presentation to the ballymena chamber of commerce
TRANSCRIPT
Ballymena Chamber of Commerce Economic Outlook
Adair Arms Hotel
18th November 2015
Richard Ramsey Chief Economist Northern Ireland
www.ulstereconomix.com
[email protected] 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
0
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
Disclaimer
This document is intended for clients of Ulster Bank Limited and Ulster Bank Ireland Limited (together and separately, "Ulster Bank") and is not intended for any other person. It does not constitute an offer or invitation to purchase or sell any instrument or to provide any service in any jurisdiction where the required authorisation is not held. Ulster Bank and/or its associates and/or its employees may have a position or engage in transactions in any of the instruments mentioned.
The information including any opinions expressed and the pricing given, is indicative, and constitute our judgement at time of publication and are subject to change without notice. The information contained herein should not be construed as advice, and is not intended to be construed as such.
This publication provides only a brief review of the complex issues discussed and recipients should not rely on information contained here without seeking specific advice on matters that concern them. Ulster Bank make no representations or warranties with respect to the information and disclaim all liability for use the recipient or their advisors make of the information.
Over-the-counter (OTC) derivatives can involve a number of significant and complex risks which are dependent on the terms of the particular transaction and your circumstances. In the event the market has moved against the transaction you have undertaken, you may incur substantial costs if you wish to close out your position.
Calls may be recorded.