THE ECONOMIC OUTLOOK IN 2012 ILTA CONFERENCE. 9 May 2012 Vicky Pryce

Transcription

1 THE ECONOMIC OUTLOOK IN 2012 ILTA CONFERENCE 9 May 2012 Vicky Pryce

2 Contents Global and European economy UK economy Prospects for individuals and businesses Concluding remarks what next?

3 Global and European economy

4 The global economy is still growing after a deep recession 6 World GDP growth 5 4 % increase p.a Source: IMF World Economic Outlook April 2012.

5 2011 was a more difficult year than expected 12 IMF forecasts/estimates for % increase p.a World US Japan EuroZone UK China India Oct 2010 forecast Sept 2011 forecast January 2012 forecast April 2012 forecast Source: IMF World Economic Outlooks.

6 2012 is also expected to be a tough year in many parts of the world 9 IMF forecasts for % increase p.a World US Japan EuroZone UK China India Source: IMF World Economic Outlooks, April 2012.

7 There are a number of downside risks to the global recovery Global imbalances lead to protectionism Further instability in financial sector (e.g. Contagion from any Euro-Zone sovereign default) Growth in China and India eases because of weak demand for exports and concerns about domestic inflationary pressures Steps taken to reduce US budget deficit undermine growth Political instability leads to further increases in commodity prices (e.g. possible closure of Straits of Hormuz) % increase p.a Commodity price inflation Oil Non-fuel commodities Source: IMF World Economic Outlooks.

8 Economic recovery in Europe will have to wait until 2013 [or longer!] 4 GDP growth forecasts 2 % increase p.a UK EuroZone Germany France Italy Spain Portugal Greece Source: International Monetary Fund, World Economic Outlook, April 2012.

9 Public finances in many EU Member States are in a difficult state 0-5 General Government Surplus/Deficit as % GDP, Public Debt as % GDP, Source: Eurostat.

10 Significant fiscal corrections are expected across much of Europe 10 Projected Reduction in Government Net Borrowing as % GDP Source: IMF World Economic Outlook database, September 2011, * Ireland is

11 Uncertainty about the future of the euro adds to budget pressures And the countries in greatest difficulty face the highest costs of borrowing Interest rate on 10 year bonds Introduction of the Euro Lehman bankruptcy Greece 20 % 15 Portugal 10 Ireland Source: ECB data. Chart modelled on version from American Enterprise Institute

12 UK economy

13 The UK economy is struggling to recover from a deep recession GDP growth forecast fan chart Source: Office for Budget Responsibility, March 2012

14 Government is taking steps to reduce the budget deficit Is it too much too soon? Source: Office for Budget Responsibility, March 2012.

15 The labour market has deteriorated since the middle of 2011 but will recover as the economy recovers Employment rate (%) Unemployment rate (%) Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 Source: OBR, rates expressed as percentages of population aged 16+.

16 Inflation is now falling and is expected to reach its target rate in 2012 Bank of England s CPI inflation projection based on market interest rate expectations and 200 billion asset purchases Source: Bank of England Inflation Report, February 2012 (see report for details of how to interpret the fan chart)

17 Prospects for individuals and businesses

18 Business and consumer confidence are still subdued if slightly improved GfK NOP Consumer confidence index BCC economic survey: expectations for domestic sales Q4 2010Q1 2011Q2 2011Q3 2011Q4 2011Q Manufacturing Services Sources: GfK NOP; BCC.

19 Household incomes remain squeezed until 2013 at least Average earnings falling in real terms Source: Office for Budget Responsibility, March 2012

20 Credit for SMEs remains subdued SMEs are paying back more than they are borrowing 20.0 Net Lending to SMEs billion Source: Bank of England

21 Concluding remarks what next? The short-term economic outlook remains difficult across Europe Uncertainty over the future of the Euro casts a shadow over both Members and non-members: A long term solution requires both effective collective mechanisms for countries in difficulty and structural reform of the weaker economies Election results in France and Greece are likely to prompt renewed concerns in the markets The UK economy is likely to grow overall in 2012, but growth is likely to be weak with real recovery not taking place until 2013 The Government finances will remain tight for a number of years to come Measures to promote longer-term growth continue to be necessary but have limited effect in the short term

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