Slides from an economic outlook presentation done as part of Derry Enterprise Week 2015

1. Slide 1
Economic Outlook 2015
Derry Enterprise Week
25th February 2015
Richard Ramsey – Ulster Bank Chief Economist
www.ulstereconomix.com
@UB_Economics

2. Global output growth picks up from 14-month low
Global Output - PMI
35
40
45
50
55
60
65
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Source: Markit Economics
ExpansionContraction

3. Slide 3
Inflation no longer a problem – Disinflation / Deflation?
Annual Consumer Price Inflation (HICP)
0.3
-0.6
-0.4
0.8
-4
-3
-2
-1
0
1
2
3
4
5
6
7
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
% Y/Y
EZ UK RoI US*
* US is CPI

4. Slide 4
Disinflation / deflation = interest rates lower for longer
UK Interest Rates
(weekly)
1.18%
1.46%
1.84%
0
1
2
3
4
5
6
7
8
Feb-00 Aug-02 Feb-05 Aug-07 Feb-10 Aug-12 Feb-15
%
3yr 5yr 10yr Base
Rise in swap rates
preceeds base rate hikes
Source: Bloomberg

5. Slide 5
Sheikh v Shale v Putin
Source: The Economist 6th December

6. Slide 6
Falling prices is not just an oil price story
Bloomberg Commodities Index
80
100
120
140
160
180
200
220
240
260
Feb-01 Feb-03 Feb-05 Feb-07 Feb-09 Feb-11 Feb-13 Feb-15
Source: Bloomberg (BCOM Index)
22% fall y/y

7. Slide 7
Fall in Brent Crude oil price by over 60% in 7 months!
Price of Brent Crude Oil in Dollars & Sterling
Weekly
£40
£32.5
$49
$53
0
20
40
60
80
100
120
140
160
Feb-93 Oct-96 Jun-00 Feb-04 Oct-07 Jun-11 Feb-15
£/$ pb
£pb $pb
Source: Bloomberg

8. Slide 8
Agricultural inflation tracks the oil price
Agriculture Inflation versus Oil Price
0
100
200
300
400
500
600
700
Aug-88 Jan-93 Jun-97 Nov-01 Apr-06 Sep-10 Feb-15
S&P Index
0
20
40
60
80
100
120
140
160
$
S&P Agriculture Index Oil Price $
Source: Bloomberg, Brent Crude Oil Price & S&P
Agriculture Inflation

9. Slide 9
Mario Draghi (ECB)
Mark Carney (BoE)
Haruhiko Kuroda (BoJ)
Janet Yellen (US Fed)

10. Slide 10
Key currency issue is one of ongoing dollar strength
Dollar Index
70
75
80
85
90
95
100
105
Feb-03 Feb-05 Feb-07 Feb-09 Feb-11 Feb-13 Feb-15
Source: Bloomberg
19%
appreciation

11. Slide 11
Sterling’s effective exchange rate close to a 6½ year high
Sterling Effective Exchange Rate
(Trade Weighted Index)
90.2
70
75
80
85
90
95
100
105
110
Feb-05 Oct-06 Jun-08 Feb-10 Oct-11 Jun-13 Feb-15
Index
30%
Depreciation
Source: Bloomberg, BoE January 2005=100
+14%
Appreciation

12. Slide 12
Due to strength against the euro rather than the dollar
Sterling / Dollar Exchange Rate
1.545
1.50
1.71
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2
2.1
Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15
Source: Bloomberg

13. Slide 13
Sterling is at a 7-year high versus the euro
Sterling / Euro Exchange Rate
1.36
1.0
1.1
1.2
1.3
1.4
1.5
1.6
Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15
€
Source: Bloomberg

14. Slide 14
Stronger £ = lower import price inflation: What cost of
living crisis?
UK Annual Consumer Price Inflation
0
1
2
3
4
5
6
7
8
9
Jan-89 Apr-92 Jul-95 Oct-98 Jan-02 Apr-05 Jul-08 Oct-11 Jan-15
% Y/Y
Source: ONS, CPI

15. Slide 15
Rates of inflation & wage growth now moving in the right
direction!
UK Average Weekly Earnings* & CPI Inflation
Annual % Change
0
1
2
3
4
5
6
Jan-02 Mar-04 May-06 Jul-08 Sep-10 Nov-12 Jan-15
%
Average Weekly Earnings CPI Inflation MPC Target
Income
squeeze'NICE'
Decade
Source: ONS * Excluding bonuses

16. Slide 16
Food & petrol prices falling at a record rate
UK CPI Inflation Year-on-Year
-2.5%
-2.0%
-16.2%
-20%
-10%
0%
10%
20%
30%
40%
50%
Jan-04 Nov-05 Sep-07 Jul-09 May-11 Mar-13 Jan-15
Food & Non-Alcoholic Beverages Electricity Gas & Other Fuels
Transport Fuels & Lubricants
Source: ONS

17. Slide 17
Though petrol prices have been starting to tick up again
UK Fuel Prices - Pence per litre
(Weekly)
107.3p
Feb-15
106.3p
Jan-15
131.1p
Jul-14
129.7p
141.8p
Apr-12
85.4p
60
70
80
90
100
110
120
130
140
150
Feb-04 Dec-05 Oct-07 Aug-09 Jun-11 Apr-13 Feb-15
Pence per litre
Source: DECC

18. Slide 18
Consumer confidence improving
N.Ireland New Car Registrations Annual % Growth
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2007 2008 2009 2010 2011 2012 2013 2014
Y/Y
Source: SMMT
VAT cut to 15% &
'Cash for Clunkers'

19. Slide 19
Slowdown in business activity occurring in NI
Private Sector Business Activity - PMIs
30
35
40
45
50
55
60
65
Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
NI UK RoI
Source: Markit & Ulster Bank NI PMI
50 = threshold between expansion / contraction
ExpansionContraction
**PMI Surveys Exclude Agriculture & Public Sector**

20. Slide 20
But this follows a bumper year for job creation
NI Employee Jobs
Excludes Self-Employed
-1.0%
-0.8%
-0.6%
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
Q3 2007 Q4 2008 Q4 2010 Q1 2012 Q2 2013 Q3 2014
Q/Q % Change
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
Y/Y % Change
Q/Q Y/Y
Source: DFP
Discontinuity in Series

21. Slide 21
Claimant count has fallen for 25 successive months
NI Unemployment Claimant Count Levels
48,200
123,100
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
Jan-71 May-78 Sep-85 Jan-93 May-00 Sep-07 Jan-15
Source: DFP
Dec 2012
64,800
Record Low
Aug 07 23,500
Good Friday
Agreement signed
April 1998
57,900

22. Slide 22
NI unemployment rate at a near 6-year low
Unemployment Rate
5.7
10.6
5.7
0
2
4
6
8
10
12
14
16
Dec-96 Dec-99 Dec-02 Dec-05 Dec-08 Dec-11 Dec-14
%
UK RoI NI
Source: ONS ILO Unemployment Rate & RoI Live Register

23. Slide 23
All sectors posted a weaker rate of growth in Q4-14
Northern Ireland Private Sector Output
3 month moving average
30
35
40
45
50
55
60
65
70
Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
Manufacturing Services Construction
Source: Markit Economics &
Ulster Bank NI PMI
ExpansionContraction

24. Slide 24
NI firms reporting disinflation in costs but deflation with prices
NI Private Sector Profit Squeeze
3 Month Moving Average
30
40
50
60
70
80
Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
Output Prices Input Prices No Change
InflationDeflation
Source: Markit Economics & Ulster Bank NI PMI
Profits
squeeze
Price of goods
& services

25. Slide 25
Cross-border retail trade will be going North > South
Northern Ireland Retail PMI
3 monthly average
25
35
45
55
65
75
Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
Business Activity New Orders No Change
Source: Markit Economics & Ulster Bank NI
ExpansionContraction

26. Slide 26
Food, Drink & Tobacco sector has outperformed other sectors
Northern Ireland's Manufacturing Sales
4
6
8
10
12
2003/04 2005/06 2007/08 2009/10 2011/12 2013/14
£bn FDT Sales Non-FDT Sales
Source: DFP MSES

27. Slide 27
Exchange rate + Decline in Non-FDT sales = > FDT share
FDT's Share of NI Manufacturing Sales Within Markets
53%
37%
28.5%
13%
0%
10%
20%
30%
40%
50%
60%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
FDT as % of Total Sales FDT as % of Total Exports
Source: DFP MSES

28. Slide 28
FDT has increased its share of NI sales across all markets
FDT's Share of NI Manufacturing Sales Within Markets
54%
31%
71%
54%
23%
58%
18%
27%
14%
5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
NI GB RoI Rest of the EU RoWSource: DFP MSES

29. Slide 29
FDT has bucked the wider trend across all markets
N.Ireland Manufacturing Sales in Constant Prices
% Change 2008/09 -2013/14
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
Exports RoI NI Total
Sales
External GB Rest of
EU
%
FDT Non-FDT
Source: DFP MSES
RoW FDT +497%
RoW Non-FDT -7%

30. Slide 30
Republic of Ireland market has been a key market for growth
NI Manufacturing Sales to the RoI
Annual % Change
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
Year-on-Year
FDT Non-FDT
Source: DFP MSES

31. Slide 31
FDT has enjoyed a decade of growth in sales to GB
NI Manufacturing Sales to GB
Annual % Change
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
Year-on-Year
FDT Non-FDT
Source: DFP MSES

32. Slide 32
NI house prices rise for 7th successive quarter
NI Residential Property Price Index
Quarterly & Year-on-Year Growth Rates
-15%
-10%
-5%
0%
5%
10%
15%
2005 Q4 2007 Q2 2008 Q4 2010 Q2 2011 Q4 2013 Q2 2014 Q4
Q/Q
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Y/Y
Q/Q Left Hand Axis Y/Y Right Hand Axis
Source: DFP RPPI

33. Slide 33
… but still half of 2007 levels
Residential Property Price Indices
Quarterly
-51% below peak
-38% below
peak
12% above
peak
2% above
peak
50
75
100
125
150
175
200
225
2005 Q4 2007 Q2 2008 Q4 2010 Q2 2011 Q4 2013 Q2 2014 Q4
Index Q1 2005 =
100
NI (RPPI) RoI UK ONS* UK Excl. London & S.East
Source: DFP, CSO, ONS* includes mortgages only

34. Slide 34
Source: The Economist 6th December
Source: The Independent 4th December 2014

35. Slide 35
‘The Fourth Revolution’ – The shrinking of the state
UK Revenue & Expenditure as a % of GDP
30
32
34
36
38
40
42
44
46
48
50
1948-49 1955-56 1962-63 1969-70 1976-77 1983-84 1990-91 1997-98 2004-05 2011-12 2018-19
% of GDP
Total managed expenditure Current receipts
Source: ONS, OBR December 2014
Forecasts

36. Slide 36
The smelling salts of reality have arrived
Table 4.F: Resource DEL spending
Outturn
2009-10 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
Per cent of GDP 21.2 17.4 16.8 15.3 14.1 13.3 12.6
Nominal spending1 317.8 316.8 316.3 299.0 287.9 282.9 279.7
Real spending2 351.5 316.8 311.9 291.0 275.4 265.7 257.7
Real spending per capita3 5,650 4,910 4,810 4,460 4,190 4,020 3,880
1 £ billion
2 £ billion, 2014-15 prices
3 £, 2014-15 prices
Spending plans Implied spending

37. Slide 37
Plenty of scope for political surprises in 2015
Source:
The Economist
?

38. Slide 38Slide 38
CONTACT DETAILS
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Please send us a mail at:
email: richard.ramsey@ulsterbankcm.com
Twitter: @UB_Economics

39. Slide 39
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