Greater Manchester Forecasting Model

1. Greater Manchester Forecasting Model 2012 Report December 2012

2. Executive summary Contacts and content Macro context Changes to the outlook North West outlook Greater Manchester outlook Summary local authority forecasts Bolton Bury Manchester Oldham Rochdale Salford Stockport Tameside Trafford Wigan Annex A – local summary tables Summary tables – Bolton Summary tables – Bury Summary tables – Manchester Summary tables – Oldham Summary tables – Rochdale Summary tables – Salford Summary tables – Stockport Summary tables – Tameside Summary tables – Trafford Summary tables – Wigan Summary tables – Greater Manchester Summary tables – North West Summary tables – UK Contact information Contents

3. Executive summary

4. UK economy has disappointed UK GDP Forecasts: GMFM 2011 and GMFM 2012 • Global growth began 2012 on an upward trajectory but lost momentum as the year proceeded as the Eurozone economy slipped back into recession at the start of the year. • The UK economy is forecast to contract slightly in 2012 although recent quarterly data has finally seen a return to GDP growth. Consequently, the short term outlook has been revised downwards from our 2011 forecast to reflect the deterioration in global conditions and continued risk posed by the Eurozone crisis. • The level of aggregate demand in the UK economy is currently below the productive potential of the economy, which has led to a negative output gap, with GDP still more than 3% below its previous peak.. • More encouragingly, employment has continued to rise at a UK level over the last six months. If GDP and labour market data is taken at face value, it would imply an unprecedented decline in productivity. We think that the reality probably lies somewhere between the two and that the economy is growing on an underlying basis, but at a weak pace which is some way behind the long-term trend. Additionally employment data could mask a shift towards part-time workers and self employment, i.e. more ‘under employment’. • Growth will continue to be led by private export orientated sectors encompassing many professional services ,such as legal, finance, insurance, consulting, computer related services and R&D, as domestic demand remains weak and government austerity measures continue.

5. Greater Manchester continues to lead the North West Greater Manchester employment growth (millions) 1992-2022 Greater Manchester key indicators • Jobs growth is forecast to return in 2012 but will remain modest. Peak levels of employment achieved in 2007 are not forecast to return until 2018. It will also not be until then that Greater Manchester returns to ‘trend’ growth (see chart). • Over 2012-2022 92,000 jobs are forecast which is 20% lower than the jobs that were created over 1998-2008. This job creation is dependent on continued growth within business and professional services. • GVA is expected to remain flat in 2012 reflecting the weak UK performance. However, we forecast that between 2012-2022 growth will average 2.7% per annum. This is higher than our previous report as we assume the UK output gap will close by 2025 requiring faster growth in the medium term. • Both growth in employment and GVA over 2012-2022 will be above the regional rate at 0.7% and 2.4% compared to 0.4% and 2.4% respectively. Greater Manchester annual GVA growth, 1995-2022

6. Comparative performance Total employment growth, 2008-2021 (2008=100) • Greater Manchester employment growth in the short run, is expected to be lower than our 2011 report given weak labour market data for the area. However from 2015 onwards employment is anticipated to grow faster than the regional average. • Greater Manchester will continue to lead the North West recovery due to its comparatively high concentration of professional services and other key attributes, such as a skilled workforce. These services export orientated services are expected to drive the recovery. • The productivity gap between the UK and the North West (and Greater Manchester) will remain wide and unchanged over the forecast period. This reflects the comparative performance of Southern regions which are forecast to lead UK growth. Compared to these areas, the North West is more dependent upon manufacturing, public services and consumer demand-led sectors, where jobs growth will be weaker. GVA per employee (£000s), 1998-2021

7. District overview Employment and GVA average annual growth, 2012-2022 • All districts, except Manchester, Trafford and Bury, experienced job losses over 2008-2012. Given other indicators such as unemployment this is likely to not reflect the overall trend during the recession. Those districts accounting for the largest job losses were Stockport (36%), Rochdale (22%) and Tameside (13%). These districts were particularly affected by contractions in one or more of the following sectors - construction, consumer led sectors and the public sector. • Manchester, Salford and Trafford, as in GMFM11, are forecast to have the biggest increases in employment over the coming decade (accounting for 68% of the Greater Manchester total). These areas perform comparatively better than the other districts due to their sector structures, especially a higher concentration of business and professional services. • Population is anticipated to grow in all areas, primarily driven by natural increase as net migration falls over the forecast period. Population and employment change, 2012-2022

8. Contacts and Content

9. Contacts For more information please contact: Commission for the New Economy: • Alex Roy , Head of Research • 0161 237 4408 • Alex.roy@neweconomymanchester.com Oxford Economics team: • Kerry Houston, Lead Economist • 08449792363 • khouston@oxfordeconomics.com • Miriam Ferrari, Senior Economist • 028 9252 8614 • mferrari@oxfordeconomics.com

10. Model overview • The Greater Manchester Forecast Model (GMFM) was originally designed as part of the Manchester/Salford Pathfinder project and is now managed by the Commission for the New Economy. • The model provides economic, demographic and housing forecasts for the North West Local Authorities. • The model is unique in providing a link between housing and the economy and the model has undergone a number of developments since its inception. • For this round of forecasting the model has been rebuilt to incorporate SIC 2007 and has incorporated a number of technical changes. • Annex A provides summary data for each of the Greater Manchester districts. • Annex B lists the main variables available within the model.

11. Key Aims • The GMFM model has a number of key aims: • A consistent evidence base for Greater Manchester for use in strategy and policy development. • A set of ‘base case’ forecasts for the conurbation prepared by a leading independent forecasting house (Oxford Economics). • A starting point for looking at scenarios or alternate futures. • A ‘trigger’ mechanism to raise awareness of a wide range of emerging issues, for example impact of migration, housing development etc. • An information resource collating a wide range of data in a central location and in a consistent manner. • A tool to help capacity building within Greater Manchester with respect to understanding and using forecast material.

12. GMFM 2012 rebuild - key changes detailed SIC2007 GMFM model • Employment/GVA by 52 sectors • Employment by full-time/part-time by broad sector • Population split by 3 categories (working age, children and elderly) • Occupations • Sector footprints • Floorspace • Housing Post 2009 LAD definitions SIC2003 GMFM model • Employment/GVA by 56 sectors • Employment by male/female/full-time/part-time by broad sector • Population by 5 year age band • Occupations and replacement demand • Sector footprints • Carbon emissions • Floorspace • Housing Pre 2009 LAD definitions

13. Data – 2012 updates New data included New global, UK, North West outlooks New data BRES (2010 and 2011) Census and mid-year population estimates (2011) Housing stock, house prices, completions, vacancies and demolitions Earnings Resident employment (2011) Unemployment Regional GVA (2009 prices) Personal sector (regionally)

14. Macro context

15. Global conditions • Global growth began 2012 on an upward trajectory but lost momentum as the year proceeded. We forecast growth for 2012 as a whole at just 2.2%, picking up to 2.5% in 2013. • The weakness of the Eurozone was an important drag on world growth in 2012. The Eurozone economy slipped back into recession at the start of the year with GDP forecast to decline by 0.4% over the whole year. And with substantial public and private sector deleveraging necessary in the years to come we expect the Eurozone economy to act as a drag on world growth for some time. Source: Oxford Economics • A number of key emerging economies also saw slowing growth in 2012, including Brazil, India and China. A sustained slowdown in growth in these countries is a key forecast risk. • A more positive long-term story is in the US, given relatively favourable demographics an improving energy balance and the gradual emergence from the housing slump. • We forecast world GDP growth at 4.1% p.a. from 2012-2021.

16. UK recovery • The latest GDP data for Q3 2012 suggests the UK economy has moved out of recession but excluding a number of important one-off factors (namely the comparison with Q2 which had one fewer working day than usual) and the inclusion of sales of tickets and television rights from hosting the Olympic Games, underlying growth remained well below trend. • Given survey data information for Q4 2012 points to a slowdown, GDP growth for the year is likely to be broadly flat (we forecast at -0.1% for the year). Although consumer prospects have started to improve given lower inflation levels and higher employment levels. • The growth outlook is still relatively weak and downside risks prominent, especially with fiscal policy unlikely to provide further support. Source: Oxford Economics

17. UK recovery (cont.) • Another important aspect of the recovery will be the performance of UK exports. Recent data points to a slump in word trade which has hit UK exporters to the EU in particular. • Given the downgraded growth in the Eurozone and that we expect the Euro to weaken further, leading sterling to gain around 7% on a tradeweighted basis over the next three to four years, we have downgraded our expectations for UK export growth in the short term. • Over the longer term continued growth in the export of goods and services will remain an important source of GDP growth - growing at 3.5% pa over 2012-2021.

18. UK – Understanding the output gap • The level of aggregate demand in the economy is currently below the productive potential of the economy, which has led to a negative output gap, with GDP still more than 3% below its previous peak.. • The main source of damage has been to total factor productivity, with tight credit conditions hindering the allocation of capital to productive activities and causing a reduction in spending on research & development activities. Alongside this, the collapse in business investment constrained the contribution of growth in the capital stock to potential output. Business investment recovery has been very weak and remains more than 15% below pre-crisis levels. • The contribution of the labour supply to potential output has largely held up. Thus far, migration has remained strong and activity rates have continued to increase amongst the older age groups, partly due to the gradual increase in the state retirement age for women and partly a legacy of persistently low rates of saving forcing older people to supplement low pension incomes.

19. UK – Understanding the output gap (cont.) • We believe that the bulk of the damage to potential output growth has already occurred and expect it to recover from this point onwards. Large corporate cash piles offer the potential for a strong recovery in business investment, as the global economy recovers, albeit it is unlikely to improve at a rate sufficient to regain levels consistent with the pre-recession trend. • The upward trend in activity rates is likely to continue given that the state pension age will rise to 66 by 2020 for both men and women, although the pace of inward migration is likely to cool due to the deterioration in UK employment prospects and the narrowing of relative wage differentials caused by the weak pound. • Although we expect GDP to pickup to average 2.6% pa over 2017-2021, the output gap is not expected to close until well into the next decade.

20. UK: Finances and Policy • The disappointing growth performance has led directly to an overshoot in borrowing, which is entirely a result of weak government revenues. • The Office for Budget Responsibility (OBR) had forecast that central government receipts would increase by 3.7%during 2012/13, but for the first seven months of the year, growth has been just 0.4%. • The Autumn Statement contained 38 different tax and spending measures, but it is difficult to envisage them doing too much to alter the growth outlook. The greater short-term focus on capital spending looks sensible, but in doing this the Chancellor has been far too timid. • With consumer demand still relatively weak and government spending remaining muted the focus will be on private sector investment and export demand to drive the recovery.

21. UK – Labour market and productivity puzzle • There has been an upward revision in the employment outlook for the UK since the last report, reflecting the consistent increase in employment over the last six months. • Increasing employment levels despite the poor GDP performance have meant actual productivity levels are substantially lower, at 14% in the latest data, than the pre-recession trend would indicate. • Were we to take both the GDP and labour market data at face value, it would imply an unprecedented decline in productivity. We think that the reality probably lies somewhere between the two and that the economy is growing on an underlying basis, but at a weak pace which is some way behind the long-term trend. Additionally employment data could mask a shift towards part-time workers and self employment, i.e. more ‘under employment.

22. UK sectoral outlook Sectoral employment change, UK, 1998-2022,000s • The employment outlook, driven by international demand, remains dependent on professional services*, accounting for 60% of total jobs growth over 2012-2022. Local areas with a concentration of these services have the most favourable labour market outlooks. • The manufacturing sector will continue to lose jobs but at a much slower pace than the previous decade and at a rate below our previous report. This is due to upward revisions to the UK forecast to reflect an export led recovery in the longer term. • The public sector will continue to contract over the forecast period as the austerity drive is predicted to continue although from 2015 onwards will depend on future spending reviews. • Employment growth over the coming decade will also be strong within wholesale & retail trade as recovery gets underway and real incomes begin to recover. * Professional and business services comprises information & communication, financial & insurance activities, real estate activities, professional & scientific activities and admin & support services.

23. UK outlook – detailed forecast Source: Oxford Economics

24. Downside risks to Oxford Economics’ forecast

25. Changes to the outlook

26. Key changes Greater Manchester: Population change, 000s Greater Manchester: GVA, annual growth rate • Population has been revised upwards in the new forecast by approximately 33,900 in 2011, reflecting the 2011 Census results. • Employment is 14,700 jobs lower than under GMFM2011, reflecting weaker than expected employment data. • GVA has been rebased to 2009 prices and is therefore not directly comparable in absolute terms. The growth rate for 2010-11 has been revised downwards to 0.4%, reflecting the weaker UK GVA performance. Greater Manchester: Employment change, 000s

27. Key reasons for the changes Population • The 2011 Census revealed that population is higher than expected. Overall in Greater Manchester there were 58,800 extra persons compared to the rolled forward (to census day) 2011 mid-year population estimate. The population differences were most pronounced in Manchester (28,100), Trafford (8,700) and Wigan (7,000). • ONS have stated that given birth and death rates are mandatory the main causes for the inaccuracies are potential problems with the 2001 population base and the measurement of net international migration. • Despite GMFM predicting population to be higher than official population estimates for some time the overall level has been revised upwards for GMFM12 to incorporate the 2011 census figures. Employment • The level of employment in 2011 (the latest data point) has been revised downwards from GMFM11 to account for data changes. The BRES figures for 2011 are weaker than anticipated in our last report and therefore the employment forecast begins from a lower point than previously. • Direct comparisons between BRES 2011 and 2010 data at a sector level is an issue due to changes in survey methodology. GVA • GVA figures for GMFM11 and GMFM12 are not directly comparable in absolute terms but the growth rates are now lower for 2011 and 2012 to account for the weaker UK GDP performance and downgrading of the overall UK forecast.

28. Population and migration Population, Greater Manchester, 1991-2022 • Population by 2022 is forecast to reach 2.85m compared to 2.80m under GMFM2011. The outlook is now higher due to the higher starting point in 2011, accounting for the Census result. • ONS will release a revised population dataset for 2001-2010 in April 2013 and it is our understanding that the 2001 population figure will not change. The pattern from 2002-2010 will therefore be revised through migration. • Oxford Economics have created a new 2002-2010 estimate of migration to take account of the 2011 Census result, in the absence of the new series from ONS. • As migration is economically driven in GMFM it is expected to fall over 2012-2022 as the economy continues to recover modestly. • A new set of sub national population projections for 2011 have been released which are more similar to GMFM’s migration forecast than the 2010 based projections. • There are however strong revisions between the two sets of SNPPs at a district level. For instance under SNP2011 net migration is forecast to be -27,400 over 2012-2021, compared to 4,400 under SNPP2010. Migration in Greater Manchester: Oxford vs. SNPP, 1992-2021

29. Total employment Employment, Greater Manchester, 1991-2022 • Employment projections have been revised downwards in the short run to account for the baseline BRES data for 2011. • Over the long run total employment is forecast to grow by 92,000 over 2012-2022 compared to 99,000 under GMFM11. The slightly weaker long term outlook is due to downward revisions to the UK economic performance. • The level of employment in GM is not forecast to return to the 2007 peak until 2017. This compares to 2015 in our last report and reflects the weaker baseline data and short run outlook.

30. Unemployment & GVA Unemployment, Greater Manchester, 1991-2022 • The unemployment outlook has been revised upwards over the longer run reflecting the higher population forecast for the area. • Similarly the GVA outlook over the short term is weaker in GMFM12 compared to GMFM11 due to the weak UK GDP performance and relatively muted recovery. Over the longer term we forecast GVA to grow faster than in the GMFM11 figures in order for the UK to close the output gap by 2025. GVA, Greater Manchester, 1991-2022

31. North West Outlook

32. North West - Overview North West: GVA growth, 1991-2022 • The sluggish economic recovery continues with negative GVA growth in 2012 of -0.7% compared to 0.0% in the UK. Growth of more than 2% is not set to return until 2014. The North West forecast is weaker than the UK as the recovery is still anticipated to be export led and led by the southern regions with more favourable sectoral structures. • The employment outlook remains sluggish for the North West with peak employment levels being reached in 2019. • The level of jobs growth projected in many sectors is modest with professional services growing more slowly than the UK average. The contraction of the public sector will continue to exert downward pressure. North West: Employment outlook, 1991-2022

33. North West - Sector Outlook North West: Employment by broad sector, 000s • The employment outlook for 2012-22 is much slower than the previous decade due to the continued contraction of the public sector (collectively representing a loss of 41,000 jobs). • Manufacturing will also continue to contract as the sector becomes less labour intensive (with GVA and therefore productivity set to increase). • Professional services* remain key to the outlook, collectively accounting for 66% of total jobs growth over the coming decade. • The wholesale & retail sector will also remain an important source of employment growth as real incomes recover and downward pressure on consumer spending is alleviated. • For the North West, accommodation and food services is also forecast to grow significantly, given the region’s tourism sector and food and drink expertise. * Professional and business services comprises information & communication, financial & insurance activities, real estate activities, professional & scientific activities and admin & support services.

34. North West – Labour Market North West: Unemployment level and rate, 1985-2022 • Unemployment levels remain higher than in the recent past averaging 5.2% over 2011-22. This is due to the sluggish labour market outlook but rates could be even higher depending upon how the welfare reforms in 2013 play out. A large number of people currently claiming long term sickness and disability payments may move onto the unemployment register following the introduction of Universal Credit and Personal Independence Payment. • Natural increase is expected to continue to be the main source of population growth within the North West. The migration outlook is tied to labour market prospects and anticipated to fall to a small outflow in the short run due to limited job opportunities and sluggish recovery. North West: Net migration and natural increase, 1992-2022

35. Greater Manchester

36. Greater Manchester - Overview Greater.Manchester: GVA growth, 1995-2022 • The forecast continues to suggest that Greater Manchester will lead the North West recovery. GVA and employment are forecast to grow at 2.7% and 0.7% per annum over 2012-22 respectively, compared to 2.4% and 0.4% on a regional basis. • The level of employment growth will also exceed the UK average of 0.6% whilst overall GVA growth is anticipated to be similar to the national rate. • Greater Manchester’s recovery is stronger than the North West due to a higher share of professional services within the economy, which the private sector led recovery depends upon. Growth rate comparison, 2012-2022, % per annum Greater Manchester: Employment outlook

37. Greater Manchester – Sector Outlook Greater Manchester: Change in employment, 000s • The positive labour market outlook is dependent on the growth of professional and business services * in GM (accounting for 67% of total growth over 2012-2022). • As the economy grows over 2012-2022 the wholesale & retail sectors are anticipated to create 19,000 jobs as real incomes begin to rise increasing consumer spending. • Manufacturing job losses will be much more modest over 2012-22 than they were over the previous decade. Despite the continued employment decline the GVA forecast is positive given we expect continued improvements in productivity. • Public services (public admin, education & health) are forecast to lose 9,000 jobs between now and 2022. The future of the public sector, especially beyond 2015, is uncertain, and largely dependent on further spending cuts, and how these are tackled. * Professional and business services comprises information & communication, financial & insurance activities, real estate activities, professional & scientific activities and admin & support services.

38. Greater Manchester – labour market Greater Manchester: Unemployment level and rate, 1991-2022 • Over the last six months unemployment levels, using the claimant count measure, have fallen slightly in Greater Manchester. Although this is encouraging the short term outlook is for unemployment levels to continue to rise, peaking at 6.3% in 2013. This reflects the weaker labour market in the short run and sluggish recovery in the longer term. It will also be important to monitor the impact of the welfare reforms on the overall level of people joining the unemployment register. • The migration outlook remains uncertain over the forecast period given the recent high levels of net in-migration despite the weak economy. The GMFM forecast remains highly dependent on the economy and therefore migration is negative over the forecast period. Official estimates now also anticipate that there will be out migration , however, given the data issues surrounding measures of international migration it remains a uncertainty in the forecast. • Natural increase is expected to continue to be the main source of population growth Greater Manchester: Net migration and natural increase, 1991-2022

39. Summary local authority forecastsNote: More detailed forecasts for each Local Authority are provided in the accompanying Excel model outputs.Note: Employment data for districts is available up to 2011 (indicated on charts with a solid line). Regional data up to 2012 (indicated on charts with a dotted line) allows for a reasonable estimate of district employment

40. Data dashboard – 2011 Performance 2011, annual % growth rate

41. Data dashboard – forecast period 2012-2021 Performance 2012-22, annual % growth rate

42. Forecasts for districts - Bolton Bolton: Employment outlook Bolton: Key indicators Bolton: Unemployment (000’s) Bolton: GVA outlook (% pa)

43. Forecasts for districts – Bolton labour market Bolton: Change in employment Bolton: Net migration and natural increase

44. Forecasts for districts - Bury Bury: Employment outlook Bury: Key indicators Bury: Unemployment (000’s) Bury: GVA Outlook (% pa)

45. Forecasts for districts – Bury labour market Bury: Net migration and natural increase Bury: Change in employment

46. Forecasts for districts - Manchester Manchester: Employment outlook Manchester: Key indicators Manchester: Unemployment (000’s) Manchester: GVA Outlook (% pa)

47. Forecasts for districts – Manchester labour market Manchester: Net migration and natural increase Manchester: Change in employment

48. Forecasts for districts - Oldham Oldham: Employment outlook Oldham: Key indicators Oldham: Unemployment (000’s) Oldham: GVA Outlook (% pa)

49. Forecasts for districts – Oldham labour market Oldham: Net migration and natural increase Oldham: Change in employment

50. Forecasts for districts - Rochdale Rochdale: Employment outlook Rochdale: Key indicators Rochdale: Unemployment (000’s) Rochdale: GVA Outlook (% pa)