Global Economic Outlook: From Fiscal Cliff to Rushcliffe in 15 minutes
16th January 2013
Tom Rogers
Lead Economist, Oxford Economics
Overview
� External environment showing signs of stabilisation…if not
quite yet recovery. So 2013 will be another tough year for UK
exporters.
� Firms will hold back on investment, despite ever-growing cash
piles. Jobs growth likely to slow, but with some pickup in wage
growth supporting consumer demand.
� Risks to inflation to upside in short term and downside in
medium term. MPC’s policy measures look like supporting
housing market in 2013.
� UK regional divide in economic prospects – but not entirely a
North-South story. Other factors matter too.
3
US households in good financial shape
8
10
12
14
16
18
20
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
Source: FRB
Household debt service ratio
US : Household debt measures
Household financial obligations
% of disposable income
…and banks lending to business
4
-25
-20
-15
-10
-5
0
5
10
15
20
25
2004 2005 2006 2007 2008 2009 2010 2011 2012
US & Eurozone: Corporate loan growth% year
Source : Oxford Economics/Haver Analytics
US commercial & industrial loans
US loans inc. commercial real estate
Eurozone loans to PNFCs
Imminent risk of € breakup reduced…
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
1-Jul-10 28-Dec-10 26-Jun-11 23-Dec-11 20-Jun-12 17-Dec-12
Weighted average peripheral bond spread% spread over German bunds
Source : Oxford Economics/ Haver Analytics
…but more austerity to go
Discretionary fiscal tightening, 2013-2015
-4.5
-4.0
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
Germany Italy France Belgium Spain Ireland Greece
Source : Oxford Economics/Haver Analytics
Percent of GDP
…unemployment will restrain consumption
0
5
10
15
20
25
30
2004 2006 2008 2010 2012 2014 2016
Eurozone: Unemployment Rate%
Source : Oxford Economics/Haver Analytics
Greece
Portugal
Spain
Eurozone
…some way to go to restore competitiveness
80
90
100
110
120
130
140
150
160
2000 2002 2004 2006 2008 2010 2012 2014
2000=100
Source: Oxford Economics
Unit labour costs
France
Germany
Italy
Greece
Spain
Forecast
…and banks will struggle with bad debt for some time
0
2
4
6
8
10
12
14
16
2007 2009 2011 2013 2015
% total loans
Source : Oxford Economics/World Bank
Italy
Eurozone
Forecast
Spain
Eurozone Non-performing bank loans
So a “lost decade” likely in medium-term
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2010 2012 2014 2016 2018 2020 2022
Eurozone GDP growth% year
Source : Oxford Economics/Haver Analytics
1998-2007 average
Forecast
11
Oxford Economics baseline forecast
2011 2012 2013 2014
Av
2015-17
US 1.8 2.2 2.3 3.1 3.0
Japan -0.5 2.0 0.5 1.5 1.7
Eurozone 1.5 -0.4 -0.2 1.0 1.5
of which:
Germany 3.1 1.0 0.8 1.7 1.6
France 1.7 0.0 0.2 1.1 1.3
Italy 0.6 -2.1 -1.2 0.3 1.2
UK 0.9 0.1 1.0 2.1 2.5
China 9.3 7.7 8.3 9.0 8.0
India 7.5 5.3 6.0 7.6 7.8
Other Asia 3.8 2.7 3.9 4.9 5.0
Mexico 3.9 3.9 3.7 4.9 4.2
Brazil 2.7 1.0 3.9 4.9 4.5
Other Latin America 7.0 4.4 2.6 4.1 4.1
Eastern Europe 3.7 2.8 2.1 3.6 4.1
MENA 5.1 3.2 4.6 5.1 5.0
World 2.9 2.3 2.4 3.5 3.8
World (PPP) 3.6 3.0 3.5 4.2 4.4
World GDP Growth% Change on Previous Year
UK outlook - summary
� Spare capacity within firms will limit job creation in 2013
� Firms still loathe to invest, despite ever-growing cash piles
� Inflation above target in 2013, below target in medium term
� MPC has sparked signs of life the mortgage market
� But house prices unlikely to take off in 2013
� Southern regions fare best, with some interesting localised
differences
Flat GDP and strong employment growth…
28.7
28.8
28.9
29.0
29.1
29.2
29.3
29.4
29.5
29.6
29.7
2008 2009 2010 2011 2012
1.5
1.7
1.9
2.1
2.3
2.5
2.7
2.9
UK: Labour marketEmployment (000s)
Source : Haver Analytics
Employment
(LHS)
Unemployment (000s)
Unemployment
(RHS)
…leaves us with spare capacity within firms
75
80
85
90
95
100
105
110
115
120
1995 1997 1999 2001 2003 2005 2007 2009 2011
UK: Output per worker2009=100
Source : Haver Analytics
Actual
Pre-recession trend
14%
…so limited scope for further job creation
2
3
4
5
6
7
8
9
2000 2002 2004 2006 2008 2010 2012 2014 2016
%
Claimant count
ILO
UK: Unemployment
Forecast
Source: Oxford Economics
Implies only a gradual recovery in consumer spending
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
2004 2006 2008 2010 2012 2014 2016
UK real consumer spending% change on year ago
Source : Oxford Economics/Haver Analytics
Forecast
Firms still reluctant to invest
-5
-4
-3
-2
-1
0
1
2
3
4
2000 2002 2004 2006 2008 2010 2012
UK:BoE agents' survey: Investment intentions % balance
Source : Haver Analytics
Manufacturing
Services
…despite having plenty of cash
-2
-1
0
1
2
3
4
5
2000 2002 2004 2006 2008 2010 2012
UK: PNFC financial balance
% of GDP, 4QMA
Source : Haver Analytics
Inflation below target in medium term
0
1
2
3
4
5
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
% year
2% target
CPI inflation
UK: Inflation relative to target
Source: Oxford Economics
Forecast
…Lending for “Business” should kick start mortgage lending
-20
-10
0
10
20
30
40
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2010 2011 2012 2013
UK: Mortgage availability
Source : Bank of England Credit Conditions Survey
% balance : loosening (+) / tightening (-)
*The single datapoints represent 3 month
forecasts, while the columns represent actual data
…but further modest house price falls likely
-15
-10
-5
0
5
10
15
20
25
30
2000 2002 2004 2006 2008 2010 2012 2014
150
200
250
300
350
400
450
500
UK: House prices & transactionsPrices (% year)
Source : Oxford Economics
Prices
(LHS)
Transactions (RHS)
F'cast
Transactions (000s)
UK forecast
2011 2012 2013 2014 2015 2016Domestic Demand -0.6 1.0 1.4 1.8 2.1 2.1
Private Consumption -1.3 0.9 1.2 2.0 2.4 2.8
Fixed Investment -2.9 0.0 2.8 5.6 5.5 4.8
Stockbuilding (% of GDP) 0.4 0.1 0.4 0.4 0.4 0.4
Government Consumption -0.1 2.8 -0.3 -1.4 -1.2 -2.1
Exports of Goods and Services 4.6 -0.5 2.1 4.7 4.8 4.7
Imports of Goods and Services 0.5 2.3 3.0 3.8 3.7 3.5
GDP 0.9 0.1 1.0 2.1 2.4 2.5
Industrial Production -0.8 -2.3 -0.9 1.2 1.1 0.9
CPI 4.5 2.8 2.3 1.7 1.6 1.6
Current Balance (% of GDP) -1.3 -3.6 -3.3 -3.1 -2.9 -2.5
Government Budget (% of GDP) -7.9 -6.5 -5.9 -5.5 -4.4 -3.3
Short-Term Interest Rates (%) 0.9 0.8 0.5 0.5 0.5 0.7
Long-Term Interest Rates (%) 3.1 1.9 1.9 2.2 2.5 3.0
Exchange Rate (US$ per £) 1.6 1.6 1.6 1.5 1.5 1.5
Exchange Rate (Euro per £) 1.2 1.2 1.2 1.3 1.3 1.3
Forecast for UK
(Annual percentage changes unless specified)
Regional prospects divided
0
1
2
3
4
5
6
7
8
SE SW EE L EM S W NW WM YH NE N
Unemployment rates around UK regions, 2013Percent of labour force
Source : Oxford Economics/Haver Analytics
Regional prospects divided
1.4%
1.6%
1.8%
2.0%
2.2%
2.4%
2.6%
2.8%
L SE SW EE WM EM YH NW NI S W NE
Average GVA growth 2013-15Percent on year ago
Source : Oxford Economics/Haver Analytics
But not entirely a North-South story
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