Speaker at CFG's Annual Conference 2012

1. The “new normal” for the economy –
implications for charities
Andrew Sentance,
Senior Economic Adviser, PwC
CFG Annual Conference, London,
17 May 2012

2. Disappointing UK economic growth
% per annum change in non-oil GDP
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* Trend
* Weighted average of manufacturing and services growth
Note: Average non-oil GDP growth since mid-2009 = 1.4% Source - ONS

3. High and volatile inflation
% per annum change in UK consumer prices
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Inflation Target Ave 2008-11
Source: Office for National Statistics

4. Consumers under pressure
% 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
GDP Consumer spending
Source: ONS and March 2012 PwC economic forecast

5. … while the euro crisis continues
% change in GDP, 2012 PwC forecast
Russia
UK
Canada
2.0 Germany 3.7
0.6
Ireland
0.9
-1.1 Greece
France -4.9
2.0 0.1 Japan
Spain Italy
Mexico China
2.1
-0.7 -1.4
3.2 8.6
India
Key x.x = GDP growth in 2012
7.5
Brazil Australia
South Africa
3.7 3.3 3.4

6. World growth has disappointed
% change in GDP in G-13 economies*
6
5
4
3
2
1
0
-1
-2
-3
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
IMF, June 2011 IMF, Apr 2012 Ave 1990-2010
* EU, US and 11 other economies accounting for 85% of world GDP
Source: IMF World Economic Outlook Updates

7. … but emerging markets are strong
% annual change in GDP in first 3 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 and IMF. 2011 and 2012 based on latest IMF, OECD and PwC forecasts

8. The rise and rise of Asia
% share of world GDP, at market 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

9. 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 is underway in
response to financial crisis and East-West rebalancing
There are significant parallels with disappointing growth
and volatility of the 1970s and early 1980s

10. The end of a “long expansion”
ave % pa increase: 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, OBR and other independent forecasts for 2012-2016
Source: ONS and PwC calculations

11. Sustaining economic growth
Technology
and
innovation
Sustained Private sector
Policy economic
environment expectations
growth
Financial
regime

12. Key features of the “old normal”
• Financial deregulation and liberalisation
• New markets opening up as China, India, former Soviet bloc
and others embrace the market economy
• Relatively low energy and commodity prices (1985-2005),
• US the dominant economic power; EU pursuing closer
economic integration
• Confidence in ability of policy-makers to support growth and
of independent central banks to control inflation
• Innovation and technological advance, particularly IT/comms

13. Forces shaping “new normal”
• Rise of Asia and other emerging markets, with
associated price pressure for energy and other natural
resources
• The legacy of the financial crisis
• Structural adjustment in western economies following the
long expansion which ended in 2007
• Breakdown of pre-2007 policy regime and knock-on
effect on financial, business and consumer confidence

14. Two phases of “new normal”
• Phase 1: Continuation (through mid-2010s) of current pattern of
disappointing growth in western economies, with financial volatility
and 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. Likely to
be based on a different set of technological, regulatory, geopolitical
and financial drivers from pre-2007 forces driving growth
• Businesses, investors and other organisations need strategies to
manage and survive through Phase 1, while building potential
opportunities for Phase 2.

15. “New normal” – Phase 1
• Prolonged period of disappointing GDP and consumer spending
growth in western economies, lasting into mid-2010s
• Asia and some other emerging markets continue to perform strongly
and are main engine of global growth
• Periodic bursts of inflation, driven by energy and commodity price
movements, adding to growth volatility
• High prices for energy and other natural resources
• Policy-makers struggle to address medium term policy challenges
• Continuing financial market volatility

16. Implications for charities
• Challenging fundraising climate, with continuing pressure on
discretionary spending in UK and other western economies
• Continuing economic and financial volatility, with potential
future shocks. Financial resilience a key issue.
• Stresses and strains in society, creating opportunities and
new pressures/challenges – eg youth unemployment
• Premium on good operational and commercial
management, sound financial planning and intelligent risk
appraisal

17. Thank you for listening.
Any questions or comments?
andrew.w.sentance@uk.pwc.com
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