The recovery and your business Mark Smyth, RBS Group Economics April 2010.
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Transcript of The recovery and your business Mark Smyth, RBS Group Economics April 2010.
![Page 1: The recovery and your business Mark Smyth, RBS Group Economics April 2010.](https://reader035.fdocuments.in/reader035/viewer/2022062518/56649e995503460f94b9ca38/html5/thumbnails/1.jpg)
The recovery and your business
Mark Smyth, RBS Group Economics
April 2010
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Slide 2
A return (of sorts) to positive growth
GDP growth (q/q)
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009
Source: ONS
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Slide 3
In the local economy too
PMI survey (business activity)
30
35
40
45
50
55
60
65
2006 2007 2008 2009 2010
UK West Midlands
Growth
Contraction
Source: Markit
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Slide 4Slide 4
However, we’ve got a lot of ground to recover
300
305
310
315
320
325
330
335
340
20052006
20072008
2009
£bil
lio
ns
UK GDP (real, quarterly, 2005 prices)Source: ONS
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Slide 5
The property price correction
Property prices (index, peak =100)
30
40
50
60
70
80
90
100
110
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Commercial property prices House pricesSource: Nationwide, IPD
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Slide 6
Growth prospects depend on who can spend
Consumers50% of demand
Investment15% of demand
Government15% of demand
Exports20% of demand
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Slide 7
The rise in household debt …
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2000 2000 2009 Q3 2009 Q3
£tril
lion
Household income Secured debt Unsecured debt
Source: Bank of England
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Slide 8
… leads to a need to save more
£96Long-runaverage
Q1 2008
Q3 2009
Income Spend
£104
£93
£4
-£4
£7
Save
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Slide 9
Employment – tough, but not as tough as before
92
94
96
98
100
102
104
106
t
t+4
t+8
t+12
t+16
t+20
t+24
t+28
t+32
t+36
t+40
t+44
UK Employment levels (Index, Start of recession = 100)
1979 1990
2008
Current Position
Source: ONS
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Slide 10
But labour market softness = weak wage growth
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2001 2002 2003 2004 2005 2006 2007 2008 2009
Average Earnings (% y/y)
Source: ONS
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Slide 11
Profits not hit as hard as might have been expected
-35.0
-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
2008 to date 1990s 1980s
Decline in UK Non-oil Non Financial Trading Profits from peak (%, Real Terms, Deflated using GDP deflator)
Source: ONS
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Slide 12
But investment likely to remain subdued
Capacity Utilisation Rates (%)
70
72
74
76
78
80
82
84
86
88
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Source: ONS
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Slide 13
The public finances are under pressure
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Net
deb
t to
GD
P r
atio
Net debt Financial interventions Treasury forecast (exc. interventions)
Source: HM Treasury
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Slide 14
With future strains on public spending
“... the crisis has dealt a permanent hit to the Exchequer costing around 6½ per cent of national income ...
Over the course of next parliament, we know that the strain will be taken primarily by public spending.”
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Slide 15
Sterling weakness should boost exports
1.00
1.20
1.40
1.60
1.80
2.00
2.20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Euro per £
$ per £
Source: Thomson Datastream
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Slide 16
But requires a rebalance to faster growing markets
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
China India Brazil Russia USA Euro zone
GD
P g
row
th
2010 2011
Source: IMF
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Slide 17
A sluggish recovery
90
95
100
105
110
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
100 = Q2 1992 100 = Q1 2008
3 yrs
5 yrs
1990s recession
Current recession
Index of real GDP, 100 = start of recession
Source: ONS, RBS Group Economics
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Slide 18
With inflation below its target level
0.0
1.0
2.0
3.0
4.0
5.0
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
CPI Inflation (%)
Forecast
MPC Target
Source: ONS, RBS Group Economics
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Slide 19
Base rates – slow to move, but don’t get caught out...
0
1
2
3
4
5
Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014
Short-term rates (%)
Base Case
Futures
Source: RBS Group Economics
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Slide 20
Relative growth rates in our central forecast
Above average
Manufacturing
Construction
Average
Business services
Retail & wholesale
Below average
Hotels & restaurants
Health & education
Reg
ion
sS
ecto
rs
London
Eastern England
East Midlands
North West
South East
West Midlands
Yorks & Hum
Scotland
South West
North East
Wales
Northern Ireland
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Slide 21
Spot the difference: sector breakdown in the West Mids
Share of total GVA in 2007
0% 5% 10% 15% 20% 25%
Extraction, etc
Manufacturing
Construction
Wholesale & retail
Hotels & restaurants
Transport, storage & communication
Financial intermediation
Business & property services
Public admin & defence
Health & education
Other
West Midlands UKSource: ONS
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Slide 22
What about longer-term growth
Labour force growth (c.0.7% per annum):• Demographic trends
• Immigration
Productivity growth (c.2.1% per annum):• Investment
• Cost of capital
• Fixing private and public sector balance sheets
• Cost of moving resources across sectors
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Slide 23
Key messages
The worst is over, but we’re not out of the woods yet
– Economic outlook remains uncertain with both up and downside risks
– Demand conditions: likely to be tough
Structural drags will inhibit the speed of recovery
– Cost of capital likely to be higher
– Balance sheets have to be repaired – no quick fix
Export potential, especially to emerging markets
Weak Pricing power
– Weak demand = reduced bargaining power
– But it cuts both ways – suppliers and wage costs
Policy: central banks deliberately behind the curve
– But long rates likely to move first – don’t get caught out
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Slide 24
Keep in touch
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Slide 25
Legal disclaimer
This material is published by The Royal Bank of Scotland plc (“RBS”) which is authorised and regulated by the Financial Services Authority for the conduct of regulated activities in the UK. It has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments, other financial instruments or related derivatives (“Securities”). It should not be reproduced or disclosed to any other person, without our prior consent.
This material is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
Whilst this information is believed to be reliable, it has not been independently verified by RBS and RBS makes no representation, express or implied, nor does it accept any responsibility or liability of any kind, with regard to the accuracy or completeness of this information. Unless otherwise stated, any views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the RBS Group’s Group Economics Department, as of the date of publication of this material and are subject to change without notice. Recipients of this material should make their own independent evaluation of this information and make such other investigations as they consider necessary (including obtaining independent financial advice), before acting in reliance on this information.
This material should not be regarded as providing any specific advice. RBS accepts no obligation to provide any advice or recommendations in respect of the information contained in this material and accepts no fiduciary duties to the recipient in relation to this information.