hscb mark berrisford smith presentation

7/31/2019 Hscb Mark Berrisford Smith Presentation

1/42

UK Economy in the Global CrisisRecovery in Sight?

Mark Berrisford-Smith

HSBC Bank plc


2/42

Desperately seeking solutions

0

1

2

3

4

5

6

7

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

%

fore

cast

Source: Bank of England, US Federal Reserve, ECB, HSBC

HSBC

Policy interest rates:

Bank of England

US Federal Reserve

EuropeanCentral Bank
http://www.hsbc.co.uk/1/2/home


3/42

A world in recession


4/42

From credit crunch to global recession

This has been the worst episode forthe global economy since the 1930s


5/42

The end of the golden years

-8

-6

-4

-2

0

2

4

6

8

10

12

2007 2008 2009 2010

%

USA Eurozone Japan Asia*

World

Source: IMF, HSBC

Annual GDP growth

*excluding Japan


6/42

Asias superpowers falter

-4

-2

0

2

4

6

8

10

12

14

2007 2008 2009 2010

%

China India Malaysia Thailand Korea

Asia (excluding Japan)

Source: IMF, HSBC

Annual GDP growth


7/42


This has been the worst episode for theglobal economy since the 1930s

Industrial production and internationaltrade have collapsed


8/42

Falling off a cliff

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09

% Germany JapanUK USA

Source: Thomson Datastream

Industrial production

annual percentage change


9/42

A slump in international trade

-10

-8-6

-4

-2

0

2

4

6

8

10

12

1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

%

World trade volumes

Source: WTO



10/42

Japans exports are down by nearly a half

-50

-40

-30

-20

-10

0

10

20


%


Japan: value of trade in goods


Imports

Exports


11/42


This has been the worst episode for theglobal economy since the 1930s

Industrial production and international

trade have collapsed

The prospects for recovery hinge onAmerica and China


12/42

Around six million jobs lost

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2004 2005 2006 2007 2008 2009

quarterlygrowth,

-700

-600

-500

-400

-300

-200

-100

0

100

200

300

000s

Employment* (R axis)

GDP (L axis)

Source: BLS, BEA

* Non-farm payrolls, average monthly change


13/42

The US housing market state of collapse

3.5

4.0

4.5

5.0

5.5

6.0

6.5

2002 2003 2004 2005 2006 2007 2008 2009

millions(annu

alized

-20

-15

-10

-5

0

5

10

15

20

%

an

nualchang

Existing home sales (L axis)

House prices - FHFA (R axis)House prices - Case-Shiller (R axis)



14/42

Waiting for the Obama stimulus

-2.5

0.0

2.5

5.0

1998 2000 2002 2004 2006 2008 2010

%

HSBCforecast

Source: BEA, HSBC

USA: annual GDP growth

Long-termaverage


15/42

Surveys point to slower decline

32

38

44

50

56

62

2004 2005 2006 2007 2008 2009

%ba

lance

Manufacturing Services

expansion

contraction

Source: Markit

PMI surveys:


16/42

The Euro Area feet of clay

-5

-4

-3

-2

-1

0

1

2

3

4

2007 2008 2009 2010

%

Germany France Italy Spain

Euro Area

Source: Eurostat, HSBC

Annual GDP growth


17/42

Britain: from age of prosperity to

age of austerity


18/42

The worst is over

Business surveys suggest thateconomic activity is nowcontracting at a much slower pace


19/42

Business surveys glimmers of hope

34

38

42

46

50

54

58

62

66

2003 2004 2005 2006 2007 2008 2009

%b

alance

ManufacturingServices

expansion

contraction

Source: Markit

PMI surveys:


20/42

The worst is over

Business surveys suggest that economicactivity is now contracting at a muchslower pace

Consumer spending isnt quite thedisaster that many predicted


21/42

Consumer spending not quite a disaster

-2

-1

0

1

2

3

4

5

6

7

8

1988 1991 1994 1997 2000 2003 2006 2009

volumeofsales:an

nual%g

rowth

-35

-30

-25

-20

-15

-10

-5

0

5

10

index

(long-run

average

=

-7

)

Retail sales (L axis)

Consumer confidence (R axis)

Source: ONS, Thomson Datastream


22/42

The worst is over

Business surveys suggest that economicactivity is now contracting at a muchslower pace

Consumer spending isnt quite thedisaster that many had predicted

But unemployment has further to rise,and house prices further to fall


23/42

The labour market turning nasty

0.50

0.75

1.00

1.25

1.50

1.75

2004 2005 2006 2007 2008 2009

millions

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

%

Claimant count (L axis)

Unemployment rate (R axis)

Source: ONS


24/42

House prices further to fall

0

20

40

60

80

100

120

140

2001 2002 2003 2004 2005 2006 2007 2008 2009

monthlymortgageapprovals,

000

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

35

%

Mortgage approvals (L axis)

Prices, annual change (R axis)Prices, 3-month change annualized (R axis)

Source: Bank of England, Halifax


25/42

Strong medicine

Bank Rate will be kept close tozero until well into next year


26/42

Inflation yesterdays story?

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009

annualrat

e,

%

CPI headline rate

Inflation target

'Core' rate

Source: ONS


27/42

What to do when interest rates approach zero

0

1

2

3

4

5

6

7

2004 2005 2006 2007 2008 2009 2010

%

UK Bank Rate

CPI inflation rateHSBC

forecast

Source: Bank of England, ONS

Inflationtarget


28/42

Strong medicine

Bank Rate will be kept close to zerountil well into next year

The MPC believes that the risks fromdoing too much are less than the risksfrom doing too little


29/42

125 billion of QE

0

2

4

6

8

10

12

14

16

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09

%o

fGD

P

0

25

50

75

100

125

150

175

200

225

billion

Monetary base* (R axis)

% of GDP (L axis)

Source: Bank of England, ONS

* Notes and coins in circulation, pluscommercial banks sterling reserves

held at the Bank of England

125bn


30/42

The credit crunch starting to ease

-5

0

5

10

15

20


%

Source: Bank of England

Lending tohouseholds

Lending tobusinesses

Annualized growth in outstanding lending


31/42

Narrowing the spreads

0

1

2

3

4

5

6

7

8

9

10

Jul-07 Jan-08 Jul-08 Jan-09

%


* Merrill Lynch UK corporate bonds index** UK benchmark 10-yr govt bonds

Corporate bond yields*

Gilt yields**

3-month Libor

UK Bank Rate


32/42

Strong medicine

Bank Rate will be kept close to zero untilwell into next year

The MPC believes that the risks from

doing too much are less than the risksfrom doing too little

Sterling has weakened, which is helpingto boost the UKs competitiveness


33/42

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

/

Source: Thomson Datastream; HSBC

Sterling weaker

US dollar / (L axis)

euro / (R axis) HSBC

forecast


34/42

The age of austerity

The recession will soon end, but therecovery will be long and fragile


35/42

A deep recession

-5

-4

-3

-2

-1

0

1

2

3

4

5

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

%

HSBCforecast

Source: ONS

UK: annual GDP growth

Long-termaverage


36/42



Without radical action it could take thebest part of 20 years before the publicfinances are back to normal


37/42

Breaking the elastic

30

40

50

60

70

80

2000 2002 2004 2006 2008 2010 2012 2014

%o

fGDP

Public sector net debt

forecast

excluding financial sector intervention

forecast

Sustainable Investment Rule

Source: ONS, HM Treasury

HM Treasury forecasts(Budget Report 2009)


38/42



Without radical action, it could take the

best part of 20 years to return the publicfinances to normal

Credit is likely to remain somewhatrestricted into the medium term


39/42

Mind the gap!

0

100

200

300

400

500

600

700

800

2001 2002 2003 2004 2005 2006 2007 2008

billi

on

Interbank deposits from abroad

Customer funding gap*

Source: Bank of England Financial Stability Report October 2008

* Customer lending less customerfunding, where customer refers to all

non-bank borrowers and depositors


40/42

Closing the gap

-5

0

5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

annualgrowth%

Past growth incustomer lending

Growth ratesrequired to restorecustomer funding

gap to 2003

levels

in three

years

in one

year

Source: Bank of England Financial Stability Report October 2008


41/42

A historical perspective

-6

-5-4

-3

-2

-1

0

1

2

3

4

5

67

8

annualGDP

growth,

%

1972-77 1978-83 1988-93 1998-2003 2007-11

first oilshock second

oil shock

yuppieflu

dotcombust

subprimecontagion

Source: ONS, HSBC

1929-34

The GreatDepression


42/42

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