Angela McGowan presentation to October 2009 CBI (NI)/ Stratagem Conference


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Angela McGowan presentation to October 2009 CBI (NI)/ Stratagem Conference

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Angela McGowan presentation to October 2009 CBI (NI)/ Stratagem Conference

  1. 1. SMALL economies / GLOBAL economies Angela McGowan Chief Economist Northern Bank
  2. 2. Let’s take a look at …………. <ul><li>Where are now globally and locally? </li></ul><ul><li>The current challenges we face… </li></ul><ul><li>What can policy makers do to help? </li></ul><ul><li>What can the business community do? </li></ul>
  3. 3. Where is the global economy? <ul><li>All G7economies now pulling out of recession </li></ul><ul><li>The recovery has arrived quicker than expected but activity will remain weak </li></ul><ul><li>Recovery being driven by : </li></ul><ul><ul><li>- central banks (monetary policy) & fiscal stimulus </li></ul></ul><ul><ul><li>- inventory cycles </li></ul></ul><ul><ul><li>- Hopefully - consumer demand will step in!! </li></ul></ul>
  4. 4. IS M small slip in Sept but still points to rebust growth
  5. 5. Consumer spending up in Q3 – and its not just cars
  6. 6. There is good news around.... <ul><li>Worst of financial crisis over- all bad news is out! </li></ul><ul><li>Credit markets improving! </li></ul><ul><li>Investors have returned – risk appetite is back! </li></ul><ul><li>Consumer confidence improving (interest rate effect) </li></ul><ul><li>Housing in US stabilising </li></ul><ul><li>BUT – must be careful how we manage the recovery!!!! </li></ul><ul><ul><li> - must avoid over heating – cheap money / rising equities </li></ul></ul><ul><ul><li>- CEO’s not as excited as equity markets have been </li></ul></ul><ul><ul><li> - A lot of work still to be done on REGULATION side </li></ul></ul>
  7. 7. Worst recession since war…
  8. 8. Where has this left the LOCAL economy?... <ul><li>Inflation +1.6% </li></ul><ul><li>Local Unemployment ( May-July 6.7%) </li></ul><ul><li>Retail data - local consumer demand still weak </li></ul><ul><li>Housing – some stability (average house £159k) </li></ul><ul><li>Local Business Services YoY Q2 Contraction -3.4% </li></ul><ul><li>Local Manufacturing. YoY Q2 Contraction -9.9% </li></ul><ul><li>Consumer confidence – weak but improving </li></ul>
  9. 9. Sectoral GVA: % Year on Year 2009 & 2010
  11. 11. Northern Bank: consumer confidence survey
  12. 12. Where are the local economic challenges? <ul><li>Productivity in Northern Ireland relatively low. </li></ul><ul><li>Local market is small, yet - export orientation not high! </li></ul><ul><li>Small player on global market </li></ul><ul><li>A low working age employment rate 65.7% </li></ul><ul><li>Public Expenditure Squeeze – efficiencies + cuts + greater demand </li></ul><ul><li>Need to grow our Private Sector </li></ul>
  13. 13. Where are the opportunities? <ul><li>Global recovery - will help local confidence and investment! </li></ul><ul><li>Cross-border trade </li></ul><ul><li>Weak sterling </li></ul><ul><li>Asia – growing markets </li></ul><ul><li>Barnett Report – small can be used to our advantage!! </li></ul>
  14. 14. The literature tells us…. <ul><li>Economic growth rates are uncorrelated to population! </li></ul><ul><li>Small economies on average have the same growth rates as large economies, but can be more vulnerable to economic shocks. </li></ul><ul><li>Small countries are helped by: </li></ul><ul><li>1) deep trade links 2) large migration flows </li></ul>
  15. 15. Economic growth for small economies … <ul><li>Question: Are the fundamental determinants of growth the same for large and small economies? </li></ul><ul><li>Answer – yes! Generally the same policies that work for large economies also work for small economies. </li></ul>
  16. 16. For long-term SUSTAINABLE economic growth - what does really matter ? <ul><ul><li>Those factors that attract and retain foreign investors...... </li></ul></ul><ul><ul><li>good infrastructure, ICT </li></ul></ul><ul><ul><li>Good governance </li></ul></ul><ul><ul><li>Skill levels / education system </li></ul></ul><ul><ul><li>Competitive cost base </li></ul></ul><ul><ul><li>Comparative advantage (non-congested, live outside of centre) </li></ul></ul><ul><ul><li>A focus on Innovation and R&D, </li></ul></ul><ul><ul><li>Highly productivity industry sectors, firms and people </li></ul></ul>
  17. 17. ALL ECONOMIES ARE NOW GLOBAL … <ul><li>Old theories about “decoupling” proved wrong </li></ul><ul><li>Centre of economic gravity is shifting to Asia </li></ul><ul><li>World population rapidly expanding, resources will be stretched – commodity prices rises </li></ul><ul><li>IMPLICATIONS FOR : health provision, food, water – technological advances, REQUIREMENTS FOR – better technologies, greater efficiency, improved processes and sustainability) </li></ul>
  18. 18. Local manufacturing…. <ul><li>The future of this sector lies in: </li></ul><ul><ul><li>Moving into R&D </li></ul></ul><ul><ul><li>Development of spin-off products </li></ul></ul><ul><ul><li>Less labour intensive </li></ul></ul><ul><ul><li>Higher Value Added </li></ul></ul><ul><ul><li>Develop linkages with University R&D </li></ul></ul>
  19. 19. Service Sector: <ul><li>International competition from emerging markets is not as severe for business services – so far less of a threat </li></ul><ul><li>Professional services (legal, accountancy, design – great potential) </li></ul><ul><li>Oxford Economics – forecast increase in Business Services employment (21,300 b/t 2010-2020) </li></ul>
  20. 20. The business community needs to……. <ul><li>INNOVATE: Incorporate new ideas and methods into your products, processes and services. </li></ul><ul><li>Drive up Productivity – Forfas </li></ul><ul><li>CONNECT: Make use of R&D in universities </li></ul><ul><li>CUSTOMER FOCUS - innovation is not just science and technology (discerning and meeting needs of customer) </li></ul><ul><li>THINK GLOBALLY : The economic centre of gravity in 20 yrs will be in Asia – how will you tap into foreign markets or compete against Asian companies ? </li></ul>
  21. 21. Local policy makers need to …… <ul><li>Foster a culture supportive of Enterprise & Innovation </li></ul><ul><li>Attack the gap in public finances (£1bn) </li></ul><ul><li>Have an outward orientation </li></ul><ul><li>Think long-term and sustainability when making decisions </li></ul><ul><li>Ensure the NI Plc portfolio is balanced </li></ul><ul><li>Invest in those who are out of work </li></ul><ul><li>Consider impact of risks in economic planning - e.g oil price rises, housing bubbles and consider various policy responses / planning </li></ul>
  22. 22. Critical factors for full recovery… <ul><li>Bank regulation </li></ul><ul><li> (policy must be consistent – Capital Adequacy Regulation, better risk management) </li></ul><ul><li>Consumer confidence – spending and savings, a better balance needed </li></ul><ul><li>Oil prices </li></ul><ul><li>Management of Economic policy (global and local) </li></ul>
  23. 23. Conclusions… <ul><li>Recession is ending but recovery will be slow (+0.8% NI) in 2010 </li></ul><ul><li>Recovery should not be mistaken for normal economic conditions returning </li></ul><ul><li>Unemployment lags recovery so will continue to rise </li></ul><ul><li>Spending cuts and tax rises will be upon us! </li></ul><ul><li>Spare capacity in economy should keep inflationary pressures down </li></ul><ul><li>Central banks will keep interest rates low for rest of this year and most of next! </li></ul>