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End of an era Tougher times – but for how long?. Neil Gibson: Oxford Economics 10th September 2008. Synopsis. The slowdown – what went wrong? The Northern Ireland perspective Could it get worse or will the good times return What now? – strategies in a downturn. What went wrong?.

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end of an era tougher times but for how long

End of an era Tougher times – but for how long?

Neil Gibson: Oxford Economics

10th September 2008

synopsis
Synopsis
  • The slowdown – what went wrong?
  • The Northern Ireland perspective
  • Could it get worse or will the good times return
  • What now? – strategies in a downturn
what went wrong

What went wrong?

House prices

The credit crunch

Inflation

Confidence

house prices clearly overvalued
House Prices – clearly overvalued

House price to income ratio 1998 - 2018

lending practices in question
Lending practices in question
  • Previously banks have lent more by increasing either:
    • The loan to value
    • The loan to income
  • At the peak of this cycle they increased both!!
  • Actually NI not as bad on loan to value
was the crunch always going to bite
Was the crunch always going to bite?
  • Answer – Yes!
  • Levels of borrowing unsustainable
  • ‘Fundamentals’ breaking
  • Looking back lending practices hard to understand (Northern Rock, Fannie / Mac)
  • The price of imports was becoming unrealistically cheap - £5 jeans and 5p beans had to end!
  • The standards of living rises well ‘above trend’
recent record impressive
Recent record impressive

Employment growth 1997-2007

Employment growth 1971-2007

wealth creation has become priority number 1 should it be
Wealth creation has become priority number 1 (should it be?)

Relative NI economic performance 1994-2007

ni wages relative to uk
NI wages relative to UK

Relative wages by sector (UK=100)

house prices needs no explanation
House prices – needs no explanation!

Relative house prices and house price / income ratios, 2007

House price forecast 1991-2018

will incomes be squeezed
Will incomes be squeezed?

House price / car ownership correlation, 2003-2005

the outlook is much less favourable in job terms
The outlook is much less favourable in job terms

Employment growth 2007-2017

Employment growth 2007-2017

construction already in difficulties
Construction already in difficulties

Construction employment and housing starts 2000Q1 – 2008Q1

Construction index 2000Q1-2008Q1 (2000 = 100)

  • Official employee data shows a fall in the last quarter, but only by 230 people, Q2 will be interesting
retailing will follow other sectors
Retailing will follow –other sectors?

Real disposable income per retailing employee (£000 per worker), 2007

many places extremely exposed
Many places extremely exposed

House price / income ratio 2007

fundamental house price still someway off
‘Fundamental’ house price still someway off

House price required to normalise house price / income ratios to 5 and 7

time to give the beamer back
Time to give the Beamer back?

Change in high marquee car ownership 2003-2005 and car ownership relative to income

export base crucial
Export base crucial

Employee jobs change, total and exporting sectors, 1997-2007

any good news unemployment
Any good news? - unemployment

Claimant unemployment last ten years and latest monthly data

public sector a buffer
Public sector a buffer?

Employees in public services as % of population of total employment, 2007

  • Subvention a useful ‘export’
it is a better economy than 10 years ago
It is a better economy than 10 years ago!
  • Population has risen by 87,900
  • Employment has increased by 131,200
  • Unemployment down by 39,000
  • Annual GVA higher by £6322m
  • Average weekly wage 12% higher than in 1998
  • Overall average house price increased by 295% in last 10 years
  • 33% more people owning BMW, Mercedes, Audi and 9 other high marquee cars over two year period
shifting balance
Shifting balance?

Economic Growth

Economic Growth

Government

Consumer

Business

Government

Business

Consumer

realities of the situation
Realities of the situation
  • No return to last decade (not to say fast growth may not return – but not fuelled in same way)
  • The situation could get worse (crucial time)
  • Legacy of last decade – financial profligacy and consumer decadence
  • Big problems ahead – low incomes, pensions etc.
  • Assembly in charge at a very very tough time

But..

  • Strong skills help
  • Population should drive demand for housing
  • Low turnover
  • Public subsidies
  • Stability and a global realisation put economy on better footing
  • Not alone in the problem so active solution seeking going on
what can be done
What can be done?
  • Assembly – limited powers but important to send messages and to think ahead and contingence plan
  • Importance of public works as provide a boost to many sectors
  • Care over land-banking and ‘tycoon’ emergence
  • Keep long term strategic focus (skills training etc.)
  • Certain industries will need to shift priorities (what works in cost sensitive environment?)
  • Adjustment in expected incomes etc. required (cutting prices)
  • Moving focus – renovations, conversions, extensions, cost saving measures – not new building
  • Good time to get quotes for skilled tradesmen!
  • Think creatively – graduate purchase schemes? Renewable energy initiatives, public transport schemes
  • Care over focus – helping those hurt most? A sensitive issue – developers, low incomes, non-working?
where do our concerns lie
Where do our concerns lie?
  • Making work pay – low income vs. non-working
  • Learning lessons – how painful should we let it become?
  • Rural economies – where now for jobs
  • The long run – loss of capacity?
  • The psychological impacts – painful and long lasting
  • The assembly visible? Effective? Under pressure?
contact details neil gibson director regional services ngibson@oxfordeconomics com 0844 979 2356

Contact Details:Neil GibsonDirector: Regional servicesngibson@oxfordeconomics.com0844 979 2356