Philip McDonagh Presentation to NI Assembly & Business Trust 8 - PowerPoint PPT Presentation

Philip McDonagh Presentation to NI Assembly & Business Trust 8 th April 2014

Is the recovery for real?

Mr Deputy Speaker, I can report today that the economy is continuing to recover – and recovering faster than forecast (2014 Budget Speech)

‘ the largest upward revision to growth between budgets for at least 30 years’ UK GDP Outturn / Forecasts % Y/Y 4 Budget March 2013 Budget March 2014 Source:OBR 3.5 -0.1pp -0.2pp 3 +0.9pp 2.5 +1.2pp 2 1.5 1 0.5 0 2012 2013 2014 2015 2016 2017 2018 (Chart courtesy of Ulster Bank)

The hills are alive with the sound of recovery!

GLOBAL ECONOMIC WEATHER FORECAST – OUTLOOK FOR 2014 IS PARTLY SUNNY WITH A CHANCE OF RAIN.. Russia UK Canada 2.3 2.2 Germany 2.7 1.7 Ireland 2.1 Greece 0.2 France US 3.0 0.9 Japan 1.5 Italy Spain China Mexico 0.6 0.4 3.2 7.5 India Key 5.4 Australia x.x Brazil = GDP growth in 2014 South Africa 2.7 2.0 Source: OBR for UK, PwC for others 2.8 dget 2014 PwC (Chart courtesy of PwC)

Employment grew by 12,000 in 2013 NI Employee Jobs Excludes Self-Employed Q/Q % Change Y/Y % Change 1.0% 3% Q/Q Y/Y 0.8% 2% Discontinuity in Series 0.6% 1% 0.4% 0.2% 0% 0.0% -1% -0.2% -0.4% -2% -0.6% -3% -0.8% Source: DFP -1.0% -4% Q4 2006 Q1 2008 Q2 2009 Q1 2010 Q2 2011 Q3 2012 Q4 2013 (Chart courtesy of Ulster Bank)

Incomes still rising slower than inflation UK Average Weekly Earnings* & CPI Inflation % Annual % Change 6 Average Weekly Earnings CPI Inflation MPC Target 5 4 3 Income 'NICE' squeeze Decade 1.9% 2 1.3% 1 Source: ONS, * Excluding bonuses 0 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 (Chart courtesy of Ulster Bank)

How bad was it? Are we out of the woods or have we just reached a clearing? What has changed since 2007?

The history of the recession 115.0 Northern Ireland Peak Q2 2007 110.0 Back to 2010 level 105.0 NICEI/GDP 100.0 95.0 Trough Q3 2011 90.0 Northern Ireland 85.0 Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

The history of the recession: UK 115.0 UK peaks later & recovers more strongly 110.0 105.0 NICEI/GDP 100.0 95.0 90.0 Northern Ireland United Kingdom 85.0 Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

The history of the recession: RoI 115.0 Irish economy bottoms out earlier 110.0 105.0 NICEI/GDP 100.0 95.0 90.0 Northern Ireland United Kingdom Republic of Ireland 85.0 Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q Q Q 1 Q Q 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

What about unemployment? 16% Irish jobs crisis 14% 12% Unemployment Rate (%) 10% 8% 6% 4% United Kingdom Northern Ireland Republic of Ireland 2% 2005 2006 2007 2008 2009 2010 2011 2012 2013

So what has changed since 2007?  We are 7 years older and wiser…….or are we?!  Businesses slower to invest - banks cautious  Consumers more cautious……or are they?  Average house prices now 54% below their 2007 peak  Full time permanent jobs harder to find  More part time employment and self employment  Net outward migration rising  Government committed to financial austerity

Where will the growth come from? Y = C + I + G + (X – M) C Consumer spending Rising I Business investment Flat G Government spending Falling X-M Exports – Imports ??

Local economic forecasts 2013 2014 2015 (NICIE est) Ernst & Young +0.6% +2.0% +2.0% PwC +0.6% +1.9% NICEP +0.6% +2.8% +2.9%

‘ A budget for makers, do-ers and savers’

How bad will it really be?

‘As a result of the painful cuts we have made, the deficit is down by a third. That’s the good news. The bad news is: there’s still a long way to go. We’ve got to make more cuts’ (Chancellor of the Exchequer, January 2014)

By 2018/19 there will be no deficit Public Sector Net Borrowing ( the 'underlying' deficit* ) as % of GDP PSNB 12 Source: ONS, OBR March 2014, 10 * Excludes Royal Mail pension transfer & APF transfers 8 EU SGP Deficit Ceiling 6 4 2 0 -2 Forecasts -4 1964-65 1973-74 1982-83 1991-92 2000-01 2009-10 2018-19 (Chart courtesy of Ulster Bank)

Still one of highest deficits in the world Government Net Borrowing as a % of GDP % of GDP 2014 7 Source: European Commission Winter Forecast February 2014 & OBR March 2014. 6 5 EU Stability & Growth Pact Annual Deficit Ceiling 4 3 € 2 1 0 Lithuania Malta Germany Estonia Luxembourg Latvia Sweden Bulgaria Austria Romania Greece Finland Italy Euro area Belgium Hungary Netherlands Slovakia Slovenia Portugal Ireland Poland Spain Denmark Czech Rep. EU France UK Cyprus (Chart courtesy of Ulster Bank)

The cuts haven’t really hit us yet NI Resource DEL 10500 10000 9500 £million 9000 8500 8000 RDEL March 2011 Latest RDEL 7500 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15

…but look what’s ahead Change in Departmental DEL Spending in Real Terms % 4% DEL Resource DEL Capital DEL 3% 2% 1% 0% -1% -2% -3% -4% -5% Source: OBR March 2014 -6% Annual Average 2016/17 2017/18 2018/19 2011/12 to 2015/16 (Chart courtesy of Ulster Bank)

The challenges for government and business  Managing public sector reform – ‘ its not the size of the public sector that matters its making it more modern and efficient ’  Productivity – the forgotten word?  Exporting more or becoming more competitive?  How do we fund a more ambitious apprenticeship programme?  Can we fund public sector infrastructure with alternative finance?  Fiscal powers?

philipmcdonagh@ntlworld.com