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The UK economy in a global context Philip Shaw Chief Economist, Investec WMEF ‘Entrepreneurship, Innovation & Growth’ Conference 21 June 2013 Global economic trends… Global growth: Actual & projections…… 6.0% Forecasts Annual GDP Growth 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2005 2006 2007 -1.0% Source: IMF World Economic Outlook April 2013 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Shares of global growth have shifted Contributions to global growth (percentage points) 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 China India Source: IMF World Economic Outlook April 2013 Japan US EU27 RoW Global GDP Key economies - GDP growth recent and forecast… Annual GDP growth 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% China India US Japan -1% -2% Source: IMF World Economic Outlook April 2013 2012 2013 2014 Germany UK EU17 A few points on global growth 20y ago the US and EU accounted for half of world GDP growth – now it is less than 20% China and India’s share in 2012 44%! Rising trend should remain in place in Emerging Markets generally Chinese growth has cooled – could be less than 8% this year (!) – down from peak of 14% in 2007 Global GDP growth of 4%-5% is not the norm – long-term average is 3%-3.5% This is a super cycle – it is not the world ‘New Normal’ The UK economy in a global context… Sterling depreciation 110 Trade weighted sterling 105 100 95 90 85 -24% 80 75 -17% 70 Source: Bank of England Euro crisis hits EU17 growth outturns… 4.0% Annual GDP growth 3.0% 2.0% 1.0% 0.0% EU17 Germany France Italy -1.0% -2.0% -3.0% Source: Datastream, Investec forecasts 2011 2012 2013 - forecast 2014 - forecast Spain Other UK trade export volumes weakened by Euro area crisis.. 30% Export volumes (% change 3m yoy), trade balance (£bn) 12 10 20% 8 6 10% 4 2 0% 0 -2 -10% -4 -6 -20% -8 -10 -30% -12 -14 -40% Source: ONS Trade balance £bn (RHS) EU exports (LHS) Non-EU exports (LHS) -16 Global GDP growth – weighted by UK trade shares 6.0% Annual GDP growth Forecasts 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -1.0% -2.0% -3.0% World GDP growth UK trade weighted world GDP growth Source: IMF World Economic Outlook April 2013, Bank of England, Investec calculations UK export growth to selected countries Change between 2009 and 2012 (£ values) 160% 140% 120% 100% 80% 60% 40% 20% 0% Russia -20% Source: ONS China India Brazil Japan Germany France US EU17 Italy Spain Other factors Quarterly UK growth- contributions by sector 2.0% Unwinding of Jubilee effect and Olympic boost 1.5% 1.0% 0.5% 0.0% Q2 2004 Q4 2004 Q2 2005 Q4 2005 Q2 2006 Q4 2006 Q2 2007 Q4 2007 Q2 2008 Q4 2008 Q2 2009 Q4 2009 Q2 2010 Q4 2010 Q2 2011 Q4 2011 Q2 2012 Q4 2012 -0.5% Royal Wedding -1.0% Diamond Jubilee -1.5% Collapse of Lehman Brothers -2.0% -2.5% Source: Agriculture Manufacturing Industrial production- ex mfg Construction Services GDP Various factors to watch for…. • New Euro area upturn?? • More stimulus? QE? Interest rate guidance? • Is the eurozone financially more robust? • • Are individual countries less systemic? (Probably!) • Attitudes to and UK relationship with the rest of ‘Europe’. Referendum on the EU in the next parliament?? New Bank of England Governor on 1 July. An upturn in the housing market? Bank of England Funding for Lending Scheme helped mortgage market. Chancellor’s Help to Buy scheme to raise demand? Government help to SME sector? EU referendum opinion polls Voting to stay in the EU (net balances) 40 30 20 10 0 Source: YouGov To remain in EU on renegotiated terms Jun 9-10 To remain in EU May 12-13 -20 May 9-10 Apr 7-8 Feb 17-18 Jan 24-25 Jan 23-24 Jan 20-21 Jan 17-18 Jan 10-11 -10 Disclaimer This presentation and any attachments and related documents (including any accompanying e-mail) (together “this presentation”) is for general information only and is the property of Investec Bank plc (together with its affiliated entities, and its and their subsidiaries, "Investec"). It is of a confidential nature and all information enclosed herein should be treated accordingly. 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