economic empowerment conference 2011
Post on 03-Aug-2015
967 Views
Preview:
TRANSCRIPT
Economic Outlook and current state of the Northern Ireland EconomyAngela McGowan
Chief Economist
Northern Bank
Prepared November 2011
Click icon to add picture
Current state of NI economy
• The Bigger picture:• - Global / European crisis• - UK economy
• SWOT analysis for NI economy• Headline indicators• Economic outlook
• Discussion - making choices
Global recovery 4% per year – long period of slow growth:
Extra hit from the recent financial shock – long-term damage
BUT we expect some rebound in Q4 from: - low inventory levels - lower oil and food prices
West is trapped in low growth and elevated unemployment rates – Emerging mks – 6% growth
The Global Picture .....
• Headwinds from early 2011 (oil and food price shock / Japanese earthquake and Chinese policy tightening) starting to fade. But Aug/ Sept financial shock took its toll.
• There will be long-term damage from the shocks to the global economy this year. The job engine has not started and we now face significant policy tightening in advanced economies.
• As a consequence, central bank rates in the US, Europe and Japan will be kept low for the foreseeable future.
We do not expect a global recession but Europe is a high risk and is expected to contract for at least one quarter. • We don’t believe the Q3 shock was big enough to
trigger a GLOBAL recession (but another hit of 10-15% wuld do it)
• But – it will have an impact upon business and consumer behaviour in Q3 - inventories will be cut
• - investment plans postponed• Consumers will probably spend less
Remember:
- many headwinds are turning into tailwinds and will pull growth upward
- Interest rates will provide some support
But risks remain high around the Eurozone:
• European crisis is the biggest risk at moment.
• This week markets will focus on: - Greece – will it pass the austerity package?- Italy - negotiations over potential pension reform are
expected to continue. Risk of a government reshuffle in Italy remains in focus.
• At the ECOFIN meeting (today), the Ministers of Finance will “discuss the follow-up to the decisions taken” at the EU Summit.
• Markets would like a lot more detail to reduce uncertainty
The Worst case scenario The good alternative
• This scenario centres on a further worsening of sentiment in the interbank markets.
• A tightening of credit standards and drop in asset prices would result in slowing production /rising U and a drop in investments and consumption
• - another global financial crisis would lead to recession in the Western economies and dampen growth in Asia.
• The impact on the real economy would be very severe – particularly in the Euro area – with no room for a fiscal response.
- European leaders would make appropriate moves - to restructure
Greek debt / recapitalise banks etc √√
- Growth and risk sentiment would improve markedly on the back of a strong turnaround in the global manufacturing cycle – with China leading
- China would be willing to support the European Financial Stability Facility.
- US continues to recover.
- The interbank market normalises
Current state of play
• The ECB cut its key policy rates by 25bp. (downside risks to economic growth -forecast a mild European recession).
• Will probably cut its key rates another 25bp in December.
• The relief that followed after the EU summit last week was short-lived - market is not happy about the lack of detail in the 'comprehensive package'.
• Market sentiment could worsen - but if Italy commits to reforms +G20 delivers a constructive solution + Greek salvage gov’t - all this could be positive for this week.
• Unfortunately, none of these events will be a permanent game changer.
Data suggests UK recovery is still struggling..............UK – Recovery stalling
Unemployment levels risen to 8.1% - labour market flexibility
After 0.1% growth in Q2, ONS estimate Q2 0.5% but -UK in trouble before EU crisis took hold
Problems remain:
Austerity already having an impact on domestic spending
Europe – potential impact for Exports and bank exposures
Inflation still high (5.2% – Sept11)
UK : THE PRESSURE IS ON
The outside impact on Northern Ireland?
• UK Austerity will have some impact on local public spending – but also huge impact upon confidence.
• European crisis – again an impact upon confidence /investment and potential to hit exports.
• Unemployment risen• Access to finance impact
GVA growth (%)
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Q1 2008
Q3 2008
Q1 2009
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012%
NI
UK
Northern Ireland Economic Overview: weak growth ahead and potential for rising unemployment levels is high Since emerging from recession in late 2009, Northern Ireland is also experiencing a very weak recovery
The indicators suggest a sluggish labour in terms of job creation but//unemployment is now at 7.6% (8.1% in UK and 14.4% in RoI)
A fall back into recession cannot be ruled out (probability estimated to be in the region of 25%)
Revisions to sickness benefit could have huge impact
Source: Oxford Economics & Northern Bank August 2010
SWOT analysis for NI economy
strengths
• Infrastructure• Young population• Good education system
(top)
• World–class universities• Smallness /access***• English Speaking• History of Industrial
success / innovation• Political ethos –
democratic and value equality
weaknesses• Low productivity• Small private sector • Smallness***
- economies of scale /- regional restrictions – taxationRecovering from a housing bubble
• Large tail of underachievement• Youth unemployment levels• Economic and social exclusion – LTU• Skills gap• No growth of knowledge
economy • Export / R&D / clusters / start-up
levels• Education system – elitist /
creativity
SWOT analysis for NI economy
Opportunities• University research –
more spin offs• International goodwill /
Diaspora• Growing demand from
Emerging Markets• Connectivity with RoI
and rest of UK• More partnerships PPPs• Taxation autonomy
Threats• Global downturn• Unemployed youth (18%)• Austerity measures• Subvention £9billion• LT Energy supply and cost• Political resistance to
raising local revenue streams:
• - water / rates / health service
Discussion - making economic choices
• Q: What does society actually want?• levels of taxation V levels of public spending ?• intervention V free market ? somewhere in between?
Regulation – how much? Where? – environmental / financial / etc
Regional economic dependence V Independence• Where should our job creation come from?
• – local enterprise and new firm start-ups?• - Foreign investors?• - mixture of both?
- Low or high risk economic strategy? Middle ground?Economics is about optimum use of available resources - but we still need to make
choices according to social consensus. (e.g current school system)• HOWEVER - for that decision making we need better information - we need to know
who will benefit? What is the cost? Who will carry the risk ? What are the alternatives?
• - Who is responsible for getting us there – politicians / private sector – social partnership consensus approach?
top related