Ballymena Chamber of Commerce Economic Outlook

Adair Arms Hotel

18th November 2015

Richard Ramsey Chief Economist Northern Ireland

www.ulstereconomix.com

richard.ramsey@ulsterbankcm.com Twitter @UB_Economics

The global economy is in an era of over-supply, in terms of capacity, commodities, and skills. This is resulting from, amongst other things, the slowdown in China, which in turn is leading to a slowdown globally. Northern Ireland’s manufacturing industry, which is very exposed to global markets, is the local sector most impacted. The strength of Sterling, and energy costs that are higher than in most competing economies, present further challenges.

Where are we? Part III of the debt trilogy is emerging?

Source: The Economist November 14th -20th 2015

Financial crises are more common than you think

When the GFC began Developed Economies accounted for a larger share of world GDP than Emerging Economies

Asian Financial Crisis begins

July 1997

Global Financial Crisis begins August 2007

10 years ago China & the US both contributed equivalent amounts to global growth. Not now!

2009 removed as US GDP fell

3½ times as many counties now have China as their top export partner as was the case when Lehman’s collapsed

Source: www.investing.com

China & India are set to increase their dominance

Slide 9

The Chinese economy has slowed from 10% to below 7% but is the true growth rate even lower?

Chinese economic statistics are ‘man made’ and, apart from numbers for electricity use, bank lending and rail freight, are ‘for reference only’ Li Keqiang Prime Minister speaking in 2013

Emerging Market PMIs have been submerging of late

China is now exporting more disinflation / deflation than it did before the last crisis

Commodity markets are sounding an alarm

Biggest oil glut in a decade will see a correction

China’s oversupply of steel is hitting the headlines

Export markets exposed to China

Bolivia

South Africa

Zimbabwe Zambia

Japan

Kazakhstan Mongolia

Thailand

Sudan Niger

Mali

Peru

*China accounted for just 1.5% (£94m) of Northern Ireland’s manufacturing exports (£6.1bn) in 2013/14* China was the UK’s 6th largest export market in 2014 (after US, Ger, Neth, Fra & RoI) with 5.3% of total

Impact on N.Ireland? 40% of the world’s mobile crushing and screening equipment is made in NI!

UK exports to China down one third in Q3

S.Korea, Japan, the US, Germany & Australia are China’s top 5 importers

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20

40

60

80

100

120

140

160

180

200

China Imports by Country (2014, $Bn)

Source: Bloomberg

China’s credit boom followed the GFC. How sound was that lending?

Financial crises are normally preceded by a period of private sector credit expansion. China fits that pattern.

0%

20%

40%

60%

80%

100%

120%

Indon. -1997

US - 2009 Japan -1992

S. Korea -1997

UK - 2009 Sweden -1990

China -2014

Thailand -1997

Ireland -2007

The 'Financial Crisis 8' & China

Source: Macrobond, IMF

Rise in private sector credit as % of GDP in the six years to.....

Challenges from China / Emerging Markets

o The world is more exposed to developments in China & Emerging Economies than ever before

o China is the biggest manufacturer & exporter on earth

o The slowing Chinese economy is pulling other economies down with it

o Economies exposed to commodities & Chinese trade particularly vulnerable

o Bigger concern is not the economic slowdown but the risk of a financial crisis

o No country that has witnessed the expansion in credit that China has seen has avoided a financial crisis

o Credit boom occurred within China’s unique political environment. Lending followed political criteria not economic

o China has plenty of firepower to deal with a crisis but policy response will be critical

The UK posts strong rates of growth throughout 2014 & H1-15 but loss of momentum in Q3

NI posts its 6th consecutive month of private sector growth but pace of growth still lags behind the UK & RoI

New orders growth is slowing in UK, RoI & NI

RoI, UK & NI firms all report a pick-up in the rates of employment growth in October

Unemployment falling (but economic inactivity is rising!)

No. of people working in NI is falling year-on-year

Inflationary pressures remain relatively subdued and output prices are falling again

NI manufacturing & services firms report an easing in output growth while construction back in expansion mode

Services firms are still in hiring mode, construction employment flat while manufacturing is losing jobs

Manufacturing sector is still growing but at a rather sluggish rate

SMEs are more exposed to €urozone than large firms

£/€ exchange rate heading towards pre-credit crunch levels

Some of our largest private sector employers will experience the deepest austerity

Uncompetitive energy costs remain a major challenge

‘Noflation’ + pay increases = rising disposable incomes

Not so much Bye-Bye inflation as Hello ‘Biflation’

Petrol price rises have gone into reverse

Households are going into this winter with the cheapest heating oil in 9-years

Retail sector benefiting from falling cost of living

NI new car sales recovery stalled in 2015 with sales still 17% below 2007 levels (12% below 2006 levels)

Consumer spending to be hit in 2016

£1,500 £1,500

Services sector is still growing but at a rather sluggish rate

With public spending cuts to be continued…less is more!

More bombshells to land…..impact?

£1,500 £1,500

National Living Wage

What does 2016 have in store…

£1,500 £1,500

National Living Wage

o We are more exposed to developments in China & Emerging Economies

o Geopolitical challenges – e.g. ISIS, Syria, refugees, Brexit

o A year of slower growth at home & abroad

o Fiscal challenges remain at a UK & NI level

o Focus on what we can control e.g. skills

o ENTERPRISE – E-Spark

S.Korea, Japan, the US, Germany & Australia are China’s top 5 importers

Source: Bloomberg

Slide 51

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty”. Winston Churchill

Every crisis presents opportunities

Slide 52

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty”. Winston Churchill

But will we grasp it?

Slide 54

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