is the global recovery stalling?
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Is the global recovery stalling?
October 2010
Adrian Cooperacooper@oxfordeconomics.com
Oxford Economics
2
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Our track record
USA Eurozone JapanOE 0.7 1.4 2.0
EIU 1.0 2.2 2.6
Global Insight 0.7 1.7 2.4
IMF 1.6 2.2 2.9
OECD 1.1 1.8 2.7
Consensus Economics 1.0 1.8 2.4
Macro Advisors 1.2 - -
Note: Forecasts made in December for year ahead.
Forecasting Record
Oxford Economics
2007-2009(average absolute forecast divergence for real GDP growth)
Global growth better than expected in 2010
-3
-2
-1
0
1
2
3
4
5
1999 2001 2003 2005 2007 2009 2011 2013
World: Global real GDP growth % yr
Source : Oxford Economics/Haver Analytics
January 2010 forecast
October 2010 forecast
Forecast
World trade has bounced back very strongly
80
85
90
95
100
105
2008Q3 Q4 2009Q1 Q2 Q3 Q4 2010Q1 Q2
Global Trade and GDP during the Crisis2008Q1=100
Source : Oxford Economics/Haver Analytics
GDP
Trade
Two key points
There is still a very high level of uncertainty about the outlook, especially in the US and Europe
The recession was driven by the corporate sector and the shape of the recovery will depend on how corporates react in different countries
US weaker than Europe in Q2…
-4
-3
-2
-1
0
1
2
3
US Eurozone Germany UK
09Q1 09Q2 09Q3 09Q4 10Q1 10Q2
GDP growth% quarter
Source : Oxford Economics
…although Europe still lagging US recovery
92
93
94
95
96
97
98
99
100
101
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
Source: Oxford Economics
2008 Q1 = 100
GDP: US, UK, Eurozone & Germany
US
UK
Germany
Eurozone
Why has the US recovery slowed?
Q2 pulled down by surging imports and easing of restocking cycle
Domestic demand was still strong
And many recent indicators encouraging
Two main areas of worry:
■ Housing sector is still a mess
■ Jobs recovery disappointing
Why has the US recovery slowed?
Q2 pulled down by surging imports and easing of restocking cycle
Domestic demand was still strong
And many recent indicators encouraging
Two main areas of worry:
■ Housing sector is still a mess
■ Jobs recovery disappointing
US domestic demand still strong in Q2
Why has the US recovery slowed?
Q2 pulled down by surging imports and easing of restocking cycle
Domestic demand was still strong
And many recent indicators encouraging
Two main areas of worry:
■ Housing sector is still a mess
■ Jobs recovery disappointing
ISM points to sustained healthy growth
30
35
40
45
50
55
60
65
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Index
Non-manufacturing
Manufacturing
Source: Institute for Supply Management
ISM indexes
Why has the US recovery slowed?
Q2 pulled down by surging imports and easing of restocking cycle
Domestic demand was still strong
And many recent indicators encouraging
Two main areas of worry:
■ Housing sector is still a mess
■ Jobs recovery disappointing
Why has the US recovery slowed?
Q2 pulled down by surging imports and easing of restocking cycle
Domestic demand was still strong
And many recent indicators encouraging
Two main areas of worry:
■ Housing sector is still a mess
■ Jobs recovery disappointing
Why has the US recovery slowed?
Q2 pulled down by surging imports and easing of restocking cycle
Domestic demand was still strong
And many recent indicators encouraging
Two main areas of worry:
■ Housing sector is still a mess
■ Jobs recovery disappointing
But corporates are still not hiring in the US…
-900
-800
-700
-600
-500
-400
-300
-200
-100
0
100
200
300
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10Source: National Statistics
000's
US: Monthly change in private employment
Strong productivity promised jobs rebound…
-3
-2
-1
0
1
2
3
4
5
6
1981 1985 1989 1993 1997 2001 2005 2009Source: Oxford Economics
% year
Whole economy
US: Productivity growth
F'cast
…given US productivity level very high
0
10
20
30
40
50
60
70
US Japan Germany France UK
Productivity: GDP per hour worked (2009)US$
Source: Oxford Economics' calculation
Why aren’t companies hiring in the US?
Long-term unemployment encouraged by more generous benefits?
Job losses concentrated in construction and outlook in this sector is bleak
Regional mismatch between labour demand and supply
Uncertainty
Why aren’t companies hiring in the US?
Long-term unemployment encouraged by more generous benefits?
Job losses concentrated in construction
Regional mismatch between labour demand and supply
Uncertainty
Why aren’t companies hiring in the US?
Long-term unemployment encouraged by more generous benefits?
Job losses concentrated in construction
Regional mismatch between labour demand and supply
Uncertainty
Changes in US unemployment - worst & best
0 2 4 6 8 10 12
Nevada
Florida
California
Pennsylvania
Texas
New York
Alaska
South Dakota
North Dakota
Peak to trough change in unemployment
Source : Haver Analytics
Smallest impact
Large states
Biggest impact
Why aren’t companies hiring in the US?
Long-term unemployment encouraged by more generous benefits?
Job losses concentrated in construction
Regional mismatch between labour demand and supply
Uncertainty
Bernanke on uncertainty
Statement to Senate Banking Committee, 22 July:
"Even as the Federal Reserve continues prudent planning for the ultimate withdrawal of monetary policy accommodation, we also recognise that the economic outlook remains unusually uncertain.“
Keynote speech at Jackson Hole, Wyoming, 27 August:
“…macroeconomic projections are inherently uncertain, and the economy remains vulnerable to unexpected developments.”
The recession wasn’t consumer driven in US…
90
92
94
96
98
100
102
104
106
108
-6 -5 -4 -3 -2 -1 0 1 2 3 4
US : Consumer spendingtrough=100
Source : Oxford Economics
1980Q3
1982Q4
1975Q1
1991Q1
Periods from trough
2009Q2
2001Q4
…and even less so in Germany
94
96
98
100
102
104
106
-6 -5 -4 -3 -2 -1 0 1 2 3 4
Germany : Consumer spendingtrough=100
Source : Oxford Economics
Early 1980s
Early 1970s
Early 1990s
Periods from trough
2008-10
Nor were bank job cuts as bad as feared
-7
-6
-5
-4
-3
-2
-1
0
1
US Japan UK Germany France Italy
GovernmentOther servicesFinance/businessIndustryConstructionAgriculture
Sectoral contribution to employment lossesContribution to peak-to-trough change in employment, % pts
Source : Oxford Economics/Haver Analytics
Corporates have driven the cycle – in the US…
…and globally, then magnified through trade
95
97
99
101
103
105
107
109
111
113
115
Q-5 Q-4 Q-3 Q-2 Q-1 Q0 Q1 Q2 Q3 Q4 Q5
100= GDP trough
Source: Oxford Economics
Germany: Investment recoveries compared
2008-10
Early 1970s
Early 1990s
Early 1980s
Corporate sector now running big surpluses
-10
-5
0
5
10
15
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Source: Oxford Economics
% of GDP, 4QMA
Total corporate financial balance
France
US
UK
Germany
Japan
Partly that is banks…
-5
-4
-3
-2
-1
0
1
2
3
4
5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Source: Oxford Economics
% of GDP, 4QMA
Financial corporate balance
France
US
UK
Germany
Japan
…but critically it is also non-financials
-10
-5
0
5
10
15
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Source: Oxford Economics
% of GDP, 4QMA
Non financial corporate balance
France
US
UK
Germany
Japan
Government retrenchment intensifying…
…amid threat of Eurozone sovereign debt crisis
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Jan-2008 Jul-2008 Jan-2009 Jul-2009 Jan-2010 Jul-2010
Greece Spain
Portugal Ireland
Italy
Eurozone: Credit spreads% spread of 10-year bonds over German bunds
Source : Oxford Economics/Haver Analytics
And households constrained not only by debt…
0
50
100
150
200
250
1995 1997 1999 2001 2003 2005 2007 2009
Household debt% of income
Source : Oxford Economics
US
UK
Eurozone
Germany
Ireland
SpainEurozone
…but also the weak labour market…
3
4
5
6
7
8
9
10
11
12
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
World: Unemployment%
Source : Oxford Economics
France
Eurozone
GermanyUK
US
Forecast
…and squeeze on real wages as well as higher taxes
-2
-1
0
1
2
3
4
5
6
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Real wagesAnnual % change
Source : Oxford Economics
US
UK
Eurozone
Forecast
Financial surpluses here for extended period
-6
-4
-2
0
2
4
6
8
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Source: Oxford Economics
% of GDP, 4QMA
Household financial balance
France
US
UK
Germany
Japan
So consumers will lag rather than lead recovery
Corporate surpluses normally get spent in US…
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
1971 1975 1979 1983 1987 1991 1995 1999 2003 2007
US: Investment and corporate money% year
Source : Oxford Economics/Haver Analytics
Real corporate broad money
Non-residential investment
…and elsewhere
-30
-20
-10
0
10
20
30
40
50
1970 1976 1982 1988 1994 2000 2006
UK: Corporate liquidity and investment% year
Source : Oxford Economics/Haver Analytics
Business Investment
Real PNFC M4
We are seeing some recovery in M&A
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1996 1998 2000 2002 2004 2006 2008 2010Jan-Jul
ann.
World: M&AUS$ bn
Source : Dealogic/Thomson Reuters
What might hold companies back this time?
Unusual uncertainty
Excess capacity
Debt
Credit constraints
What might hold companies back this time?
Unusual uncertainty
Excess capacity
Debt
Credit constraints
Excess capacity holding back investment
65
70
75
80
85
90
1995 1997 1999 2001 2003 2005 2007 2009
-20
-15
-10
-5
0
5
10
15
% point
Source: Oxford Economics, Haver Analytics
Low capacity discourages new investment
Capacity utilisation
(LHS)
Non residential investment
(RHS)
% year
Eurozone: Capacity utilisation and real non-residential investment
US: Capacity utilisation and real non-residential investment
What might hold companies back this time?
Unusual uncertainty
Excess capacity
Debt
Credit constraints
Companies seeking to pay down debt
What might hold companies back this time?
Unusual uncertainty
Excess capacity
Debt
Credit constraints
Corporate lending very weak
-24
-20
-16
-12
-8
-4
0
4
8
12
16
20
24
28
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
% year
UK
Source: Haver Analytics
World: Lending to PNFCs*
Eurozone
US
*3 month moving average
Forecast takes a hopeful view on investment for US
Subdued recovery for major economies
Interest rates to remain low for some time
0
2
4
6
8
10
12
14
16
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012Source: Oxford Economics
World: Interest rates
Euro
UK
3-month interest rates, %
US
Forecast
Japan
Emergers leading recovery despite slowing in some
-20
-15
-10
-5
0
5
10
15
20
25
2005 2006 2007 2008 2009 2010
% year
Source: Haver Analytics
BRICS: Industrial production
3 month moving average
Brazil
Russia
China
India
Consumption is robust in China…
3
6
9
12
15
18
21
24
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
% year
Volume sales
Source: Haver Analytics
China: Retail sales
Value sales
…pulling up rest of Asia…
-40
-30
-20
-10
0
10
20
30
40
50
60
200501 200601 200701 200801 200901 201001
-40
-20
0
20
40
60
80Korea (LHS) Japan (LHS)
Singapore (LHS) China (RHS)
China import* growth and regional IP*% yr
Source : Oxford Economics/Haver Analytics
% yr
*3 month moving average
…and supporting Asian consumer
-6
-3
0
3
6
9
12
15
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
% year
Source: Haver Analytics
Emerging Asia: Consumer spending
Malaysia
Taiwan
Thailand
Korea
Low debt levels gives plenty of fiscal scope…
0
20
40
60
80
100
120
140
160
180
200
0 2 4 6 8 10 12
Budget Deficits and government debt in 2010debt as % GDP
Source : Oxford Economics/Haver Analytics
UK
Japan
GreeceItaly
US
Spain
Germany
Malaysia
India
Taiwan
SingaporeFrance
Thailand
Korea
China
deficit as % of GDP
…and credit taps can turn on quickly if needed
0
4
8
12
16
20
24
28
32
36
19981999 200020012002 200320042005 2006200720082009 2010
12-month % change
Source: Haver Analytics
China: Total RMB loans
But pull from China’s imports is easing…
-40
-20
0
20
40
60
80
1995 1997 1999 2001 2003 2005 2007 2009
% year
Exports (US$)
Source: Haver Analytics
China: Exports and imports
Imports (US$)
3 month moving average
…pressure coming from stronger currencies…
80
90
100
110
120
130
140
150
2002 2003 2004 2005 2006 2007 2008 2009 2010
2002Q1=100
Source: Haver Analytics
Emerging Asia: Exchange rates v US$
Taiwan
Korea
China
appreciation
India
month average data except for last observation (= Oct 14)
Thailand
80
90
100
110
120
130
140
150
2002 2003 2004 2005 2006 2007 2008 2009 2010
2002Q1=100
Source: Haver Analytics
Emerging Asia: Exchange rates v US$
Singapore
Malaysia
IndonesiaPhilippines
appreciation
month average data except for last observation (= Oct 14)
…and dependence on OECD still significant
Co
rpo
rate
rec
ove
ry
Renewed crisis■ Threat of double-dip means renewed
slump in asset prices as Eurozone sovereign debt crisis re-emerges
■ Pressure to cut budget deficits rapidly in all major economies
■ Rising unemployment and business failures feed back into banking
■ Limited scope for monetary policy offset
Sub-par recovery■ Business optimism remains low and
corporates continue to hoard cash■ Investment and job growth is modest as
capacity is underutilised■ Monetary policy supports banking sector
but fiscal coffers are empty■ Easier credit conditions mean benefits of
loose monetary policy feeds through to a stronger housing and consumer recovery
Financial sector recovery
Outlook still highly uncertain
Renewed global boom■ Strong corporate liquidity feeds into new
investment boom■ Faster growth boosts business and
consumer confidence, and trade multiplier magnifies upturn
■ Bank balance sheets improve quickly and credit growth resumes
■ Strong growth boosts tax revenues/cuts social security payments, helping fiscal consolidation
Oxford forecast■ Gradual rise in business confidence
encourages corporates to invest ■ But weak banks combined with excess
capacity limit scale of investment recovery
■ Consumer spending recovery limited by pace of job growth and fiscal retrenchment
■ But recovery strong enough that fiscal crisis remains contained
Oxford Economics’ forecast scenarios
2009 2010 2011 2012
Oxford Forecast (45%)US -2.6 2.6 2.5 3.5Eurozone -4.0 1.5 1.3 1.7China 9.1 9.7 9.0 9.2World -0.7 4.5 4.2 4.9
Renewed boom (15%)US -2.6 2.8 3.7 4.2Eurozone -4.0 1.7 2.4 2.8China 9.1 10.4 10.7 10.4World -0.7 4.8 5.5 5.9
Sub-par recovery (30%)US -2.6 2.4 1.8 2.2Eurozone -4.0 1.2 0.8 0.9China 9.1 8.8 7.2 7.5World -0.7 4.1 3.3 3.7
Renewed crisis (10%)US -2.6 2.2 -0.6 1.0Eurozone -4.0 1.0 -1.3 -0.2China 9.1 8.0 4.9 5.5World -0.7 3.7 1.0 2.3
Alternative GDP growth forecasts
Oxford Economics’ forecast
2008 2009 2010 2011 2012 2013US 0.0 -2.6 2.6 2.5 3.5 3.8
Japan -1.2 -5.2 2.6 1.1 2.1 2.0
Eurozone 0.3 -4.0 1.5 1.3 1.7 2.0
of which:
Germany 0.7 -4.7 3.1 1.8 1.7 2.0
France 0.1 -2.5 1.5 1.6 2.0 2.1
Italy -1.3 -5.1 0.9 1.0 1.2 1.4
UK -0.1 -5.0 1.6 2.0 2.7 3.2
China 9.6 9.1 9.7 9.0 9.2 8.8
India 7.4 6.7 8.2 8.3 9.0 8.8
Other Asia 4.0 2.0 6.6 5.4 6.2 6.0
Mexico 1.5 -6.6 4.7 4.5 5.4 4.8
Brazil 5.2 -0.2 7.3 4.5 5.1 4.6
Other Latin America 4.8 -0.6 4.5 4.0 4.7 4.3
Eastern Europe 4.8 -5.6 3.1 3.7 5.3 5.5
MENA 4.7 1.8 7.0 7.4 7.0 6.6
World 1.4 -2.0 3.6 3.3 4.0 4.2
World (PPP) 2.8 -0.7 4.5 4.2 4.9 5.0
World GDP Growth% Change on Previous Year
Singapore: Overview
Advance Q3 GDP showed a 19.8% drop, the worst on record and driven by a sharp slowdown in manufacturing, in particular the biomedical sector. Annual growth halved from 19.6% in Q2 to 10.3% in Q3 although the still economy remains on track to meet the governments forecast of growth between 13 and 15% this year.
With Chinese imports now less buoyant and growth faltering in the EU and the US, we expect export growth to slow markedly in the coming months.
The Monetary Authority of Singapore tightened monetary policy this month.
Property prices were 23% up on a year ago in Q3. The authorities recently announced a series of measures aimed at cooling the property market.
Tourist arrivals have been buoyant this year, boosting by hosting the Youth Olympic games and by the opening of two new casino complexes. The authorities are targeting 17m tourist arrivals by 2015, up from 9.7m last year.
Singapore: GDP growth slowing after H1 surge
-12
-8
-4
0
4
8
12
16
20
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
% year
Source: Oxford Economics
Forecast
Singapore: GDP growth
Singapore: H1 activity was strong across the board
-12
-8
-4
0
4
8
12
16
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
% year
Forecast
Source: Oxford Economics
GDP
Domestic demand
Singapore: Contributions to GDP growth
Net exports
Singapore: Manufacturing now slowing sharply
-40
-20
0
20
40
60
80
1995 1997 1999 2001 2003 2005 2007 2009Source: Haver Analytics
% year Singapore: Industrial production
3 month moving average
Total
Electronics
Singapore: House prices soaring
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Singapore: Property Prices% year
Source : Oxford Economics/Haver Analytics
Property Price Index: All residential
Singapore: Tourist arrivals buoyant
200
300
400
500
600
700
800
900
1000
1995 1997 1999 2001 2003 2005 2007 2009Source: Haver Analytics
Thousands Singapore: Tourist arrivals
seasonally adjusted(3 month moving average)
Malaysia: Overview
National accounts data showed that GDP growth slowed to 8.9% in Q2, a stronger performance than had been expected. GDP growth is expected to moderate in the second half of the year but consumer spending should be less affected than the more export-oriented sectors. Robust domestic demand boosted the import recovery to such an extent that net exports subtracted from growth throughout the recovery period
Malaysia is very vulnerable to developments abroad, particularly in China, the main destination for its exports behind Singapore. The uncertain outlook for the global economy means quarterly growth is likely to be much more modest in 2010H2 than in H1.
Bank Negara have already raised rates three times this year. We expect one more increase in Q4.
The fiscal deficit hit a twenty year high of 7% of GDP last year and the government is hoping to reduce it to 5.6% this year.
Malaysia: strong recovery starting to slow
-20
-15
-10
-5
0
5
10
15
20
25
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
% year
GDP Industrial production
Source: Oxford Economics
F'cast
Malaysia: GDP and industrial production
Malaysia: Strong imports hindered net exports
-30
-25
-20
-15
-10
-5
0
5
10
15
20
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
% year
F'cast
Source: Oxford Economics
GDP
Net exports
Domestic demand
Malaysia: Contributions to GDP
Malaysia: Recovery lagged neighbours
60
70
80
90
100
110
120
130
140
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2005=100
Source: Haver Analytics / Oxford Economics
Malaysia: Industrial output
Malaysia
Weighted aggregate of Korea, Thailand & Taiwan
Malaysia: Exports now slowing sharply
-40
-30
-20
-10
0
10
20
30
40
50
1995 1997 1999 2001 2003 2005 2007 2009
% year
Exports (US$)
Imports (US$)
Source: Haver Analytics
Malaysia: Exports and imports
3 month moving average
Malaysia: Government keen to reduce the deficit
-21
-18
-15
-12
-9
-6
-3
0
3
6
20
30
40
50
60
70
80
90
100
1980 1984 1988 1992 1996 2000 2004 2008 2012
% of GDPGovernment balance
(LHS)
Government debt(RHS)
% of GDP
Source: Oxford Economics
F'cast
Malaysia: Government budget balance & debt
Bank Lending: Strong recovery this year
-10
-5
0
5
10
15
20
25
30
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
% year
Source: Haver Analytics
Malaysia & Singapore: Bank lending
Malaysia
Singapore
Exchange Rates: Rapid gains in recent months
90
100
110
120
130
140
150
2002 2003 2004 2005 2006 2007 2008 2009 2010
2002Q1=100
Source: Haver Analytics
Emerging Asia: Exchange rates v US$
Singapore
Malaysia
appreciation
month average data except for last observation (= Oct 13)
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