The recovery and your business Mark Smyth, RBS Group Economics April 2010

Slide 2 A return (of sorts) to positive growth GDP growth (q/q) Source: ONS

Slide 3 In the local economy too PMI survey (business activity) Source: Markit

Slide 4 However, we’ve got a lot of ground to recover Source: ONS

Slide 5 The property price correction Property prices (index, peak =100) Source: Nationwide, IPD

Slide 6 Growth prospects depend on who can spend Consumers 50% of demand Investment 15% of demand Government 15% of demand Exports 20% of demand

Slide 7 The rise in household debt … Source: Bank of England

Slide 8 … leads to a need to save more £96 Long-run average Q Q Income Spend £104 £93 £4 -£4 £7 Save

Slide 9 Employment – tough, but not as tough as before Source: ONS

Slide 10 But labour market softness = weak wage growth Source: ONS

Slide 11 Profits not hit as hard as might have been expected Source: ONS

Slide 12 But investment likely to remain subdued Source: ONS

Slide 13 The public finances are under pressure Source: HM Treasury

Slide 14 With future strains on public spending “... the crisis has dealt a permanent hit to the Exchequer costing around 6½ per cent of national income... Over the course of next parliament, we know that the strain will be taken primarily by public spending.”

Slide 15 Sterling weakness should boost exports Source: Thomson Datastream

Slide 16 But requires a rebalance to faster growing markets Source: IMF

Slide 17 A sluggish recovery Index of real GDP, 100 = start of recession Source: ONS, RBS Group Economics

Slide 18 With inflation below its target level Source: ONS, RBS Group Economics

Slide 19 Base rates – slow to move, but don’t get caught out... Source: RBS Group Economics

Slide 20 Relative growth rates in our central forecast Above average Manufacturing Construction Average Business services Retail & wholesale Below average Hotels & restaurants Health & education Regions Sectors London Eastern England East Midlands North West South East West Midlands Yorks & Hum Scotland South West North East Wales Northern Ireland

Slide 21 Spot the difference: sector breakdown in the West Mids Share of total GVA in 2007 Source: ONS

Slide 22 What about longer-term growth Labour force growth (c.0.7% per annum): Demographic trends Immigration Productivity growth (c.2.1% per annum): Investment Cost of capital Fixing private and public sector balance sheets Cost of moving resources across sectors

Slide 23 Key messages The worst is over, but we’re not out of the woods yet –Economic outlook remains uncertain with both up and downside risks –Demand conditions: likely to be tough Structural drags will inhibit the speed of recovery –Cost of capital likely to be higher –Balance sheets have to be repaired – no quick fix Export potential, especially to emerging markets Weak Pricing power –Weak demand = reduced bargaining power –But it cuts both ways – suppliers and wage costs Policy: central banks deliberately behind the curve –But long rates likely to move first – don’t get caught out

Slide 24 Keep in touch

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