Danske Bank March 1 ST 2016 Economic Update,

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1 Monthly update: Tuesday 1 March 2016 Danske Bank Chief Economist, Twitter: angela_mcgowan Local job and investment announcements during January 2016: The NI economy suffered a significant blow during the month of February with the announcement that Bombardier Inc plans to reduce its workforce in NI by 1080 people. The job losses were part of a global staff reduction strategy with 7,000 job losses announced across the global business. During February Invest NI announced the creation of a small number of jobs within Northern Ireland s private sector (see Table 1 below). Table 1 Page 1

2 Northern Ireland Labour Market: The local employment rate increased over the quarter to 68.8%. The latest Labour Force Survey published in February indicated that the NI unemployment rate decreased to 5.8%. The number of people claiming unemployment related benefits decreased by 800 over the month and decreased by 10,300 over the year, to 37,800 in December The long term unemployment rate (LFS) was 51.7%, a decrease of 3.9 percentage points on the previous year. Northern Ireland Housing Market: The Department of Finance and Personnel reported in February that the local house prices continue to rise: Between Q3 (July - September) and Q4 (October- December) 2015 the NI residential property price index increased by 1%; Between Q and Q the residential property price index increased by 7%; Over 20,400 residential properties sold during 2015 The residential property price index is now 6% higher than Q All District Council areas showed an increase over the quarter, except for Mid Ulster, where the index decreased by 1% Page 2

3 United Kingdom: UK Labour market: The ONS last month reported that across the UK there were million people in work, 205,000 more than for July to September 2015 and 521,000 more than for a year earlier. The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.1%, the highest since comparable records began in The unemployment rate was 5.1%, lower than for a year earlier (5.7%). Average weekly earnings for employees in Great Britain increased by 1.9% including bonuses and by 2.0% excluding bonuses compared with a year earlier UK Inflation: The Consumer Price Index in the UK rose by 0.3% in the year to January 2016, compared with a 0.2% rise in the year to December UK Retail Sales: According to the ONS, year-on-year estimates of the quantity bought in the retail industry showed growth for the 33rd consecutive month in January 2016, increasing by 5.2% compared with January Compared with the previous month, the quantity bought in the retail industry is estimated to have increased by 2.3%. UK Housing: The ONS reported in December that UK house prices increased further. Prices were up 6.7% in the year to December 2015, down from 7.7% in the year to November House price annual inflation was 7.3% in England, 1% in Wales, -0.2% in Scotland and 1.5% in Northern Ireland. Excluding London and the South East, UK house prices increased by 5.1% in the 12 months to December Page 3

4 Global picture Financial markets saw a tumultuous start to A sharp fall in oil prices has prompted fears about the emerging market commodity producers and the oil and financial sectors in both the US and the eurozone. In addition, a weakening of economic data in major economies, notably the US, has added to concerns that the world economy is heading towards a new recession. The turmoil in financial and commodity markets, coupled with somewhat disappointing economic releases, has raised fears of a major global growth slowdown, leading to calls for major policy stimulus at the weekend s G20 meeting. However, US policymakers in particular are taking a more lenient view on the world economy. Consensus forecasts have turned more cautious on the 2016 growth outlook for the world s major economies. Notably, optimism about the US economy has soured since last summer and Chinese growth expectations have also been revised downward following the devaluation in August. However, forecasters (including Danske Bank) do not see recessions coming, with consensus still expecting the US and China to grow a healthy 2.5% and 6.5% in 2016, respectively, while it expects the eurozone to grow at a persistent but rather low rate of 1.6%. Page 4

5 US unemployment was sitting at 4.9 per cent in January, the lowest level since early However the manufacturing continues to contract as the global economy slows. With global uncertainty rising there have been increased calls for a co-ordinated international policy response, Conversely US Treasury Secretary Jacob Lew said in late February that he sees the real economies doing better than markets think in some cases and not to expect a crisis response in a non-crisis environment. Euro area HICP inflation surprised on the downside in February and is now back in deflation territory. Headline inflation dropped to -0.2% y/y from 0.3% y/y in January, while core inflation was also very weak at 0.7% y/y compared to 1.0% y/y in January. The decline in core inflation was driven mainly by non-energy industrial goods price inflation, which was 0.3% y/y in February down from 0.7% y/y in January, but also service price inflation was lower at 1.0% y/y in February from 1.2% in January. The drop in non-energy industrial goods price inflation is likely due to headwind from the stronger euro, which is expected to keep core inflation low in coming months. Service price inflation is on the other hand expected to go back to 1.2% in March, but to remain modest during the rest of the year. During February China, reported double-digit falls in both exports and imports for the month of January. Chinese officials have since stepped up the country s easing policy further with a general cut in the reserve requirement ratio of 0.5 percentage points. This comes only four weeks after China announcing a reduction in the down payment for first time house buyers. We look for Chinese growth to average 6.7% in 2016 followed by 6.6% in Non-oil producing emerging markets have done surprisingly well since the start of the year. Emerging market stocks have outperformed US and European stocks since the start of the year. Furthermore, the currencies of many emerging markets have remained relatively stable or even strengthened against the US dollar. There are two reasons for this in our view. First, many of these emerging market s equity and currency markets have taken a heavy beating since US tapering discussions started two years ago. Second, the recent scaling back of Fed hikes has also helped these emerging markets. Although there are structural problems in many emerging markets, this positive trend may continue for some months as long as the Fed stays put. Page 5

6 Key statistics GDP [latest qoq] UK Q4 (+0.5%) Ireland Q3 (+1.4%) Euro area Q4 (+0.3%) Inflation ( yoy) UK +0.3 % (Jan) Ireland +0.1% (Dec) Euro Area -0.2% (Jan) Unemployment Q3 UK 5.1% NI 5.8 % Ireland 8.9 % (Jan 16) Euro area 10.5% (Nov 15) Employment NI 68.8% UK 74.1% Key interest rates UK BoE 0.5% ECB 0. 05% US Fed 0.5% Equity markets FTSE-100 6,079 / Dow Jones 16,639 (29 Feb 16) 12.30pm Currency markets / = (78.59) /$ = (72.16p) (29 Feb 16) 12.30pm Commodities Brent Crude $35.46 Gold Spot $ (29 Feb 16) pm Contact List For economic research reports please visit: e.mail : anmcg@danskebank.co.uk Issued by Northern Bank Limited trading as Danske Bank (the Bank or We ). So far as the law or regulation allow, We disclaim any warranty or representation as to the accuracy or reliability of the information and statements in this commentary. We will not be liable for any loss or damage suffered from relying on this commentary. This commentary does not purport to contain all relevant information. Recipients should not rely on its contents but should make their own assessment and seek professional advice relevant to their circumstances. We may have proprietary positions in the products described in this commentary. This commentary is for information purposes only, is not intended as an offer or solicitation, nor is it the intention of the Bank to create legal relations on the basis of the information contained in it. No part of this commentary may be reproduced without our prior permission. Danske Bank is a trading name of Northern Bank Limited which is authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Credit facilities other than regulated mortgages are not regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in Northern Ireland (registered number R568). Registered Office: Donegall Square West Belfast BT1 6JS. Northern Bank Limited is a member of the Danske Bank Group. Page 6