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Barry Naisbitt Economic Analysis Trends in the Economy 30th September 2010, London United Kingdom 22 Recession has been deep Output in the World’s major economies fell sharply in late 2008 and early 2009. The economies look to have emerged from recession by late 2009. GDP Growth (% q/q) 3 2 1 0 -1 -2 -3 -4 -5 2005 Source – OECD 2006 2007 Germany Japan 2008 United Kingdom 2009 United States 2010 33 Output performance has shown a mixed picture UK manufacturing output fell by 14.3% from its level in Q2’08 to the low point in Q3‘09. In contrast, total service sector output fell by 4.6% over the same period. Level of output by industries (Index 2006=100) 110 105 100 95 90 85 2006 2007 Wholesale & retail trade Source – ONS 2008 Manufacturing 2009 2010 Total Services 44 Employment has fallen Services employment fell by 2% from its level in Q2’08 to the low point in Q4‘09. In contrast, manufacturing employment fell by 10% over the same period. Level of employment by industries (Index 2006=100) 110 100 90 80 2006 2007 Wholesale & retail trade Source – ONS 2008 2009 Manufacturing 2010 Total Services 55 Unemployment has risen as a consequence The unemployment rate in the US has risen more than rates in the UK or the Euro-zone. Unemployment in the UK reached 8.0% in March ‘10, its highest since October ’96. Unemployment Rate (%) 10 9 8 7 6 5 4 3 2 1 0 2005 Source – ONS, BLS 2006 2007 United Kingdom 2008 United States 2009 Eurozone 2010 66 Government borrowing has risen sharply Public sector borrowing and debt have risen sharply but governments have announced plans to reduce borrowing by reducing spending and increasing taxation. Fiscal Tightening Public Sector Net Borrowing (as % GDP) Public Sector Net Debt (as % GDP) 2015-16 2014-15 2013-14 2012-13 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 Source – Budget June’10, ONS 2015-16 0 2014-15 -2 2013-14 10 2012-13 0 2011-12 20 2010-11 2 2009-10 30 2008-09 4 2007-08 40 2006-07 6 2005-06 50 2004-05 8 2003-04 60 2002-03 10 2001-02 70 2000-01 12 77 The global economy is now recovering World trade has picked up from its sharp fall and low point in Q1’09. However, it will take time to regain the previous peak in activity. World Exports ($Trillion) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2005 Source – WTO 2006 2007 2008 2009 2010 Relatively high inflation is reducing real earnings growth Despite the recession, inflation has been running above its target. As average earnings growth has moderated, the higher inflation has squeezed real earnings growth. Average earnings growth and inflation (%) 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2005 2006 2007 2008 Average earnings growth (excl. bonuses), %yy 3mma Source – ONS 2009 2010 CPI, % 88 99 Consumers and businesses Consumer confidence has recovered from its lows but recent readings have shown some softening. Business investment has steadied after a substantial fall in early 2009. Consumer Confidence & Retail Sales Volume ( index & 3m/3m annual % change) and Business Investment Growth (level, £bn) 0 5 40 -5 4 -10 -15 3 35 -20 2 -25 30 -30 1 -35 0 -40 -45 GfK Consumer Confidence (LHS) -50 Retail Sales Volume, annual 3m/3m% (RHS) -55 Jan-07 25 Business Investment, £bn -1 -2 Jul-07 Jan-08 Source – ONS, GfK Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 20 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 The economic outlook is far from certain UK GDP grew very strongly in Q2 (+1.2% q/q), but this rapid pace will weaken. There is speculation about a possible ‘double dip’. Latest economic indicators Source – Financial Times, 2nd September 10 10 Recovery is expected to continue The new Office of Budget Responsibility (OBR) expects the economy to grow by 1.2% in 2010, 2.3% in 2011 and 2.8% in 2012. Budget GDP Forecast (% Annual change in GDP) Source–Budget June’10 11 11 United Kingdom