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The Economy - What Next?TRANSCRIPT
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The World Economy:
Global boom cooling, but no freeze
’A Presentation for ICAS Business Breakfast in Aberdeen’
Nick ParsonsHead of Research UK and Europe, Global Head FX ResearchNational Australia Bank,[email protected]
November 24th 2011
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The world economy
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● The global economy was worth 61,963,000 million US dollars at the end of 2010.
● GDP of the wealthiest country is more than twice the second placed country and three times as much as the third.
● The top four countries account for half the world’s GDP.
● The United Kingdom is still the world’s 6th largest economy
World
Source: IMF, National Australia Bank Research
2010 Global economic league table (GDP USD millions)
1 United States 16,106,896 11 India 1,430,020
2 China 5,745,133 12 Spain 1,374,779
3 Japan 5,390,897 13 Australia 1,219,722
4 Germany 3,305,898 14 Mexico 1,004,042
5 France 2,555,439 15 South Korea 986,256
6 United Kingdom 2,258,565 16 Netherlands 770,312
7 Italy 2,036,687 17 Turkey 729,051
8 Brazil 2,023,528 18 Indonesia 695,059
9 Canada 1,563,664 19 Switzerland 522,435
10 Russia 1,476,912 20 Belgium 461,331
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Advanced economies are no longer driving global GDP growth● Up to 2000, global growth was
driven largely by industrialised nations, but the sharp slowdown in activity following the dotcom bust was followed by the rise in emerging markets.
● All three country blocs suffered a similar “V shaped” slowdown and recovery
● The key point is that Emerging and developing economies never crossed the zero line: there was no recession
● Going forward, industrialised countries will become much less important drivers of global growth.
● All growth forecasts have shifted lower over past 3 months.
World
Source: IMF WEO, National Australia Bank Research
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Asia/EM still driving, but now with headwinds● In the rebound of 2009/2010
advanced economies did not quite recover to the point where industrial output rose back to pre-GFC levels. Now they look even less likely to as demand and output falter.
● EM and Asian economies surged post-GFC levels but some signs of cooling are now apparent as policy tightening to deal with fall-out of QE takes effect.
● Monetary policy had been tightened in Asia and Latin America though Brazil has been quick to cut interest rates in response to concerns about a possible slowdown in growth.
World
Source: IMF WEO, National Australia Bank Research
80
90
100
110
120
130
140
150
160
2007 2008 2009 2010 2011
Industrial Production (Jan2007 =100)
Asia
Emerging markets
Advanced economiesWorld
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World economy has grown for two years, although some slowdown is now seen ● China and India grew strongly
despite global downturn. Without their contribution, world economy would have shrunk more than 2% in 2009.
● By 2010, global economic growth was back above the average of the last 25 years.
● 2011 began brightly but fiscal consolidation and sovereign debt crisis have put the brakes on firmly.
● Debt-driven Western consumers are unable to drive recovery.
● UK faces several years of sub-trend economic growth.
World
Source: National Australia Bank Research
Annual Average 2008 2009 2010 2011 (f) 2012 (f)
US 0.4 -3.5 3.0 1.8 2.4
Japan -1.2 -6.3 4.0 -0.6 3.3
UK 0.8 -4.9 1.3 1.0 1.6
Eurozone 0.5 -4.1 1.7 1.7 0.4
Canada 0.4 -2.7 3.2 2.8 2.2
Australia 3.1 1.3 2.7 2.0 4.2
New Zealand 0.0 0.2 1.1 3.6 3.6
China 9.5 9.2 10.3 9.2 8.2
India 7.5 7.0 9.0 7.5 6.9
Latin America 4.1 -2.0 6.5 4.8 3.8
World 3.0 -1.1 4.6 3.8 3.7
2013 (f)
3.1
1.9
2.1
1.1
2.8
3.1
3.1
8.0
6.0
3.0
3.6
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The changing global economy
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World
1 United States 1
2 China 7
3 Japan 2
4 Germany 3
5 France 5
6 United Kingdom 4
7 Italy 6
8 Brazil 10
9 Canada 8
10 Russia 21
11 India 12
12 Spain 9
13 Australia 14
14 Mexico 11
15 South Korea 13
16 Netherlands 15
17 Turkey 22
18 Indonesia 27
19 Switzerland 18
20 Belgium 20
2010 2000 2010 2000
Global economic league table changes over the past decade● Russia, Turkey and Indonesia
have shown biggest move up the league table in the past decade
● China has moved up 4 places, with its GDP increasing fourfold over the past 10 years.
● Taiwan, Argentina and Sweden have dropped out of the top 20
Source: National Australia Bank Research
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World
-6.0 -4.0 -2.0 0.0 2.0 4.0 6.0
JapanUnited StatesGermanyUnited KingdomFranceItalyBelgiumNetherlandsSwitzerland
MexicoSouth Korea
CanadaSpain
TurkeyAustralia
IndonesiaIndiaBrazilRussiaChina
Change in share of global GDP over past decade ● Six out of the seven countries
which make up the “G7” have seen their share in global GDP fall over the last decade
● Only Canada has managed to increase its share
● The biggest winners have been China, Russia, Brazil, India, Indonesia and Australia
Source: National Australia Bank Research
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World
Germany
Japan
France
United States
2010
UK
China
JapanGermany
UK
China
France
2000
United States
Change in share of global GDP over the past decade ● US has moved from 29.9% of
world GDP to 24.8%, whilst Japan has moved from 14.3% to 8.8%
● China has more than doubled its share of world GDP from 3.7% to 8.7%
● Half of world GDP used to come from the US and Japan. It now comes from these two plus China.
Source: National Australia Bank Research
1111
World
9.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Jap
an
Ita
ly
Ge
rma
ny
Sw
itze
rlan
d
Fra
nce
Ne
the
rlan
ds
US
A
UK
Ne
w Z
ea
lan
d
Ca
na
da
Bra
zil
Ind
on
esi
a
Th
aila
nd
Au
stra
lia
Sp
ain
Ho
ng
Ko
ng
Ta
iwa
n
So
uth
Ko
rea
Ph
illip
ine
s
Ma
lays
ia
Sin
ga
po
re
UA
E
Ind
ia
Vie
tna
m
Ch
ina
Real GDP Growth 2000-2010 (average annual % change)
China has consistently outstripped other countries in economic growth● China grew at an average
annual rate of 9.6% since from 2000 -2010
● The fastest growing economy in G7 (Canada) grew at just 3.0%
● Nine of the top ten fastest growing countries are in Asia
Source: National Australia Bank Research
1212
World
- 5
0
5
10
15
20
1980 1987 1994 2001 2008
Annual percentage change
China
Advanced economies
World
While the rest of the world crashed in 2008/09, China fared well● Global growth had been running
at + 4.9% for 4 years prior to the downturn; the best run of sustained growth since the early 1970’s. It then slumped -1.5% in 2009.
● The advanced economies (US, Europe, Japan, UK etc) tumbled from above 3% to -4%.
● Chinese growth, by contrast, did not even fall to the 7.6% low of the last 18 years, easing back from 13% in 2007 to 8.5% in 2009. We forecast +9.3% in 2011 and 8.2% in 2012.
Source: OECD
1313
World
32.2%
61.3%
19.8%
46.3%
41.1%12.8%
BRIC
G7
1990 - 2000 2000 - 20082008 - 2014
BRICs will soon contribute over half the growth in global GDP● From 1990-2000 when BRIC
nations were adding over 30% to global growth, the current decade will see them add over 60% In contrast G7 has gone from over 40% to just above 10%.
● G7’s share of global GDP is around 50% from 70% a decade ago, while the BRICs are up to 30% from 10-15%
Source: National Australia Bank Research
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Trends in global population
15
World
0
200
400
600
800
1,000
1,200
1,400
1,600
Ch
ina
Ind
ia
Un
ited
Sta
tes
Ind
on
esi
a
Bra
zil
Pa
kist
an
Ba
ng
lad
esh
Nig
eria
Ru
ssia
Jap
an
Me
xico
Ph
ilip
pin
es
Vie
tna
m
Ge
rma
ny
Eth
iop
ia
Eg
ypt
millions
Distribution of world population● One third of the world’s entire
population lives in China and India
● Two-thirds of the entire population lives in these sixteen countries
● Five of the seven countries which have seen their GDP rise fastest over the last decade are also in the top ten of the world’s most populous countries.
Source: National Australia Bank Research
1616
World
0
10,000
20,000
30,000
40,000
50,000
60,000
Canada
France
Germany
Italy
Japan
UK
US
China
USD
1980 1986 1992 1998 2004 2012
GDP per capita ● Relative to population, China is
still a very poor country. GDP per capita today is just $3,500 versus $46,400 in the US. This has climbed from around $1,000 in 2000 and is expected to climb to $6,000 by 2014, but by then the U.S. will be on $54,000
● Measured per capita China’s growth leaves it about 101st in the world
Source: IMF, National Australia Bank
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World
1 United States 8
2 Japan 9
3 China 101
4 Germany 26
5 France 28
6 United Kingdom 24
7 Italy 32
8 Brazil 81
9 Spain 27
10 Canada 19
11 Russia 56
12 India 134
13 Australia 17
14 Mexico 64
15 South Korea 37
16 Netherlands 16
17 Turkey 78
18 Indonesia 127
19 Switzerland 13
20 Belgium 21
2009 GDP per capita 2009 GDP per capita
Global economic league table and per capita position ● All the top 7 countries
measured by GDP per capita have population below 5 million: Liechtenstein, Qatar, Luxembourg, Norway, Kuwait, Singapore and Brunei
● China, India and Indonesia do not even make the top 100
Source: IMF, National Australia Bank
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Conclusions
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G7/10 growth will be the most subdued around the world● Developed world will be
significantly held back by challenges from public and private sector debt and the health of its banking systems.
● Governments have to scale back fiscal stimulus, individuals need to reduce borrowing
● Banks still have a long way to go to rebuild their balance sheets
● G7/10 growth will be subdued
● But, whilst individual countries flirt with, or even enter recession, the world economy will be boosted by continued gains in Asia and Latin America. Japan, meantime, will grow strongly in 2012 driven by infrastructure investment.
Conclusions
Source: National Australia Bank Research
Annual Average 2008 2009 2010 2011 (f) 2012 (f)
US 0.4 -3.5 3.0 1.8 2.4
Japan -1.2 -6.3 4.0 -0.6 3.3
UK 0.8 -4.9 1.3 1.0 1.6
Eurozone 0.5 -4.1 1.7 1.7 0.4
Canada 0.4 -2.7 3.2 2.8 2.2
Australia 3.1 1.3 2.7 2.0 4.2
New Zealand 0.0 0.2 1.1 3.6 3.6
China 9.5 9.2 10.3 9.2 8.2
India 7.5 7.0 9.0 7.5 6.9
Latin America 4.1 -2.0 6.5 4.8 3.8
World 3.0 -1.1 4.6 3.8 3.7
2013 (f)
3.1
1.9
2.1
1.1
2.8
3.1
3.1
8.0
6.0
3.0
3.6
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Conclusions
● Economic growth in the developed world is likely to be relatively subdued for some time to come; the main engines of growth will be Asia and Latin America, with Japan reconstruction providing some boost in 2012. Risks of a “double-dip” are growing significantly.
● Cost of mortgage borrowing is at an all-time low across the developed world but little appetite from households to take on more debt. Large corporates are cash-rich, seeking protection against “Credit Crunch II”.
● For the UK, we expect 2011 growth of just 1.3% in 2011, rising to 1.6% in 2012.
● Whatever banks’ willingness to lend, they still face significant challenges in terms of their ability to do so: balance sheets, funding concerns, regulatory capital increases. Property still takes up too great a share of banks’ balance sheets with limited capacity for additional net lending.
● Areas of fresh or continued interest for bank lending are agriculture, commodities, renewable energy and infrastructure.
● Huge disparity of income in fast growing, high population countries leaves an enormous number of people still on subsistence wages.
● China, India and Indonesia do not even make the top 100 per capita income countries
● Population growth, higher real incomes in Asia and continued growth for the world economy will maintain trend of upward prices for industrial commodities.
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