neil gibson director of regional services oxford economics june 2009 the recession, the recovery and...
TRANSCRIPT
Neil GibsonDirector of Regional Services
Oxford EconomicsJune 2009
The recession, the recovery and the response
2
Forecasters – not their finest hour!
The depth of the global recession has been a shock to almost all - including forecasters
Should we have seen it coming? In some areas yes – over-valued house prices, over reliance on
construction and retail sectors, exchange rate, tax revenue / government spend over-dependence on construction, exposure to global demand and FDI
Why did models not fully warn us? ‘Hidden’ / lacking data and limited knowledge of banking problems, globally
and nationally Extent to which debt underpinned growth was not fully explored – e.g. in
construction and retail Uncertainty over the timing and scale of asset price changes – e.g. house
prices Confidence and sentiment are hard to predict but have an excessively
large impact The scale of fiscal and monetary interventions would have been expected,
all other things being equal, to have had some effect by now (they may yet)
3
Overview
The recession – the regional impactThe recovery – where and when?The response – government approachSummary – questions from an
economist
The recession – the regional impact
5
All the world affected
-4
-3
-2
-1
0
1
2
3
4
5
6
1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: Oxford Economics
World: GDP growth% year
Forecast
2008 2009 2010 2011-18 (pa)
Real GDP
North America
United States 1.1 -3.0 1.2 3.3
Canada 0.4 -2.5 1.6 3.8
Europe
Eurozone 0.6 -4.7 -0.1 2.2
Germany 1.0 -6.3 0.1 2.1
France 0.3 -3.3 -0.2 1.9
Italy -1.0 -5.2 -0.2 1.8
Ireland -2.3 -8.9 -0.8 3.5
UK 0.7 -4.1 0.1 3.1
EU27 0.8 -4.1 0.1 2.5
Asia
Japan -0.7 -6.1 0.9 1.8
Emerging Asia 6.2 2.3 5.9 7.3
China 8.9 6.5 8.5 8.8
India 7.5 5.0 6.5 8.1
World 1.8 -2.7 1.8 3.8
Summary of International Forecasts
6
Recessions have many impacts…
Consumers
FinancesSpenders
and savers
Leavers from education
Job loss
Recession
Governments
Spending
StrategyFinancing projects
Governance
Businesses Society
Start - up
Advertising / marketing
Downsizing / layoffs
Closing
Environment
CrimeHousing
PressBenefits
PsychologyImage &
physical space
7
What caused it?
In summary■ Debt■ Confidence■ Complacency
Essentially the rapid escalation of financial sector debt (and personal sector debt in some countries) unwound when uncertainty over the asset values arose
Spectacular collapse in confidence, liquidity and valuations (plus the Lehman’s collapse) left financial world close to collapse
World ‘bail out’ (largely) to avoid deep recession and stabilise spending
Now a legacy of scarred consumers, nervous business and indebted governments (in West) makes outlook fragile
8
Overview of the regional impacts
GrowthJobsWorklessMigrantsSpending / prices
9
London and industrial Midlands hit hardest
GVA growth by region
2008 2009 20102011-19
(pa)
South East 1.1 -3.3 0.0 3.2London 2.6 -4.5 -0.3 3.8Eastern 0.0 -4.2 0.3 3.3South West 1.2 -3.6 0.8 3.0West Midlands 0.2 -4.5 0.6 2.7East Midlands -1.7 -4.6 0.3 2.7Yorkshire and Humber -0.4 -4.0 0.9 2.7North West 0.1 -4.1 0.9 2.7North East -0.5 -4.1 0.6 2.5Wales -0.9 -4.1 0.7 2.5Scotland 1.8 -3.5 0.3 2.8Northern Ireland 0.8 -3.5 0.7 2.9UK 0.8 -4.0 0.3 3.1
Source: Oxford Economics
10
Job loss for all
Employment change by region, 2008-10
-400
-350
-300
-250
-200
-150
-100
-50
0
Lond
on
East M
idlan
ds
Easte
rn
Wes
t Midl
ands
South
Eas
t
Scotla
nd
North
East
North
Wes
t
Wale
s
Yorks
hire
and H
umbe
r
South
Wes
t
Northe
rn Ir
eland
00
0s
-8
-7
-6
-5
-4
-3
-2
-1
0
%
000s
%
Source: Oxford Economics
11
A fall in migration expected
2007 2008 2009South East 45 45 38London -31 -16 -39Eastern 40 27 13South West 51 49 39West Midlands -1 2 -3East Midlands 24 20 7Yorkshire and Humber 20 22 16North West -1 3 2North East 6 6 3Wales 12 13 10Scotland 26 24 11Northern Ireland 10 6 3UK 201 200 100
Source: NOMIS / Oxford Economics
Total migration by region, 2007-09
12
Long term population below official outlooks
Population projections, 2018
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
South
Eas
t
Lond
on
Easte
rn
South
Wes
t
Wes
t Midl
ands
East M
idlan
ds
Yorks
hire
and
Humbe
r
North
Wes
t
North
East
Wale
s
Scotla
nd
North
ern
Irelan
d
00
0s
Official
Oxford Economics
Source: Oxford Economics / GAD
13
Unemployment rising in all 434 LA’s
0
5
10
15
20
25
30
35
40
45
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
pp change last 12 months
UK: Local authority unemployment changeFrequency
pp changeCorby 3.8Wear Valley 3.5Walsall 3.5Swindon 3.5Blaenau Gwent 3.5Kingston upon Hull 3.4Redditch 3.4Merthyr Tydfil 3.4Cannock Chase 3.3Limavady 3.3
pp changeIsles of Scilly 0.2Orkney Islands 0.5Ceredigion 0.6Eden 0.7Shetland Islands 0.7South Lakeland 0.8Ribble Valley 0.8City of London 0.8Aberdeenshire 0.8Moray 0.9
Source: NOMIS / Oxford Economics
14
Highest rise in weakest labour markets
y = 1.9742x + 0.0869
R2 = 0.6631
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Unemployment pp change last 12 months
Un
emp
loym
ent
rate
, M
ay 0
9
Corby
Blaneau Gw ent
Hull
Magherafelt
Tow er Hamlets
Isles of Scilly
Source: NOMIS / Oxford Economics
15
Huge variation in export concentrations
Production exports (%)
Services exports (%)
Total exports (%)
Pembrokeshire 0.8 12.3 13.1Blackpool 0.2 12.5 12.7Rhondda, Cynon, Taff 1.0 11.6 12.6Gwynedd 1.2 11.1 12.3Ribble Valley 2.1 10.2 12.3Scarborough 1.8 10.5 12.2Pendle 0.4 11.7 12.1Denbighshire 0.4 11.4 11.8Torfaen 0.4 10.5 11.0Blaenau Gwent 0.1 8.1 8.2
Source: ABI / NOMIS / Oxford Economics
Note: Production exports indcludes agriculture and manufacturing. Services includes proportions of transport and commerce and proffesional services. Figures are expressed as a % of total employment
Production exports (%)
Services exports (%)
Total exports (%)
City of London 0.0 75.7 75.7Tower Hamlets 0.8 53.3 54.2Hillingdon 0.4 51.0 51.4Islington 0.1 51.1 51.2Crawley 0.8 49.4 50.2Hart 0.8 45.0 45.8Suffolk Coastal 14.8 30.6 45.4Southwark 0.4 43.4 43.8Woking 0.8 41.3 42.1Camden 0.7 39.5 40.2
Top and bottom 10 LA’s for exporting jobs, 2007
16
A decade for some to return to job and house price peaks
Returning to regional peaks
Total Employment House Prices GVA
Unemployment
South East 2014 2014 2012 NeverLondon 2014 2014 2012 NeverEastern 2015 2014 2012 NeverSouth West 2014 2015 2011 NeverWest Midlands 2020 2015 2012 NeverEast Midlands 2025 2015 2013 NeverYorkshire and Humber 2018 2013 2012 NeverNorth West 2017 2013 2012 NeverNorth East 2022 2013 2012 NeverWales 2022 2015 2013 NeverScotland 2015 2010 2011 NeverNorthern Ireland 2015 2019 2011 NeverUK 2016 2014 2012 Never
Source: Oxford Economics
17
Employment remarkable in NI
90
100
110
120
130
140
150
1981 1985 1989 1993 1997 2001 2005 2009 2013 2017
Northern Ireland
England
Wales
Scotland
Total Employment: UK countriesIndex = (1981=100)
Source : Oxford Economics
Forecast
18
Improved participation everywhere
58
60
62
64
66
68
70
72
74
76
78
1994 1998 2002 2006 2010 2014 2018
Scotland
England
Wales
Northern Ireland
Resident employment rate: UK countries%
Source : Oxford Economics
Forecast
19
Unemployment – a lasting legacy
0
2
4
6
8
10
12
14
16
18
1981 1985 1989 1993 1997 2001 2005 2009 2013 2017
Wales
Northern Ireland
England
Scotland
Unemployment rate: UK countries%
Source : Oxford Economics
Forecast
The recovery – where and when?
21
Where will lead the recovery?
-1000 -500 0 500 1000 1500
Agriculture
Extraction
Manufacturing
Utilities
Construction
Retail
Hotels
Transport and communications
Financial services
Business services
Public administration
Education
Health
Other personal services
UK: Employment change by sector000s
Source : Oxford Economics
0
100
200
300
400
500
600
South
Eas
t
Lond
on
Easte
rn
South
Wes
t
Wes
t Midl
ands
East M
idlan
ds
Yorks
hire
and
Humbe
r
North
Wes
t
North
Eas
t
Wale
s
Scotla
nd
North
ern
Irelan
d
UK regions: Total employment change000s
Source : Oxford Economics
UK employment change by sector and by region, 2010 - 20
22
And so to green?
Green jobs touted as key■ What market?
■ What type of jobs?
■ Displacement (building green not grey houses)
Lifestyle sectors vulnerable or now key? Is the financial and professional services sector broken (no – but
different) Could on-shoring of industrial jobs occur (unlikely to great extent – but
possible with sharp oil price rises) Jobs related to care for the elderly likely Advanced skilled jobs (STEM, arts and design etc.) as harder to
replace Could there be a re-birth in academia? Tourism (relations with emerging nations important)
The response – government approach
24
Still an era of debt (from consumers to govt)
ROI and UK public finances outlook
Note no NI budget – a telling difference
2009 2010 2011 2012 2013
Ireland (Govt budget balance % GDP)Oxford Economics -10.0 -10.0 -8.6 -7.3 -5.9Department of Finance (April 2009) -10.8 -10.3 -8.5 -5.5 -3
UK (PSNB % GDP)Oxford Economics -11.6 -11.5 -10.4 -7.6 -5.9HM Treasury (April 2009) -12.4 -11.9 -9.1 -7.2 -5.5
Source: Ireland Department for Finance, HM Treasury, Oxford Economics
In some ways, ‘hands are tied’
25
Devolved governments (NI)
Disconnect with the ‘balance sheet’ of recession Benefits, social security not a true cost in NI – a big problem Lack of tax controls In principle closer to personal impact and thus potentially quicker
to respond In practice (NI) acting departmentally but political decisions
limited (Invest NI initiatives, DEL schemes – there are things happening)
The recession will necessitate hard choices (water charges, rates)
So far, appetite limited Longer recession tail through PE squeeze – could this bring
about a desired change though? A real test for coalition government
26
The key recession risks…
Leavers from education: ‘lost generation’? Laid off workers (skills mismatch) A new era of decay (especially cities)?
■ Job loss■ ‘Benefit locked’ migrants■ ‘property locked’ migrants■ Crime
Incomplete regeneration■ Disused sites■ Unfinished buildings, developments, housing estates■ No longer viable cultural and leisure activities■ PPP, funding etc.
Housing offer■ Limited new build■ Price falls welcome, but could rise sharply and become unaffordable again■ Skills and young people crisis – what jobs?
Will the sectors of recent growth return? Cycle of fear and retraction Impact on ‘pension pots’ and retirement
The biggest costs are personal – they can
last a lifetime
27
Short and Long term implications
Short term Significant job loss painful Personal costs high Limited opportunities for education
leavers Availability of finance at a premium No area / sector / class excluded Front page news (good and bad!) Impact on government, business,
consumers alike – a change in behaviour
Resource pressures (and public scrutiny) on public sector
Targets missed Strategies redundant (?) Wage inflation stifled (certainly in
private sector)
Long term Saving patterns Unemployment higher Migrant flows Natural increase rates (?) House price Public finances Rates Prices down (for how long?) Psychology Regulation, ‘bust / boom’ monitoring Exchange rates will rise again Oil prices will rise again
Summary – Questions from an economist
29
Questions to consider
Is the Northern Ireland data telling us the recession is worse than models suggest?
What can be done for current school / education leavers? What can those laid off be retrained in? Do we really understand the ‘costs’ of benefits? Do we really know what the so called ‘professional services
sector’ does? Is our economic strategy (?) appropriate in this environment? Do we have a plan for real cuts in PE? Do we know what powers we should appeal for in a devolved
government?
Any questions?
31
Contact:Neil GibsonDirector Regional Services, Oxford EconomicsTel: 028 9266 0669Mob: 07803728994 Email: [email protected]
Annex A: Detailed regional forecasts
33
Employment by regional group - South
90
100
110
120
130
140
150
1981 1985 1989 1993 1997 2001 2005 2009 2013 2017
South East
Eastern
South West
London
Total Employment: Southern regionsIndex = (1981=100)
Source : Oxford Economics
Forecast
34
Employment by regional group – Midlands and North
90
95
100
105
110
115
120
125
130
1981 1985 1989 1993 1997 2001 2005 2009 2013 2017
East Midlands
Yorkshire andHumberWest Midlands
North West
North East
Total Employment: Midlands and Northern regionsIndex = (1981=100)
Source : Oxford Economics
Forecast
35
Unemployment - South
0
50
100
150
200
250
1981 1985 1989 1993 1997 2001 2005 2009 2013 2017
London
Eastern
South East
South West
Unemployment: Southern regionsIndex = (1981=100)
Source : Oxford Economics
Forecast
36
Unemployment – North and Midlands
0
20
40
60
80
100
120
140
160
1981 1985 1989 1993 1997 2001 2005 2009 2013 2017
East Midlands
Yorkshire and Humber
West Midlands
North West
North East
Unemployment: Northern and Midland regionsIndex = (1981=100)
Source : Oxford Economics
Forecast
37
Resident employment rate - South
60
65
70
75
80
85
1994 1998 2002 2006 2010 2014 2018
Eastern
South East
South West
London
Resident employment rate: Southern regions%
Source : Oxford Economics
Forecast
38
Resident employment rate – Midlands and North
56
58
60
62
64
66
68
70
72
74
76
78
1994 1998 2002 2006 2010 2014 2018
East Midlands
West Midlands
North West
Yorkshire and Humber
North East
Resident employment rate: Northern and Midland regions%
Source : Oxford Economics
Forecast