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7/29/2019 Sample Pitch Book
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www.rbsmarkets.com
Economic Outlook
Presentation to PPA National Conference
Ross WalkerUK EconomistRoyal Bank of Scotland Financial Markets
5 May 2004
7/29/2019 Sample Pitch Book
2/12
5 May 2004 [email protected]
www.rbsmarkets.com
US economic policy highly accommodative
X US macroeconomicpolicy remainshighlyaccommodative.
X The US Fed hasslashed interestrates from 6.5% inearly 2001 to just1%, their lowest
level since the1950s.
X The US$ hasdepreciated byalmost 20% overthe past 2 years.
X Fiscal policy ishighly stimulativeas the Bush taxcuts take effect.
US monetary conditions
1998 1999 2000 2001 2002 2003 20040
1
2
3
4
5
6
7
90
95
100
105
110
115
120
125
US Fed Funds (%, lhs)
US $
trade-weighted
index (rhs)
Source: DATASTREAM
7/29/2019 Sample Pitch Book
3/12
5 May 2004 [email protected]
www.rbsmarkets.com
US leads the global economic recovery
X The ISM surveyhas, for severaldecades, served as
a reliable leadingindicator for USeconomic growth.
X The surveyrebounded sharply
in the second halfof 2003 (theBaghdad bounce)and is currently atlevels consistentwith above-trend
GDP growth of 4-5% a year.
US ISM survey & GDP
80 82 84 86 88 90 92 94 96 98 00 02 0425
30
35
40
45
50
55
60
65
70
75
-4
-2
0
2
4
6
8
10
US GDP
(% yoy, rhs)
US ISM survey
(lhs)
Source: DATASTREAM
7/29/2019 Sample Pitch Book
4/12
5 May 2004 [email protected]
www.rbsmarkets.com
UK economy - youve never had it so good
X The UK avoidedtechnical recessionin 2001 (unlike US,
Japan or Germany).X The period since
Q3 1992 marks thelongest unbrokenexpansion in the
post-war era, butthe UK was notimmune to theglobal slowdown,with growth belowtrend for most of the
period betweenlate-2000 and mid-2003.
UK GDP (% qoq & % yoy)
-1
0
1
2
3
4
5
92 93 94 95 96 97 98 99 00 01 02 03 04
% yoy
% qoq
7/29/2019 Sample Pitch Book
5/12
5 May 2004 [email protected]
www.rbsmarkets.com
UK economy re-balancing
X 1996-2002 saw thebiggest consumerboom in history,
but further interestrate rises will resultin more moderatespending andborrowing growth.
X Growth inInvestmentspending isexpected torebound strongly in2004: we forecastthe strongestinvestment growthsince the late-1990sboom.
UK GDP and components (% yoy)
0
1
2
3
4
5
6
7
99 00 01 02 03 04 05
GDP Government
Consumption Investment
RBS forecast
7/29/2019 Sample Pitch Book
6/12
5 May 2004 [email protected]
www.rbsmarkets.com
Labour market gizza (public sector) job
X Since 1999 (whenthe large increasesin public spending
began) the UKeconomy hasadded around 1.3mextra jobs.
X The public sector,
accounting foraround one-fifth oftotal employment,has made adisproportionatelylarge contribution,
accounting for half-a-million new jobs,almost 40% of therise in employmentsince 1999.
UK employment (cumulative change, 000s)
0
200
400
600
800
1000
1200
1400
1999 2000 2001 2002 2003*
Total employment (000s)
Private sector
Public sector
7/29/2019 Sample Pitch Book
7/12
5 May 2004 [email protected]
www.rbsmarkets.com
Labour market wage inflation stirs
X Wage inflationpressures are
building. TheAverage EarningsIndex rose 4.9%(3m/yoy) inFebruary the
fastest wageinflation sinceAugust 2001.
X Bonus paymentswere the mainfactor butunderlying wagepressures are alsoincreasing.
UK average earnings growth (% 3m/yoy)
2
3
4
5
6
98 99 00 01 02 03 04
Ex-bonuses
Headline(% 3m/yoy)
7/29/2019 Sample Pitch Book
8/12
5 May 2004 [email protected]
www.rbsmarkets.com
Newspaper & periodicals
X Sales growth forperiodicals(newspapers &magazines) hastended to be slowerthan for total retailsales (in cash-terms) but a loosecorrelation exists.
XMagazine salesshould hold upreasonably well incash terms in 2004and 2005.
X Raising sales
growth in volumeterms will provedifficult if theexperience over thepast decade is anyguide.
Retail sales and periodicals sales (% yoy)
90 92 94 96 98 00 02 04-10
-8
-6
-4
-2
0
2
4
6
8
10
12
Retail sales value
Periodicals volumes
Periodicals values
Source: DATASTREAM
7/29/2019 Sample Pitch Book
9/12
5 May 2004 [email protected]
www.rbsmarkets.com
Corporate sector more profitable
X Corporate profitgrowth has risensteadily over the
past two years.X On the latest data
(for Q4 2003) profitgrowth acceleratedto 10.6% yoy the
fastest growth since1997.
X Higher profits andstronger corporatebalance sheetsshould encourageinvestment andadvertisingexpenditure.
UK corporate profits (% yoy)
-15
-10-5
0
510
15
2025
1990 92 94 96 98 00 02 04
7/29/2019 Sample Pitch Book
10/12
5 May 2004 [email protected]
www.rbsmarkets.com
Interest rates - accommodative
X UK base rates, at4%, remain atartificially lowlevels.
X In early 2001, theMPC began cuttinginterest rates toover-stimulate thedomestic economy
to offset thedeflationary forcesemanating fromoverseas.
X The BoEschallenge in the
next 12-18 monthswill be to unwindthis withouttriggering anabrupt economicslowdown.
Base rates: monetary policy remains accommodative
90 92 94 96 98 00 02 042
4
6
8
10
12
14
16
ERM
Bank of England
independence
Source: DATASTREAM
7/29/2019 Sample Pitch Book
11/12
5 May 2004 [email protected]
www.rbsmarkets.com
UK interest rates going up
X The output gap (ameasure of sparecapacity) is key to
monetary policy.X With near full
employment,above-trendgrowth,strengtheningglobal demand andpipeline inflationpressures brewing,further rate risesare imminent.
X We forecast baserates to reach4% by end-2004.
RBS interest rate forecast
-1.0
-0.5
0.0
0.5
1.0
00 01 02 03 04 05
3
4
5
6RBSFM
forecast
Output gap (lhs)
Base rates(rhs)
7/29/2019 Sample Pitch Book
12/12
5 May 2004 [email protected]
www.rbsmarkets.com
RBS economic forecasts United Kingdom
X Economic growth accelerating to above-trend rates this year.
X Consumer spending to moderate, but no early-1990s-style collapse.
X Corporate investment and advertising spending to recover.
X Labour market to remain close to full employment.
2002 2003 2004 2005
GDP at market prices 1.6 2.2 3.2 2.7
Household consumption 3.4 2.5 2.9 2.7
Government consumption 2.5 1.8 3.0 2.6
Investment (GFCF) 1.8 2.9 6.8 4.9
Inflation (CPI) 1.3 1.4 1.6 1.9Retail sales 6.9 3.0 3.2 2.8
Fiscal balance (% GDP) -2.1 -3.1 -3.0 -2.9
Unemployment 5.2 5.0 4.8 4.7
Base rate (Q4) 4.0 3.75 4.75 4.5
/$ exchange rate 2004 q2 1.76 04q3 1.79 04q4 1.84 05q1 1.88
