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ulster.ac.uk
Brexit and potential economic impact
Professor Neil Gibson
Director:
Ulster University Economic Policy Centre
August 2016
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Agenda
• The current context, Brexit, uncertainty and variety!
• The mechanisms of impact
• Outlooks (for what they are worth)
• Concluding remarks
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ulster.ac.uk
The current context, Brexit, uncertainty and
variety!
Professor Neil Gibson
Director:
Ulster University Economic Policy Centre
August 2016
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The debate was much more than
economics
Source: The Saturday Economist
Brexit
Economic
Social
Political
Business
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A divide of nations
Source: BBC
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Age and qualifications the key
Source: BBC
Source: BBC
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Nobody believed the politicians
Source: Ipsos Mori
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Europe is still fraught with
challenges
Source: Oxford Economics
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The early indications of the response FTSE 100 up 13% over last 12 months and devalued currency good news?
Source: BoE
Source: FTSE 100 &Trading Economics
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Retail sales positive in post
referendum data
Source: ONS
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Consumer confidence remains an
issue
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ulster.ac.uk
Mechanisms of impact
Professor Neil Gibson
Director:
Ulster University Economic Policy Centre
August 2016
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Issues to consider
Brexit
Trade & tariffs
Migration
Subsidies and grants
World and national economy
Investment and consumer
reaction
Other considerations
– R&D, security, etc.
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Consumers are the critical part of the UK story
Source: UUEPC
Consumer dependency critical to UK performance. Rising interest rates pose a significant threat
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
2011 2012 2013 2014 2015
Per
cen
tage
Po
int
Contributions to UK real GDP growth
Consumers Government Investment Trade Other
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More Non-EU than EU migration
Source: Migration Watch
2015
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52% of UK Exports go to the EU…
Source: The Saturday Economist
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16% of EU exports to the UK
Source: The Saturday Economist
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Trade a long standing problem
Source: Oxford Economics & BoE
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NI export exposure: Exports account
for £9.76Bn- up 7.1% since 2011
2011 2012 2013 20142011-2014
growth
Turnover 61,530 62,067 64,514 65,800 6.9%
NI Sales 41,022 41,159 42,517 43,345 5.7%
GB Sales 11,392 11,612 12,051 12,694 11.4%
ROI Sales 3,330 3,428 3,716 3,599 8.1%
REU Sales 2,044 1,911 2,177 2,174 6.3%
ROW Sales 3,741 3,956 4,053 3,988 6.6%
External Sales 20,508 20,907 21,997 22,455 9.5%
Exports 9,116 9,295 9,946 9,761 7.1%
Broad destination sales (£m)
Source: DfE, UUEPC analysis
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Manufacturing makes up 60% of
exports
Source: DfE, UUEPC analysis
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Ireland accounts for 37% of NI
exports (£3.6Bn)
Source: DfE, UUEPC analysis
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Capital investment falling from a low
height
Source: ONS
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ulster.ac.uk
Outlooks for what they are worth
Professor Neil Gibson
Director:
Ulster University Economic Policy Centre
August 2016
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Context in economic growth striking
Irish GDP outstrips rivals
The Northern Ireland Composite Economic Index (NICEI) is an experimental quarterly measure of the performance of the NI economy based on available official statistics. This measure of output allows comparison of GDP in the UK and the Republic of Ireland
i
Source: DETI
But yet government did not win majority-
why?
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Job market is improving Labour market – Irish performance more modest
Source: ONS (UK & NI) & CSO (RoI)
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NI local labour market improving With an eclectic mix of success
Source: ONS
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Is a UK recession coming? Forecasters not
sure!
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Longer term market consensus?
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Variance in forecaster’s outlooks
Source: CBR-UUEPC & Oxford Economics & BoE
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Variance in forecaster’s outlooks
Source: CBR-UUEPC & Oxford Economics & BoE
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Variance in forecaster’s outlooks
Source: CBR-UUEPC & Oxford Economics
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Exchange rate expectations (Oxford
Economics)
Source: Oxford Economics
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ulster.ac.uk
The Northern Ireland Policy Challenge
Professor Neil Gibson
Director:
Ulster University Economic Policy Centre
August 2016
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NI economic challenges are well
known
Critical issues
Skills
(lower end) Productivity
R&D
Enterprise
Deprivation
Inequalities Fiscal
position
Responsibility
Internal focus
Inactivity
Infrastructure
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Fiscal position in context
Notes: Expenditure figures are sourced from the NI Budget 2015-16 Figures may not sum due to rounding
Source: HMRC, NI Executive, PESA
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Tough questions on health, welfare
& education
Source: NI Executive (2015-16) Note: Figures may not sum due to rounding
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Wealth and productivity falling
further behind the UK
Source: UUEPC & ONS
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Long term sickness the big question? Long term sick as a % of the 16-64 population, 1997-2015 (4 quarter rolling average)
0%
2%
4%
6%
8%
10%
12%19
97
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Long
term
sic
k as
a %
of t
he p
opul
atio
n(16
-64,
%)
NI UK
Source: ONS Labour Force Survey, UUEPC
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DLA also a big welfare problem
Source: Dept of Communities, UUEPC
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Personal reflections
• The outcome will only be as bad as govt, business and consumers let it be
• Firms already deal with price differentials and exchange rate risk – even with tariffs
(which may not occur) trade will still take place
• Trade deals should not be as hard as made out (as already have one with most
countries that could be mimicked and most of the others are small in relative
importance)
• Press has been sensationalist and some of the forecasts have been based on frankly
baseless assumptions (no offsetting trade gains for EU losses for example)
• UK has deflated currency, will import inflation, may ease austerity and has no longer
to comply with state aid rules (amongst others) – this is not necessarily a bad set of
economic changes
• Ireland is now the only (major) English speaking investment location in the EU –
surely some benefits to come from that
• Modern technology should allow for a very fluid border
• It is in no-one’s interest to make unfavourable trade deals
• But it will not be a painless adjustment and there will be losers
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Thank you
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Contact details
Professor Neil Gibson
Director: Ulster University Economic Policy Centre
Email: [email protected]
Telephone: 02890 366 561
For content/slide queries and requests:
Jordan Buchanan
Economist: Ulster University Economic Policy Centre
Email: [email protected]
Telephone: 02890 368 362