March 2010 - Nick Parsons, National Australia Bank

Welcometoto

Friday 5Friday 5thth March 2010March 2010

firstfirstfridayfriday

www.wakefieldfirst.com [email protected]

Mohan de SilvaMohan de Silva

Chief ExecutiveChief Executive

firstfirst





Mick McKigneyMick McKigney

Head of Policy & ResearchHead of Policy & Research

firstfirst



Local Labour MarketLocal Labour Market


�� Unemployment:Unemployment:•• January 2010 January 2010 –– 9,409,9,409, a rise of 625 (i.e. an a rise of 625 (i.e. an

increase of 7.1%) since December 2009increase of 7.1%) since December 2009

•• 4.7% 4.7% -- below regional (5.0%)below regional (5.0%) but above but above

national average (4.3%)national average (4.3%)

�� Vacancies:Vacancies:

•• January vacancies January vacancies –– 2,509 (a fall of 195 since 2,509 (a fall of 195 since

December 2009)December 2009)

•• 6,9006,900 less vacancies than job seekersless vacancies than job seekers


Unemployment TrendsUnemployment Trends

Unemployment Trends

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Dec-0

5

Apr-0

6

Aug-0

6

Dec-0

6

Apr-0

7

Aug-0

7

Dec-0

7

Apr-0

8

Aug-0

8

Dec-0

8

Apr-0

9

Aug-0

9

Dec-0

9

Source NOMIS, February 2010

%of Unemploye

d

Wakefield

Yorkshire & the Humber

Great Britain


Vacancy TrendsVacancy Trends

Wakefield Claimants and Vacancies, 2008-2010

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Mar

-08

May

-08

Jul-

08

Sep-

08

Nov-

08

Jan-

09

Mar

-09

May

-09

Jul-

09

Sep-

09

Nov-

09

Jan-

10

Claimants

Total Vacancies

Source: NOMIS, 16th December 2009


Business NewsBusiness News

�� TV Bike Launched in TV Bike Launched in WakefieldWakefield•• Carbon neutral advertising Carbon neutral advertising

conceptconcept

•• Contains 2 x 45Contains 2 x 45’’’’ plasma plasma screens, plus audio and screens, plus audio and Bluetooth capacity Bluetooth capacity

•• Can access all areasCan access all areas

•• Designed by WakefieldDesigned by Wakefield--based based Media DisplaysMedia Displays



�� Scottish & Southern Energy Scottish & Southern Energy ––

major investment plansmajor investment plans•• Seeking planning permission for a Seeking planning permission for a

££21M carbon capture R&D plant at 21M carbon capture R&D plant at

Ferrybridge Power stationFerrybridge Power station

•• Construction will begin this summer Construction will begin this summer

for completion in 2011for completion in 2011

•• Planning permission sought for a Planning permission sought for a

££350M 108MW multi350M 108MW multi--fuel Combined fuel Combined

Heat & Power facilityHeat & Power facility



�� Future Jobs Fund Creates Future Jobs Fund Creates Employment at Employment at GroundworkGroundwork•• Secured a Secured a ££390,000390,000 bidbid

•• 20 young people, who were 20 young people, who were all claiming JSA, have been all claiming JSA, have been employed in various employed in various positions including positions including administration, finance and administration, finance and landscapinglandscaping



�� Tangerine Confectionery Secures Contract Tangerine Confectionery Secures Contract

Down UnderDown Under•• Supplying Australian supermarkets with Supplying Australian supermarkets with

Taverners and Sherbet FountainsTaverners and Sherbet Fountains

•• PoundPound’’s weakness has presented export s weakness has presented export

opportunitiesopportunities


�� LightsongLightsong Media Group Media Group

PartnershipPartnership

•• DigitallyDigitally--led music led music

companycompany

•• Confirmed a licensing Confirmed a licensing

agreement with Sunshine agreement with Sunshine

HQ Ltd, the SheffieldHQ Ltd, the Sheffield--

based music, media and based music, media and

entertainment providerentertainment provider



�� RedhallRedhall Group Sees Group Sees Healthy ProfitsHealthy Profits•• Shares leapt due to a big Shares leapt due to a big

rise in annual profits and rise in annual profits and a strong order booka strong order book

�� CarcloCarclo Raises Raises ££3.7M 3.7M •• OssetOsset--based plastics based plastics

and lighting group is and lighting group is raising raising ££3.7M through 3.7M through share placingshare placing



DevelopmentsDevelopments

�� New Council Office Gets New Council Office Gets

Green LightGreen Light

•• FourFour--storey, 123,000 sq ft storey, 123,000 sq ft

office blockoffice block

•• Will hold 1,100 peopleWill hold 1,100 people

•• Work will start in summerWork will start in summer

•• Second phase of Merchant Second phase of Merchant

Gate developmentGate development



�� Major Construction Complete at the Major Construction Complete at the Hepworth WakefieldHepworth Wakefield•• One of the largest purposeOne of the largest purpose--built galleries outside built galleries outside

of Londonof London

•• Will house a learning centre, cafWill house a learning centre, caféé, shops and 100, shops and 100--seat auditoriumseat auditorium

•• Expected to open in May 2011Expected to open in May 2011



�� Hospital Takes ShapeHospital Takes Shape

•• ££240M Wakefield hospital 240M Wakefield hospital

will take patients this will take patients this

summersummer

•• The new The new ££60M Pontefract 60M Pontefract

hospital opened for hospital opened for

physiotherapy in Januaryphysiotherapy in January

•• Both hospitals expected to Both hospitals expected to

be fully operational by be fully operational by

January 2011January 2011



�� First Phase of Nostell First Phase of Nostell

Business Park Business Park

CompleteComplete

•• ££2.2M project2.2M project

•• 5 energy efficient office 5 energy efficient office

suites createdsuites created



�� Grand CentralGrand Central’’s West s West

Ridings service to King's Ridings service to King's

Cross in full test next Cross in full test next

monthmonth•• Crew training in AprilCrew training in April

•• First services in May 2010First services in May 2010

•• Trains will call at Pontefract Trains will call at Pontefract

Monkhill, Wakefield Kirkgate, Monkhill, Wakefield Kirkgate,

Doncaster & LondonDoncaster & London


EventsEvents

�� LetLet’’s Work Togethers Work Together

•• Tackling Youth UnemploymentTackling Youth Unemployment

•• 2626thth March, 11.30am March, 11.30am –– 2.30pm 2.30pm

•• Guest panel led by Yvette Guest panel led by Yvette

Cooper MPCooper MP

•• Navigation Warehouse, Navigation Warehouse,

WakefieldWakefield

•• FREE to attendFREE to attend


EventsEvents

�� Wakefield Goes to MIPIMWakefield Goes to MIPIM•• 1616thth –– 1919thth March, CannesMarch, Cannes

•• Part of the Leeds City Part of the Leeds City Region exhibition Region exhibition

•• Promoting the Region as a Promoting the Region as a location for investmentlocation for investment

•• Guest speaker: Sir Bob Guest speaker: Sir Bob KerslakeKerslake, Chief Executive , Chief Executive of the Homes and of the Homes and Communities AgencyCommunities Agency


welcomes


Nick ParsonsNick Parsons

Head of Markets StrategyHead of Markets Strategy

National Australia Bank LtdNational Australia Bank Ltd


Outlook for the UK Economy:

No return to boom from bust

’A Presentation for Yorkshire Bank & First Friday, Wakefield’

Nick Parsons

Head of Markets Strategy, Wholesale Markets, UK

National Australia Bank,

[email protected],com

March 5th 2010

The Global Context

Global economic growth enjoyed a 5 year boom from 2002-06

Source: IMF WEO

0

1

2

3

4

5

6

1986 1990 1994 1998 2002 2006 2010

Annual percentage change

● From 1986-2006, the global economy grew on average around 3.4% per annum

● Beginning in 2002, growth accelerated and reached a high of 5.1% in 2005.

● The slowdown in 2008 took growth closer to its long-term average.

Average

1980-2006

Global economic growth collapsed in 2009

Source: IMF WEO

0

1

2

3

4

5

6

1986 1990 1994 1998 2002 2006 2010


● Data released since the onset of the global financial crisis reveal an output decline of unprecedented

speed, scale and regional synchronisation for the post-war period.

● Industrial production declined by over 15% from Q3 2008 to Q2 2009.

● Synchronized downturn seen across OECD and emerging market economies.

Global economic growth set to rebound in 2010

Source: IMF WEO, NAB

0

1

2

3

4

5

6

1986 1990 1994 1998 2002 2006 2010


Forecast 2010

● Massive co-ordinated programme of fiscal and monetary stimulus will bring a return to growth in 2010

● Though the rebound is impressive, actual growth rate will still be below average of last 25 years.

● Recovery will be led by China and Asia with those Western economies most reliant on debt-financed

consumption still struggling to gain traction from domestic demand.

Sharp G10 slowdown in 2009 but growth now picking up across the world

● China and India grew strongly despite global downturn. Without their contribution, world economy would

have shrunk more than 2% in 2009

● Massive fiscal and monetary policy stimulus will see global growth return in 2010

● By 2011, global economic growth should be back to the average of the last 25 years.

Source: National Australia Bank

45.45.2Latin America

2.9 -1.3 3.2 3.54.95.0World

7.5 5.6 6.2 6.29.29.9India

9.5 8.2 9.0 9.011.811.0China

0.0 -1.6 2.3 3.33.22.0New Zealand

2.4 0.5 2.3 3.74.02.5Australia

0.4 -2.7 1.8 2.52.73.1Canada

0.5 -3.9 1.2 1.52.62.9eurozone

0.8 -4.3 0.9 2.53.02.9UK

2.42.1Japan

0.5 -2.7 2.1 2.52.02.8US

2010(f)2009(f)200820072006Annual average

4.1 -2.0 3.4 3.85.45.2Latin America

World

9.29.9India

11.811.0China

3.22.0New Zealand

4.02.5Australia

2.73.1Canada

2.62.9eurozone

3.02.9UK

-1.2 -5.3 1.6 2.12.42.1Japan

2.02.8US

2010(f)2009(f)20072006Annual average 2011(f)

Our forecasts for the UK economic recovery in

2010

The long run of continuous UK growth came to a dramatic end in 2008

● The UK enjoyed 63 consecutive quarters of growth which came to an end in Q2 2008.

● The economy then suffered 6 consecutive quarters of negative growth; making it the longest recession in the post-War period.

● Latest figures released February 26th show the economy grew +0.3% in Q4 2009, meaning the

recession has technically ended.

Source: Datastream

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

-2.50

-2.00

-1.50

-1.00

-0.50

0

0.50

1.00

1.50

Export and output-led Debt and property-led

-3.00

Total loss of output worse than either of the last two recessions

● In 1979-81, output fell 4.9%. In 1990-92 it fell 2.5% and in 2008-09 it has fallen 6.0%.

● Six consecutive quarters of falling output make 2008-09 the longest and deepest post-War recession.

● We believe (and hope) the UK economy may now have hit bottom.

Source: Datastream

-7

-6

-5

-4

-3

-2

-1

0

1 2 3 4 5 6 7 80

December 1979

June 1990

March 2008

Post-recession recovery will be weaker than last two occasions

● In the first six quarters from 1981, output rose 3.1%. In 1992 it rose 2.0% and from end-2009 we expect an increase of just 1.7%

● So, after the deepest and longest recession, we now expect a weaker recovery than either of the last two.

Source: Datastream

1981

1992

2009

0

0.5

1

1.5

2

2.5

3

3.5

1 2 3 4 5 60

The shape of UK economic recovery 2009-10

Q1 2009 -2.6%

Q2 -0.6%

Q3 -0.3%

Q4 +0.3%

Q1 2010 +0.2%

Q2 +0.2%

Q3 +0.4%

Q4 +0.4%

A comparison of the last three UK recessions

● The latter stages of both previous recession have been characterised by a mix of positive and negative growth.

● In 1990-92, growth moved negative after what initially looked like recovery

Source: Datastream/NAB

-3

-2

-1

0

1

2

1 2 3 4 5 6 7 8 9 10 11 12

December 1979

June 1990

March 2008

Risks around the central forecast

● The risk profile around the central forecast is pretty symmetrical, but this is mostly because the forecast itself is so weak.

● Upside risks centre on UK export performance and corporate profitability driving business investment

● Downside risks centre on weak consumption, the ongoing impact of the credit crunch on loan availability

and a rapid fiscal adjustment

Source: Datastream/NAB

-3

-2

-1

0

1

2

1 2 3 4 5 6 7 8 9 10 11 12

Even the sharp rebound predicted by HMT will not close trend GDP gap

● The blue line shows where the economy would be if it grew at the ‘old’ trend rate of 2.75% per year

● Recession lasted 6 quarters, but the UK actually ‘lost’ 2 ½ years of output

● On HM Treasury forecasts, growth will not reach previous trend level over the next 10 years

● We assume the trend rate of growth has slipped to around 2.0 -2.25% but fiscal and monetary stimulus

will allow the top end of this range to be achieved.

100

110

120

130

140

150

160

170

180

190

00 02 04 06 08 10 12 14 16 18 20

2.75% trend

Actual + Treasury

Actual + NAB

UK Household debt is the highest in the world

● UK household debt is highest in the world and also the highest in history

● Debt to income ratio is more than double Italy’s and more than 50% higher than France and Germany

Source: IMF WEO

0

50

100

150

200

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

France Germany

Italy Japan

United Kingdom United States

Household debt as a percentage of disposable

income %

UK’s reliance on wholesale markets

● Bank of England data on household and non-financial corporation deposit holdings and lending,

including lending to individuals shows the widening gap that has until recently been reliant upon

wholesale funding. This grew GBP150bn in 1996 to over GBP800bn.

● Money market paralysis rendered this borrowing impossible – hence the credit crunch

Source: Bank of England, NAB

-900

-800

-700

-600

-500

-400

-300

-200

-100

096 97 98 99 00 01 02 03 04 05 06 07 08

UK funding gap between customer deposits and loans which has up to now relied on wholesale markets

GBP bn

09 10




wholesale funding. This grew from GBP150bn in 1996 to over GBP800bn and stands today at £319bn



-900

-800

-700

-600

-500

-400

-300

-200

-100

096 97 98 99 00 01 02 03 04 05 06 07 08


GBP bn

09 10

QE 200bn







-900

-800

-700

-600

-500

-400

-300

-200

-100

096 97 98 99 00 01 02 03 04 05 06 07 08


GBP bn

09 10

QE 200bn

SLS 185bn







-900

-800

-700

-600

-500

-400

-300

-200

-100

096 97 98 99 00 01 02 03 04 05 06 07 08


GBP bn

09 10

QE 200bn

CGS 94bn

SLS 185bn

The UK Official Budget Forecasts

HMT Economic forecasts for the next 3 years

● GDP forecast for 2009 has been revised down substantially and is now -4.75%; the worst in any year since the Great Depression

● 2010 forecast is not too far different from ourselves or the consensus estimate

● 2011 forecast might just be achievable, but in our view looks extremely optimistic.

HMT forecasts for public sector borrowing (PSBR)

● Despite worries over the scale of net borrowing, the PBR forecasts are almost exactly unchanged from the 2009 Budget

● Total borrowing over the next 5 years is projected to increase by a staggering £706bn.

HMT forecasts for debt and deficits as a percentage of GDP

● Government borrowing is expected to reach 12.6% of GDP in 2009-10, falling to 4.4% by 2014 -15

● The total stock of government debt is forecast to keep growing from 44.0% in 2008-09 to 77.7% in 2014-

15.

HMT economic forecasts behind projections for public finances

● Forecasts for 2011 and 2012 are optimistic but not impossible.

● However, forecasts for 2013 and beyond assume not only that the trend rate of growth is left unchanged

at 2.75% despite the financial crisis, but that the UK economy grows 0.5% above this level.

● This looks to us highly implausible.

UK National Debt (Gross Liabilities of the National Loan Fund)

● Total UK debt currently stands around £700bbn.

● UK GDP is around £1,400bn.

0

200

400

600

800

1000

1945 1955 1965 1975 1985 1995 2005 2015

Forecast for UK National Debt (Gross Liabilities of the National Loan Fund)

● Total UK debt will more than double in the next 5 years, even if Treasury projections for GDP growth

prove correct.

● This staggering increase in debt has caused S+P to shift it’s rating on UK to “AAA outlook negative”

0

200

400

600

800

1000

1945 1955 1965 1975 1985 1995 2005 2015

1200

1400

Implications of possible sovereign downgrade

Threat of downgrade increases the need for a deficit reduction programme

● A sovereign downgrade would raise the cost of government borrowing and pressure the currency; threatening a vicious circle of rising interest rates and a falling pound.

● There is thus a requirement for a credible medium-term deficit reduction plan which goes beyond “crossing fingers and hoping for growth”

● At its most basic, this will involve raising revenues and reducing government expenditures.

● On the revenue side this means increasing the tax take, both direct and indirect.

● Revenue raising alone cannot make a meaningful impact on the deficit. A 1pc increase in

income tax raises £4bn. A 1pc increase in employees National Insurance raises £4bn. A 1pc increase in employers National Insurance raises £5bn. A 1pc increase in VAT raises £5bn.

● On expenditure, the next Government will need to rein back the growth in spending which has risen in real terms by 3% per annum over the past decade.

● Total Government expenditure in fiscal year 2009-10 is £671bn.

49

UK and US fiscal deficits blow out

% of GDP

-13 .5

-11 .5

-9 .5

-7 .5

-5 .5

-3 .5

-1 .5

0 .5

2 .5

avg 93 -02 2008 2009 2010

US

UK

EMU

CAD

AUDNZ

CHF

Forecasts

Source: IMF, National Australia Bank

49

50

10 year European sovereign bond yields

● Greek 10 year bonds now yield 6.59%; 340bp over comparable German bonds

● Germany is trading at 3.19%

● Six months ago, the spread between highest and lowest was just 167bp but market has now become far

more discriminating. Portugal has widened significantly over the last week.

Germany

Portugal

Ireland

UKFrance

Greece

Source: Datastream

2

3

4

5

6

7

8

Aug 09 Sep Oct Nov Dec Jan 10

Conclusions

Debt reduction will be a painful experience

Other than default, there are two ways to reduce debt:

● Cut expenditure, raise taxes and create structural surpluses.

– De-leveraging in the banking system feeds through to households then corporates.

– With tax revenues falling, government cuts expenditure leading to ‘debt deflation.’

● Decrease the real value of debt through hyperinflation

– Weimar Republic, Zimbabwe show the costs of this.

The UK has experienced three major accumulations and run-downs of government debt in its history.

● From 1795 to 1882 debt peaked at 185% of GDP then down to 30% by 1914.

– Sharp cuts in military expenditure combined with healthy growth helped generate surpluses.

● From 1913 to 1933 debt rose to 178% of GDP then down to 141% by 1938.

– Debt reduction was slow and limited because growth was weak. Abandonment of Gold Standard allowed the pound to depreciate, reducing real interest rates through inflation spurring growth.

● From 1938 to 1946 debt rose to 252% of GDP then down to 43% by 1980.

– Debt reduction was rapid die to austerity measures in 1950s and then inflation. But growth quality was poor.

Conclusions

● The UK economy has just suffered its worst post-War recession, with GDP falling a cumulative -6.0%.

● Official and survey data show the economy deteriorated at a slower pace in Q2 and Q3 then grew +0.3% in Q4, allowing the recession to be declared over.

● We expect only a very modest recovery in 2010. Indeed, growth in the whole of 2010 is likely to be only 0.9% and the average rate compared with 2009 will be only +0.5%.

● On HM Treasury forecasts, government borrowing is set to increase by £703bn over the next 5 years.

● Global economic recovery and massive UK public deficit will put upward pressure on interest rates and bond yields in the absence of any credible deficit reduction plan. This does not have to be immediately implemented but it does need to be formulated.

● The Bank of England may cut the interest rate paid on commercial bank reserves (currently 0.5%) in an attempt to stimulate lending and to maintain downward pressure on interest rates.

● The fall in sterling means that UK manufacturers have rapidly regained competitiveness, but an absence of overseas demand is still holding back output.

● The new trend of rate growth for the UK economy is likely to be 2.0 - 2.25%; almost half a percentage point lower than the average over the past decade.

Disclaimer

IMPORTANT NOTICE: So far as the law and the Financial Services Authority Rules allow, National Australia Bank Ltd ("the Bank") disclaims any

warranty or representation as to the accuracy or reliability of the information and statements in this Document. The Bank will not be liable (whether in

negligence or otherwise) for any loss or damage suffered from relying on this Document. This Document does not purport to contain all relevant

information. Recipients should not rely on its contents but should make their own assessment and seek professional advice relevant to their

circumstances. The Bank may have proprietary positions in the products described in this Document. This Document is for information purposes only,

is not intended as an offer or solicitation, nor is it the intention of the Bank to create legal relations on the basis of the information contained in it. No part

of this Document may be reproduced without the prior permission of the Bank. This Document is intended for Investment Professionals (as such term is

defined in The Financial Services and Markets Act 2000 (Financial Promotion) Order 2001) and should not be passed to any other person who would be

defined as a private customer by the rules of the Financial Services Authority ("FSA") in the UK, or to any person who may not have experience of such

matters. Issued by National Australia Bank Limited A.B.N. 12 004 044 937, 88 Wood Street, London EC2V 7QQ. Registered in England BR1924. Head

Office: 500 Bourke Street, Melbourne, Victoria. Incorporated with limited liability in the State of Victoria, Australia. Authorised and regulated by the

Financial Services Authority in the UK.


Q & AQ & A

Mohan de SilvaMohan de Silva

Chief ExecutiveChief Executive

firstfirst




CloseClose

Margaret WoodMargaret Wood

ChairChair

firstfirst




Thankyou


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March 2010 - Nick Parsons, National Australia Bank

Entertainment & Humor