Global Economic Outlook: From Fiscal Cliff to Rushcliffe in 15 minutes Tom Rogers Lead Economist, Oxford Economics trogers@oxfordeconomics.com 16 th January 2013
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.
US households in good financial shape US : Household debt measures % of disposable income 20 18 Household financial obligations 16 14 12 10 Household debt service ratio 8 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 Source: FRB 3
and banks lending to business 4 US & Eurozone: Corporate loan growth % year 25 20 15 10 5 0-5 -10-15 -20 Eurozone loans to PNFCs -25 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source : Oxford Economics/Haver Analytics US commercial & industrial loans US loans inc. commercial real estate
Imminent risk of breakup reduced Weighted average peripheral bond spread % spread over German bunds 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 1-Jul-10 28-Dec-10 26-Jun-11 23-Dec-11 20-Jun-12 17-Dec-12 Source : Oxford Economics/ Haver Analytics
but more austerity to go Discretionary fiscal tightening, 2013-2015 Percent of GDP 0.0-0.5-1.0-1.5-2.0-2.5-3.0-3.5-4.0-4.5 Germany Italy France Belgium Spain Ireland Greece Source : Oxford Economics/Haver Analytics
unemployment will restrain consumption Eurozone: Unemployment Rate % 30 Greece 25 20 15 Spain Portugal 10 Eurozone 5 0 2004 2006 2008 2010 2012 2014 2016 Source : Oxford Economics/Haver Analytics
some way to go to restore competitiveness Unit labour costs 2000=100 160 150 Greece Forecast 140 Italy 130 120 France 110 100 90 Spain Germany 80 2000 2002 2004 2006 2008 2010 2012 2014 Source: Oxford Economics
and banks will struggle with bad debt for some time Eurozone Non-performing bank loans % total loans 16 14 Spain Forecast 12 Italy 10 8 6 4 Eurozone 2 0 2007 2009 2011 2013 2015 Source : Oxford Economics/World Bank
So a lost decade likely in medium-term Eurozone GDP growth % year 3.0 1998-2007 average 2.5 Forecast 2.0 1.5 1.0 0.5 0.0-0.5-1.0 2010 2012 2014 2016 2018 2020 2022 Source : Oxford Economics/Haver Analytics
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: World GDP Growth % Change on Previous Year 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 11 World 2.9 2.3 2.4 3.5 3.8 World (PPP) 3.6 3.0 3.5 4.2 4.4
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 UK: Labour market Employment (000s) 29.7 29.6 29.5 29.4 29.3 29.2 29.1 29.0 28.9 28.8 Unemployment (RHS) Employment (LHS) Unemployment (000s) 2.9 2.7 2.5 2.3 2.1 1.9 1.7 28.7 2008 2009 2010 2011 2012 1.5 Source : Haver Analytics
leaves us with spare capacity within firms UK: Output per worker 2009=100 120 115 Pre-recession trend 110 14% 105 100 95 Actual 90 85 80 75 1995 1997 1999 2001 2003 2005 2007 2009 2011 Source : Haver Analytics
so limited scope for further job creation UK: Unemployment % 9 Forecast 8 7 6 5 4 3 ILO Claimant count 2 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: Oxford Economics
Implies only a gradual recovery in consumer spending UK real consumer spending % change on year ago 4% 3% 2% 1% 0% 2004 2006 2008 2010 2012 2014 2016-1% -2% -3% Forecast -4% Source : Oxford Economics/Haver Analytics
Firms still reluctant to invest UK:BoE agents' survey: Investment intentions % balance 4 Services 3 2 1 0-1 -2-3 Manufacturing -4-5 2000 2002 2004 2006 2008 2010 2012 Source : Haver Analytics
despite having plenty of cash UK: PNFC financial balance % of GDP, 4QMA 5 4 3 2 1 0-1 -2 2000 2002 2004 2006 2008 2010 2012 Source : Haver Analytics
Inflation below target in medium term UK: Inflation relative to target % year 5 Forecast 4 3 2 2% target 1 CPI inflation 0 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Oxford Economics
Lending for Business should kick start mortgage lending UK: Mortgage availability % balance : loosening (+) / tightening (-) 40 30 20 *The single datapoints represent 3 month forecasts, while the columns represent actual data 10 0-10 -20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2010 2011 2012 2013 Source : Bank of England Credit Conditions Survey
but further modest house price falls likely UK: House prices & transactions Prices (% year) 30 25 20 15 10 5 0-5 -10 Transactions (RHS) Prices (LHS) Transactions (000s) 500 F'cast 450 400 350 300 250 200-15 2000 2002 2004 2006 2008 2010 2012 2014 150 Source : Oxford Economics
UK forecast Forecast for UK (Annual percentage changes unless specified) 2011 2012 2013 2014 2015 2016 Domestic 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
Regional prospects divided Unemployment rates around UK regions, 2013 Percent of labour force 8 7 6 5 4 3 2 1 0 SE SW EE L EM S W NW WM YH NE N Source : Oxford Economics/Haver Analytics
Regional prospects divided Average GVA growth 2013-15 Percent on year ago 2.8% 2.6% 2.4% 2.2% 2.0% 1.8% 1.6% 1.4% L SE SW EE WM EM YH NW NI S W NE Source : Oxford Economics/Haver Analytics
But not entirely a North-South story