The Economic Grand (Inter)National
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The Economic Grand (Inter)National. Enrico Longoni RBS Group Economics October 2012. Back to recession…. UK GDP (GBP bn, 2008 prices). Source: Office for National Statistics. Austerity not to be blamed. UK Q2 2012 GDP – output approach (%q/q). Source: Office for National Statistics.

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The economic grand inter national

The Economic Grand (Inter)National

Enrico Longoni

RBS Group Economics

October 2012


Back to recession

Back to recession…

UK GDP (GBP bn, 2008 prices)

Source: Office for National Statistics


Austerity not to be blamed

Austerity not to be blamed

UK Q2 2012 GDP – output approach (%q/q)

Source: Office for National Statistics


Worse than the great depression

Worse than the great depression?

UK GDP during the Great Depression and the Great Recession (q/q)

Source: Bank of England and Office for National Statistics


Uk labour market puzzle

UK labour market puzzle

Source: Office for National Statistics


Deficit reduction a long way to go

Deficit reduction…a long way to go

Source: Office for Budget Responsibility


Most of the pain is still to come

Most of the pain is still to come

Share of fiscal tightening still to be implemented after April 2012 (%)

100%

94%

88%

88%

90%

80%

75%

70%

66%

60%

50%

40%

27%

30%

20%

10%

0%

All fiscal tightening

Tax increases

Total spending cuts

Investment cuts

Benefit cuts

Other current spending

cuts

Source: The Institute for Fiscal Studies


Corporates to the rescue

Corporates to the rescue?

Bureau of Labor Statistics


Bernanke to the rescue

Bernanke to the rescue?

Source: Bureau of Labour Statistics


Us approach to fiscal policy

US approach to fiscal policy


The economic grand inter national

$100


10 000

$10,000


1 000 000

$1,000,000


100 000 000

$100,000,000


1 000 000 000

$1,000,000,000


1 000 000 000 000

$1,000,000,000,000


Walking along the fiscal cliff

Walking along the “Fiscal Cliff”


A lot could happen

A lot could happen

Source: Group Economics


Super mario to the eurozone rescue

Super Mario to the Eurozone rescue?


All it takes to save the

“…All it takes to save the €…”

Source: Bloomberg & Group Economics


Something s changed

Something’s changed

Source: Datastream & Group Economics calculations


This slowdown is the start of a structural change

This slowdown is the start of a structural change

China GDP annual growth

GE forecast

Source: Group Economics calculations


Still plenty of investment left to go in china

Still plenty of investment left to go in China


Uk fiscal policy plan a 2 b c

UK fiscal policy – Plan A2,B, C


Monetary policy rates low for how long

Monetary policy – rates low for how long?

7

UK Bank rate and expectations

6

5

4

Feb 2011

3

Aug 2011

2

Feb2012

1

Aug 2012

0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: Bank of England & Group Economics calculations


The uk remains a world leader

The UK remains a world leader

Wealthy

7th largest economy

Innovative

AAA rated

Highly skilled workforce

Attractive for foreign investment

10th largest exporter of goods

6th largest manufacturer

3rd largest exporter of services

8th most competitive economy

World class education


Uk economic growth in the long run

UK economic growth in the long run

6.4

Spot the Great Depression

6

5.6

5.2

4.8

4.4

1996

2002

2008

1930

1936

1942

1948

1954

1960

1966

1972

1978

1984

1990

1900

1906

1912

1918

1924

Source: Bank of England; RBS Group Economics


The economic grand inter national

“Great things are not done by impulse,but by a series of small things brought together."

~Vincent van Gogh~


Thank you and keep in touch

Thank you and keep in touch!

Internet

www.rbs.com/economics

E-mail

www.rbs.com/economics/registration

Social media

@rbs_economics


A word from our lawyers

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 Group’s 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.

A word from our lawyers


What is happening in the labour market

What is happening in the labour market?

Source: ONS


Uk growth the long and winding road

UK growth: the long and winding road

GDP following recessions, start of recession = 100

1990s recession/recovery

Current recession/recovery

Source: Datastream and Group Economics calculations


Fiscal rebalancing a good start but still far to go

Fiscal rebalancing: a good start, but still far to go

OBR forecast

Source: Office for Budget Responsibility


Would a plan b work there is some additional debt capacity but unquantifiable risks

Would a Plan B work?There is some additional debt capacity, but unquantifiable risks


High levels of household and public debt constrain growth

High levels of household and public debt constrain growth

Source: Datastream & Group Economics calculations


The economic grand inter national

Main economic problem facing the UK


Corporates have the cash

Corporates have the cash….

Flow of funds financial surplus/deficit 2011 (% of GDP)

Source: Office for National Statistics


Drastic times drastic measures

Increase demand

(symptom)

Massive fiscal stimulus

QE max

Liquidity unbounded

“Use it or lose it” deposit tax

PFI v2.0

Beg to China

Drastic times, drastic measures?

Reduce debt

(cause)

  • (Big) “bad bank”

  • Debt forgiveness

  • Financial repression

  • Monetise debt

  • Raise interest rates

  • Outright default


China s growth is slowing should we be worried

China’s growth is slowing, should we be worried?

Source: Datastream & Group Economics calculations


Emerging markets huge export opportunity

Emerging markets: huge export opportunity

% share of global GDP

Source: Datastream & Group Economics calculations

Source: IMF


Trade headwinds

Trade headwinds

Major markets

EZ problem markets

Emerging markets

Source: Datastream & Group Economics calculations

Source: IMF


Exports heading to the wrong places for now

Exports heading to the wrong places – for now

UK 2010 exports – by destination and growth rates

50

45

40

35

30

25

20

15

10

5

0

EZ

US

India

Brazil

China

Russia

Canada

Switzerland

South Africa

Market share (%)

Export growth (%y/y)

Source: Office for National Statistics


Ez imbalances more than fiscal

EZ imbalances, more than fiscal

Unit labour costs: Germany vs. the PIIGS

150

140

130

120

110

100

90

80

70

1995

1997

1999

2001

2003

2005

2007

2009

2011

Germany

Italy

Greece

Spain

Portugal

Ireland

Source: Datastream & Group Economics calculations


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