐6.5% All Production Industries ‐9.0% All Manufacturing ‐11.4% All Private Sector Services ‐11.4% Total Private Sector Output (Construction + Production + Private Services) ‐15.2% Recession Big Losers    ↓↓↓ Basic Metals & Fabricated Metal Products ‐23.4% Textiles & Textile Products ‐23.7% Total Other Manufacturing ‐32.7% Mining & Quarrying ‐33.3%Construction / Wood & Paper Products ‐35.1% property Construction / Rubber, Plastics & non‐metal Products ‐41.1% related property Construction ‐42.2% related Business Services & Finance ‐48.2% Source: DFP Indices of Production, Services and Construction, DARD & Ulster Bank calculations Slide 49
  50. 50. Recent investments in 2011/12 – dominated by ‘the worst performing sector’ business services & finance Jobs Areas 501 IT Development, FX securities/settlement, Legal & Compliance 106 Marketing 317 HR, Finance, Legal 359 FS IT Development, Service Delivery, Project Management 90 FS IT Development, Project Management  242 R&D Product Development, Sales, Marketing 45 HR Consulting, Risk and Actuarial – Pensions management In the last 10 years  50 IT Development 78% of new FDI jobs  have been in  104 IT Development, Product Development, Engineering business & financial  85 IT Development, Project Management services and  297 Call Centre, Customer Service and Management software 109 IT Development, Product Development, Sales 130 R&D Product Development, Engineering Source: Invest NI 102 Legal Slide 50
  51. 51. And don’t forget NI 2012 ‘Our Time Our Place’ Average Hotel Room Occupancy % Annual 80 77 NI Belfast* 75 70 67 65 60 50 Source: NITB & DETI, *Belfast includes Castlereagh 40 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Slide 51
  52. 52. UK workforce jobs are just 0.5% below their June 2008 peak whereas NI has not recouped any of its job losses NI & UK Workforce Jobs (as of June 2012) 3% Source: DFP & NOMIS, June annual figures 2% 1% 0% -1% -2% -3% -4% -5% -6% NI UK -7% June 2008 Peak to Trough Recovery from Trough Net Position Relative to June 2008 Peak Slide 52
  53. 53. Apart from manufacturing, NI’s job losses have been more severe than in the UK Employee Jobs Q3 2012 relative to recent peaks 0% -5% NI Peak Q2 2008 NI Peak Q2 2008 -10% -15% NI Peak Q2 2007 -20% -25% -30% -35% NI Peak Q4 2007 NI UK Source: DFP & NOMIS -40% Construction Manufacturing Services Total Slide 53
  54. 54. No meaningful jobs recovery outside of manufacturing Northern Ireland Employment (Employee Jobs) 10% Peak to Trough Recovery from Trough Q3 2012 Relative to Peak 0% -10% -20% -30% Source: DFP, QES -40% All Sectors Services Manufacturing Construction Slide 54
  55. 55. Demand in NI remains weak in 2013 but pace of decline has eased… Private Sector Business Activity - PMIs **PMI Surveys Exclude Agriculture & Public Sector** 65 NI UK RoI 60 Expansion 55 50 45 Contraction 40 35 Source: Markit & Ulster Bank NI PMI: 50 = threshold between expansion / contraction 30 Feb-04 Aug-05 Feb-07 Aug-08 Feb-10 Aug-11 Feb-13 Slide 55
  56. 56. … lack of demand still a problem for jobs NI PMI - Employment Index 3 month moving average65 Manufacturing Services Construction Job Gains60555045 Job Losses403530 Source: Markit Economics & Ulster Bank NI PMI25 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Slide 56
  57. 57. NI enjoyed Southern Comfort through the Celtic Tiger years Trade Tourism Investment Wealth Slide 57
  58. 58. Eurozone’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 +68% / +162% (5yr/10yr prior to 2006 peak) • Unemployment rate 4.6% (average 1998‐2007)  & 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) Slide 58
  59. 59. Tourism WealthTrade Investment Slide 59
  60. 60. Peak to Trough Decline* / Latest PositionISEQ ‐81% / ‐62%House Completions ‐91% / ‐91%Unemployment Rate* (*peak U% rate) 15.0% / 14.1%Employment ‐15.1% / ‐14.7%GDP / GNP ‐9.9% / ‐13.2%  ‐7.7% / ‐8.6%House Prices ‐50% / ‐50%NI manufacturing exports to RoI ‐34% / ‐32%NI manufacturing excl. Food & Drink ‐58% / ‐58% Slide 60
  61. 61. Inflationary Pressures & Declining Disposable Incomes Challenge Slide 61
  62. 62. The RoI has gone from having the highest annual rates of inflation to the lowest % Consumer Price Inflation (HICP) year-on-year 6 EZ UK RoI 5 4 3 2 1 0 -1 -2 -3 -4 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Slide 62
  63. 63. Ireland has become the poster child of low inflation with the UK experiencing the highest rises outside of Eastern Europe EU-27 Cumulative % Rise in Consumer Prices (HICP) August 2007 to December 2012 / January 2013* Ireland Germany Source: ONS, CSO, *January 2013 only for EZ & UK, all others December France Portugal EZ € Sweden Netherlands Malta Denmark Austria Czech Republic Belgium Spain EU 27 Luxembourg Cyprus Slovenia Italy Slovakia Finland Greece UK Poland Bulgaria Latvia Estonia Lithuania Hungary Romania 0% 5% 10% 15% 20% 25% 30% 35% 40% Slide 63
  64. 64. Filling up an average family car with diesel now costs over £88.  One of the side‐effects of a weak currency £ UK Fuel Prices - Tank* of Petrol / Diesel (*60 Litres) 100 **Note Northern Ireland Prices are traditionally the highest of all UK regions** £88.8 £88 90 £84 80 70 64% 60 rise 50 £51.3 Credit Crunch begins 40 Source: ONS Petrol Tank Diesel Tank 30 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Slide 64
  65. 65. Drinking, smoking & eating have become expensive pastimes particularly after duty rises – past, present & future UK v RoI Cumulative % Change in Consumer Prices since Credit Crunch began (Aug 2007 to January 2013) 60% Source: ONS & Eurostat UK RoI 50% 40% 30% 18.8% 20% 10% 0% Food & Non- Food Electricity Transport Transport All CPI Alcoholic Gas & Other Fuels & Services Beverages Fuels Lubricants Slide 65
  66. 66. After Hungary, the UK has posted the largest rise in food & drink prices (& the RoI the least) within the EU‐27 since Aug‐07 EU 27 Cumulative % Rise in Food & Drink Prices August 2007 to December 2012 (HICP) Ireland Portugal Source: ONS, CSO & Eurostat Spain France Greece EZ € Italy Netherlands Germany Sweden Luxembourg EU 27 Belgium Austria Slovakia Cyprus Denmark Slovenia Czech Republic Finland Bulgaria Poland Romania Estonia Lithuania Latvia Malta UK Hungary 0% 5% 10% 15% 20% 25% 30% 35% 40% Slide 66
  67. 67. UK inflation still rising at a faster rate than earnings and prolonging the income squeeze % UK Average Weekly Earnings & CPI Inflation 6 Ave Weekly Earnings 3m Y/Y % (Excl. Bonuses) CPI Y/Y 5 4 Income 3 squeeze 2.7% 2 1.4% 1 Does not include taxes Source: ONS or changes to benefits 0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Slide 67
  68. 68. Discretionary spending hit with consumer confidencealso very weak… 21,200 fewer NI new car sales relative to 2007 peak 12 Month Rolling Sum 80,000 Sales now 31% below 68,708 peak 70,000 60,000 57,170 50,000 47,580 Temporary reduction 47,532 in VAT rate to 15% & Cash for Clunkers 40,000 Source: SMMT 30,000 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Slide 68
  69. 69. ….. following rise in dole queue & job insecurity NI Unemployment Claimant Count Levels 140,000 120,000 Dec 2012 65,200 highest levels since April 1997 100,000 80,000 60,000 Good Friday 40,000 Agreement signed April 1998 57,900 Record low 20,000 Aug 07 Source: DFP 23,500 0 Dec-85 Dec-88 Dec-91 Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12 Slide 69
  70. 70. NI has posted steepest decline in UK but new car sales in RoI remain 60% below peak… New Car Registrations Indexed 2007 =100 120 NI Scotland Wales UK RoI 100 -8.5% -14% -18% 80 -31% 60 40 -60% 20 Source: SMMT & SIMI 0 Dec-07 Sep-08 Jun-09 Mar-10 Dec-10 Sep-11 Jun-12 Mar-13 Slide 70
  71. 71. Kia car sales more than treble, Hyundai up 58% & Skoda up 13%.  All post new record sales in 2012 Growth in NI New Car Registrations by Manufacturer 2007-2012 Source: SMMT Skoda Nissan Chevrolet Hyundai Kia 0% 50% 100% 150% 200% 250% Slide 71
  72. 72. Brands gaining NI market share 2007‐2012Cool?  Seriously Cool? Sub‐Zero? Value for Money? Slide 72
  73. 73. Brands experiencing falling NI market share 2007‐2012Uncool? Seriously Uncool? Slide 73
  74. 74. N. Ireland premium brand new car sales have taken a hit 2007 (house price peak) 45 29 18 4 2 14 238 2 7 16 12 2 0 9 111 0 2012 Slide 74
  75. 75. Some retailers that have gone or are going Slide 75
  76. 76. UK high street hit by changing consumer trends UK Internet Sales as a % of Total Retail Sales* % Not Seasonally Adjusted 12 10.4% 10 8 6 4 2 Source: ONS, * Excluding Automotive Fuel 0 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 Slide 76
  77. 77. The Changing Face of the UK High Street 2012 Winners  Losers  Payday Loans +20.0% Computer Games ‐45.0% Pawnbrokers +13.2% Health Food ‐24.7% Poundshops +13.0% Card Shops ‐23.4% Supermarkets +3.6% Recruitment ‐15.1% Coffee Shops +3.4% General Clothes ‐8.7% Betting Shops +3.3% Women’s Clothes ‐7.2% Charity Shops +2.7% Banks / Financial ‐2.9% Net change in units in 2012. Source: Local Data Company Slide 77
  78. 78. Input cost inflation eases in February (but up over last 3 months) with output prices and charges still falling NI Private Sector Profit Squeeze 3 Month Moving Average 80 Output Prices Input Prices No Change Profits 70 squeeze Inflation 60 50 Deflation 40 Price of goods & Source: Markit Economics & Ulster Bank NI PMI services falling 30 Feb-04 Aug-05 Feb-07 Aug-08 Feb-10 Aug-11 Feb-13 Slide 78
  79. 79. Unemployment a major problem within the <25s NI Youth Claimant Count Levels <25 years of age 25,000 GFA April 1998 19,551 14,145 Highest level 17,876 since October 20,000 1996 15,000 Nov 07 low 7,050 10,000 5,000 Source: DFP 0 Nov-96 Nov-98 Nov-00 Nov-02 Nov-04 Nov-06 Nov-08 Nov-10 Nov-12 Slide 79
  80. 80. Public sector employment boom has been & gone. A sustained period of job losses is anticipated going forward NI Public Sector Employee Jobs Levels 230,000 Pre-recession peak Source: DFP, * UB estimates Q4 2005 221,050 220,000 213,480 210,000 Good Friday Agreement Signed April 1998 209,480 195,120 Q2 98 +26,000 jobs (13%) in 7yrs Public sector employment post GFA boosted by @5k in Q4 2008 as part-nationalised financial 200,000 institutions reclassified as public sector. Public sector jobs (excl. financial institutions) now estimated at @209.5k or Q4 2002 levels. 190,000 Public Unadjusted Public Adjusted* (excl. financial institutions) 180,000 Q3 1994 Q3 1997 Q3 2000 Q3 2003 Q3 2006 Q3 2009 Q3 2012 Slide 80
  81. 81. Decade ahead will HURT Downside risks to NI growth (EZ crisis linked to EZ politics) Unemployment to stay higher for longer…. a lost decade for the under 25’s? Households face devaluation in S.O.L, debt de-leverage Factors present in ‘NICE’ era have gone into reverse - Next decade ahead will HURT – Higher Unemployment Rising Taxes / Tariffs Fiscal austerity in NI – it hasn’t really started yet! Key labour market trends: part-time v full-time, working longer, multi-job careers v job for life, demand for jobs with no skills falling Slide 81
  82. 82. Economic Growth will be an uphill challenge… Source:  The Economist Slide 82
  83. 83. …with a ‘spreadsheet recovery’ Computer says Yes.  But consumer says No! Source:  The Economist Slide 83
  84. 84. In UK & NI we too face 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. Slide 84
  85. 85. Any Questions ? Slide 85
  86. 86. But NI is still better when I left school!Laganside 1994 Source: Invest NI Slide 86
  87. 87. Laganside today Titanic Quarter Source: Invest NI Slide 87
  88. 88. Websitewww.ulsterbankcapitalmarkets.comContact me (to be added to distribution lists)richard.ramsey@ulsterbankcm.comTel .no. 02890 276354 Slide 88
  89. 89. DisclaimerThis 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. Slide 89

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