Danske Bank Oxford Economics Quarterly Sectoral Forecasts Quarter

Transcription

1 Danske Bank Oxford Economics Quarterly Sectoral Forecasts Quarter

2 Forecast Summary There has been a particularly favourable run of data over the past few months with rising employment levels, increasing house prices, falling unemployment and rising confidence levels; all of which have led us to upgrade our short-term forecasts. We now expect Northern Ireland s GVA to grow by 0.9% in 2013 and 2.4% in 2014, up from 0.5% and 1.7% respectively in August, but downside risks remain. The following factors should help to ensure that the recovery will become firmly entrenched: Consumer conditions are expected to remain favourable underpinned by real income, as earnings and employment pick up and inflation slows. The Danske Bank Consumer Confidence Survey reported that consumer confidence in Northern Ireland rose to its highest level in four years as the labour market continues to improve. An improving export outlook - business surveys reported an improvement in export demand through the summer, as the recovery in advanced economies gained momentum and we expect this to continue. Corporate confidence has strengthened, supporting investment in Q3. Business investment in 2013 remained at very low levels as many firms continued to pay down debt or accumulate cash on their balance sheets. However, the latest Intertrade Ireland Business Monitor Survey reports that the percentage of local companies in mode has doubled from the last quarter. As corporate confidence improves, firms should begin to spend their accumulated cash surpluses. A favourable macro economic climate, inflationary problems have receded and the labour market has also started to improve. Furthermore, the recovery will also be supported with low interest rates with the Bank of England s forward guidance suggesting that the base rate will to stay at 0.5% for at least another year and a half. GVA rates - NI Q on Q Y on Y Q Q Q Q Q Q Q Q Q Q Q Q GVA rates - UK Q on Q Y on Y Q Q Q Q Q Q Q Q Q Q Q Q Annual Annual Source: Oxford Economics Note: Year on year is calculated using the from say Q to Q % Q Q Q NI UK Q Q Q GVA (%) Q Q Q Q Q Q Q Q Q Q3 2015

3 Housing there has been a solid increase in local housing market activity - as both house prices and transactions have begun to recover. This has partially been driven by the improvement in household finances and rising confidence levels; but the housing recovery is also partially policy induced i.e the Funding for Lending Scheme and the Help to Buy scheme have had an impact. As a result there has also been within the construction sector, with the DSD reporting that new housing completions were up 52% on a year earlier in Q2. Danske s latest house price forecasts suggest that local house prices look set to rise by 4.9% next year (although potential buyers should be warned to ensure they can still afford repayments when interest rates start to rise probably from mid-2015 onwards) Employment/GVA Total LABOUR MARKET Private services to lead As the NI recovery gathers pace, we anticipate recruitment will also pick up and employment to average 0.5% over In terms of job creation the biggest contributions are expected to come from professional and administrative services, and also construction. Professional services are expected to create 900 jobs over the year ahead. This sector includes legal and accounting, consultancy, engineering activities, advertising etc. Growth is expected to be underpinned by improving exports as global demand rises and economic conditions recover. Administrative services sector is also expected to increase by 900 jobs over the year ahead driven by a greater use of agency workers and outsourcing of activities. The sector by its nature is strongly linked to the overall performance of the economy, as the largest contributor to the sector is employment activities (agency workers). Key drivers of the construction outlook are improvements in the local housing market, accompanied with a strengthening of corporate confidence. Recent ONS data has revealed that the Northern Ireland property market has finally turned a corner and the CBRE have noted renewed interest and activity on the commercial property side. A recovery in the housing market should help to support the construction sector. The Help to buy scheme will also provide a boost to this sector in the short term but government stimulus of the housing market is unlikely to be maintained in the medium term. Recent announcements from the Minister of Finance around the building of a new children s hospital and funding for strategic roads improvements will all lend support to the construction sector s going forward. Employment (000's) Employment Total GVA Total GVA (% year on year ) 770 Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q Drag of Growth: The public services sector (public admin, education and health) is expected to continue to act as a drag on, with loss

4 of 700 jobs estimated over the next 12 months. The outlook reflects the on-going government austerity measures. However, the 136 million increase in the NI Executive s Budget over the next two years (stemming from the Autumn Statement and the outworkings of the Barnett Formula) should help to protect local health and education services to some extent. Unemployment: The skills set of the people who lost their jobs may not be required by the sectors which are expected to lead the recovery, leaving many people out of work for an indefinite period. Our estimates suggest that the level of unemployment will remain above historical lows, averaging around 57,000 over the medium term (a similar level to that experienced in the mid 1990 s). External Risks: A number of external risks also remain which have the potential to damage the recovery. Any further problems in the Eurozone would pose a risk for the UK s recovery given its significant trade and financial linkages with the Europe. Another worrying downside risk is of course the tapering of Quantitative Easing in the United States. The unwinding of unconventional stimulus could result in some turmoil for markets. Overall the risks remain on the downside, and thus we attach a 50% probability to the forecast. SUMMARY OF GVA % GROWTH FOR NI SECTORS IN 2014 (yoy) RISKS there is still a degree of uncertainty Business Investment: Overall levels of business investment remained low during 2013 (falling by 5.5 percent across the UK). The latest forecasts assume that improved business confidence will drive business expenditure on investments up by at least 5 per cent in Without greater momentum on the supply side of the economy there is a risk that the recovery will be consumers-led. A much broader re-balancing of the economy is required if the recovery is to be sustained. Consumers: Further out the consumer sector is the main source of uncertainty. More aggressive deleveraging is a possibility given that a significant minority of households would struggle to service current debt levels at more normal interest rates. Strong Sterling: As the economy recovers the pound has appreciated (strengthening by 3 percent in the three months to November. While a stronger pound helps keep inflation down, it can also create barriers for export.

5 Annex Tables Table 1: GVA ( m2010) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Agriculture, forestry and fishing Mining and quarrying Manufacturing Electricity, gas, & steam Water supply; sewerage, waste management Construction Wholesale and retail trade Transportation and storage Accommodation and food service activities Information and communication Financial and insurance activities Real estate activities Professional, scientific and technical activities Administrative and support service activities Public administration and defence Education Human health and social work activities Arts, entertainment and recreation Other service activities Total Year on Year Growth (%) Agriculture, forestry and fishing Mining and quarrying Manufacturing Electricity, gas, & steam Water supply; sewerage, waste management Construction Wholesale and retail trade Transportation and storage Accommodation and food service activities Information and communication Financial and insurance activities Real estate activities Professional, scientific and technical activities Administrative and support service activities Public administration and defence Education Human health and social work activities Arts, entertainment and recreation Other service activities Total Copyright Dankse Bank / Oxford Economics All rights reserved. The contents of this publication, ether in whole or in part, may not be reproduced, stored or transmitted without the prior written permission from Dankse Bank / Oxford Economics

6 Table 2: Employment (000's) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Agriculture, forestry and fishing Mining and quarrying Manufacturing Electricity, gas, & steam Water supply; sewerage, waste management Construction Wholesale and retail trade Transportation and storage Accommodation and food service activities Information and communication Financial and insurance activities Real estate activities Professional, scientific and technical activities Administrative and support service activities Public administration and defence Education Human health and social work activities Arts, entertainment and recreation Other service activities Total Year on Year Growth (%) Agriculture, forestry and fishing Mining and quarrying Manufacturing Electricity, gas, & steam Water supply; sewerage, waste management Construction Wholesale and retail trade Transportation and storage Accommodation and food service activities Information and communication Financial and insurance activities Real estate activities Professional, scientific and technical activities Administrative and support service activities Public administration and defence Education Human health and social work activities Arts, entertainment and recreation Other service activities Total Copyright Dankse Bank / Oxford Economics All rights reserved. The contents of this publication, ether in whole or in part, may not be reproduced, stored or transmitted without the prior written permission from Dankse Bank / Oxford Economics

7 Table 3: Other variables Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Unemployment Year on Year Growth (%) Unemployment Copyright Dankse Bank / Oxford Economics All rights reserved. The contents of this publication, ether in whole or in part, may not be reproduced, stored or transmitted without the prior written permission from Dankse Bank / Oxford Economics

8 Danske Bank is a trading name of Northern Bank Limited and is authorised and regulated by the Financial Services Authority. Registered in Northern Ireland R568 Registered Office: Donegall Square West, Belfast, BT1 6JS Northern Bank Limited is a member of the Danske Bank Group. This is the opinion of Danske Bank, on occasion based upon research conducted at the time and obtained from sources believed to be reliable. This may be subject to change without notice and is not a personal recommendation