1. Red Meats Prospects Conference ‘Progress Through Partnership’

2. Emergence from Economic Stagnation? Angela McGowan Chief Economist, Danske Bank UK Date: March 2013

3. 3 Global Scenarios: Jan and Feb 2013 - the tide had been turning... GLOBAL RECOVERY : Global economy expected to recover in 2013 as policy uncertainty fades and global policy stimulus has become stronger. GDP to rise 3.7% in 2013 and nearly 4% in 2014 Emerging markets are expected to recover from a two-year slump, which will be an important impetus for global demand. Fiscal policy tight credit in the euro area and low wage growth in advanced economies should keep the global recovery moderate. 2012 Headwinds – expected to ease. The ccommitments from US Fed and from ECB will help. **BUT RISKS ALWAYS REMAIN IN BACKGROUND – since Italian election and Cyprus’s Bailout problems the global picture looks a bit more fragile.

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5. 5 Divergent growth paths depending on austerity route: US and Emerging markets showing relatively strong recovery, although US Q4 blip -0.1 qoq (annualised -0.4%) But, during February we saw: - decent growth in retail sales - growth in housing sales - rising consumer confidence 1 Europe and UK more of a struggle. European contraction -0.6 Q4 2012 However, forward looking indicators – PMI new orders / IFO expectations / M1 growth – signal recovery gaining momentum But very divergent paths within Europe

6. 6 “ The current situation can be summarized like this: we have disappointing hard data from the end of last year, some more encouraging soft data in the recent past and growing investor confidence in the future”. Olli Rehn, EU Economic Affairs Commissioner, Feb 2013

7. 7 But still some bumps in the road... ITALIAN ELECTIONS: The election outcome in Italy has created a muddled and potentially disastrous situation. However, Italy can probably still rely on ECB support to avert a collapse and market reaction was mut ed. - AND NOW CYPRUS... - - Unorthodox and dangerous move from EU/IMF - - there was a fast recovery in markets on Monday/ Tue - - Now a rejection of bailout by Cyprus’s Parliament - - Leaves things much more fragile than even one week ago....

8. 8 Other risks include – Spanish Banks and Federal funding in US In Europe: - expect to receive negative news from Spain throughout 2013 Spain will be unable to meet its own targets for 2013 for growth, unemployment and the fiscal deficit. The Spanish housing market will continue its decline and as a result losses in the banks will be revised upwards However, the market reaction to this negative news should remain muted as long as investors have confidence in Mario Draghi’s promise to do “whatever it takes”. In US - The fiscal cliff deal from January included a higher payroll tax for all employed and higher income tax for those in the top income brackets. Aggregated drag on disposable incomes this year is USD170bn, (amounting to almost 1.5% of income) Also - retail gasoline prices have spiked 14% since the start of the year. President Obama signed off the “sequester” – Federal budget cuts. Taken with other measures in place, the fiscal tightening will amount to 4.8% of GDP from 2010-14 (1.5% this yr)

9. 9 Europe - What about Ireland? Ireland was the first country to walk down the austerity path and has since passed 8 Troika reviews. The recent positive GDP data (+0.8% in Q3 yoy and up 0.2 qoq) PMIs recently outperforming EU peers. Just last month we saw Ireland’s outlook was upgraded from negative to stable by the rating agency Standard and Poor – ( Fitch also upgraded Ireland in Dec last) Positive deal with ECB to replace €25bn of the short-term debt with longer-term securities that will carry lower interest rates. Government finances too are definitely improving: The target for the deficit in 2012, initially set at 8.6% of GDP (and revised to 8.2% a month ago) is now probably around 7.8-7.9% of GDP. Expected growth: 1.5% this year and 2.5% in 2014 Challenges remain: - strong Euro unemployment 14.1% - personal debt levels are high mortgage impairment rate is high – 15%

10. 10 And what about the UK? UK struggling with the austerity route – fears of triple-dip - 2012 – zero growth - Q4 2012 -0.3% - lending was down in Q4 (- 2.4BN) - Manufacturing PMIs - activity fell in Feb - Monday’s PMI s showed construction shrank at fastest pace for 3 years (News orders also fell for 2 nd month signalling poor performance in months ahead) - AAA Rating has been removed - Inflation remains above target IMF has warned that austerity is choking growth - should be a marathon not a sprint)

11. 11 Coalition failing to meet its targets..... Financial crisis and recession have led to big rise in the UK’s public sector debt and a weakened economy. government strategy called into question as UK loses its AAA rating. The pound was the weakest major currency in Feb 2013.

12. 12 Inflation - now to stay above target for next two years

13. 13 What are the options? What can MPC do? QE? – possibly! Previous minutes now reveal Governor + 2 others want to increase QE by £25bn More Funding for Lending? – possibly! Negative Interest rate? - unlikely Has been discussed last July – and raised recently by Paul Tucker. MPC planned to review again when the FLS impact was apparent. “a reduction of Bank Rate below 0.5% might squeeze some lenders’ interest margins to such an extent that they became even less able to extend new credit”. June 2012 MPC minutes

14. 14 Beyond monetary policy....what about the government doing something ? The Budget today? - is this a time to try Plan B? Yes. - But will we get that? – Probably No! -Tory back-benchers plan to push for tax cuts to stimulate growth and ease pressure on squeezed households. Locally the Block Grant will be protected – but the private sector want to see more than that!

15. 15 And locally – the picture is one of flat growth (Northern Ireland forecast 0.4% 2013). The data suggest that the NI economy has contracted by 6% since outset of recession and lost approximately 50,000 jobs (mostly construction and retail) 14-04-2015

16. 16 NI’s Labour market: Labour market expected to shrink further over this year before modest growth returns in the latter half of 2014. Further shedding of jobs in public sector expected in 2013 and 2014 14-04-2015

17. 17 But some sectors in NI will perform better than others...

18. 18 UKNIROI 2009-3.9-5.2-5.5 20101.91.4-0.7 20111.50.51.5 2012 forecast0.0-0.80.8 2013 forecast1.00.41.5 Annual growth (GDP) % Source: Oxford Economics; ONS, CSO and Central bank of Ireland GDP recent annual growth and forecasts …

19. 19 Any positives? 14-04-2015 Consumer confidence has been improving Households continuing to reduce debt Housing market starting to stabilise Exports should improve this year

20. 20 UK Exports expected to improve in 2013... 14-04-2015

21. 21 Households repairing balance sheets – rise in savings due to uncertainty - but causes fall in aggregate demand....

22. 22 But UK household balance sheets steadily improving...

23. 23  Transactions up 20% Q4 year on year  Around 3,700 verified residential properties sold in Q4  Residential property prices are now 13% lower than Q1 2005 and less than half of the peak value of the housing market in Q3 2007 DFP: Residential House Price Survey, Published February 2013 “Signs of Price Stability in NI Housing Market”… Source: UU Survey Feb 2013

24. 24 NI had structural problems even before the financial crisis in 2008. Local economic policy now addressing the following...  Structural imbalance  Lack of export focus  Inactivity levels – 26.9% which is significantly higher than UK average 22.4%  LTU and Youth Unemployment  Skills – do skill match future economic requirements?

25. 25 Local Challenges: NI has to make itself more competitive on the world stage. (not just about cost) – about productivity, education innovation, R&D – being a market leader, connectivity, technology transfer, first mover advantage, attracting FDI, ease of doing business etc) Ensure region has long-term requirements for sustainable economic growth: i.e.- skills / infrastructure / energy - Flexibility

26. 26 Competitiveness: how will NI get there? – everyone has a role... Policy -Government Contribution Business contribution Individual contribution

27. 27 Reports available at www. @ danskebank.co.uk/economy

28. Red Meats Prospects Conference ‘Progress Through Partnership’