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Economic Overview

Economic Overview. 8 December 2010. Jarlath Costello Adran Cyngor Economaidd / Economic Advice Division Llywodraeth Cynulliad Cymru / Welsh Assembly Government. Structure of Presentation. Economic Overview Sectors Households Businesses International Government

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Economic Overview

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  1. Economic Overview 8 December 2010 Jarlath Costello Adran Cyngor Economaidd / Economic Advice Division Llywodraeth Cynulliad Cymru / Welsh Assembly Government

  2. Structure of Presentation • Economic Overview • Sectors • Households • Businesses • International • Government • Impact of fiscal consolidation in Wales

  3. Overview

  4. GDP (Year Over Year % Change) Source: ONS

  5. GDP and Employment(Year Over Year % Change) Source: ONS

  6. GDP Growth in 1st Year of Recovery Source: ONS

  7. UK GDP Level (£ Bils, Adjusted for Inflation) Approximate GDP level if economy had grown at trend rate £365 Actual GDP Level Source: ONS

  8. Private Sector Output(Industrial production + Construction + Market Services) Source: Own calculations from ONS data

  9. Monthly Percentage Change in Claims for Job Seekers Allowance 2008 2009 2010 Source: ONS

  10. LFS Labour Market Indicators(Change Since Employment Peaked In April 2008) Note: the table shows LFS changes between March – May 2008, when employment peaked in the UK and July – September 2010. Source: ONS

  11. Labour Market Current Status Source: ONS

  12. UK Change in Workforce Jobs(June 2010 Compared With March 2008) Source: ONS

  13. % Employed by Highest Level of Qualification Obtained Since 2001 Source: ONS

  14. Sectors

  15. Households

  16. Real Consumer Spending(% Change) 1st Half 2010 Source: ONS

  17. Contributions To Annual Growth In Real Household Disposable Income(% Points) Source: ONS, Bank of England

  18. Household Financial Liabilities(% of GDHI) Source: ONS

  19. Household Assets(% of GDHI) Source: ONS

  20. Household Balance Sheet(% of GDHI) Source: ONS

  21. Interest payments(% of GDHI) 1st Half 2010 Source: ONS

  22. Non-Financial Businesses

  23. Gross Operating Surplus(Year Over Year % Change) 1st Half 2010 Source: ONS

  24. Business Investment(Year Over Year % Change, Adjusted for Inflation, Excludes Inventories) 1st Half 2010 Source: ONS

  25. Change in Business Inventories(£ Billions, Adjusted for Inflation) 1st Half 2010 Source: ONS

  26. Company Insolvencies(England and Wales) Source: ONS

  27. Non-Financial Businesses Financial Balance (£ Billions) Source: ONS

  28. International Sector

  29. Exports & Imports(Year Over Year % Change, Adjusted for Inflation) 1st Half 2010 Source: ONS

  30. IMF GDP Forecasts(Year Over Year % Change) Source: IMF, World Economic Outlook, October 2010

  31. Sterling’s Effective Exchange Rate Index(2005 = 100) Source: Bank of England

  32. Public Sector

  33. Public Sector Revenues and Expenditure(% GDP) Source: HM Treasury, Office for Budget Responsibility

  34. Fiscal Consolidation Plan(£s Bils, 2010/11 – 2015/16) Source: ONS

  35. OBR Economic Forecast

  36. Contributions to GDP Growth(Percentage Points) Source: ONS/OBR

  37. Economic Impact of Fiscal Consolidation on Wales

  38. Fiscal Consolidation – Impact on WAG

  39. Public Sector Employment Wales – Overview • Between 2000 and 2010 public sector employment (ONS definition) increased from 301,000 to 344,000. • Public sector employment represents 27.5% of total employment (21.2% in the UK). • On a wider unofficial measure, public sector employment currently represents around 30.5% (385,000 people) of all employment in Wales. • An additional 10,000 resident in Wales but working in the public sector outside Wales • Some of the more recent increase in public sector employment is a result of the part nationalisation of some high street banks (approximately 10,000 jobs in Wales)

  40. Where do Public Sector Workers Work?

  41. Fiscal Consolidation – Impact on Public Sector Employment • The Office for Budget Responsibility (OBR) has estimated that the number of public sector jobs to be lost across the UK as a result of deficit cutting policies will be rise from around 40,000 in 2011/12 to 320,000 (cumulative) in 2014/15. • In Wales, we estimate that the number of public sector job losses will rise from around 9,000 in 2011/12 to 31,000 (cumulative) by 2014/15. • In addition to the direct job losses set out above, there will be “multiplier” effects on suppliers to government. • For illustrative purposes, we can employ a representative multiplier of 1.4. This would take the total number of job losses in Wales to about 13,000 in 2011/12 rising to 43,000 in 2014/15. • These figures represent around 0.5% and 4% of Welsh employment. • The net effect of such job losses depends on the extent of private sector jobs growth.

  42. Fiscal Consolidation – Impact on Labour Market • The net effect of job losses in the public sector depends on the extent of private sector jobs growth. • Private sector jobs increased by 108,000in Wales between 1999 and 2008 (with an increase of around 29,000 public sector jobs over this period). • The private sector jobs increase was concentrated in the top three occupational classes: in 2008, these classes accounted for around one third of total private sector employment and almost half of the increase over the period. • During the last period of recovery from recession (1993-1998), public sector jobs decreased by 2,000 but private sector jobs increased by 53,000 (rather more than the projected loss of public sector jobs to 2015/16). • OBR forecasts that the private sector at UK level will create about 1.5 million jobs overt the next five years. Pro-rating for Wales yields about 75,000 gain in private sector employment by 2015/16 and 35,000 after taking public sector losses taken into account. • Employment impact also depends on what decisions are made regarding pay. Pay could be traded for jobs as happened in parts of the private sector during the recession. • Worth noting there is a lot of churn in the labour market - on average 120,000 jobs lost and a little more gained in Wales each year (16,000 in the public sector)

  43. Key Points • Economy has emerged strongly from recession. Fiscal retrenchment will undoubtedly impact on growth and will likely make for “choppy” economic performance. • Key to how the fiscal squeeze impacts on the economy is the response of the private sector. • Corporate sector is in well positioned to increase investment spending. Households’ financial position is more mixed. Overall, it is unclear if private sector spending will offset lower Government spending and higher taxes when the squeeze intensifies next year. Confidence is key • Given the weakness of sterling, there is scope for exports to contribute more to growth but much depends on demand in export markets. • So far, economy has coped well with the limited tightening of fiscal policy already underway and the labour market has performed much better than expected. • In the last round of fiscal tightening, private sector job growth in Wales more than offset job losses in the public sector. This time though there will be more substantial losses in the public sector.

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