ni economic performance and outlook

Northern Ireland Economy Performance & Prospects

Presentation to ETT

12th

March 2015

Richard Ramsey Chief Economist Northern Ireland

www.ulstereconomix.com [email protected]

Twitter @UB_Economics

mailto:[email protected]

Global output expanding at its fastest rate in 5-months

Global Output - PMI

35

40

45

50

55

60

65

Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15

Source: Markit Economics

ExpansionC

ontraction

Annual Consumer Price Inflation (HICP)

0.3

-0.6

-0.4

0.8

-4-3-2-101234567

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

Inflation no longer a problem – Disinflation / Deflation?

Falling commodity prices is not just an oil story

Bloomberg Commodities Index

80

100

120

140

160

180

200

220

240

260

Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13 Mar-15

Source: Bloomberg (BCOM Index)

27% fall y/y

Price of Brent Crude oil fell by 60% in just 7 months

Price of Brent Crude Oil in Dollars & SterlingWeekly

£40

£32.5

$49

$59

0

20

40

60

80

100

120

140

160

Mar-93 Nov-96 Jul-00 Mar-04 Nov-07 Jul-11 Mar-15

£/$ pb

£pb $pb

Source: Bloomberg

Mario Draghi (ECB)

Mark Carney (BoE)

Haruhiko Kuroda (BoJ)

Janet Yellen (US Fed)

Sterling / Euro hits €1.42 for the first time since Nov-07

Sterling / Euro Exchange Rate

1.42

1.0

1.1

1.2

1.3

1.4

1.5

1.6

Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15

€

Source: Bloomberg

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

Rates of inflation & wage growth now moving in the right direction!

UK Average Weekly Earnings* & CPI InflationAnnual % 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

Food & petrol prices falling at a record rateUK 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 FuelsTransport Fuels & Lubricants

Source: ONS

Though petrol prices have been starting to tick up again

UK Fuel Prices - Pence per litre (Weekly)

107.3pFeb-15

106.3pJan-15

131.1pJul-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

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'

NI house prices rise for 7th successive quarter

NI Residential Property Price IndexQuarterly & 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

Residential property transactions on the rise

NI Residential Property TransactionsRolling 4 Quarter Sum

9,321

41,178

20,216

28,9742005 'normal' levels &

start of series

-

10,000

20,000

30,000

40,000

50,000

2005 Q4 2007 Q2 2008 Q4 2010 Q2 2011 Q4 2013 Q2 2014 Q4

51% below 'freak peak' but 117%

above low & 30% below 2005 (normal)

Source: DFP

NI’s recovery took hold in H2 of 2013 with all indicators improving in H1 2014 but easing in H2 2014

NI Private Sector Performance (PMI)

30

35

40

45

50

55

60

65

2006

H220

07H1

2007

H220

08H1

2008

H220

09H1

2009

H220

10H1

2010

H220

11H1

2011

H220

12H1

2012

H220

13H1

2013

H220

14H1

2014

H2

PMI Index

Business Activity New Orders Employment Export Orders

ExpansionC

ontraction

Source: Markit Economics & Ulster Bank NI PMI

NI records its 3rd consecutive month of contraction as it continues to diverge from the UK & RoI

Private Sector Business Activity - PMIs

30

35

40

45

50

55

60

65

Feb-03 Feb-05 Feb-07 Feb-09 Feb-11 Feb-13 Feb-15

NI UK RoI

Source: Markit & Ulster Bank NI PMI50 = threshold between expansion / contraction

ExpansionC

ontraction

**PMI Surveys Exclude Agriculture & Public Sector**

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

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 199857,900

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

NI has started 2015 on a negative note with output contracting and new orders broadly flat

NI Private Sector ActivityMonthly

30

35

40

45

50

55

60

65

70


Business Activity New Business Employment


ExpansionC

ontraction

Inflationary pressures continue to ease with output prices falling

NI Private Sector Profit Squeeze3 Month Moving Average

30

40

50

60

70

80


Output Prices Input Prices No Change

InflationD

eflation


Profits squeeze

Price of goods & services falling

NI Construction

Market

No construction sector recovery according to DFP data

Northern Ireland Construction Output

45% below peak

60

80

100

120

140

160

180

2000 Q3 2004 Q1 2007 Q3 2011 Q1 2014 Q3

Index 2011 = 100

Source: DFP Construction Bulletin

With no meaningful pick-up in housing starts

Northern Ireland Housing StartsRolling Annual Sum

3.8k3.1k

4.9k5.5k

0

3,000

6,000

9,000

12,000

15,000

18,000

1978 1982 1985 1989 1992 1996 1999 2003 2006 2010 2013

Private Sector Total

Source: DSD

But PMI suggests recovery began in H2 - 2013

NI Private Sector Business Activity (PMI)

30

35

40

45

50

55

60

65

2006

H220

07H1

2007

H220

08H1

2008

H220

09H1

2009

H220

10H1

2010

H220

11H1

2011

H220

12H1

2012

H220

13H1

2013

H220

14H1

2014

H2

PMI Index

Manufacturing Services Construction Retail ExpansionC

ontraction


All sectors experienced a rapid slowdown in output growth in H2 with services outperforming the other sectors

Northern Ireland Private Sector Output 3 month moving average

30

35

40

45

50

55

60

65

70


Manufacturing Services Construction


Expansion

Contraction

Services & construction firms reporting reasonable rates of employment growth with manufacturing flat

NI PMI - Employment Index 3 month moving average

25

30

35

40

45

50

55

60

65


Manufacturing Services Construction


Job Gains

Job Losses

Construction sector is still playing catch up

NI Construction Employee Jobs Levels

30,270

46,820

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Q4 1993 Q2 1997 Q4 2000 Q2 2004 Q4 2007 Q4 2010 Q3 2014

Source: DFP, QES

Discontinuity in Series

Back to 1998 levels

Weakest jobs recovery to date

NI Construction Recessions & Recoveries Compared (Employee Jobs Pre-Recession Peaks Indexed = 100)

Peak 1979 Q2

Peak 1990 Q3

2007Q4 - 2014Q250

60

70

80

90

100

110

120

130

140

Peak 1 year 2yrs 3yrs 4yrs 5yrs 6yrs 7yrs 8yrs 9yrs 10yrs

Time Since Pre-Recession Peak

Index

1980s 1990s 2007- 2014 Pre-Downturn Peak

Source: DFP & UB calculations

Current recession has seen construction employment plummet. 6 1/2 years (26 quarters) after the downturn employment was

still 35% below Q4 2007 peak. At this stage of the 1980s recession employment had fallen by just 28%

Since Q2-14’s record rates of growth, NI’s construction firms report a significant easing in their rates of growth

NI Construction PMI3 month moving average

20

30

40

50

60

70


Output New Orders Employment

Source: Markit Economics, Ulster Bank PMI

ExpansionC

ontraction

50 = No change

Input cost inflation remains high but construction firms are at least still able to raise their prices

NI Construction Sector Profits Squeeze3 month moving average

20

30

40

50

60

70

Mar-09 May-10 Jul-11 Sep-12 Nov-13 Jan-15

PMI IndexInput Prices Output Prices No Change

Source: Markit Economics & Ulster Bank

InflationD

eflation

Strong rates of output growth amongst UK & RoI firms with NI firms reporting growth albeit at a weaker rate

Construction Sector Output - PMI3 month moving average

20

30

40

50

60

70


PMI Index

NI UK RoI


ExpansionC

ontraction

NI orders growth continues to ease from recent record high with RoI growth slowing too. UK firms see growth stabilise

Construction Sector New Orders - PMI3 month moving average

20

30

40

50

60

70


PMI Index

NI UK RoI


ExpansionC

ontraction

UK Market

UK construction activity rebounds from December’s 17-month low

UK Construction Activity / Output - PMIs

20

30

40

50

60

70

80

Feb-05 Feb-07 Feb-09 Feb-11 Feb-13 Feb-15

Business Activity New Orders Employment


ExpansionC

ontraction

UK firms optimistic about the future

Future Business Activity Index - PMIs

20

30

40

50

60

70

80

90

100


Future Activity Long-Term Average


Optim

ismPessim

ism

In 12mths time do you expect overall activity to be higher than now, lower, or the same?

Opportunities for NI firms across all areas of activity

UK Construction Activity - PMIsMonthly

20

30

40

50

60

70


Housing Activity Commercial Activity Civil Engineering Activity


ExpansionC

ontraction

Supply of and demand for sub-contractors in the UK is moving in different directions

UK Construction PMI

20

30

40

50

60

70

80


Rates Charged By Sub-Contractors Availability of Sub-ContractorsN Ch


IncraesingD

ecreasing

RoI Market

RoI construction activity eases to an 18-mth low

RoI Construction Activity - PMIs

20

30

40

50

60

70

80


Total Activity New Orders Employment


ExpansionC

ontraction

RoI firms still optimistic about the future

Future Business Activity Index - PMIs

20

30

40

50

60

70

80

90

100


RoI Future Activity RoI Long-Term Average


Optim

ismPessim

ism

In 12mths time do you expect overall activity to be higher than now, lower, or the same?

RoI firms reporting a marked slowdown in activity in Q1

Republic of Ireland Construction Activity - PMIMonthly

20

30

40

50

60

70


Housing Activity Commercial Activity Engineering Activity

Source: Markit Economics & Ulster Bank

ExpansionC

ontraction

50 = No change

Construction is still experiencing significant rates of input cost inflation

UK & RoI Construction Input Cost Inflation

20

30

40

50

60

70

80

90


UK Input Prices RoI Input Prices


InflationD

eflation

Plenty of scope for political surprises in 2015

Source:

The Economist

?£ / €

Slide 45

CONTACT DETAILS

Our new blog is available at www.ulstereconomix.com

Please send us a mail at:

email: [email protected]

Twitter: @UB_Economics

mailto:[email protected]

Disclaimer

This document is intended for clients of Ulster Bank Limited and Ulster Bank Ireland Limited (together and separately, "Ulster Bank")

and is not intended for any other person.

It does not constitute an offer or invitation to purchase or sell any instrument or to provide any service in any jurisdiction where the required authorisation is not held.

Ulster Bank and/or its associates and/or its employees may have a position or engage in transactions in any of the instruments mentioned.

The information including any opinions expressed and the pricing given,

is indicative,

and constitute our judgement at time of publication and are subject to change without notice.

The information contained herein should not be construed as advice,

and is not intended to be construed as such.

This publication provides only a brief review of the complex issues discussed and recipients should not rely on information contained here without seeking specific advice on matters that concern them.

Ulster Bank make no representations or warranties with respect to the information and disclaim all liability for use the recipient or their advisors make of the information.

Over-the-counter (OTC) derivatives can involve a number of significant and complex risks which are dependent on the terms of the particular transaction and your circumstances. In the event the market has moved against the transaction you have undertaken, you may incur substantial costs if you wish to close out your position.

Calls may be recorded.

ni economic performance and outlook

Business

lower import price inflation

commodity prices

rates of inflation wage

food petrol prices

year growth rates

uk fuel prices pence

normal source

uk average weekly earnings