Presentation made by Alan Bridle, head of Economics and Research at the CBI Northern Ireland May 2009 ecomonic presentation and lunch.

1. “Green Shoots and False Dawns”
Alan Bridle
Head of Economics & Research
CBI Economic Luncheon
20th May 2009

2. The Recession
“made in Northern Ireland”

3. Where did the growth come from?
(Contribution to GVA by industry groups)
30
Slower Growth Segments 27.9
Faster Growth Segments
26.4
25
20.8 20.8
20
17.6
16.6
15.6
15 2001
15
2006
10
8.5
7.1
5.6
4.9
5 4.1 3.9
3
2.4
0
Agri/ Forestry/ Manufacturing/ Transport Public Sector Other Services Construction Wholesale/ Retail Estate &
Mining Utilities Retail Hotels & Financial
Rests Intermediate 3
Source: ONS

4. Contributed to our first real property cycle
Transactions & House Prices
3000 Q4 2002- Q1 2009
250000
2500
200000
2000
No of Transactions
1963
House Price (£)
£158,519
1500
150000
1000
100000
500
0 50000
02
2 3
3 3
4 3
1 3
2 4
3 4
4 4
1 4
2 5
3 5
4 5
1 5
2 6
3 6
4 6
1 6
2 7
3 7
4 7
1 7
2 8
3 8
4 8
1 8
09
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
4
1
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Average House Price
No of Transactions House Prices 4
Source: BoI HPI Average Transactions

5. NI Housing – “Supply response” to spell of overdrive and
20000
rampant land inflation
New Dwellings Completed
18000 Projected Need (HGI RDS 1998-2015,
Revised 2006)
16000 25 yr Average
14000
12000
10000
8000
6000
4000
2000
0
98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 (e)
Sources:NI Housing Statistics & 5
NI Regional Development Strategy

6. Collateral damage to Business & Financial
Services…..Manufacturing resilient until Q4 2008
Services, Manufacturing & Construction Output Q1 2001- Q4 2008
130
125
120
115
110
105
100
95
90
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08
Services Manufacturing Construction
6
Source: DFP/ DETI

7. Not everything has moved down
Manufacturing & Services performance de-composed
M anufactur ing Output (s e le cte d)
10 8.9
5
0
Total Manuf acturing Food, Drink & Engineering & A llied Electrical & Optical Transport Equipment Other Manuf acturing
% yoy
Tobacco Industries -0.2
-5
-6.3
-10
-9.8
-10.5
-11.8
-15
Se r vice s
4
3.1
2
0
A ll Services Wholesale/ Retail Hotels & Restaurants Transport, Storage & Business service &
Com sm Finance
% yoy
-2
-2.7
-4 -3.4
-4.7
-6
-7
-8
7
Source: DETI Index of Production/ Index of Services y/y q4 2008

8. Falling employment & rising inactivity
Annual % Change in Employee Jobs (by selected sector)
4 Dec 07- Dec 08
1.5
2
0
0
Agriculture Manuf acturing Construction Services Wholesale/ Hotels/ Real Estate/ Public Sector Total
-2 -1.1 -1.1
Retail Restaurants Renting/
Business -2
-4 -3.5 -3.5
%
-4.5
-6
-8
-10
-12 -11.4
-14
Economica lly Ina ctive
580
575 573
570
565
559
560
'000
555
550
550
545
545
540
535
530
Q2 08 Q3 08 Q4 08 Q1 09
8
Source: QES, DETINI

9. Registration of new cars in NI has fallen dramatically
Annua l Cha nge in Ne w Ca r Re gistra tions
Q1 07- Q4 08
1050
1100
900 780
700
458 477
500
285 302
300 206
106
100
-100 Ja n- Fe b- Ma r- Apr- Ma y- Jun- Jul- Aug- Se p- Oct- Nov- De c- Ja n- Fe b- Ma r- Apr- Ma y- Jun- Jul- Aug- Se p- Oct- Nov- De c-
-300 07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08
-241 -54 -64 -298 -314 -214
Annual Change
-500
-451
-700 -573
-900
-1100
-1150
-1300 -1219
-1342 -1320
-1500
-1700 -1601
-1698 -1735
-1900
-2100
-2300
-2500
-2700
Regional New Car Registrations figures for March 2009 -2682
yoy % Change +/-
0
Northe rn Ire la nd Engla nd Scotla nd Wa le s UK
-5
-10
% Change yoy
-15
-20
-21.84
-22.82
-25
-27.35
-30
-30.58
-31.75
-35
Source: DRDNI/ SMMT 9

10. NI Corporate Insolvencies rising yoy- the non-property/real
economy bad debt cycle has some way to go
Annual 2004 2005 2006 2007 2008 2009(f)
Figures
121 138 128 164 209 c300
70
60
50
40
30
20
10
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09
10
Source: The Insolvency Service

11. Recession impact on the island economy
Estimate of Cross-Border Shopping Cross-Border Trade Gap
(mid-points)
ROI E xpor t s NI E xpor t s
Єm 575
600 450 Єm
16 12 14 3 4
400 275 150 0
200 0
0 - 150 0 - 12 55 - 1159
2007 2008 2009 2007 2008
Source: CSO (Feb 2009) Source: CSO
Average Income Per Capita
Container Port Traffic 2007-2008
NI
27%
30%
0 18%
20%
Belfast Warrenpoint NI ROI
-5 10%
-3.7 -4.3
0%
-10 -7.3 1953 1969 2005
-10%
-11
-20%
-15
Source: IMDO Source: BOI Analysis -21%
-30% 11
ROI

12. Residential property market adjustment well advanced but what
will follow?
300000
250000 • Temporary overhang of excess supply
• Transition to affordable housing well advanced
200000
• Average prices have further to fall – 10%? (the
adjustment in “new builds” is near complete)
150000
£
• Recovery signs- transactions before prices
• Peak- Trough- Peak 2007- 2017?
100000
• Confidence?
50000
0
8
97
97
98
99
00
00
01
02
03
03
04
05
06
06
07
09
09
10
11
12
12
00
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
22
1
4
3
2
1
4
3
2
1
4
3
2
1
4
3
1
4
3
2
1
4
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
FORECAST HISTORIC 12
Source: QHPI & BOI

13. First Time Buyers hold the key
FTB & Affordability
6,000 25.0
5,000
20.0
Median Interest Payments as a % of Income
4,000
No of FTB Loans
15.0
3,000 Median
Deposit: 13%
10.0
2,000
5.0
1,000
- 0.0
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Number of Loans (LHS) Median Interest Payments as a % of income (RHS)
13
Source: CML & BOI Analysis

14. House builders- comfort for the medium term?
Population & household projections
2050 Population 000's (LHS) 2.60
Average Household Size (RHS)
2000 2.55
1950 2.50
Avg Household Size
2.45
1900
Population
2.40
1850
2.35
1800
2.30
1750
2.25
1700 2.20
1650 2.15
1600 2.10
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
14
Source: NISRA

15. Confidence levels in NI stabilising?
45
NI Elections & Devolution
of Power (March 07)
25
US Slowdown, falling
5
IT Shares
NI Assembly Suspended
-15
Housing market
slowdown
-35
Global credit crisis,
increased prices for
Gulf War II food. Fuel etc
September 11th
-55
-75
Qtr 1 2000
Qtr 2 2000
Qtr 3 2000
Qtr 4 2000
Qtr 1 2001
Qtr 2 2001
Qtr 3 2001
Qtr 4 2001
Qtr 1 2002
Qtr 2 2002
Qtr 3 2002
Qtr 4 2002
Qtr 1 2003
Qtr 2 2003
Qtr 3 2003
Qtr 4 2003
Qtr 1 2004
Qtr 2 2004
Qtr 3 2004
Qtr 4 2004
Qtr 1 2005
Qtr 2 2005
Qtr 3 2005
Qtr 4 2005
Qtr 1 2006
Qtr 2 2006
Qtr 3 2006
Qtr 4 2006
Qtr 1 2007
Qtr 2 2007
Qtr 3 2007
Qtr 4 2007
Qtr 1 2008
Qtr 2 2008
Qtr 3 2008
Qtr 4 2009
Qtr 1 2009
NI Net Personal Economic Circumstances NI Net General Economy ROI Personal Economic Circumstances ROI General Economy
15
Source: Ipsos-MORI MFS Q4 2008

16. Redundancy fears much lower in NI than in ROI & GB
Fear of redundancy in NI
Very concerned
7%
Fairly concerned
11%
Not at all
concerned 54%
26% Not very concerned
16
Source: Ipsos-MORI MFS Q4 2008

17. Tentative evidence of beginning of some regional household
B/S adjustment
Assets Liabilities
ISAs Savings Mortgages Credit Cards Personal Loans
60 80
50 9 8 9
60 8
40 7
37 36
31 34 30 36 35 33
30 26 40 28
20
20
10 15 17 18 20 17 25 27 27 28 26
0 0
Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09
Savings & ISAs Consumer Credit- Secured & Unsecured
17
Source: BOI Analysis of Ipsos MORI data

18. Key indicators- Planning assumptions
2008 (y/e) 2009 (y/e) 2010 (y/e)
NI
GVA Growth % 0.25 -2.50 0.00
yoy
Claimant 36k 57k 61k
Unemployment
Average House 168k 140k 145k
Prices
Financial Variables (y/e)
UK Base Rate 2.0 0.5 1.5
Euro Repo 2.5 1.0 1.0
US Fed Funds 0-0.25 0-0.25 0.75
Euro/ GBP 94p 85p 80p
GBP/ USD 1.49 1.47 1.58
18

19. Facing New Realities

20. Challenge- An already stretched regional balance sheet in an era of
de-leveraging
60
“Donor- Dependency”
50 Financial
Group
Subvention
40
£bn
30
20
Fiscal
Deficit
10
0
Total Public Spending Regional Tax Revenues Lending Deposits
Public Sector Financial Sector
20
Source: BOI Analysis

21. Challenge - The new Fiscal Dispensation post April 11-
one scenario
UK Plans Potential Regional Impact
Average Annual % real increase Average Annual % Real increase
2 0.7 AME- Non-discretionary NI “at risk”
10
0 8.4 - Demand-driven “Discretionary”
-2 8
Total Spending Investment Current Spending
-4 -0.1 Spending 6
-6
-8 4
%
-10 1.7 1.9
2
-12
-14 0
-16 Debt Interest Social Other AME DEL
-2
-18 Security & Tax
-17.3 -2.3
-20 -4 Credits
21
Source: UK Budget 2009/ IFS Analysis

22. The changing profile of public expenditure (outturn & plans)
Cur r e nt Expe nditur e
9500
8972 8972
9000
8597
8500 8309
8036
£m
8000
7500
7546
?
7000
6500
2006/07 2007/08 2008/09 2009/10 2010/11 11/12/13/14
Capital Expe nditur e
1600
1409 1393 1412
1400 1318
1156
1200
1058
998 1015 994
1000
803
£m
800
600
400
200
?
0
2006/07 2007/08 2008/09 2009/10 2010/11 11/12/13/14
Capital DE Budge t
L Capital Inve s tm e nt (ne t of r e ce ipts )
22
Source: NI Budget 2008-11/ Public Expenditure Analyses 2008

23. Current expenditure allocations by department
09/10 & 10/11
2009/10 2010/2011
+/-
-10 -8 -6 -4 -2 0 2 4 6 8 10
1.7
DARD 2.9
2.8
DCAL 5.3
5.8
DENI 4.4
5.3
DEL 6.2
4.5
DETI 2.6
DFP -1.2
-9.8
3.2
DHSSPS 4.8
-0.7
DOE -0.8
7.5
DRD 8.4
-1.3
DSD -0.05
OFMDFM
0
NI Assembly 0
0.4
Other Depts 2.3
23
Source: NI Budget 2008-11

24. Claimant unemployment returns to 10 year peaks
Structural vs cyclical?
Claimant Unemployemnt in NI, 1984- March 2008 - quarterly from 2007
140000
120000
100000
80000
60000
40000
20000
0
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2007 2007 2007 2007 2007 2007 2008 2008 2008 2008 2008 2008 2009 2009
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr
24
Source: ONS

25. Our changing demographics
Projected % Change in age cohorts in NI, 2006- 2031
130.0%
110.0%
90.0%
70.0%
50.0%
30.0%
10.0%
Under 20 20-34 35-49 50-64 65-79 80+
-10.0%
25
Source: NISRA

26. Opportunities – as the storms subside
• Sterling has lost c 25% of its value on a trade-weighted
basis – UK post-ERM experience 1993 -
• More balanced growth – C+I+G+(X-M) ?
• Manufacturing – a mini-revival ?
• Service exports – a very low base (tourism)
• Import substitution
• Greater role in Public Service provision – health, education,
transport
• Exploiting potential growth segments
• Environment / Renewables / Online distribution / Regulatory and Legal
agenda, Healthcare
• Construction – a gradual pick-up in house building from 2010/11
- key infrastructure projects
• Enterprise – a higher rate of business formation?
26

27. Challenges
• Job retention
• Legacy of “credit crunch” and “asset price bubble” – capital constraints
– new financing models / funding mix?
• “Scars” of recession – repairing confidence
• “Long Squeeze” on UK public finances
• Pains of Transition
– weaning off PE / greater self-financing / capacity of tax base ?
Does NI need a new “Social Contract” or “Big Conversation” ?
For businesses …
• Positioning for the upturn
• Leaner & Fitter – sustaining “cost efficiencies” post-recession
• Profit – from maximise to optimise?
• Strategy – more tortoise and less hare?
27

28. Concluding Thoughts (and Questions !)
• A growth challenge – short & medium term. Resumption in 2010 but of
the sober variety – risks of a “jobless recovery”
• Swollen ranks of unemployed and inactive (18-30 yrs old) – training, re-
skill, up-skill – identifying future needs for global recovery
• Policy priorities – tension between “jobs” and “productivity” goals?
• Spending priorities – tension between “current” and “capital”?
• Future engagement with our Donors (HMT,EU) – “more fish” or “ a
fishing rod” ?
• Where does our comparative advantage lie – lower wage and property
costs and available labour pool?
• PfG and the economy – what type? Wedded to a “social/welfare
economy” model ? “Too few producers”
• L-T competitiveness and prosperity still rests on our ability to trade.
28

29. Manufacturing still matters!
Share of Total Exports 2007/ 09 (£5.9bn) Destination of Manufacturing Sales 07/08 (p)
Construction quot;Servicesquot;
3.4%
Manufacturing quot;Servicesquot;
0.9%
High Potential Services NI
3.1% 25.0%
GB
39.9%
ROW
15.7%
Manufacturing
92.6% ROI Rest of EU
10.7% 8.7%
Source: NI Manufacturing Sales & Exports Survey 07/08
29
Exporting NI Services Study

30. “Pessimism is a luxury that (we) can never allow ourselves”
Golda Meir
PM Israel 1969-74

31. Thank You.
Alan Bridle
E: alan.bridle@boini.com
T: 028 90433519