dennis turner, chief economist, hsbc uk economic outlook bumping along…
TRANSCRIPT
Bumping along….Bumping along….
Dennis Turner
HSBC Bank plc
UK ECONOMIC OUTLOOK
September 2010
THE RECESSION IS OVERTHE RECESSION IS OVER
A deep recession
-6.0
-4.0
-2.0
0.0
2.0
4.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
%
QUARTERLY
ANNUAL
Long-term average
ALL THE LEVERS PULLEDALL THE LEVERS PULLED
Fiscal policy loosened
Government finances already in deficit
-200
-150
-100
-50
0
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
And deteriorated rapidly
-200
-150
-100
-50
0
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
March 2010 Budget Report
Net debt (as a % of GDP) soaring
25
30
35
40
45
50
55
60
65
70
75
80
1990 1994 1998 2002 2006 2010 2114
% o
f G
DP
Sustainable Investment Rule
March 2010 Budget
Interest rates fall to historic lows
The lowest for over 300 years
0
1
2
3
4
5
6
7
2002 2003 2004 2005 2006 2007 2008 2009 2010
%
And sterling plummeted
Sterling takes a pounding
1.40
1.50
1.60
1.70
1.80
1.90
2.00
2.10
2005 2006 2007 2008 2009 2010
$/£
1.00
1.10
1.20
1.30
1.40
1.50
1.60
€/£
US dollar / £ (L axis)
euro / £ (R axis)
STRAWS IN THE WINDSTRAWS IN THE WIND
An end to destocking
-3
-2
-1
0
1
2
Q1 2007 Q1 2008 Q1 2009 Q1 2010
% q
ua
rte
rly
ch
an
ge
-6
-4
-2
0
2
4£
billio
ns
GDP (L axis)
Change in stocks (Raxis)
Key PMI surveys in positive territory
25
35
45
55
65
2006 2007 2008 2009 2010
% b
ala
nc
e
Manufacturing
Services
Construction
expansion
contraction
Housing market fragile but improving
0
50
100
150
200
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
mo
nth
ly t
ota
l, 0
00
s
-20
-10
01
02
03
0
an
nu
al %
ch
an
ge
Mortgage approvals (L axis)
House prices (R axis)
rising
falling
House prices:
Exports starting to respond
-30
-20
-10
0
10
20
30
40
50
Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
Goods
Services
An
nu
al P
erc
en
tag
e c
ha
ng
e
A slow recovery is underway
-6.0
-4.0
-2.0
0.0
2.0
4.0
2006 2007 2008 2009 2010
%
QUARTERLY
ANNUAL
Long-term average
Forecast
RISKSRISKS
a) Debt overhang
Consumers were the driving force
-3
-2
-1
0
1
2
3
4
5
6
7
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
% C
HA
NG
E
CONSUMER SPENDING RETAIL SALES
But underpinned by borrowing
-1
1
3
5
7
9
11
13
15
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
%
75
85
95
105
115
125
135
145
155
165
INTEREST REPAYMENTS/DISPOSABLE INCOMES(LHS)
DEBT / DISPOSABLE INCOMES(RHS)
%
b) Fragile consumer sector
So real earnings squeezed
-3
-2
-1
0
1
2
3
4
5
6
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Average earnings growthConsumer price inflation
Real earnings growth
%
A slower recovery than the last recession
-3.5
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
4.5
5.5
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
% C
HA
NG
E
CONSUMER Forecast
Consumer confidence still weak
-35.0
-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
% Long-term average
c) Public sector spending cuts
Planned government spending cuts (£bn)
0
25
50
75
100
125
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
Darling Osborne
Total
£bn
Govt receipts and spending (% of GDP)
35
40
45
50
55
2009-10 2011-12 2013-14 2015-16
% of
GDP
d) Slow growth in key export markets
Euro Area growth forecast
-6
-4
-2
0
2
2008 2009 2010 2011
%
-6
-4
-2
0
2
%
Germany France
Italy Spain
Euro Area
Annual GDP growth:
Euro Area growth forecast 2
-8
-6
-4
-2
0
2
2008 2009 2010 2011
%
-8
-6
-4
-2
0
2
%
Greece Portugal
Spain Ireland
Euro Area
Annual GDP growth:
Exports are starting to respond
80
90
100
110
120
Q1 2007 Q1 2008 Q1 2009
ind
ex
(2
00
5 =
10
0)
80
90
100
110
120
ind
ex
(20
05
= 1
00
)
EU Non-EU
Volume of UK goods exports:
f) Banking and credit problems
Funding issues
0
100
200
300
400
500
600
700
800
2001 2002 2003 2004 2005 2006 2007 2008
£ b
illi
on
0
100
200
300
400
500
600
700
800£
billio
n
Customer funding gap*
Interbank deposits from abroad
An injection of £200bn via QE
0
3
6
9
12
15
Mar 09 May 09 Jul 09 Sep 09 Nov 09 Jan 10
% o
f G
DP
0
50
100
150
200
£ b
illion
Stock of holdings (R axis)
% of GDP (L axis)
Credit growth still very subdued
-10
-5
0
5
10
15
20
25
Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10
%
-10
-5
0
5
10
15
20
25
%
Lending to households
Lending to businesses
Annualized growth in outstanding lending
SHORT-TERM OUTLOOKSHORT-TERM OUTLOOK
Slow fragile growth
-8
-6
-4
-2
0
2
4
6
8
1988 1991 1994 1997 2000 2003 2006 2009
%
QUARTERLY ANNUAL
LONG TERM AVERAGE
Inflation – higher for longerInflation – higher for longer
-2
-1
0
1
2
3
4
5
6
2009 2010 2011
% c
ha
ng
e m
on
th o
n m
on
th
CPI RPI
Forecast
Target
Range
And interest rates start to turn
0
1
2
3
4
5
6
7
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
%
Forecast
The exchange rate is favourable
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2005 2006 2007 2008 2009 2010 2011
$/£
1.0
1.1
1.2
1.3
1.4
1.5
€/£
Sterling weaker
US$ / £ (L axis)
euro / £
(R axis)
HSBC forecast
THE NEW AGENDATHE NEW AGENDA
Where will growth come from?
-10
-5
0
5
10
15
20
25
30
35
40
45
1993-2000 2001-2007
Industrial production (19)
Transport and comms (8)
Construction (6)
Distribution, e tc. (15)
Property & business (24)
Financial Service s (3)
Public service s (24)
Manufacturing output
100
150
200
250
1950 1960 1970 1980 1990 2000
ind
ex
(1
95
0 =
10
0)
100
150
200
250in
de
x (1
95
0 =
10
0)
Volume of output, 1950-2009
Manufacturing output
Manufacturing vs services
0
50
100
150
200
250
300
350
400
450
500
1950 1960 1970 1980 1990 2000
ind
ex
(1
95
0 =
10
0)
0
50
100
150
200
250
300
350
400
450
500in
de
x (1
95
0 =
10
0)
GDP
Services
Volume of output, 1950-2009
Manufacturing
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