1. www.pwc.co.uk
The “New Normal” for the
global economy
Andrew Sentance
Senior Economic Adviser, PwC
Nuffield Health Summit
Thursday 7th March 2013

2. The world economy continues to expand
World GDP, US $ trillion
100 93
90
80
71
70
61
60
50
40 32
30
20
10
0
2000 2008 2012 2017
Source: IMF World Economic Outlook, October 2012
The new normal
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3. ... but the global recovery is uneven
% per annum change in GDP
10
8
6
4
2
0
-2
-4
-6
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Asia-Pac* EU US
* based on 6 largest economies
Source: IMF World Economic Outlook, October 2012
The new normal
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4. This recovery is different to 80s and 90s
average % per annum change in GDP over first three years of recovery
7
6
5
4
3
2
1
0
UK (exc oil&gas) Advanced economies Emerging and developing
economies
1982-84 1992-94 2010-12
Source: ONS, PwC and IMF. 2012 based on latest IMF and PwC forecasts
The new normal
PwC Slide 4

5. ... with Asia-Pacific now the dominant region
Percentage share of world GDP, current market prices & exchange rates
40%
35%
30%
25%
20%
15%
10%
5%
0%
1980 1990 2000 2010
US EU-27 Asia-Pacific G10*
* Includes Australia, China, India, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan
Province of China and Thailand.
Source: IMF World Economic Outlook
The new normal
PwC Slide 5

6. UK economic growth has disappointed
% per annum change in output, excluding North Sea oil and gas
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Non-oil GDP Underlying* Ave GDP growth since 1970
* Weighted average of manufacturing and services growth
Note: Average non-oil GDP growth since mid-2009 = 1.3% Source - ONS
The new normal
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7. ... while inflation has been high and volatile
% per annum increase in UK consumer prices index
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Inflation Target Ave 2008-12
Source: Office for National Statistics
The new normal
PwC Slide 7

8. What is the “new normal”?
• 2007/8 marked the end of a long and sustained
expansion in UK and other Western economies
• Conditions which supported this period of growth are
not set to return quickly
• Prolonged structural readjustment underway in
response to financial crisis and East-West rebalancing
• Significant parallels with disappointing growth and
volatility of the 1970s and early 1980s
The new normal
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9. A long expansion has come to an end
average % per annum change in UK GDP and consumer spending
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
1948-73 1973-82 1982-2007 2007-16*
GDP Consumer spending
* Based on PwC forecasts for 2012/3 and Treasury Independent Consensus, 2014-16
Source: ONS, PwC and HM Treasury
The new normal
PwC Slide 9

10. Pre-2007 growth drivers have been undermined
Cheap
imports
Confidence
Easy money in policy
regime
Sustained
growth
The new normal
PwC Slide 10

11. Two phases of the “new normal”
• Phase 1:
 Disappointing western growth to continue through mid-2010s
 Financial volatility persists
 High and fluctuating energy and commodity prices
• Phase 2:
 Clearer and more sustained growth dynamic emerges
 Perhaps starting in the second half of this decade
 Different set of growth drivers from pre-2007 long expansion
Businesses, policy-makers and investors need strategies to
manage and survive through Phase 1, while building potential
opportunities for Phase 2.
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12. Uneven growth outlook across global economy
% per annum change in 2013 GDP
Russia
UK
Canada
1.9 Germany
1.1 3.8
Ireland
0.4
0.8 Greece
US
France -4.2
2.0 0.2 Japan
Spain Italy
Mexico China
1.0
-1.1 -1.2
3.6 8.0
India
6.0
Brazil Australia
South Africa
3.0 2.9 2.5
Source: PwC main scenario for 2013
The new normal
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13. Northern Europe is the engine of EU economy
% per annum change in GDP
5
4
3
2
1
0
-1
-2
-3
-4
-5
2001 2003 2005 2007 2009 2011 2013
Germany & N Europe France & S Europe UK & Ireland
Source: Eurostat and European Commission forecasts
The new normal
PwC Slide 13

14. UK – subdued consumers holding back growth
% per annum change in UK GDP and consumer spending
5
4
3
2
1
0
-1
-2
-3
-4
-5
97-07 ave 2008 2009 2010 2011 2012 2013 2014-16
GDP Consumer spending
Source: ONS, Nov 2012 PwC economic forecast and Treasury Independent Review of Forecasts
The new normal
PwC Slide 14

15. Success drivers in the “new normal”
Repositioning towards Asia/emerging markets
Innovation and exploitation of new technology
Understanding market/structural change
Providing strong value proposition to customers
Flexible and adaptable business model
Efficient use of energy/resources
The new normal
PwC Slide 15