Future Focus Ronan Lyons Edinburgh 11 June
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What's Great about the “Great Recession”? Ronan Lyons 06/11/2009 2009 IBM Corporation
Contents ― Where are we? ― Are things that bad? ― How did we get here? ― Are 'green shoots' in place? ― Some things never change...
Ronan Lyons – Economist June 11, 2009
2/x
2009 IBM Corporation
Contents ― Where are we? ― Are things that bad? ― How did we get here? ― Are 'green shoots' in place? ― Some things never change...
Ronan Lyons – Economist June 11, 2009
3/x
2009 IBM Corporation
The recession will wipe out an estimated $50trn of global GDP by 2014 •
•
• •
In 2007, the IMF expected world economy was expected to grow from $60trn in 2006 to $90trn by 2014 With the world economy growing by just 4% - not 16% - between 2007 and 2010, the world economy will be worth less than $80trn in 2014
Global GDP growth, 2008-2012 6
IMF Estimates from 2007 and 2009
5 4 3 2
All major economies are expected to contract this year
1
More open economies are generally being hit more – as are richer ones
-1
0 2009e 2007e
-2 2008
2009
2010
2011
2012
Source: IMF World Economic Outlook, 2007 and 2009 Ronan Lyons – Economist June 11, 2009
4/x
2009 IBM Corporation
In the UK, almost 1m households are now in negative equity 10 9 8 7 6 5 4 3 2 1 0 Northern
Ronan Lyons – Economist June 11, 2009
York/Humber East Anglia South-East West Midlands East Midlands Greater London South-West North West
Wales
Scotland Northern Ireland
5/x
2009 IBM Corporation
Like other small open economies, Scotland has proved vulnerable •
It's estimated that Scotland's economy will shrink 3.1% this year and see no growth in 2010, before weak growth restarts in 2011 –
•
The Scottish PMI has been below 50 – i.e. economic activity has been contracting – for 14 months in a row –
•
The reading for May was 46.1, up from 36.1 in February and comparable to May 2008
Estimates of employment suggest that 2008 job levels may only return in 2017, with unemployment hitting 230,000 by 2011 –
Ronan Lyons – Economist June 11, 2009
This puts Scotland a year behind the UK average of -3.8% in 2009 and +1.2% in 2010
Financial services employment may be particular hit over the coming two years
6/x
2009 IBM Corporation
This recession has shattered some myths of the early 21st Century •
•
“The new global financial system does not require a new level of surveillance” –
The recession has made entire models of finance disappear, as well as bringing about a global re-evaluation of risk and widespread nationalization of banks
–
Pervasive crashes in stock and housing markets starting in 2007 have destroyed anything up to 30% of global wealth
“Emerging markets have enough economic strength to decouple from the OECD” –
Ronan Lyons – Economist June 11, 2009
The widespread economic contraction in developed economies has been accompanied by a huge slowdown in growth in emerging markets
7/x
2009 IBM Corporation
Contents ― Where are we? ― Are things that bad? ― How did we get here? ― Are 'green shoots' in place? ― Some things never change...
Ronan Lyons – Economist June 11, 2009
8/x
2009 IBM Corporation
Measured by job losses, recessions up to the 1980s were short and sharp Private sector jobs lost from peak 1%
― US as the bellwether economy for the OECD
0% -1% -2% -3% -4%
― Recessions were frequent in the post-war era up to the 1980s
-5% -6% -7% 2 1
4 3
6 5
7
8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 "1950s"
Ronan Lyons – Economist June 11, 2009
1974/75
1981/82
2000-03
9/x
2009 IBM Corporation
Since then recessions have been getting less frequent, milder... and longer Private sector jobs lost from peak 1%
― Since the 1980s, recessions have become more once-a-decade episodes
0% -1% -2% -3% -4% -5% -6% -7% 2 1
4 3
6 5
7
8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 "1950s"
Ronan Lyons – Economist June 11, 2009
1974/75
1981/82
1990/91
― The early 1990s recession was long – but not severe in terms of job losses
2000-03
10 / x
2009 IBM Corporation
The “dot bomb” recession was particularly long, in terms of job recovery Private sector jobs lost from peak 1%
― The dot.com bubble created an unsustainable amount of jobs
0% -1% -2% -3% -4% -5% -6% -7% 2 1
4 3
6 5
7
8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 "1950s"
Ronan Lyons – Economist June 11, 2009
1974/75
1981/82
1990/91
― It took almost five years for private sector employment to recover
2000-03
11 / x
2009 IBM Corporation
This recession combines the worst of the different post-war recessions Private sector jobs lost from peak 1%
― Jobs losses have been as intense as any post-war recession
0% -1% -2% -3% -4% -5% -6% -7% 2 1
4 3
6 5
7
8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 "1950s"
Ronan Lyons – Economist June 11, 2009
1974/75
1981/82
1990/91
2000-03
2008/09
― It's likely to be the longest postwar recession, barring rapid employment growth
12 / x
2009 IBM Corporation
Globally, trade and output have fallen at least as much as in the 1930s
Source: O'Rourke & Eichengreen, http://bit.ly/korbe Ronan Lyons – Economist June 11, 2009
13 / x
2009 IBM Corporation
The severity of the crisis has led to an unprecedented policy response
Source: O'Rourke & Eichengreen, http://bit.ly/korbe Ronan Lyons – Economist June 11, 2009
14 / x
2009 IBM Corporation
Contents ― Where are we? ― Are things that bad? ― How did we get here? ― Are 'green shoots' in place? ― Some things never change...
Ronan Lyons – Economist June 11, 2009
15 / x
2009 IBM Corporation
How did we get here? •
To some extent, the world economy was a victim of its success –
•
Ronan Lyons – Economist June 11, 2009
The crisis could not have happened if there had not been a long period of high growth and low levels and volatility in real interest rates
Nonetheless, there was a market failure at the core of the global economic recession, due to policy failures –
Financial regulation did not keep up pace with innovations in financial services, meaning regulators could not track risk or stop flawed incentives
–
Macroeconomic policies did not take into account the build-up of systemic risks in the financial system and in housing markets
–
The global regulatory architecture and surveillance system was fragmented, which compounded the inability to see vulnerabilities and interconnections
16 / x
2009 IBM Corporation
Contents ― Where are we? ― Are things that bad? ― How did we get here? ― Are 'green shoots' in place? ― Some things never change...
Ronan Lyons – Economist June 11, 2009
17 / x
2009 IBM Corporation
Confidence and activity are returning... slowly US - manuf
UK - manuf
US - services
Eurozone -manuf
UK - services
Eurozone - services
65 60
Growth
55 50 45
Decline
40 35
Scotland: 44.4
Ap r-0 9
Ja n09
ct -0 8 O
Ju l-0 8
Ap r-0 8
Ja n08
-0 7 O ct
7 Ju l-0
Ap r-0 7
Ja n07
ct -0 6 O
Ju l-0 6
Ap r-0 6
Ja n06
30
18 / x
2009 IBM Corporation
Each region faces its own growth challenges and opportunities Where will growth come from?
USA
Europe
Asia
Business
Company balance sheets in good shape pre-recession... vigorous cost cutting since
Business - and consumers particularly dependent on bank lending
Shift towards domestic consumption and welfare systems likely to offset trade's weaker growth contribution
Demographics
Retirement of baby-boomers... USA will need to remain open to migration in the future as it has in the past
Population at work is shrinking... rapidly in some countries
Rapidly growing populations in most countries – China and Japan ageing very fast though
Banking
Major problems remain in banking system but some signs of confidence returning
Concerns over transparency of banks and ability to develop Europe-wide solutions
Lessons from 1980s and 1990s mean financial system in good shape
Government
Significant fiscal boost in short-term... but the shift to bigger government is likely to last
Administrative burden and red-tape an issue for business... being tackled by the EU head-on
A lot of countries are in catch-up, with significant infrastructure programmes
Other
A very flexible economy, close trading links with Asian economies
Huge variety between large and small, rich and poor across the 40+ countries
Major environmental challenges 19 / x
2009 IBM Corporation
Contents ― Where are we? ― Are things that bad? ― How did we get here? ― Are 'green shoots' in place? ― Some things never change...
Ronan Lyons – Economist June 11, 2009
20 / x
2009 IBM Corporation
There remain significant opportunities for alert and agile business •
Some of the golden rules of business apply even more so in recession than before –
Develop a strategy on innovation to differentiate from competition, and meeting clients' requirements at the lowest cost
–
Maintain corporate brand and behaviour to attract and retain clients... and also staff and investors
–
Leverage technological possibilities to enable an ambitious strategy for emerging markets
–
Agility in identifying and capitalising on new opportunities
Ronan Lyons – Economist June 11, 2009
21 / x
2009 IBM Corporation
While recession has shattered some beliefs, others remain firmly in place •
•
Ronan Lyons – Economist June 11, 2009
“There are always opportunities to establish or expand” –
Inc.com identifies almost 20 industies and activites in demand
–
They range from small flexible activities (such as home healthcare, niche consulting and repair services) to large industries (including education and construction)
–
Some are staples – like fast-casual dining and temporary staffing – while others are hi-tech or green-collar, such as cloud computing, education technology and energy
“Technology is a game-changer” –
In the dot.com collapse, belief in the potential of ICT to change our world was shaken
–
In the current recession, faith in ICT is – if anything – stronger, as policymakers and business people see how it can cut costs, inform decisions, and change business models
22 / x
2009 IBM Corporation
Technology really is flattening the business landscape •
Disruptive technologies do not care whether it's boom or bust
•
At the height of the boom, Facebook grew from 14m users in mid-2006 to 27m users by mid-2007
•
At the height of the bust, Twitter grew from 0.5m users to 4.5m users over the course of 2008 –
Ronan Lyons – Economist June 11, 2009
Scotland's most popular brands on Twitter
There are over 40,000 Scottish users of Twitter – the most popular are dominated by SMEs
23 / x
2009 IBM Corporation
Thank you •
For more, see:
ronanlyons.com
Ronan Lyons – Economist June 11, 2009
24 / x
2009 IBM Corporation
Contents ― Where are we? ― Are things that bad? ― How did we get here? ― Are 'green shoots' in place? ― Some things never change...
Ronan Lyons – Economist June 11, 2009
2/x
2009 IBM Corporation
Contents ― Where are we? ― Are things that bad? ― How did we get here? ― Are 'green shoots' in place? ― Some things never change...
Ronan Lyons – Economist June 11, 2009
3/x
2009 IBM Corporation
The recession will wipe out an estimated $50trn of global GDP by 2014 •
•
• •
In 2007, the IMF expected world economy was expected to grow from $60trn in 2006 to $90trn by 2014 With the world economy growing by just 4% - not 16% - between 2007 and 2010, the world economy will be worth less than $80trn in 2014
Global GDP growth, 2008-2012 6
IMF Estimates from 2007 and 2009
5 4 3 2
All major economies are expected to contract this year
1
More open economies are generally being hit more – as are richer ones
-1
0 2009e 2007e
-2 2008
2009
2010
2011
2012
Source: IMF World Economic Outlook, 2007 and 2009 Ronan Lyons – Economist June 11, 2009
4/x
2009 IBM Corporation
In the UK, almost 1m households are now in negative equity 10 9 8 7 6 5 4 3 2 1 0 Northern
Ronan Lyons – Economist June 11, 2009
York/Humber East Anglia South-East West Midlands East Midlands Greater London South-West North West
Wales
Scotland Northern Ireland
5/x
2009 IBM Corporation
Like other small open economies, Scotland has proved vulnerable •
It's estimated that Scotland's economy will shrink 3.1% this year and see no growth in 2010, before weak growth restarts in 2011 –
•
The Scottish PMI has been below 50 – i.e. economic activity has been contracting – for 14 months in a row –
•
The reading for May was 46.1, up from 36.1 in February and comparable to May 2008
Estimates of employment suggest that 2008 job levels may only return in 2017, with unemployment hitting 230,000 by 2011 –
Ronan Lyons – Economist June 11, 2009
This puts Scotland a year behind the UK average of -3.8% in 2009 and +1.2% in 2010
Financial services employment may be particular hit over the coming two years
6/x
2009 IBM Corporation
This recession has shattered some myths of the early 21st Century •
•
“The new global financial system does not require a new level of surveillance” –
The recession has made entire models of finance disappear, as well as bringing about a global re-evaluation of risk and widespread nationalization of banks
–
Pervasive crashes in stock and housing markets starting in 2007 have destroyed anything up to 30% of global wealth
“Emerging markets have enough economic strength to decouple from the OECD” –
Ronan Lyons – Economist June 11, 2009
The widespread economic contraction in developed economies has been accompanied by a huge slowdown in growth in emerging markets
7/x
2009 IBM Corporation
Contents ― Where are we? ― Are things that bad? ― How did we get here? ― Are 'green shoots' in place? ― Some things never change...
Ronan Lyons – Economist June 11, 2009
8/x
2009 IBM Corporation
Measured by job losses, recessions up to the 1980s were short and sharp Private sector jobs lost from peak 1%
― US as the bellwether economy for the OECD
0% -1% -2% -3% -4%
― Recessions were frequent in the post-war era up to the 1980s
-5% -6% -7% 2 1
4 3
6 5
7
8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 "1950s"
Ronan Lyons – Economist June 11, 2009
1974/75
1981/82
2000-03
9/x
2009 IBM Corporation
Since then recessions have been getting less frequent, milder... and longer Private sector jobs lost from peak 1%
― Since the 1980s, recessions have become more once-a-decade episodes
0% -1% -2% -3% -4% -5% -6% -7% 2 1
4 3
6 5
7
8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 "1950s"
Ronan Lyons – Economist June 11, 2009
1974/75
1981/82
1990/91
― The early 1990s recession was long – but not severe in terms of job losses
2000-03
10 / x
2009 IBM Corporation
The “dot bomb” recession was particularly long, in terms of job recovery Private sector jobs lost from peak 1%
― The dot.com bubble created an unsustainable amount of jobs
0% -1% -2% -3% -4% -5% -6% -7% 2 1
4 3
6 5
7
8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 "1950s"
Ronan Lyons – Economist June 11, 2009
1974/75
1981/82
1990/91
― It took almost five years for private sector employment to recover
2000-03
11 / x
2009 IBM Corporation
This recession combines the worst of the different post-war recessions Private sector jobs lost from peak 1%
― Jobs losses have been as intense as any post-war recession
0% -1% -2% -3% -4% -5% -6% -7% 2 1
4 3
6 5
7
8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 "1950s"
Ronan Lyons – Economist June 11, 2009
1974/75
1981/82
1990/91
2000-03
2008/09
― It's likely to be the longest postwar recession, barring rapid employment growth
12 / x
2009 IBM Corporation
Globally, trade and output have fallen at least as much as in the 1930s
Source: O'Rourke & Eichengreen, http://bit.ly/korbe Ronan Lyons – Economist June 11, 2009
13 / x
2009 IBM Corporation
The severity of the crisis has led to an unprecedented policy response
Source: O'Rourke & Eichengreen, http://bit.ly/korbe Ronan Lyons – Economist June 11, 2009
14 / x
2009 IBM Corporation
Contents ― Where are we? ― Are things that bad? ― How did we get here? ― Are 'green shoots' in place? ― Some things never change...
Ronan Lyons – Economist June 11, 2009
15 / x
2009 IBM Corporation
How did we get here? •
To some extent, the world economy was a victim of its success –
•
Ronan Lyons – Economist June 11, 2009
The crisis could not have happened if there had not been a long period of high growth and low levels and volatility in real interest rates
Nonetheless, there was a market failure at the core of the global economic recession, due to policy failures –
Financial regulation did not keep up pace with innovations in financial services, meaning regulators could not track risk or stop flawed incentives
–
Macroeconomic policies did not take into account the build-up of systemic risks in the financial system and in housing markets
–
The global regulatory architecture and surveillance system was fragmented, which compounded the inability to see vulnerabilities and interconnections
16 / x
2009 IBM Corporation
Contents ― Where are we? ― Are things that bad? ― How did we get here? ― Are 'green shoots' in place? ― Some things never change...
Ronan Lyons – Economist June 11, 2009
17 / x
2009 IBM Corporation
Confidence and activity are returning... slowly US - manuf
UK - manuf
US - services
Eurozone -manuf
UK - services
Eurozone - services
65 60
Growth
55 50 45
Decline
40 35
Scotland: 44.4
Ap r-0 9
Ja n09
ct -0 8 O
Ju l-0 8
Ap r-0 8
Ja n08
-0 7 O ct
7 Ju l-0
Ap r-0 7
Ja n07
ct -0 6 O
Ju l-0 6
Ap r-0 6
Ja n06
30
18 / x
2009 IBM Corporation
Each region faces its own growth challenges and opportunities Where will growth come from?
USA
Europe
Asia
Business
Company balance sheets in good shape pre-recession... vigorous cost cutting since
Business - and consumers particularly dependent on bank lending
Shift towards domestic consumption and welfare systems likely to offset trade's weaker growth contribution
Demographics
Retirement of baby-boomers... USA will need to remain open to migration in the future as it has in the past
Population at work is shrinking... rapidly in some countries
Rapidly growing populations in most countries – China and Japan ageing very fast though
Banking
Major problems remain in banking system but some signs of confidence returning
Concerns over transparency of banks and ability to develop Europe-wide solutions
Lessons from 1980s and 1990s mean financial system in good shape
Government
Significant fiscal boost in short-term... but the shift to bigger government is likely to last
Administrative burden and red-tape an issue for business... being tackled by the EU head-on
A lot of countries are in catch-up, with significant infrastructure programmes
Other
A very flexible economy, close trading links with Asian economies
Huge variety between large and small, rich and poor across the 40+ countries
Major environmental challenges 19 / x
2009 IBM Corporation
Contents ― Where are we? ― Are things that bad? ― How did we get here? ― Are 'green shoots' in place? ― Some things never change...
Ronan Lyons – Economist June 11, 2009
20 / x
2009 IBM Corporation
There remain significant opportunities for alert and agile business •
Some of the golden rules of business apply even more so in recession than before –
Develop a strategy on innovation to differentiate from competition, and meeting clients' requirements at the lowest cost
–
Maintain corporate brand and behaviour to attract and retain clients... and also staff and investors
–
Leverage technological possibilities to enable an ambitious strategy for emerging markets
–
Agility in identifying and capitalising on new opportunities
Ronan Lyons – Economist June 11, 2009
21 / x
2009 IBM Corporation
While recession has shattered some beliefs, others remain firmly in place •
•
Ronan Lyons – Economist June 11, 2009
“There are always opportunities to establish or expand” –
Inc.com identifies almost 20 industies and activites in demand
–
They range from small flexible activities (such as home healthcare, niche consulting and repair services) to large industries (including education and construction)
–
Some are staples – like fast-casual dining and temporary staffing – while others are hi-tech or green-collar, such as cloud computing, education technology and energy
“Technology is a game-changer” –
In the dot.com collapse, belief in the potential of ICT to change our world was shaken
–
In the current recession, faith in ICT is – if anything – stronger, as policymakers and business people see how it can cut costs, inform decisions, and change business models
22 / x
2009 IBM Corporation
Technology really is flattening the business landscape •
Disruptive technologies do not care whether it's boom or bust
•
At the height of the boom, Facebook grew from 14m users in mid-2006 to 27m users by mid-2007
•
At the height of the bust, Twitter grew from 0.5m users to 4.5m users over the course of 2008 –
Ronan Lyons – Economist June 11, 2009
Scotland's most popular brands on Twitter
There are over 40,000 Scottish users of Twitter – the most popular are dominated by SMEs
23 / x
2009 IBM Corporation
Thank you •
For more, see:
ronanlyons.com
Ronan Lyons – Economist June 11, 2009
24 / x
2009 IBM Corporation
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