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Scotland in the Global Economy

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Life beyond the recession: back to business as usual? Two challenges for Scotland: economic ... Unemployment: Ashes to Ashes? Indebtedness at a 33-year high ... – PowerPoint PPT presentation

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Title: Scotland in the Global Economy


1
Scotland in the Global Economy
  • David Fenton Stephen Boyle

2
What you can expect from us this morning
Life beyond the recession back to business as
usual?
The Great Recession by numbers whats happened?
Two challenges for Scotland economic growth
the public finances
What next?
3
Scotland in the Global Economy
  • The Great Recession by numbers

4
The Great Recession by numbers GDP
Peak-to-trough decline in GDP
  • National income down 5.6 over the 1½ year to Q2
    2009.
  • Twice as bad as the early 1990s on a par with
    the 1980s.
  • More positively, overwhelming majority of
    economic activity continued despite the worst
    ever financial shock.

Source Datastream
5
The Great Recession by numbers asset prices
Property prices (Jan 2000100)
  • Large, long increase in house prices.
    Peak-to-trough decline of 19, with rally over
    late-spring/summer
  • Commercial property values down by 44. Tentative
    signs of stabilisation around 1997 levels.
  • FTSE all-share fell 44, but has also rallied,
    rising 22 from trough in February. Still down by
    32

Source Datastream
6
The Great Recession by numbers Scotland
Growth in GVA (y/y)
  • First recession for almost 30 years the worst
    since records began in 1963.
  • Similar depth to UK its not usually like that
  • Broad-based, but 3 sectors stand out
    construction manufacturing and business
    services finance.

Source Scottish Government
7
The Great Recession by numbers global
Cumulative fall in GDP/GVA (y/y)
  • UK and Scotland have fared better than some,
    worse than others.
  • Generally speaking, the thriftier nations have
    endured a deeper recession (Germany Japan).
  • Has mainland Europe already turned the corner?
    What about the UK?

Source Datastream and Scottish Government. Up to
Q2 2009,, except (Q1)
8
Scotland in the Global Economy
  • What next?

9
Why forecasting is risky, especially now
Consensus forecasts of G7 GDP growth in 2009 made
in August 2008
Source Consensus Economics
10
Why forecasting is risky, especially now
Consensus forecasts of G7 GDP growth in 2009 made
in August 2008 actual H1 data
Source Consensus Economics
11
Is the UK at a turning point?
of companies saying that, compared to a month
ago, business levels are...
Service sector
Manufacturing sector
Source Markit Economics
12
Is Scotland at a turning point?
Higher output
Lower output
Source Markit Economics
13
UK economy indebtedness
Debt-to-GDP ratio
140
120
100
80
60
40
20
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Households (secured)
Households (consumer credit)
Companies
Source Datastream
14
Household deleveraging
Save
Income
Spend
LR AVERAGE
4
96
Q1 2008
105
-5
FUTURE?
92
8
Source Datastream and RBS calcs
15
Implications for the economic outlook
  • Over the next 3 years we are set to save more and
    spend less.
  • Recovery likely to be more subdued than past
    experience.
  • Risk of a double dip casts a sizeable shadow.
  • Exports will have to be higher, or income will
    have to be lower still.

16
Scotland in the Global Economy
  • Life beyond the recession

17
Key questions
  • Will we see deflation?
  • Or will inflation return to haunt us?
  • What is the outlook for the public finances?
  • Unemployment Ashes to Ashes?

18
Indebtedness at a 33-year high
UK public sector net-debt-to-GDP ratio ()
60
50
40
30
20
10
0
1974-75
1976-77
1978-79
1980-81
1982-83
1984-85
1986-87
1988-89
1990-91
1992-93
1994-95
1996-97
1998-99
2000-01
2002-03
2004-05
2006-07
2008-09
Total
Excl financial sector interventions
Source ONS
19
This could get expensive
Net present value of impact on fiscal deficit of
crisis and age-related spending to 2050
For every 1 the UK spends on the crisis, it will
spend 12 on ageing-related costs
Source IMF
20
A growing burden on fewer shoulders
Number of Scottish men and women of working age
(20-64) per person aged 65 or above
2
1
0
2006
2016
2026
2036
Source GAD
21
Below trend growth means unemployment keeps rising
Divergence of growth from trend change in
unemployment
Source Datastream
22
Below trend growth means unemployment keeps rising
Divergence of growth from trend change in
unemployment
Source Datastream
23
Scotland in the Global Economy
  • Two challenges for Scotland

24
We are a mid-table performer
25
How to decide what to do?
  • Whats your view about what makes economies grow?
  • Growth of the labour force
  • Productivity growth
  • What makes productivity grow? A mix of
  • Macroeconomic conditions especially stability
  • Enterprise business start-ups and failures,
    business churn
  • Labour force number quality of people
  • Physical capital infrastructure, machinery,
    buildings
  • Competition more is generally better
  • Innovation inventing or adopting

26
Labour force benefits of early intervention
27
Scotlands public finance challenge
  • Put bluntly, it is unlikely that there will be
    any real increase in the resources to support
    Scottish Government spending programmes over the
    next five years,
  • Professor David Bell, report for Scottish
    Parliament Finance Committee
  • The Scottish Government now faces unprecedented
    change in relation to its budgetary future. Such
    a future may therefore require previously
    unprecedented changes in policy thinking and
    funding arrangements in order to steer a way
    through ...
  • Professor Richard Harris, Centre for Public
    Policy and the Regions

28
How do we meet the challenge?
  • David Bells paper identifies these options
  • Withdraw service provision stop doing things
  • Increased rationing less provision to fewer
    people
  • Charge for services prescriptions, transport,
    care for the elderly, education?
  • Raise taxes Scottish Variable Rate The
    Tartan Tax
  • Cut costs wages are approximately 60 of the
    Scottish Governments costs
  • CPPRs emphasis is on the process of
    prioritisation
  • Creation of a Scottish Treasury function
  • Emphasis on generating using evidence, e.g.
    monitoring evaluation
  • Two issues for you for the rest of this week
  • How would you determine priorities?
  • What decisions would you reach

29
Scotland in the Global Economy
  • Any other questions?

30
Disclaimer
This material is published by The Royal Bank of
Scotland plc (RBS) which is authorised and
regulated by the Financial Services Authority for
the conduct of regulated activities in the UK.
It has been prepared for information purposes
only and does not constitute a solicitation or an
offer to buy or sell any securities, related
investments, other financial instruments or
related derivatives (Securities). It should
not be reproduced or disclosed to any other
person, without our prior consent. This material
is not intended for distribution in any
jurisdiction in which its distribution would be
prohibited. Whilst this information is believed
to be reliable, it has not been independently
verified by RBS and RBS makes no representation,
express or implied, nor does it accept any
responsibility or liability of any kind, with
regard to the accuracy or completeness of this
information. Unless otherwise stated, any views,
opinions, forecasts, valuations, or estimates
contained in this material are those solely of
the RBS Groups Group Economics Department, as of
the date of publication of this material and are
subject to change without notice. Recipients of
this material should make their own independent
evaluation of this information and make such
other investigations as they consider necessary
(including obtaining independent financial
advice), before acting in reliance on this
information. This material should not be
regarded as providing any specific advice. RBS
accepts no obligation to provide any advice or
recommendations in respect of the information
contained in this material and accepts no
fiduciary duties to the recipient in relation to
this information.
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