The recovery and your business

Mark Smyth, RBS Group Economics

Slide 2

A return (of sorts) to positive growth

GDP growth (q/q)

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009

Slide 3

In the local economy too

PMI survey (business activity)

30

35

40

45

50

55

60

65

2006 2007 2008 2009 2010

UK East Midlands

Growth

Contraction

Slide 4Slide 4

We’ve got a lot of ground to recover

300

305

310

315

320

325

330

335

340

20052006

20072008

2009

£bil

lio

ns

UK GDP (real, quarterly, 2005 prices)

Slide 5

The property price correction

Property prices (index, peak =100)

30

40

50

60

70

80

90

100

110

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Commercial property prices House prices

Slide 6

Growth prospects depend on who can spend

Consumers50% of demand

Investment15% of demand

Government15% of demand

Exports20% of demand

Slide 7

The rise in household debt …

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2000 2000 2009 Q3 2009 Q3

£tril

lion

Household income Secured debt Unsecured debt

Slide 8

… leads to a need to save more

£96Long-runaverage

Q1 2008

Q3 2009

Income Spend

£104

£93

£4

-£4

£7

Save

Slide 9

The public finances are under pressure

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Net

deb

t to

GD

P r

atio

Net debt Financial interventions Treasury forecast (exc. interventions)

Slide 10

With future strains on public spending

“... the crisis has dealt a permanent hit to the Exchequer costing around 6½ per cent of national income ...

Over the course of next parliament, we know that the strain will be taken primarily by public spending.”

Slide 11

A sluggish recovery

90

95

100

105

110

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

100 = Q2 1992 100 = Q1 2008

3 yrs

5 yrs

1990s recession

Current recession

Index of real GDP, 100 = start of recession

Slide 12

Who wins and who loses in our central forecast?

Above average

Manufacturing

Construction

Average

Business services

Retail & wholesale

Below average

Hotels & restaurants

Health & education

Reg

ion

sS

ecto

rs

London

Eastern England

East Midlands

North West

South East

West Midlands

Yorks & Hum

Scotland

South West

North East

Wales

Northern Ireland

Slide 13

6

8

10

12

14

16

18

2010 2015 2020 2025 2030

Mill

ion

10

14

18

22

26

30

%

UK population over 65 (LHS)

As a % of Total Population (RHS)

An ageing population

Government Actuary Department Forecasts

Slide 14

Key issues for care homes / healthcare sector

Demand• Demographic trends

• Substitution for public sector provision

Occupancy rates• Capacity growth

• Alternative sources of provision

Prices and Costs• Pressures on LA budgets

• Labour market costs

Service Quality and Efficiency• Safety standards / regulations

• Joined up provision

Slide 15

What will drive longer-term economic growth

Labour force growth (c.0.7% per annum):• Demographic trends

• Immigration

Productivity growth (c.2.1% per annum):• Investment

• Cost of capital

• Fixing private and public sector balance sheets

• Cost of moving resources across sectors

Slide 16

Key messages

The worst is over, but we’re not out of the woods yet

– Economic outlook remains uncertain with both up and downside risks

– Balance sheets have to be repaired – no quick fix

Structural drags will inhibit the speed of recovery

– Income growth inhibited on supply and demand side

– Credit conditions

– Public sector deficit

An ageing population, but facing budgetary pressures

Productivity growth is key for long-term growth

Slide 17

Keep in touch

Slide 18

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