Economic development the challenge of the new normal

Transcription

1 Economic development the challenge of the new normal Neil Gibson, Director of Regional Services 24th November 2010

2 Overview The new normal globally The new normal in Northern Ireland Inequalities and imbalances New normal scare resources, but rising pressures The challenge of building sustainable economies 2

3 The new normal globally

4 A global recession (but with different patterns) GDP and job losses by country, GDP growth year on year (%) Employment change (000s) Employment change (%) United States Japan China India Eurozone Germany France Italy Spain UK Ireland NI Source: Oxford Economics

5 Debt is an issue (fortunately in NI it is not debt!) General government balance as a % of GDP, General government balance % GDP (2010) Source: Ernst & Young Economic Eye Luxembourg Malta China Slovenia Cyprus Finland Germany India Italy Belgium Austria Slovakia Netherlands France Japan Portugal Greece Spain UK US ROI (excluding bail out) ROI NI 5 Source: Oxford Economics

6 And re-balancing will have a long term impact % of GDP UK Government expenditure and debt stock, Government Expenditure General government net debt Forecast Source: Oxford Economics

7 But recovery is underway World trade flows (% change year on year) International trade flows, Forecast UK GDP growth, Forecast 7 Source: Oxford Economics UK GDP growth (% change year on year)

8 However Ireland could be falling back % quarterly 6 Quarterly GDP % change, UK and ROI, year government borrowing interest rates, UK and ROI, ROI UK 9 8 ROI UK % Source: CSO, ONS 0 Jun- 93 Apr- 94 Feb- 95 Dec- 95 Oct- 96 Aug- 97 Jun- 98 Apr- 99 Feb- 00 Dec- 00 Oct- 01 Aug- 02 Jun- 03 Apr- 04 Feb- 05 Dec- 05 Oct- 06 Aug- 07 Jun- 08 Apr- 09 Feb- 10 Source: Central Bank of Ireland, Bank of England Ireland employment returns to Q peak of 2,149,000 in Q GDP returns to peak in Q2 2016

9 A new normal is emerging Growth is less dependent on consumers and government in the west Meaning exports crucially important But the emerging nations do depend on western purchases So the position is fragile Re-balanced economies are emerging (trade, fiscal, components of growth) The uncertainties over banking in Ireland further highlight just how uncertain conditions and recovery are The problems in Ireland will potentially have a major impact on Northern Ireland 9

10 The new normal in Northern Ireland

11 The end of a golden era in the labour market Employees in employment (000s) Employees in employment, NI, Loss of 32,700 jobs to date, returning to 2005 levels Mar- 95 Sep- 95 Mar- 96 Sep- 96 Mar- 97 Sep- 97 Mar- 98 Sep- 98 Mar- 99 Sep- 99 Mar- 00 Sep- 00 Mar- 01 Sep- 01 Mar- 02 Sep- 02 Mar- 03 Sep- 03 Mar- 04 Sep- 04 Mar- 05 Sep- 05 Mar- 06 Sep- 06 Mar- 07 Sep- 07 Mar- 08 Sep- 08 Mar- 09 Sep- 09 Mar- 10 Source: QES, seasonally adjusted 11

12 Little surprise as to the sectoral pattern Employment change per sector, NI, s % Agriculture Extraction Manufacturing Utilities Construction Distribution & retail Hotels & restaurants Transport & communications Financial services Business services Public admin Education Health Other personal services Total Source: Oxford Economics

13 Public sector concentration leaves NI exposed Public sector employment per 1,000 jobs and 1,000 people, UK regions, 2010 Public admin and defence employment per 1,000 jobs and 1,000 people, UK regions, Per 1000 jobs Per 1000 people Per 1000 jobs Per 1000 people Per Per North East Northern Ireland Wales Scotlands North West Yorkshire & Humber West Midlands South West UK East Midlands South East East London 0 North East Northern Ireland Wales Scotlands North West South West UK Yorkshire & Humber London East Midlands West Midlands East South East Note: Public sector is defined as public admin and defence, education and health sectors Source: Oxford Economics 13

14 Unemployment a major concern Claimant Count, (000 s), NI, Unemployment (000s) Rise of 36,000 claimants 0 Jan- 90 Mar- 91 May- 92 Jul- 93 Sep- 94 Nov- 95 Jan- 97 Mar- 98 May- 99 Jul- 00 Sep- 01 Nov- 02 Jan- 04 Mar- 05 May- 06 Jul- 07 Sep- 08 Nov- 09 September 2010 = Source: Claimant Count, NOMIS 14

15 At least 2020 before recovery to peak employment Total employment, NI, Employment (000s) Forecast 2020 until 2008 peak is reached Source: Oxford Economics

16 Business services key to the (jobs) recovery 16 Source: Oxford Economics Total employment by sector, NI, Change (000's) Agriculture -4.8 Extraction -0.4 Manufacturing Electricity -0.2 Construction 0.5 Wholesale and retail 10.4 Hotels and restaurants 6.7 Transport, storage and comm. 4.4 Finance 0.3 Business 23.2 Public admin -7.7 Education -2.8 Health 4.2 Other services 8.0 Total 29.3

17 Public sector cuts will hurt (but not as much as some suggest) Total public sector employment (000s) Total public admin employment (000s) 17 Public sector employment, NI, Forecast Extreme scenario Public admin employment, NI, Source: Oxford Economics Forecast Extreme scenario Alternatives exist: Tax rises Wage control Procurement cost control Part-time working / job sharing Selling assets Out sourcing Other investment (esp. capital)

18 Public finances mean further subvention unlikely Fiscal deficits, 2009/10 Net Balance ( bn) % of GVA North East North West Yorkshire & the Humber East Midlands West Midlands Eastern -5-4 Greater London -2-1 South East 1 1 South West Wales Scotland Northern Ireland UK Source: Treasury, Oxford Economics 18

19 Unemployment a long term concern (but how high?) 120 Total unemployment, NI, Unemployment base Constrained public sector Public sector cull 44,000 rise from trough returning to mid 1990 s levels (base outlook!) And what of welfare reform? 19 Source: Oxford Economics How might this impact?

20 With migration a key unknown Total migration, NI, Forecast 8 Total migration (000s) Source: Oxford Economics

21 But opportunities abound The world is expected to growth by 3.7% per annum over the next decade,.0001% of this per annum would be 5% growth in NI Export markets have been doing well and are likely to continue doing so as world grows Scarcity of resources brings opportunity to agri, to renewable energy, even to near shore manufacturing in certain cases Aging population means silver dollar will be a huge market Pharma and activities related to health, cost of health and delivery of healthcare a major market Tourism also presents opportunities as a growing world and under pressure local consumers (though cost of travel and new markets lack of Irish / UK connection a challenge) Professional services and finance, despite the press, likely to be mainstays of job creation and offer real potential (and could use civil service labour?). Will outsourcing revolution occur in public services as it has in industry before it? NI has scope to raise additional revenue as it is relatively modestly taxed (See domestic rates, business rates, red diesel, water, travel) But must be responsible for its actions and think of ways to pay for what it needs Additional money from the UK taxpayer is unlikely and, in our view, largely unjustifiable 21

22 Inequalities and imbalances

23 NI local areas amongst the most affected Top 20 unemployment rate increases, UK region LADs, Jan 08 Sep 10 PP change Jan 08 - Sep Region 10 Limavady N. Ireland 4.5 Newry and Mourne N. Ireland 4.3 Derry N. Ireland 3.8 Dungannon N. Ireland 3.6 Armagh N. Ireland 3.4 Belfast N. Ireland 3.4 Omagh N. Ireland 3.4 Craigavon N. Ireland 3.2 Magherafelt N. Ireland 3.2 Cookstown N. Ireland 3.1 Ballymoney N. Ireland 3 Strabane N. Ireland 3 North Lanarkshire Scotland 2.8 Down N. Ireland 2.8 Kingston upon Hull, City of Yorks & Humber 2.7 Glasgow City Scotland 2.7 Carrickfergus N. Ireland 2.7 Hartlepool North East 2.6 Sandwell West Midlands 2.6 Clackmannanshire Scotland Source: NOMIS Claimant Count, Oxford Economics

24 Low skills bare the brunt Unemployment by occupation, NI, September : Elementary Occupations 25% UK = 30% 1 : Managers and Senior Officials 2% 2 : Professional Occupations 4% 3 : Associate Prof essional and Technical Occupations 5% 4 : Administrative and Secretarial Occupations 9% 24 8 : Process, Plant and Machine Operatives 13% UK = 10% Source: NOMIS Claimant Count 7 : Sales and Customer Service occupations 14% UK = 20% 5 : Skilled Trades Occupations 22% UK = 11% 6 : Personal Service Occupations 6%

25 With many areas suffering badly Unemployment rate, Sep07 Sep10 9 Unemployment rate (%) Derry Limavady Strabane Belfast Newry and Mourne Source: NOMIS Claimant Count, Oxford Economics 25 Moyle Omagh NI Armagh Ballymoney Coleraine Craigavon Dungannon Down Fermanagh Cookstown Carrickfergus Lisburn Magherafelt Newtownabbey Ards Larne Antrim Ballymena Banbridge UK North Down Castlereagh Sep-10 Sep-07

26 Low employment rate adds further complexity 26 Source: Oxford Economics Resident employment rate and scenario, NI DCs, 2010 Resident employment rate Jobs required to achieve 75% rate Jobs required as % of working age population Antrim Ards Armagh Ballymena Ballymoney Banbridge Belfast Carrickfergus Castlereagh Coleraine Cookstown Craigavon Derry Down Dungannon Fermanagh Larne Limavady Lisburn Magherafelt Moyle Newry and Mourne Newtownabbey North Down Omagh Strabane Northern Ireland Note: areas more than 10% required shaded in pink.

27 Wide disparities forecast to continue 27 Source: Oxford Economics Employment job growth, NI District councils, Job change Return to peak Antrim Ards 0.1 >2025 Armagh 0.2 >2025 Ballymena 0.2 >2025 Ballymoney Banbridge Belfast Carrickfergus >2025 Castlereagh Coleraine >2025 Cookstown 0.1 >2025 Craigavon Derry Down >2025 Dungannon 1.2 >2025 Fermanagh >2025 Larne >2025 Limavady >2025 Lisburn Magherafelt >2025 Moyle Newry and Mourne Newtownabbey 1.0 >2025 North Down Omagh >2025 Strabane 0.0 >2025 NI

28 Who is available for high value added jobs? 80 Number and skills profile of non-employed, NI DCs, s Belfast Derry Newry & Mourne Source: Labour Force Survey, Oxford Economics Lisburn Craigavon Fermanagh Ards Dungannon Newtownabbey Down North Down Armagh Omagh Ballymena Limavady Cookstown Strabane Magherafelt Coleraine Antrim Banbridge Castlereagh Carrickfergus Total non-employed Non-employed graduates Total non-employed in NI: 361,600 of which 11.3% graduates Ballymoney Larne Moyle

29 Why skills matter Scatter plot of wages vs. graduates, 2009 Average (mean) weekly wage, GB LA's NI DC's Linear (GB LA's) Linear (GB LA's) Strabane Moyle Kensington and Chelsea Elmbridge Limavady City of London Wandsworth Cambridge R 2 = Graduate concetration, % Source: ASHE, APS, Oxford Economics

30 Skills levels a concern Skill levels of working age population, NI DC s, % with degree or above % no quals Antrim Ards Armagh Ballymena Ballymoney Banbridge Belfast Carrickfergus Castlereagh Coleraine Cookstown Craigavon Derry Down Dungannon Fermanagh Larne Limavady Lisburn Magherafelt Moyle Newry Newtownabbey North Down Omagh Strabane Northern Ireland Source: Labour Force Survey, Oxford Economics Economy to become increasingly skills hungry Future growth in high value added jobs Areas that have suffered the most may continue to suffer

31 Once deprived, always deprived? 31 Source: NINISv Deprivation Index ranking, NI DCs, 2001, 2005 and Antrim Ards Armagh Ballymena Ballymoney Banbridge Belfast Carrickfergus Castlereagh Coleraine Cookstown Craigavon Derry Down Dungannon Fermanagh Larne Limavady Lisburn Magherafelt Moyle Newry Newtownabbey North Down Omagh Strabane Note: Pink shading = 3 most deprived Yellow shading = 3 least deprived

32 Industrial areas expected to suffer in jobs terms % employment in production sectors, NI DCs, 2010 % of total employment 35% 30% 25% 20% 15% 10% 5% 0% Larne Dungannon Moyle Magherafelt Cookstown Fermanagh Banbridge Armagh Ballymoney Craigavon Ballymena Limavady Strabane Newry and Omagh Ards Down Carrickfergus Lisburn NI Antrim Coleraine Newtownabbey Derry Castlereagh North Down Belfast % employment in financial and business services sectors, NI DCs, % Note: Production sectors = agriculture, extraction, utilities and construction % of total employment 20% 15% 10% 5% 0% 32 Source: Oxford Economics Belfast Ballymena Derry NI North Down Craigavon Lisburn Castlereagh Newtownabbey Coleraine Antrim Armagh Ards Dungannon Fermanagh Carrickfegus Ballymoney Newry Limavady Strabane Omagh Banbridge Down Larne Cookstown Maghera Moyle

33 Economic pressures weigh heavily on inequalities Economic direction of travel is towards higher value added skills, potentially widening economic inequalities (agri and enviro tech and tourism do act as a partial break on this trend) The recession has left many people outside of the labour market who may well reside there for a very long time The global market is such that any opportunities for employment will be taken by someone there may not be enough time for local labour to engage The financial world is extremely challenging, with twin pressures of spending cuts and consumer pressures likely to weight heavy on households Moreover capital and spending programmes will be under extreme pressure Welfare reform will also potential have a sever impact (though do not assume this will be negative) More than ever it is Northern Ireland s choice what do we want to spend on and to prioritise?

34 New normal scare resources, but rising pressures

35 Twin pressures on governments and consumers GDP and its components (average % growth), UK Pre- recession ( ) Recession ( ) Post recesssion ( ) Consumer spending Investment Govt consumption Exports Imports GDP Reduction in government consumption A more sustainable current account balance Source: Oxford Economics 35

36 Credit limits strict (too strict?) UK: Credit availability survey % balance tightening (-)/loosening (+) credit UK: Secured borrowing % year % month 16 % year (LHS) Corporate Sector Corporate Sector Unsecured household 07Q3 08Q1 08Q3 09Q1 09Q3 10Q1 10Q3 Source : Oxford Economics/Haver Analytics Source: Haver Analytics % month (RHS)

37 Consumers to reduce debt UK: Personal debt and saving ratio % income Saving ratio (LHS) % income 180 F'cst Debt-income ratio (RHS) Source: Oxford Economics

38 Wider pressures Household expenditure, UK, 2009 Wheat prices, world, UK household expenditure as a percentage of total (%) Lowest 10% Highest 10% All households Food & non-alcoholic drinks Alcoholic drinks, tobacco & narcotics Clothing & footwear Housing, fuel & power Household goods & services Health Transport Communication Recreation & culture Education Restaurants & hotels Miscellaneous goods & services Other expenditure items Total Wheat prices (1990=100) Source: Family expenditure survey Source: UNCTAD, UNCTADstat 38

39 House price correction to continue House price to wage ratio, NI and UK, Forecast The average HP/wage ratio in NI pre boom ( ) was 4.8 House price to wage ratio At peak, the HP/wage ratio was 12.7 in NI The 2010 HP/wage ratio is Implications for confidence and spending 39 Source: Oxford Economics

40 Oil demand to continue (and prices will rise) Global: Oil demand and price US$ pb World oil demand (RHS) Oil price (LHS) F'cast mbd Global oil intensity 2008= Forecast Source: Oxford Economics Source : Oxford Economics Global oil demand will continue to rise, as will prices. Global oil intensity suggests that despite the rising demand, world GDP will become less dependent on oil over time, as alternatives are sought and found. 40

41 Increase in older population Official population projections under 16s and over 65s, NI, Population (000s) Under 16 Over 65 Forecast Source: ONS 41

42 Care of the elderly to present opportunities (and problems!) Employment in health and social care, NI, Working age people per older person, NI, Health and social employment, 000s Forecast Working age people per older person Forecast Employment in health and social care sector forecast to grow by almost 4,500 jobs by 2020 Source: Oxford Economics There are currently 4.5 working people per older person (where an older person is defined as 65+) this is forecast to drop to 3.6 by 2020 Source: ONS / Oxford Economics 42

43 Challenges Private sector to drive growth Export performance is key Economic inequalities will exist and potentially widen Government spending limited to address them So we face choices of how to best use scarce public spending: Local regeneration? Community services? Education and training? Infrastructure? Front line (Doctors, nurses, teachers etc)? Support private sector growth?

44 The challenge of building sustainable economies

45 An economic crossroads The economy is at a crucial stage in its development The debt led conditions of 2007/08 are not likely to return and the pressures of spending cuts are on their way Time to re-orientate the economy in a way long aspired to, never implemented But economic policy has been focussed on the preservation of the block grant this is both dangerous and unamibitious Structure is a key problem and means talking to existing stock of businesses is necessarily flawed (structure goes a long way to explaining deficiencies in, amongst other things enterprise, BERD, productivity gap) Education improvement (and not just a graduate policy!) is the best evidenced route to improvement but a long run investment The base case outlook is one that should not be considered acceptable the biggest policy challenge in generations 45

46 However growth will not eradicate inequalities Inequalities at local level are evident and could widen! Some local authority areas in NI face considerable challenges in relation to employment creation - their skills profile and economic structure do not favour sectors likely to drive growth Future growth is expected to be in high value added activities, which tend to favour urban areas with large pools of skilled labour General economic growth will not address social problems at local level So Central and Local Government face difficult choices : Cuts of any kind (internal or external) will bring pain but how can that pain be minimised? At regional level is there anything that can be done (corporation tax, public sector reform, transfer of more power, tax rises, etc) to position the region on a faster growth path? Should we invest in skills and training, or infrastructure, or regeneration? It is a time for responsibility in NI we have not tackled inequalities with a significant pot of public money. Time to think carefully about priorities and direct local resource into local problems (and build on local success). The gravy train is leaving and unfortunately despite its long stay it leaves behind many problems 46

47 Contact Details: Oxford Economics Lagan House Sackville Street Lisburn County Down BT27 4AB UK Tel: Fax: