Slide 1

Economic Outlook 2015Derry Enterprise Week

25th February 2015

Richard Ramsey – Ulster Bank Chief Economist

www.ulstereconomix.com @UB_Economics

Global output growth picks up from 14-month low

Global Output - PMI

35

40

45

50

55

60

65

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Source: Markit Economics

ExpansionC

ontraction

Slide 3

Inflation no longer a problem – Disinflation / Deflation?

Annual Consumer Price Inflation (HICP)

0.3

-0.6

-0.4

0.8

-4-3-2-101234567

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

% Y/Y

EZ UK RoI US*

* US is CPI

Slide 4

Disinflation / deflation = interest rates lower for longer

UK Interest Rates (weekly)

1.18%

1.46%

1.84%

0

1

2

3

4

5

6

7

8

Feb-00 Aug-02 Feb-05 Aug-07 Feb-10 Aug-12 Feb-15

%

3yr 5yr 10yr Base

Rise in swap rates preceeds base rate hikes

Source: Bloomberg

Slide 5

Sheikh v Shale v Putin

Source: The Economist 6th December

Slide 6

Falling prices is not just an oil price story

Bloomberg Commodities Index

80

100

120

140

160

180

200

220

240

260

Feb-01 Feb-03 Feb-05 Feb-07 Feb-09 Feb-11 Feb-13 Feb-15

Source: Bloomberg (BCOM Index)

22% fall y/y

Slide 7

Fall in Brent Crude oil price by over 60% in 7 months!

Price of Brent Crude Oil in Dollars & SterlingWeekly

£40

£32.5

$49

$53

0

20

40

60

80

100

120

140

160

Feb-93 Oct-96 Jun-00 Feb-04 Oct-07 Jun-11 Feb-15

£/$ pb

£pb $pb

Source: Bloomberg

Slide 8

Agricultural inflation tracks the oil price

Agriculture Inflation versus Oil Price

0

100

200

300

400

500

600

700

Aug-88 Jan-93 Jun-97 Nov-01 Apr-06 Sep-10 Feb-15

S&P Index

0

20

40

60

80

100

120

140

160

$

S&P Agriculture Index Oil Price $

Source: Bloomberg, Brent Crude Oil Price & S&P Agriculture Inflation

Slide 9

Mario Draghi (ECB)

Mark Carney (BoE)

Haruhiko Kuroda (BoJ)

Janet Yellen (US Fed)

Slide 10

Key currency issue is one of ongoing dollar strength

Dollar Index

70

75

80

85

90

95

100

105

Feb-03 Feb-05 Feb-07 Feb-09 Feb-11 Feb-13 Feb-15

Source: Bloomberg

19% appreciation

Slide 11

Sterling’s effective exchange rate close to a 6½ year high

Sterling Effective Exchange Rate (Trade Weighted Index)

90.2

70

75

80

85

90

95

100

105

110

Feb-05 Oct-06 Jun-08 Feb-10 Oct-11 Jun-13 Feb-15

Index

30% Depreciation

Source: Bloomberg, BoE January 2005=100

+14% Appreciation

Slide 12

Due to strength against the euro rather than the dollar

Sterling / Dollar Exchange Rate

1.545

1.50

1.71

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2

2.1

Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15

Source: Bloomberg

Slide 13

Sterling is at a 7-year high versus the euro

Sterling / Euro Exchange Rate

1.36

1.0

1.1

1.2

1.3

1.4

1.5

1.6

Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15

€

Source: Bloomberg

Slide 14

Stronger £ = lower import price inflation: What cost of living crisis?

UK Annual Consumer Price Inflation

0

1

2

3

4

5

6

7

8

9

Jan-89 Apr-92 Jul-95 Oct-98 Jan-02 Apr-05 Jul-08 Oct-11 Jan-15

% Y/Y

Source: ONS, CPI

Slide 15

Rates of inflation & wage growth now moving in the right direction!

UK Average Weekly Earnings* & CPI InflationAnnual % Change

0

1

2

3

4

5

6

Jan-02 Mar-04 May-06 Jul-08 Sep-10 Nov-12 Jan-15

%

Average Weekly Earnings CPI Inflation MPC Target

Income squeeze'NICE'

Decade

Source: ONS * Excluding bonuses

Slide 16

Food & petrol prices falling at a record rate

UK CPI Inflation Year-on-Year

-2.5%-2.0%

-16.2%-20%

-10%

0%

10%

20%

30%

40%

50%

Jan-04 Nov-05 Sep-07 Jul-09 May-11 Mar-13 Jan-15

Food & Non-Alcoholic Beverages Electricity Gas & Other FuelsTransport Fuels & Lubricants

Source: ONS

Slide 17

Though petrol prices have been starting to tick up again

UK Fuel Prices - Pence per litre (Weekly)

107.3pFeb-15

106.3pJan-15

131.1pJul-14

129.7p

141.8p Apr-12

85.4p

60

70

80

90

100

110

120

130

140

150

Feb-04 Dec-05 Oct-07 Aug-09 Jun-11 Apr-13 Feb-15

Pence per litre

Source: DECC

Slide 18

Consumer confidence improving

N.Ireland New Car Registrations Annual % Growth

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2007 2008 2009 2010 2011 2012 2013 2014

Y/Y

Source: SMMT

VAT cut to 15% & 'Cash for Clunkers'

Slide 19

Slowdown in business activity occurring in NI

Private Sector Business Activity - PMIs

30

35

40

45

50

55

60

65

Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15

NI UK RoI

Source: Markit & Ulster Bank NI PMI50 = threshold between expansion / contraction

Expansion

Contraction

**PMI Surveys Exclude Agriculture & Public Sector**

Slide 20

But this follows a bumper year for job creation

NI Employee Jobs Excludes Self-Employed

-1.0%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

Q3 2007 Q4 2008 Q4 2010 Q1 2012 Q2 2013 Q3 2014

Q/Q % Change

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%Y/Y % Change

Q/Q Y/Y

Source: DFP

Discontinuity in Series

Slide 21

Claimant count has fallen for 25 successive months

NI Unemployment Claimant Count Levels

48,200

123,100

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Jan-71 May-78 Sep-85 Jan-93 May-00 Sep-07 Jan-15

Source: DFP

Dec 2012 64,800

Record Low Aug 07 23,500

Good Friday Agreement signed

April 199857,900

Slide 22

NI unemployment rate at a near 6-year low

Unemployment Rate

5.7

10.6

5.7

0

2

4

6

8

10

12

14

16

Dec-96 Dec-99 Dec-02 Dec-05 Dec-08 Dec-11 Dec-14

%

UK RoI NI

Source: ONS ILO Unemployment Rate & RoI Live Register

Slide 23

All sectors posted a weaker rate of growth in Q4-14

Northern Ireland Private Sector Output 3 month moving average

30

35

40

45

50

55

60

65

70

Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15

Manufacturing Services Construction

Source: Markit Economics & Ulster Bank NI PMI

Expansion

Contraction

Slide 24

NI firms reporting disinflation in costs but deflation with prices

NI Private Sector Profit Squeeze3 Month Moving Average

30

40

50

60

70

80

Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15

Output Prices Input Prices No Change

InflationD

eflation

Source: Markit Economics & Ulster Bank NI PMI

Profits squeeze

Price of goods & services

Slide 25

Cross-border retail trade will be going North > South

Northern Ireland Retail PMI3 monthly average

25

35

45

55

65

75

Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15

Business Activity New Orders No Change

Source: Markit Economics & Ulster Bank NI

Expansion

Contraction

Slide 26

Food, Drink & Tobacco sector has outperformed other sectors

Northern Ireland's Manufacturing Sales

4

6

8

10

12

2003/04 2005/06 2007/08 2009/10 2011/12 2013/14

£bn FDT Sales Non-FDT Sales

Source: DFP MSES

Slide 27

Exchange rate + Decline in Non-FDT sales = > FDT share

FDT's Share of NI Manufacturing Sales Within Markets

53%

37%28.5%

13%

0%

10%

20%

30%

40%

50%

60%

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

FDT as % of Total Sales FDT as % of Total Exports

Source: DFP MSES

Slide 28

FDT has increased its share of NI sales across all markets

FDT's Share of NI Manufacturing Sales Within Markets

54%

31%

71%

54%

23%

58%

18%

27%

14%

5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

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

NI GB RoI Rest of the EU RoWSource: DFP MSES

Slide 29

FDT has bucked the wider trend across all markets

N.Ireland Manufacturing Sales in Constant Prices % Change 2008/09 -2013/14

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Exports RoI NI TotalSales

External GB Rest ofEU

%

FDT Non-FDT

Source: DFP MSES

RoW FDT +497%RoW Non-FDT -7%

Slide 30

Republic of Ireland market has been a key market for growth

NI Manufacturing Sales to the RoIAnnual % Change

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

2003

/0420

04/05

2005

/0620

06/07

2007

/0820

08/09

2009

/1020

10/11

2011

/1220

12/13

2013

/14Year-on-Year

FDT Non-FDT

Source: DFP MSES

Slide 31

FDT has enjoyed a decade of growth in sales to GB

NI Manufacturing Sales to GBAnnual % Change

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2003

/0420

04/05

2005

/0620

06/07

2007

/0820

08/09

2009

/1020

10/11

2011

/1220

12/13

2013

/14Year-on-Year

FDT Non-FDT

Source: DFP MSES

Slide 32

NI house prices rise for 7th successive quarter

NI Residential Property Price IndexQuarterly & Year-on-Year Growth Rates

-15%

-10%

-5%

0%

5%

10%

15%

2005 Q4 2007 Q2 2008 Q4 2010 Q2 2011 Q4 2013 Q2 2014 Q4

Q/Q

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Y/Y

Q/Q Left Hand Axis Y/Y Right Hand Axis

Source: DFP RPPI

Slide 33

… but still half of 2007 levels

Residential Property Price IndicesQuarterly

-51% below peak

-38% below peak

12% above peak

2% above peak

50

75

100

125

150

175

200

225

2005 Q4 2007 Q2 2008 Q4 2010 Q2 2011 Q4 2013 Q2 2014 Q4

Index Q1 2005 = 100

NI (RPPI) RoI UK ONS* UK Excl. London & S.East

Source: DFP, CSO, ONS* includes mortgages only

Slide 34

Source: The Economist 6th December

Source: The Independent 4th December 2014

Slide 35

‘The Fourth Revolution’ – The shrinking of the state

UK Revenue & Expenditure as a % of GDP

30

32

34

36

38

40

42

44

46

48

50

1948-49 1955-56 1962-63 1969-70 1976-77 1983-84 1990-91 1997-98 2004-05 2011-12 2018-19

% of GDPTotal managed expenditure Current receipts

Source: ONS, OBR December 2014

Forecasts

Slide 36

The smelling salts of reality have arrived

Table 4.F: Resource DEL spending Outturn2009-10 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

Per cent of GDP 21.2 17.4 16.8 15.3 14.1 13.3 12.6Nominal spending1 317.8 316.8 316.3 299.0 287.9 282.9 279.7Real spending2 351.5 316.8 311.9 291.0 275.4 265.7 257.7Real spending per capita3 5,650 4,910 4,810 4,460 4,190 4,020 3,8801 £ billion2 £ billion, 2014-15 prices3 £, 2014-15 prices

Spending plans Implied spending

Slide 37

Plenty of scope for political surprises in 2015

Source: 

The Economist

?

Slide 38Slide 38

CONTACT DETAILS

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Please send us a mail at:

email: richard.ramsey@ulsterbankcm.com

Twitter: @UB_Economics

Slide 39

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