Economics Blog – January 2015
Warwickshire’s economy continues to grow strongly in 2013. New data on the total economic output of Warwickshire has recently been released by the Office for National Statistics, and shows that we are continuing to see good growth. The value of the total amount of goods and services produced in Warwickshire’s economy (known as the Gross Value Added (GVA) of the economy) was thought to be £12.9bn in 2013. This is an increase of 2.9% on the previous year. A standard way of comparing economic performance across different areas is to look at GVA per head of population – in other words, the total value of output divided by the number people living in the area in question. In 2013, Warwickshire’s GVA per head was £23,604 – which is almost exactly the same as the average for the UK as a while. More interestingly, this gap has been narrowing since 2009 showing that Warwickshire’s economy has growing at a relatively faster rate than the UK. Figure 1 below shows the change in GVA per head over time, and compares Warwickshire to Coventry and the UK as a whole.
Figure 1: GVA per head of population (1997-2013)
Oil prices plummeting. No-one who has been filling up their cars with petrol over the past month can have failed to have noticed the falling prices of oil. The worldwide price of crude oil has dropped by over half in the past few months (as shown in Figure 2 below), which is now being passed on to consumers through lower fuel bills. The cause of this fall is effectively twofold. Firstly, OPEC (the Organisation of the Petroleum Exporting Countries - who represent the 12 main countries with significant oil reserves, mostly in the Middle East, but also parts of Africa and South America) have collectively decided to increase their production of oil, thus creating a surplus in the market and therefore driving prices down. This is both a political move (a form of protest against the recent activities of Russia), but also a tactical one given the recent increases in Shale Gas production in Western economies. Shale gas is only economically viable when oil prices are high, and so a sustained lower price will reduce investment and activity in this area. The second contributing factor is a global economic slowdown (particularly due to slowing growth in Russia and China), which is reducing overall demand for oil and creating an even greater surplus of supply. Prices are expected to continue to fall, and may stay low for a while as the tactics and global economy play out. This is likely to keep inflation low in the UK in 2015, thus reducing the chances that the Bank of England will increase interest rates in the near-term. Many think that this will help economic growth in the UK, as it should encourage business investment and consumer spending.
Figure 2: Comparison of Crude and Brent Oil Spot Prices (2005-2015)
Unemployment continues to fall. By the end of 2014, Warwickshire reached its lowest rate of Jobseekers Allowance claimants for five years; highlighting a perfect end to the year for the region. Having a proportion of the resident population at 0.4% (only a third of the rate from November 2009); provides evidence of prominent economic change within the local economy. In addition, the gap between Jobseekers Allowance claimants who receive their benefits over 6 and 12 months respectively; has contracted significantly over the last five years and is now predicted to converge and decrease in the future. The rate of short term claimants has fallen substantially from 1.1% in 2009 to 0.4% in 2014, which is closer in line with the fewer long term claimants. This suggests that Warwickshire’s residents are beginning to satisfy skill shortages and are increasing their employability in order to fill more vacancies. Nuneaton and Bedworth continues to have the largest number of claimants (1290 in November), however their count is decreasing monthly; which remains promising for 2015. Stratford on the other hand, had the fewest claimants of just 125.