Here are the 10 key summary points (as I saw them) from Rhys Herbert’s superb Economic Update presentation to the RICS conference in Newcastle yesterday.
Rhys is the Chief Economist for Lloyds TSB Commercial.
Overall grounds for cautious optimism – especially in relation to construction. Let’s face it – it couldn’t get any worse for our sector!!
1. Global economic conditions are improving – driven by US and China improvements. Plus Euro area looks like slightly better than it has been – stabilising or reduced decline is predicted.
2. This recession is longest ever. 2nd deepest behind Great Depression. LLoyds predicting 7 years to get back to 2008 levels. (2015/16)
3. Lloyds don’t see the base interest rate rising significantly for a couple of years. Predict base rate at 0.5% for next 2 years.
4. Government’s recent scheme to lend to banks (at base rate on condition they will lend to business at low rates) is showing signs of success. This scheme came in last year and good signs it is easing money supply to business. Last quarter lending figures highest since recession started. Still way lower than pre 2008 levels though.
5. GDP flat last year. Lloyds forecast 1.3% growth for 2013 and 2% for 2014.
6. Sector performance through in recession – Services broadly fine, manufacturing slightly down, construction hit by far the hardest.
7. Key GDP problem has been fall in consumer spending. Double hit on this. First people want to pay down debt PLUS fall in net income due to wage inflation not matching price inflation. Consumer spending should increase in 2013/14 as debt burdens reduce.
8. Corporate sector is sitting on unprecedented amounts of cash – overall 5% of surplus. LLoyds expect some of this cash pile to be released into business investment in late 2013/2014
9. Big threat to growth is cuts to public spending. Hit NE harder as more businesses who rely on selling to public sector. However Lloyds believe the effect on public sector spending cuts on the overall economy is being overplayed by politicians. It’s an important but not as important as key structural factors such as consumer spending, business investment, Euro economy and global growth.
10. Construction – in a nutshell:
a) Private sector construction activity fell sharply but now stable
b) infrastructure – rose in early recession then fell badly now rising again.
c) Public sector construction fell slowly and now falling fast.
d) Overall construction activity forecast to rise due to infrastructure and modest private sector growth. Still tough times ahead.