Causeway Chamber of Commerce

NI Economic Outlook

30th

April 2015

Richard RamseyChief Economist Northern Irelandrichard.ramsey@ulsterbankcm.com

www.ulstereconomix.com

@UB_Economics

Global output growth at a 6-month high in March

Global Output - PMI

35

40

45

50

55

60

65

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

Source: Markit Economics

ExpansionC

ontraction

Slide 3

Unresolved problems in the Eurozone continue to rumble on

Slide 4

Inflation no longer a problem – Disinflation / Deflation?

Annual Consumer Price Inflation (HICP)

0.0

-0.3

-4-3-2-101234567

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

% Y/Y

EZ UK RoI US*

* US is CPI

Slide 5

Disinflation / deflation = interest rates lower for longer

UK Interest Rates (weekly)

1.41%

1.75%

0

1

2

3

4

5

6

7

8

Apr-00 Oct-02 Apr-05 Oct-07 Apr-10 Oct-12 Apr-15

%

5yr 10yr Base

Rise in swap rates preceeds base rate hikes

Source: Bloomberg

Unemployment fell to a 6-year low of 5.7% (Q4)

Employee jobs +1.9% y/y (Full-time +1.7%)

Residential property transactions +22% y/y

FTB mortgage activity at an 8-year high

Housing starts rebound from 36-year low

New car sales +9% y/y

Estimated economic growth (GVA) 2.0% (in real terms)

2014 NI economic performance highlights

Slide 7

Private sector slowdown since Q4-14 with NI’s recovery lagging behind the UK and the RoI

Private Sector Business Activity - PMIs

30

35

40

45

50

55

60

65

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

NI UK RoI

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

ExpansionC

ontraction

**PMI Surveys Exclude Agriculture & Public Sector**

Slide 8

NI & Scotland lagging behind the other UK regions

Output / Business Activity Q1 2015

50 = No change

60.2

49

57.5

40

45

50

55

60

65

Lon WM Wal UK SE Y&H SW NW East EM NE Scot NI RoI

PMI Index

Source: Markit Economics & Ulster Bank NI PMI

Expansion

Contraction

Slide 9

Growth rates in new business & job creation have eased

NI Private Sector ActivityMonthly

30

35

40

45

50

55

60

65

70

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

New Business Employment

Source: Markit Economics & Ulster Bank NI PMI

ExpansionC

ontraction

Slide 10

NI firms reporting disinflation in costs but deflation with prices

NI Private Sector Profit Squeeze3 Month Moving Average

30

40

50

60

70

80

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

Output Prices Input Prices No Change

InflationD

eflation

Source: Markit Economics & Ulster Bank NI PMI

Profits squeeze

Price of goods & services

Slide 11

Slowdown has been evident across all sectors

Northern Ireland Private Sector Output 3 month moving average

30

35

40

45

50

55

60

65

70

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

Manufacturing Services Construction

Source: Markit Economics & Ulster Bank NI PMI

Expansion

Contraction

Construction sector turning the corner in terms of output…

Northern Ireland Construction Output

43% below peak

60

80

100

120

140

160

180

2000 Q4 2004 Q2 2007 Q4 2011 Q2 2014 Q4

Index 2011 = 100

Source: DFP Construction Bulletin

…but not in terms of employment

NI Sector Recoveries in Employee JobsPre-Recession Peaks Indexed = 100

1% above peak

5% below peak

37% below peak

50

60

70

80

90

100

110

Peak 1 year 2yrs 3yrs 4yrs 5yrs 6yrs 7yrsTime Since Pre-Recession Peak

Index

Total Services ManufacturingConstruction Pre-Recession Peak

Source: DFP & UB Calculations

Jobs recovery continues - 70% of jobs lost (+28k) recouped in < 3yrs

Annual Growth in N.Ireland Employee Jobs

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

%

FT PT Total

Source: ONS & DFP

Slide 15

Claimant count has fallen for 27 months in a row

NI Unemployment Claimant Count Levels

45,200

123,100

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Mar-71 Jul-78 Nov-85 Mar-93 Jul-00 Nov-07 Mar-15

Source: DFP

Dec 2012 64,800

Record Low Aug 07 23,500

Good Friday Agreement

signed April 199857,900

Slide 16

Unemployment recently hit a 6-year low

Unemployment Rate

5.6

10.1

6.0

0

2

4

6

8

10

12

14

16

Feb-97 Feb-00 Feb-03 Feb-06 Feb-09 Feb-12 Feb-15

%

UK RoI NI

Source: ONS ILO Unemployment Rate & RoI Live Register

Youth unemployment still stubbornly high

Youth Unemployment Rate (18-24yrs)

0%

5%

10%

15%

20%

25%

30%

Feb-95 Feb-99 Feb-03 Feb-07 Feb-11 Feb-15

%

Source: ONS LFS

GFA signed

Younger generation haven’t experienced the jobs recovery that older generations have

NI Employment Change by Age

-30%

-20%

-10%

0%

10%

20%

30%

40%

18-24yrs 25-49yrs >50yrs

% Y/Y 7-year % Change

Source: LFS February - April 2015

Slide 19

The younger generation has experienced the sharpest decline in earnings

% Change in N.Ireland Median Annual Earnings Cumulative change in real terms 2008-2014*

-13.7%

-9.1%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

Age 18-21 Age 22-29 Age 30-39 Age 40-49 Age 50-59 Age 60+ All

All Employees (Full-Time & Part-Time) Full-Time

Source: DFP ASHE & ONS, * April each year

Slide 20

Driving test downturn appears to have turned a corner

N.Ireland Private Car Driving Tests Conducted

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

70,000

75,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: DVA

Slide 21

New car sales growth stutters following 2 years of growth

N.Ireland New Car Registrations Annual % Growth

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2007 2008 2009 2010 2011 2012 2013 2014 2015*

Y/Y

VAT cut to 15% & 'Cash for Clunkers'

Source: SMMT, *Figures for Q1 2015

Cost of living crisis narrative has disappeared …for now at least

UK Average Weekly Earnings* & CPI InflationAnnual % Change

0

1

2

3

4

5

6

Mar-02 May-04 Jul-06 Sep-08 Nov-10 Jan-13 Mar-15

%

Average Weekly Earnings CPI Inflation MPC Target

Income squeeze'NICE'

Decade

Source: ONS * Excluding bonuses

Slide 23

Food & petrol prices falling at a record rate

UK Food Price Inflation (CPI)

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

*

Y/Y

Source: ONS, * March 2015

Slide 24

Energy & petrol prices falling too

UK Energy & Fuel (CPI)

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

*

Y/Y

Electricity Gas & Other Fuels Transport Fuels & Lubricants

Source: ONS, * March 2015

Slide 25

Until recently petrol prices have been falling too

UK Fuel Prices - Pence per litre (Weekly)

113pApr-15

106.3pFeb-15

131.1pJul-14

129.7p

141.8p Apr-12

85.4p

60

70

80

90

100

110

120

130

140

150

Apr-04 Feb-06 Dec-07 Oct-09 Aug-11 Jun-13 Apr-15

Pence per litre

Source: DECC

Slide 26

House prices have been on the rise – up 8% y/y in Q4 2014

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

Slide 27

Housing starts up 14% y/y but coming off a 35 year low

Northern Ireland Housing Starts

0

2,500

5,000

7,500

10,000

12,500

15,000

17,500

1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

Source: DSD & DFP

36-yr low

NI exports more price competitive in US market vis-à-vis last year

Sterling / Dollar Exchange Rate

1.546

1.46

1.71

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2

2.1

Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15

Source: Bloomberg

Sterling hits a 7-yr high against the euro

Sterling / Euro Exchange Rate Hits a 7-yr High

1.42

1.0

1.1

1.2

1.3

1.4

1.5

1.6

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

€

Source: Bloomberg

Slide 30

Exports – the smaller the firm the bigger the exposure to the Eurozone

NI Manufacturing Sales made to each destination 2013/14

54.1%

6.0%

44.0%

17.7%

14.8%

4.0%

15.9%

18.8%

30.1%

58.1%

25.5%

5.0%10.1%

8.2%

8.0%

4.4% 8.1%

23.7%

6.6%

36.9%

0%

20%

40%

60%

80%

100%

Small Medium Large SMEs

NI RoI GB Rest of EU RoW

Island of Ireland

Exposure71.8%

Island of Ireland

Exposure51.7% Island of

IrelandExposure

10.0%

Island of Ireland

Exposure59.9%

Exchange rate now a headwind for retail too

Northern Ireland PMI

20

30

40

50

60

70

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

Retail Activity Export Orders (All Sectors) No Change

Source: Markit Economics & Ulster Bank NI PMI

Expansion

Contraction

NI economy faces significant challenges

Source: The Independent 4th December 2014

GE a speed camera for pace of austerity

Slide 34

Plenty of scope for political surprises in 2015

Source: 

The Economist

Brexit£ / €

Corp Tax Rate

Up or down?

35

Economist update – Republic of Ireland & Northern Ireland – April 2015

GDP Growth y/y %

Personal Consumption y/y

%

House Price Growth y/y %

Unemployment Rate, % of the Labour Force

Employment Growth y/y %

Construction PMI HICP Inflation y/y %

2013 0.2 -0.8 2.1 13.1 2.4 49.3* 0.52014 4.8 1.2 12.9 11.3 1.8 61.1* 0.32015f 3.9 2.4 9.7 9.8 2.1 52.9** 0.22016f 3.6 2.3 5.3 8.9 2.2 1.5

Republic of Ireland

Northern Ireland

GVA Growth y/y %

House Price Growth y/y %

Unemployment Rate, % of the Labour Force

Employment Growth y/y %

Construction PMI HICP Inflation y/y %

2013 -0.2 -2.4 7.6 1.2 53.4* 2.02014 2.0 7.3 6.4 1.9 57.3* 0.52015f 1.8 8.0 6.0 1.1 50.2** 0.22016f 1.1 5.0 6.2 0.5 1.2

Note: Figures above relate to the average annual percentage change unless stated otherwise* Average Construction PMI Headline Activity reading for the year ** Latest Construction PMI Headline Activity reading for March 2015

Note: Figures above relate to the average annual percentage change GVA growth for 2014 is an estimate* Average NI PMI Headline Activity reading for the year* Latest NI PMI Headline Activity reading for March 2015

Slide 36Slide 36

CONTACT DETAILS

Our new blog is available at www.ulstereconomix.com

Please send us a mail at:

email: richard.ramsey@ulsterbankcm.com

Twitter: @UB_Economics

Slide 37

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