Global Economic Outlook Professor Joe Nellis Professor of f Glo - PowerPoint PPT Presentation

Global Economic Outlook Professor Joe Nellis Professor of f Glo lobal l Economy www.cranfield.ac.uk

▪ Global Economy Outlook ▪ Outlook for the Euro Area ▪ Outlook for the UK Economy ▪ GDP, inflation, interest rates, unemployment, trade Overview ▪ Government Finances ▪ The Housing Market ▪ Looking Ahead…Post BREXIT ▪ Q & A

Growth Forecasts – China & In India India China Source: IMF, January 2020

▪ Downward revision to Global Growth in 2020 - Could be as low as 3% in 2020 ▪ Subdued growth for India (5.8% in 2020) ▪ Uncertainty about Global Economy due to Summary ry – - trade tensions (China/USA/EU/UK etc) - and possible impact of coronavirus Latest Global Outlook ▪ China’s forecast will surely be revised downwards ▪ USA growth revised down to 2.0% in 2020 & 1.7% in 2021 - but Trump keen to ‘talk up’ prospects! ▪ Slow growth forecast for Euro area - 1.3% in 2020 and 1.4% in 2021 - Italy may avoid recession in 2020 (0.5% growth)

Outlook for the Euro Area ▪ Growing at slowest rate for 5 years ▪ Major EU economies struggling for momentum due to effects of: ▪ Sluggish global growth ▪ Trade war uncertainties and tensions ▪ Slower growth in China (hitting exports) ▪ Politics ▪ And of course BREXIT!

Outlook for the Euro Area ▪ Inflation remains muted ▪ Well below 2% target ▪ ECB stimulus package announced on 12 September 2019 to boost growth and to create some inflationary pressure: ▪ Negative interest rates! ▪ Restart of Quantitative Easing ▪ ‘ULTRA - ACCOMMODATIVE’ policy!

Outlook for the Euro Area ▪ UK contributes about 5% of EU Budget, net of rebates ▪ In the short-term, about 1/3 of lost UK contribution available from underspending ▪ After that…hard choices: ▪ Members to pay more – Germany? ▪ Or spend less?

▪ New Government hoping for a Post-Election and Post-BREXIT uplift ▪ Easing of uncertainties ▪ Kick – start to some business investment Outlook for the projects UK Economy ▪ Modest boost to some big-ticket consumer spending ▪ Fiscal stimulus! ▪ Chancellor hopes to achieve growth of 2.8% p.a. ▪ But ‘green shoots’ are, so far, slow to emerge…

Outlook for the UK Economy ▪ Economy growing at slowest rate since the GFC ▪ Zero growth last quarter of 2019 ▪ Previous growth supported by stock building ▪ But austerity is over! ▪ Government is spending again in real terms ▪ 11 th March Budget will seek to ‘level up’ regions via a National Infrastructure Strategy – and HS2 ▪ Hiring intentions are up ▪ Housing market has been unleashed ▪ But don’t expect an economic boom!

Outlook for the UK Economy ▪ Bank of England raised interest rates to 0.75% on 2 August 2018 ▪ First increase since 2009 ▪ Seeking to ‘ normalise ’ rates ▪ A rate rise is off the agenda – a cut is possible! ▪ Inflation remains low ▪ Extent of spare capacity and wage inflation pressures will be watched carefully

UK GDP Annual Growth Rate (%) ▪ Productivity lagging behind ▪ Adjustment to slower long-term growth? Source: Trading Economics and ONS 13

Regional Productivity – latest data Output per HOUR relative to the UK (%)

Regional Productivity – latest data Output per JOB relative to the UK (%)

UK Inflation Rate (%) Source: Trading Economics and ONS 16

UK Government Finances National Debt (% GDP) Budget Deficit (% GDP) Source: Trading Economics and ONS

UK Unemployment Rate Unemployment rate lowest for 45 years! Source: Trading Economics and ONS

UK Business Confidence Is a Bounce Back Likely? Source: Trading Economics and ONS

UK Current Account (% GDP) Source: Trading Economics and ONS

UK Housing Market Annual % Change in UK House Prices UK House Price to Earnings Ratio Long-run average Source: Nationwide Building Society, ONS

Housing Affordability – First-Time Buyers Years Taken to Save 20% Deposit UK FTB Mortgage Repayments as % of Take-Home Pay Long-run average Source: Nationwide Building Society, ONS

Looking Ahead….Post BREXIT ▪ What will the UK’s future EU relationship look like? ▪ Expected early move to a Free Trade Agreement but… ▪ Tariffs are not the only friction to free trade! ▪ Goodwill is needed! ▪ Until EU relationship is settled, other trade deals will be hard to finalise ▪ How long will other trade deals take? ▪ What bargaining power will the UK have?

And so….. ▪ New Trade Polic licy ▪ New Im Immig igration Polic licy ▪ New Regio ional Poli licy ▪ New Transport In Infrastructure ▪ Clim limate Change Adaptation ▪ Should we be worried about the UK Economy? ▪ A little…but let’s not panic FOR NOW! 24