Philip McDonagh Presentation to NI Assembly & Business Trust 8 - - PowerPoint PPT Presentation

Philip McDonagh Presentation to NI Assembly & Business Trust 8th April 2014

Is the recovery for real?

Mr Deputy Speaker, I can report today that the economy is continuing to recover – and recovering faster than forecast

(2014 Budget Speech)

‘ the largest upward revision to growth between budgets

for at least 30 years’

UK GDP Outturn / Forecasts

0.5 1 1.5 2 2.5 3 3.5 4 2012 2013 2014 2015 2016 2017 2018 % Y/Y

Budget March 2013 Budget March 2014

Source:OBR +1.2pp +0.9pp

• 0.1pp
• 0.2pp

(Chart courtesy of Ulster Bank)

The hills are alive with the sound of recovery!

PwC

GLOBAL ECONOMIC WEATHER FORECAST – OUTLOOK FOR 2014 IS PARTLY SUNNY WITH A CHANCE OF RAIN..

dget 2014 Source: OBR for UK, PwC for others Russia Germany UK US Brazil India Spain Key Canada Mexico South Africa Australia Japan Italy Greece Ireland France

2.3 3.0 3.2 2.0 0.6 0.9 2.1 2.7 1.7 0.4 2.8 5.4 0.2 2.7 7.5 1.5 2.2 x.x

= GDP growth in 2014 China

(Chart courtesy of PwC)

Employment grew by 12,000 in 2013

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% Q4 2006 Q1 2008 Q2 2009 Q1 2010 Q2 2011 Q3 2012 Q4 2013 Q/Q % Change

• 4%
• 3%
• 2%
• 1%

0% 1% 2% 3% Y/Y % Change

Q/Q Y/Y

Source: DFP

Discontinuity in Series

(Chart courtesy of Ulster Bank)

UK Average Weekly Earnings* & CPI Inflation

Annual % Change

1.3% 1.9%

1 2 3 4 5 6 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16

%

Average Weekly Earnings CPI Inflation MPC Target

Income squeeze 'NICE' Decade

Source: ONS, * Excluding bonuses

(Chart courtesy of Ulster Bank)

Incomes still rising slower than inflation

How bad was it? Are we out of the woods or have we just reached a clearing? What has changed since 2007?

The history of the recession

85.0 90.0 95.0 100.0 105.0 110.0 115.0 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 NICEI/GDP

Northern Ireland

Northern Ireland

Peak Q2 2007 Trough Q3 2011 Back to 2010 level

The history of the recession: UK

85.0 90.0 95.0 100.0 105.0 110.0 115.0 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 NICEI/GDP Northern Ireland United Kingdom

UK peaks later & recovers more strongly

The history of the recession: RoI

85.0 90.0 95.0 100.0 105.0 110.0 115.0 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 NICEI/GDP Northern Ireland United Kingdom Republic of Ireland

Irish economy bottoms

• ut earlier

What about unemployment?

2% 4% 6% 8% 10% 12% 14% 16% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Unemployment Rate (%) United Kingdom Northern Ireland Republic of Ireland

Irish jobs crisis

So what has changed since 2007?

 We are 7 years older and wiser…….or are we?!  Businesses slower to invest - banks cautious  Consumers more cautious……or are they?  Average house prices now 54% below their 2007 peak  Full time permanent jobs harder to find  More part time employment and self employment  Net outward migration rising  Government committed to financial austerity

Where will the growth come from?

Y = C + I + G + (X – M)

C Consumer spending Rising I Business investment Flat G Government spending Falling X-M Exports – Imports ??

Local economic forecasts

2013 (NICIE est) 2014 2015 Ernst & Young +0.6% +2.0% +2.0% PwC +0.6% +1.9% NICEP +0.6% +2.8% +2.9%

‘A budget for makers, do-ers and savers’

How bad will it really be?

‘As a result of the painful cuts we have made, the deficit is down by a

• third. That’s the good news. The bad

news is: there’s still a long way to go. We’ve got to make more cuts’

(Chancellor of the Exchequer, January 2014)

By 2018/19 there will be no deficit

Public Sector Net Borrowing (the 'underlying' deficit*) as % of GDP

• 4
• 2

2 4 6 8 10 12 1964-65 1973-74 1982-83 1991-92 2000-01 2009-10 2018-19 PSNB

Forecasts Source: ONS, OBR March 2014,

* Excludes Royal Mail pension transfer & APF transfers

EU SGP Deficit Ceiling

(Chart courtesy of Ulster Bank)

Still one of highest deficits in the world

Government Net Borrowing as a % of GDP

2014

1 2 3 4 5 6 7

Germany Estonia Luxembourg Latvia Denmark Sweden Bulgaria Austria Romania Greece Lithuania Finland Italy Euro area Belgium Malta EU Czech Rep. Hungary Netherlands Slovakia Slovenia France Portugal Ireland Poland UK Cyprus Spain

% of GDP

€ EU Stability & Growth Pact Annual Deficit Ceiling

Source: European Commission Winter Forecast February 2014 & OBR March 2014.

(Chart courtesy of Ulster Bank)

The cuts haven’t really hit us yet

7500 8000 8500 9000 9500 10000 10500 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 £million

NI Resource DEL

RDEL March 2011 Latest RDEL

…but look what’s ahead

Change in Departmental DEL Spending

in Real Terms

• 6%
• 5%
• 4%
• 3%
• 2%
• 1%

0% 1% 2% 3% 4%

Annual Average 2011/12 to 2015/16 2016/17 2017/18 2018/19

%

DEL Resource DEL Capital DEL

Source: OBR March 2014

(Chart courtesy of Ulster Bank)

The challenges for government and business

 Managing public sector reform – ‘its not the size of the

public sector that matters its making it more modern and efficient’

 Productivity – the forgotten word?  Exporting more or becoming more competitive?  How do we fund a more ambitious apprenticeship

programme?

 Can we fund public sector infrastructure with

alternative finance?

 Fiscal powers?

philipmcdonagh@ntlworld.com