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The recovery and your business
Mark Smyth, RBS Group Economics
Slide 2
A return (of sorts) to positive growth
GDP growth (q/q)
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009
Slide 3
In the local economy too
PMI survey (business activity)
30
35
40
45
50
55
60
65
2006 2007 2008 2009 2010
UK East Midlands
Growth
Contraction
Slide 4Slide 4
We’ve got a lot of ground to recover
300
305
310
315
320
325
330
335
340
20052006
20072008
2009
£bil
lio
ns
UK GDP (real, quarterly, 2005 prices)
Slide 5
The property price correction
Property prices (index, peak =100)
30
40
50
60
70
80
90
100
110
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Commercial property prices House prices
Slide 6
Growth prospects depend on who can spend
Consumers50% of demand
Investment15% of demand
Government15% of demand
Exports20% of demand
Slide 7
The rise in household debt …
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2000 2000 2009 Q3 2009 Q3
£tril
lion
Household income Secured debt Unsecured debt
Slide 8
… leads to a need to save more
£96Long-runaverage
Q1 2008
Q3 2009
Income Spend
£104
£93
£4
-£4
£7
Save
Slide 9
The public finances are under pressure
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Net
deb
t to
GD
P r
atio
Net debt Financial interventions Treasury forecast (exc. interventions)
Slide 10
With future strains on public spending
“... the crisis has dealt a permanent hit to the Exchequer costing around 6½ per cent of national income ...
Over the course of next parliament, we know that the strain will be taken primarily by public spending.”
Slide 11
A sluggish recovery
90
95
100
105
110
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
100 = Q2 1992 100 = Q1 2008
3 yrs
5 yrs
1990s recession
Current recession
Index of real GDP, 100 = start of recession
Slide 12
Who wins and who loses in our central forecast?
Above average
Manufacturing
Construction
Average
Business services
Retail & wholesale
Below average
Hotels & restaurants
Health & education
Reg
ion
sS
ecto
rs
London
Eastern England
East Midlands
North West
South East
West Midlands
Yorks & Hum
Scotland
South West
North East
Wales
Northern Ireland
Slide 13
6
8
10
12
14
16
18
2010 2015 2020 2025 2030
Mill
ion
10
14
18
22
26
30
%
UK population over 65 (LHS)
As a % of Total Population (RHS)
An ageing population
Government Actuary Department Forecasts
Slide 14
Key issues for care homes / healthcare sector
Demand• Demographic trends
• Substitution for public sector provision
Occupancy rates• Capacity growth
• Alternative sources of provision
Prices and Costs• Pressures on LA budgets
• Labour market costs
Service Quality and Efficiency• Safety standards / regulations
• Joined up provision
Slide 15
What will drive longer-term economic growth
Labour force growth (c.0.7% per annum):• Demographic trends
• Immigration
Productivity growth (c.2.1% per annum):• Investment
• Cost of capital
• Fixing private and public sector balance sheets
• Cost of moving resources across sectors
Slide 16
Key messages
The worst is over, but we’re not out of the woods yet
– Economic outlook remains uncertain with both up and downside risks
– Balance sheets have to be repaired – no quick fix
Structural drags will inhibit the speed of recovery
– Income growth inhibited on supply and demand side
– Credit conditions
– Public sector deficit
An ageing population, but facing budgetary pressures
Productivity growth is key for long-term growth
Slide 17
Keep in touch
Slide 18
Legal disclaimer
This material is published by The Royal Bank of Scotland plc (“RBS”) which is authorised and regulated by the Financial Services Authority for the conduct of regulated activities in the UK. It has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments, other financial instruments or related derivatives (“Securities”). It should not be reproduced or disclosed to any other person, without our prior consent.
This material is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
Whilst this information is believed to be reliable, it has not been independently verified by RBS and RBS makes no representation, express or implied, nor does it accept any responsibility or liability of any kind, with regard to the accuracy or completeness of this information. Unless otherwise stated, any views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the RBS Group’s Group Economics Department, as of the date of publication of this material and are subject to change without notice. Recipients of this material should make their own independent evaluation of this information and make such other investigations as they consider necessary (including obtaining independent financial advice), before acting in reliance on this information.
This material should not be regarded as providing any specific advice. RBS accepts no obligation to provide any advice or recommendations in respect of the information contained in this material and accepts no fiduciary duties to the recipient in relation to this information.