Post on 11-Jan-2016
Turning The Corner?Turning The Corner?
Dennis Turner
UK ECONOMY : 2013 AND BEYOND
Chilworth Partnership Conference Chilworth Partnership Conference Chilworth Manor Hotel, Southampton Chilworth Manor Hotel, Southampton
22ndnd May 2013 May 2013
THE RECESSION IS OVERTHE RECESSION IS OVER
A deep recessionA deep recession
-6.0
-4.0
-2.0
0.0
2.0
4.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
%
QUARTERLY
ANNUAL
Long-term average
The growth shortfallThe growth shortfall
0
1
2
3
4
201520142013201220112010
%
2013 Budget
2012 Budget
2011 Budget
2010Budget
Annual GDP growth forecasts in each Budget
…means more borrowing
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
2010 2011 2012 2013 2014 2015 2016
2010 Budget
2011Budget
2012 Budget
2013 Budget
Public sector net borrowing (£bn)
…and higher debt levels
50
55
60
65
70
75
80
85
90
2009/10 2011/12 2013/14 2015/16
% o
f G
DP
50
55
60
65
70
75
80
85
90
% o
f GD
P
2010 Budget 2013 Budget
2011 Budget 2012 Budget
Public sector net debt:
A FRAGILE RECOVERYA FRAGILE RECOVERY
Legacy issuesLegacy issues
Consumers were the driving forceConsumers were the driving force
-3
-2
-1
0
1
2
3
4
5
6
7
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
% C
HA
NG
E
CONSUMER SPENDING RETAIL SALES
But underpinned by borrowing But underpinned by borrowing
-1
1
3
5
7
9
11
13
15
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
%
75
85
95
105
115
125
135
145
155
165
INTEREST REPAYMENTS/DISPOSABLE INCOMES(LHS)
DEBT / DISPOSABLE INCOMES(RHS)
%
The big household squeeze
-4
-2
0
2
4
6
2001 2003 2005 2007 2009 2011
% a
nn
ual
gro
wth
Inflation
The big household squeeze
-4
-2
0
2
4
6
2001 2003 2005 2007 2009 2011
% a
nn
ual
gro
wth
-4
-2
0
2
4
6
% an
nu
al gro
wth
InflationEarnings
The big household squeeze
-4
-2
0
2
4
6
2001 2003 2005 2007 2009 2011
% a
nn
ua
l gro
wth
-4
-2
0
2
4
6
% a
nn
ua
l gro
wthReal household income*
InflationEarnings
Unemployment stubbornly high
500
750
1,000
1,250
1,500
1,750
2,000
2007 2008 2009 2010 2011 2012
0
1
2
3
4
5
6
7
% o
f wo
rkforce
Unemployed 000s (L axis) Unemployment rate (R axis)
A difficult consumer environment A difficult consumer environment
-3.5
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
4.5
5.5
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
% C
HA
NG
E
CONSUMER
Surge in public sector borrowingSurge in public sector borrowing
Government finances weakenedGovernment finances weakened
-15
-10
-5
0
5
10
15
20
1999/00 2001/02 2003/04 2005/06 2007/08 2009/10
% o
f G
DP
20
25
30
35
40
45
50
% o
f GD
P
CURRENT REVENUE (RHS)
CURRENT EXPENDITURE (RHS)
SURPLUS/DEFICIT (LHS)
So net debt (as a % of GDP) soaredSo net debt (as a % of GDP) soared
25
33
41
49
57
65
73
81
89
1990-91 1992 1994-95 1996 1998-99 2000 2002-03 2004 2006-07 2008 2010-11 2112 2114-15 2116
% o
f G
DP
Sustainable Investment Rule
Budget Statement, March 2013
Govt receipts and spendingGovt receipts and spending
35
40
45
50
55
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
% of
GDP
Budget Statement, March 2013
NEW ISSUESNEW ISSUES
Eurozone fragility Eurozone fragility
In the wrong placesIn the wrong places
0
20
40
60
200820031998
%
0
20
40
60
%
Western Europe
Central & Eastern Europe
BRIC (Brazil, Russia,India, China)
Euro Area southern fringe (Greece, Spain, Italy,Portugal)
Share of UK exports (goods & services):
Getting the debt downGetting the debt down
2012
2012
2012
2012
50
60
70
80
90
100
110
120
130
Euro Area France Germany Italy
% o
f G
DP
50
60
70
80
90
100
110
120
130
% o
f GD
P
2009 2010 2011 2012 2013 2014
Getting the debt downGetting the debt down
2012
2012
2012
2012
50
60
70
80
90
100
110
120
130
140
150
160
Greece Portugal Spain Belgium
% o
f G
DP
50
60
70
80
90
100
110
120
130
140
150
160
% o
f GD
P
2009 2010 2011 2012 2013 2014
Imbalances: the key to debt
-250
-200
-150
-100
-50
0
50
100
150
200
250
2003 2004 2005 2006 2007 2008 2009 2010 2011
€ b
n, a
nn
ua
l to
tals
-250
-200
-150
-100
-50
0
50
100
150
200
250
€ b
n, a
nn
ua
l tota
ls
Germany Ireland Italy Spain Greece Portugal
Current account balances
ECB now behaving like a central bankECB now behaving like a central bank
0
100
200
300
400
500
600
700
800
900
1000
Jan-09 Aug-09 Mar-10 Nov-10 Jun-11 Jan-12
€ b
illio
ns
Long-term refinancing operations Securities Markets Programme
All sticks and no carrots
20102011
2013
20142012
-8
-6
-4
-2
0
2
4
6
%
-8
-6
-4
-2
0
2
4
6
%
Euro Area Greece Portugal SpainGDP growth
OUTLOOKOUTLOOK
Inflation – above targetInflation – above target
-2
-1
0
1
2
3
4
5
6
2009 2010 2011 2012
% c
han
ge
mo
nth
on
mo
nth
CPI RPI
Target
Range
Inflation – likely to easeInflation – likely to ease
-2
-1
0
1
2
3
4
5
6
2009 2010 2011 2012 2013
% c
han
ge
mo
nth
on
mo
nth
CPI RPI
Forecast
Target
Range
Interest rates to stay lowInterest rates to stay low
0
1
2
3
4
5
6
7
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
%
Forecast
So sterling to remain competitiveSo sterling to remain competitive
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2005 2006 2007 2008 2009 2010 2011 2012 2013
$/£
1.0
1.1
1.2
1.3
1.4
1.5
€/£
Sterling weaker
US$ / £ (L axis)
euro / £ (R
axis)
Forecast
GDP (100%) = Consumer spending (64%)
Where is growth coming from?
Real earnings growing againReal earnings growing again
-4
-3
-2
-1
0
1
2
3
4
5
6
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Average earnings growth
Consumer price inflation
Real earnings growth
%
Debt repayment underwayDebt repayment underway
75
100
125
150
175
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
%
75
100
125
150
175
%
Household debt:income ratios
A slow consumer recovery A slow consumer recovery
-3.5
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
4.5
5.5
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% C
HA
NG
E
CONSUMER
Forecast
GDP (100%) = Consumer spending (64%) +
Investment (15%)
Where is growth coming from?
Corporate sector in good shapeCorporate sector in good shape
30
40
50
60
70
80
2001 2003 2005 2007 2009 2011
£ b
illio
n
8
10
12
14
16
18
%
Gross operating surplus
Profitability
Operating surplus and profitability of UK private non-financial companies
……but not spendingbut not spending
50
60
70
80
90
100
110
120
2001 2003 2005 2007 2009 2011
%
40
50
60
70
80
90
100
110
120
130
140
£ b
illion
Investment relative to post-tax surplus(L axis)
Level of investment (R axis)
Investment by Private Non-financial Corporations
Investment to pick up……at last
-16
-12
-8
-4
0
4
8
12
16
20
24
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
% a
nn
ual
gro
wth
Business Investment
Forecast – OBR 2013
GDP (100%) = Consumer spending (64%) +
Investment (15%) +
Government spending (23%)
Where is growth coming from?
Getting the deficit downGetting the deficit down
0
30
60
90
120
150
180
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016-17 2017-18
£ bn
0
2
4
6
8
10
12
%
Net borrowing (L axis)
% of GDP* (R axis)
GDP (100%) = Consumer spending (64%) +
Govt consumption (23%) +
Investment (15%) +
Net trade (-2%) (Exports 30% – Imports 32%)
Where is growth coming from?
Trade becomes a plus for growthTrade becomes a plus for growth
-5
-4
-3
-2
-1
0
1
2
3
4
5
2009 2011 2013 2015 2017
% o
f G
DP
-12
-9
-6
-3
0
3
6
9
An
nu
al % ch
ang
e
BALANCE OF PAYMENTS DEFICIT (LHS)
Annual export growth (% RHS)
Annual import growth (% RHS)
Turning the cornerTurning the corner
Sluggish growth as good as it getsSluggish growth as good as it gets
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
2007 2008 2009 2010 2011 2012 2013 2014
%
QUARTERLY
ANNUAL
Long-term average
Forecast
THANK YOUTHANK YOU