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Responding to the challenge

Responding to the challenge. 11 th December 2012 Neil Gibson Director: Oxford Economics. Newry & Mourne Enterprise Agency. Agenda. Global economy still fragile. Global economy slowing again. World GDP (year-on-year), 1995 - 2015. World trade % growth (year on year), 1991 - 2022.

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Responding to the challenge

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  1. Responding to the challenge 11th December 2012 Neil Gibson Director: Oxford Economics Newry & Mourne Enterprise Agency

  2. Agenda

  3. Global economy still fragile

  4. Global economy slowing again World GDP (year-on-year), 1995 - 2015 World trade % growth (year on year), 1991 - 2022 Source: Oxford Economics The world economy emerged from recovery in Q4 2009, with 4 quarters of consistent growth, but 2011 saw a slowdown that is set to continue into 2013. . .but no return to recession 4

  5. Eurozone debt problems causing global problems 5

  6. UK – could there be a triple dip? GDP (% growth q-o-q), UK, 1998 - 2022 Oxford forecast -0.1% growth in 2012Q4 Source: Oxford Economics

  7. Labour market, surprisingly, performing rather well Workforce jobs and employee jobs, UK, 2000 – 2012 Workforce jobs only 0.5% below peak Employee jobs 2% below peak Employee jobs, UK, December 2011 – June 2012 Source: ONS, Workforce jobs, Seasonally adjusted Source: ONS, Workforce jobs, Seasonally adjusted

  8. NI tracking below the UK average

  9. Labour market lagging the UK. . . Workforce jobs, UK & NI, March 2007 – June 2012 Source: ONS, Workforce jobs, Seasonally adjusted Note: March 2007 = 100

  10. Where is NI underperforming? Number of jobs below UK trend, NI, trough - current Self – employed jobs, UK & NI, 2005 - 2012 Source: ONS, Claimant count Source: ONS, WFJ Note: Low = June 2011 and most underperforming sectors are shaded in pink

  11. Unemployment now amongst the highest in the UK Claimant Count rate, UK regions, average 2007 & Sep 12 Change in unemployment, Top 10 LAD’s, Trough - Current Source: ONS, Claimant count Source: ONS, Claimant Count

  12. Jobs outlook remains service sector focussed Sectoral employment growth, NI, 2012 - 2022 Source: Oxford Economics Note: includes self employment, all negative growth is shaded in pink

  13. A long road back Total employment, Northern Ireland, 1998 - 2025 Source: Oxford Economics, QES

  14. Newry – unique location offers opportunity (and risk)

  15. Unemployment problems for Newry & Mourne Monthly unemployment, Newry & Mourne, March 2011 – October 2012 Unemployment roughly equivalent to level in 1998 Q3 Source: Nomis Claimant Count

  16. Who is unemployed? Unemployment by age group, 2012 Unemployment by duration, 2012 Source: Nomis Claimant Count

  17. Matching skills to job demand a challenge Unemployment by sought occupation, 2012 Source: Nomis Claimant Count

  18. An era of slow job growth ahead Total employment, Newry & Mourne, 1995 - 2025 Newry forecast to create 2,300 additional jobs by 2022 (6%)... ...on back of 3,100 job losses between 2008 and 2012 Source: Oxford Economics

  19. Sectoral outlook reflects border location Employment change by sector, Newry & Mourne, 1998 - 2022 Source: Nomis Claimant Count Note: Top 2 performing sectors are shaded in yellow and bottom 2 performing sectors are shaded in pink

  20. Scaling the challenge • A further 1,900 resident jobs would be required in Newry to match the Northern Ireland resident employment rate • A further 6,400 resident jobs would be required in Newry to match the UK resident employment rate • Residence based wages in 2012 were £403.90 on average per week in Newry - 4.9% below the NI average, and 17.6% below the UK average • Workplace based wages in 2012 were £401.60 on average per week in Newry - 5.4% below the NI average, and 18.1% below the UK average • Newry’s unemployment would need to fall by 2,700 people to get back to its 2007 level of unemployment

  21. Key forecast questions

  22. Key questions • Austerity – more to come? • Will welfare reform impact? • Will big changes to funding regime hurt? • Can the export base grow sufficiently? • Will the low skilled find work? • Can a ‘rebalancing’ occur?

  23. Austerity – more to come?: UK public finances in perilous state Source: Oxford Economics UK debt per head estimated at £17,300 (UK debtbombshell .com) Oxford Economics estimate closer to £20,000 per head UK national debt increases £310,212 per minute (debt-clock.org) By the end of this presentation approximately £12.5 million will be added to national debt

  24. Austerity – more to come? Next CSR in NI likely to be tougher Departmental expenditure limits, NI, 2010/11 – 2014/15 Government balance (subvention), NI, 2003/04 – 2015/16 Source: NI Executive budget report 2011-15, 7th March 2011. Source: Oxford Economics (2011 analysis) Note: Real term estimates based on Treasury inflation forecast which is 2.75% on average over the period 2010/2011- 2014/15 • UK finances weakening and debt targets likely to be missed • Debt stock rising and adding a bigger burden • NI ‘case’ losing traction – other areas making a strong case • Change of government could change strategy – but not that much (‘blame the old regime’)

  25. Austerity more to come? Time to talk about big areas of spend Identifiable expenditure by function, Northern Ireland (£m) Source: HM Treasury PESA

  26. Will welfare reform impact? – Short answer is yes!

  27. Will welfare reform impact? – But surely reform is inevitable? Benefit claimants per 1000 working age population people, UK regions, 2011 Newry & Mourne (claimants per 1000 working age): IB: 46 ESA: 23 DLA: 171 IS: 77 JSA: 62 Source: DWP & DSD

  28. Will big changes to funding regime hurt – again short answer is yes! Total employment – corporation tax scenario, NI, 1990-2030 Indicative estimates of potential SFA job loss Source: Oxford Economics Note: A review is underway by Invest NI to better understand possible impact This assumes a complete end to SFA Source: Oxford Economics Lower corporation tax = 58,200 additional jobs by 2030 Note: published July 2011. Baseline has changed Assumes approximately 6,000 jobs safeguard or created annually

  29. Can the export base grow sufficiently? This will be very very tough Service exports, NI, 2000 - 2011 Manufacturing exports, NI, 2000 - 2011 Source: Manufacturing sales and export survey (current prices) Source: Exporting NI services (current prices) Exports, UK, 2000 - 2022 Concern over services exports Note: dashed line in both charts indicates sectoral reclassification to SIC07 from SIC 03 Source: Oxford Economics (2009 prices)

  30. Can the export base grow sufficiently? Significant potential Imports, selected global emerging economies, 2022 If NI could provide 0.01% of imports to these emerging economies, it would be worth £475m (equivalent to 1.7% of GDP, though actual impact would be smaller due to import content) Source: Oxford EconomicsNote: Ranked in order of value 30

  31. Can the export base grow sufficiently? Euro weakening possible Exchange rates £1 = $1.60 £1 = €1.24 11/12/12 Source: xe.com Signals improved export competitiveness

  32. Where will the low skilled work? Low skills of inactive a major challenge

  33. Where will the low skilled work? Which sectors offer low skilled work Entrants to employment with no qualifications by sector, NI, 2009-2011 Range of sectors ‘off limits’ to those with no quals...finance, professional servs, info & comms % employed stock with no qualifications NI, 2009-2011 2 out of every 3 workers with no qualifications are employed in retail, manufacturing, agri, health and construction Source: LFS

  34. Can a rebalancing occur? – agri food an area of potential Employment in agri – food, NI, 1998 - 2022 Employment in agri – food, NI, 2010 -2012 Source: Oxford Economics Source: Oxford Economics

  35. Can a rebalancing occur? – manufacturing a mixed bag Employment in manufacturing, NI, 1998 - 2022 3,700 less jobs by 2022 in manufacturing sector % growth GVA in manufacturing, NI, 1998 - 2022 Source: Oxford Economics £1388m additional GVA by 2022 in manufacturing sector Source: Oxford Economics

  36. Can a rebalancing occur? - Commodity prices will impact World food prices near crisis levels: Worst drought in more than 50 years in US sent corn and soybean prices soaring also droughts in Russia and other Black Sea exporting counties Shale oil could impact oil price

  37. Can a rebalancing occur? – Wages an issue Average hourly compensation in manufacturing, selected countries, 2011 Source: Bureau of labour statistics

  38. Can a rebalancing occur? – public service will necessitate Employment in public services, NI, 1998 - 2022 8,300 less jobs by 2022 in public services Source: Oxford Economics

  39. Summary: Making Choices

  40. Are we ready? • Policy has changed in certain respects; new strategies with some overlap, though not enough. Invest NI has been transforming and focus has shifted to exports and short term job support • Corporation tax debate lumbers on, decisions getting closer but is it too late? • Legislative changes very limited • Public sector changes are underway, but piecemeal and danger of ‘cheapest is best’ approach • Welfare reform, regional pay and austerity all generated strong objections locally, but little alternatives presented • Longer term strategic challenges not prominent: pension crisis, elderly care, subvention dependence

  41. And at a local level? • New powers • What is the plan? • What could you do if you had the powers? • Close to existing business (issues, plans, concerns) • Close to capacity and potential (site register, planning consents, USP of locations) • Postulate an alternate income model – what rates / taxes could work (vacant rates, eyesores, environmental legislation) • Co – ordinate the agencies and the support that flows in (“total place”) • P&L account for economic development in the area • Could a jobs plan work – 2K minimum, 5K stretch target?? Co-ordinated jobs register for the area – help ever business to get the staff they need – a no unfilled vacancies policy. • Research – a ‘trace’ project of the young people and school leavers over last 5 years – which subjects have mattered, what characteristics (beyond family background etc.). What has worked for Newry people

  42. What is required? • Decisions on major policy choices • Reform of tax raising policy: rates, water, corporation tax etc • Public expenditure needs line by line expenditure review, no preconceptions over in-house or out sourced • Appropriate principles: cheapest does not always mean best value, competition does not mean privatisation • Recovery will be long and slow: growth should not be taken for granted. • Creating jobs whilst spending less is not easy. Make choices clearer: Have the debate!

  43. Contact Details: Oxford Economics Lagan House Sackville Street Lisburn County Down BT27 4AB UK Tel: 028 9266 0669 Fax: 028 9267 0895 ngibson@oxfordeconomics.com

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