eiu global outlook oct 2010 public
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Hope, headwinds or hurricanes? Charting a course for the global economy
Robert PowellSenior Editor/EconomistChicagoOctober 2010
Key points
A recovery is under way …US: 500,000 new jobs in 1H 2010 beats 4m jobs lost in 1H ’09◦ But job growth is slow; still 7.5m jobs below the peak
Europe shows signs of life◦ Germany improving, but the EU periphery is drowning in debt
Does a global double-dip recession lie ahead?◦ Probably not. Why?
► Emerging markets • Strong recovery
► Active central banks► Stimulus still available► Corporate profits
Where are we now?
Global: World trade recovers strongly
8090
100110120130140150160170
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
World trade volumes. 2000=100. Seasonally adjusted.Source: CPB Netherlands Bureau for Economic Policy Analysis.
Industrial production rebounds…
-25%-20%-15%-10%-5%0%5%
10%15%20%25%
Jan-
05
May
-05
Sep-
05
Jan-
06
May
-06
Sep-
06
Jan-
07
May
-07
Sep-
07
Jan-
08
May
-08
Sep-
08
Jan-
09
May
-09
Sep-
09
Jan-
10
May
-10
US China
Euro India
% change, year over year in production volumes, Source: National governments, Haver
00.5
11.5
22.5
33.5
44.5
5
Oct 1 2008
Oct 14 2008
Oct 27 2008
Nov 7 2008
Nov 20 2008
Dec 3 2008
Dec 16 2008
Dec 29 2008
Jan 9 2009
Jan 22 2009
Feb 4 2009
Feb 17 2009
Mar 2 2009
Mar 13 2009
Mar 26 2009
Apr 8 2009
5/29/2009
7/31/2009
10/2/2009
12/4/2009
2/5/2010
4/9/2010
6/11/2010
8/13/2010
Federal Reserve intervenes
… and borrowing costs are mostly contained
3-month US$ LIBOR minus 3-month US Treasuries Source: Haver
Spread between the cost of government borrowing and private-sector borrowing, basis points
Post-Lehman Bros panic
Stimulus plans feed through
Greece, EU debt crisis
Why the bounce-back?
Too fast, too hardFirms cut back very aggressively in a climate of fear and panic
o Overdid ito Correcting inventory overhang
International rescueo Interest rates slashedo Printing moneyo Government spending splurgeo Tax cutso Bank bailouts
Emerging market serenityo Domestic demando More trade amongst themselveso Less banking stress
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10
99 Q
1
99 Q
3
00 Q
1
00 Q
3
01 Q
1
01 Q
3
02 Q
1
02 Q
3
03 Q
1
03 Q
3
04 Q
1
04 Q
3
05 Q
1
05 Q
3
06 Q
1
06 Q
3
07 Q
1
07 Q
3
08 Q
1
08 Q
309
Q1
09 Q
3
10 Q
1
10 Q
3
11 Q
1
11 Q
3
Global outlook: Upswing, but uneven
GDP growth, % year on year Source: EIU estimates
Developed
Emerging
World
Credit crunch starts
US, Europe and Japan
US: Weakening after strong surge…
… as pent-up demand, stimulus fade; growth will average 2.3% for the year
Inventories tell the taleRe-stocking contributed around 60% of growth on average in last 3 qtrs
But investment spending upEquipment and software rose 20%-plus in last two qtrs; most in four years
Consumers fading again?Spending rose by 2% in Q2
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10
2000q1
2001q2
2002q3
2003q4
2005q1
2006q2
2007q3
2008q4
2010q1
Recessions
Real GDP growth, % change
% change year on year Source: Bureau of Economic Analysis
Jobs market remains tough
-1,000-800-600
-400-200
0200
400600
2000
- Ja
n
2000
- N
ov
2001
- Se
p
2002
- Ju
l
2003
- M
ay
2004
- M
ar
2005
- Ja
n
2005
- N
ov
2006
- Se
p
2007
- Ju
l
2008
- M
ay
2009
- M
ar
2010
- Ja
n
0
2
4
6
8
10
12
Net new jobsUnemployment rate
Jobs in ‘000s; unemployment, %. Source: Bureau of Labor Statistics.
US jobs market
500
700
900
1,100
1,300
1,500
1,700
1,900
2,100
2,300
2,500
1959
- Q
1
1961
- Q
119
63 -
Q1
1965
- Q
119
67 -
Q1
1969
- Q
119
71 -
Q1
1973
- Q
119
75 -
Q1
1977
- Q
119
79 -
Q1
1981
- Q
119
83 -
Q1
1985
- Q
119
87 -
Q1
1989
- Q
1
1991
- Q
119
93 -
Q1
1995
- Q
119
97 -
Q1
1999
- Q
120
01 -
Q1
2003
- Q
120
05 -
Q1
2007
- Q
120
09 -
Q1
US: Housing still very weak…
US housing starts, ‘000s, SAAR.Source: Bureau of the Census
Home foreclosures still awful
0
50000
100000
150000
200000
250000
300000
350000
400000
1/31/2005
7/31/2005
1/31/2006
7/31/2006
1/31/2007
7/31/2007
1/31/2008
7/31/2008
1/31/2009
7/31/2009
1/31/2010
7/31/2010
1H 2010 foreclosures: 1,961,000, and more than 1m in Q3
Worse than last year1 in 4 mortgage holders with negative
equity
Pent-up listings will keep homes coming to market, restraining prices
Yes, housing has stabilised
But new home sales are moribund Prices are largely stagnant
Nationally, 14+% of mortgages delinquent or foreclosed
“Delay and Pray”
Foreclosure rate: % change, year on year
Source: Realty Trac
Euro area: Worst crisis ever…but signs of life
Debt sinking the peripheryBailout has helped, but…… only buying time; massive fiscal adjustment required Must improve competitiveness
But Germany is reboundingExports, business investment, stockbuildingBut unemployment is high, consumers hesitant
Less impressive in rest of EUSecond quarter 2010? As good as it will get
100
105
110
115
120
125
130
135
140
145
150
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Germany Spain
Greece Ireland
Real private consumption, 2000 Q1=100. Source: Economist Intelligence Unit, CountryData.
Euro zone: Acropolis Now?
LiquidityCut out of capital marketsFixed by the $1trn bailout?
SolvencyGreece is almost certainly insolventLess clear about the others
o Interest costs, growth, fiscal tightening
The outcomeLow growth for years to comeStructural reform; wage cutsDefault (restructuring)Monetary AND fiscal union??Euro exit
-1
1
3
5
7
9
11
Jan-
08
Mar
-08
May
-08
Jul-0
8
Sep-
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Nov
-08
Jan-
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Mar
-09
May
-09
Jul-0
9
Sep-
09
Nov
-09
Jan-
10
Mar
-10
May
-10
Jul-1
0
Sep-
10Italy Portugal Greece Spain Ireland
Spreads of 10-year govt bonds over German bunds.Percentage points.Source: Haver.
Japan
Foreign demand supports growthHelped by fiscal leakage elsewhere
Yen a significant riskBut firms are profitable and can take some pain
Structural issues cloud pictureDeclining populationRenewed deflationFiscal woes
Cash cow country?Japan measures up on traditional measures of economic efficiency◦ But declining workforce means
poor top-line performance
0.0
0.5
1.0
1.5
2.0
2.5
1990
1993
1996
1999
2002
2005
2008
JapanUS
Output per worker
Labour productivity growth, % change
Emerging markets
Asia: Powering ahead
-15
-10
-5
0
5
10
15
20
25Q
1-00
Q4-
00
Q3-
01
Q2-
02
Q1-
03
Q4-
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Q3-
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Q2-
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Q1-
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Q4-
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Q3-
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Q2-
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Q1-
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Q4-
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China Hong Kong IndiaIndonesia Malaysia PhilippinesSingapore Taiwan Thailand
Real GDP, % change on year earlier, Haver
But Asian governments are in driver’s seat
Robust recovery in trainOnly a gentle slowdown next year
Policy stimulus is the keyDomestic recovery stronger than usualChina acting as a boost to rest of regionAsian and trading partner stimulus accounts for half of GDP growth
0
1
2
3
4
5
6
7
China India
Indone
siaMala
ysia
Singap
oreTha
iland
Expanding fiscal deficits
Change in fiscal deficit as % of GDP, 2008-10, EIU
Asian bubbles?
Asia is importing monetary stimulus from US
Consequence of active exchange-rate management
Economic conditions are much stronger in Asia
Monetary policy is too loose for Asian circumstancesFiscal stimulus was very large
Food commodity prices are again a concern
El Niño, bad monsoon in India
Fears of inflation/asset bubbles in Asia
Should we worry about China?
-500
0
500
1000
1500
2000
11/30/20008/31/20015/31/20022/28/200311/30/20038/31/20045/31/20052/28/200611/30/20068/31/20075/31/20082/28/200911/30/2009
-4
-2
0
2
4
6
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10
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14
New loans
Houseprices
Why are investors worried?Inflationary asset price bubbleUS-style property crisisGovernment inspired crash
Government also worried about:Poor allocation of capitalInflation causing social ills
Government has reactedHave the brakes have gone on too hard?◦ Government can step in
again if necessaryWill all the lending of 2009 turn sour?
New loans, m RMB; House prices,% change YoY. Source China Economic Info Net, Natl Reform and Development Commission
India: Outperforming China—one day
Strong prospectsMedian age: 24 yearsIndia will have world’s largest population in 2030s, overtaking ChinaIndia will be growing more rapidly than China by 2018Labour-force growth to remain strong while China, others see decline
ChallengesAbsorbing labour force growth will be challenge in absence of sufficient education, structural changeFiscal consolidation is needed
Population (1990=100)
70
90
110
130
150
170
190
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
India
China
Russia
Source: Economist Intelligence Unit.
Latin America has shown resilience
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2001
2003
2005
2007
2009
2011
2013-3
-2
-1
0
1
2
3
4
5
6
7GDP/head PPPGDP growth
Region will grow by 4-5% in 2010Brazil: outsized performance
Countries linked to the US are doing better than expected
Mexico will grow 4.7% this year◦ Will feel the effects of US
slowdown in 2011
Regionally, not back to boom yearsBut better fiscal positionsFlexible exchange ratesBetter trade performanceCountries with Asian exposure further ahead◦ Commodities help growth; China!
Real GDP growth, % change. GDP per head in US $.
Source: Economist Intelligence Unit.
Medium to long-term perspectives
Currencies: It’s still the ugly sisters
US$/€ strongly correlated with risk perception
Euro zone structural concerns to dominate over medium term
2010: Av: US$1.30: €12011: Av: US$1.40: €12012: Av: US$1.15: €1
• Pity the yenRacing up against the € and keeping up
with the US$. Bad news for Japan’s exporters and for its deflation
Emerging markets RMB “wobbly peg” to US$EMs to depend on risk tolerance
0
20
40
60
80
100
120
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Weaker demand will restrain prices in the medium term; they willrise thereafter as broad-based growth returns, and EMs accelerate
Oil price outlook: Long term
Oil price: Brent dated, US$/barrel; % change, year on year.
Source: Economist Intelligence Unit
Where’s the growth?
-8-6-4-202468
China
IndiaMiddle
East
ASEANAfri
caLati
n Ameri
ca CISE Euro
pe USJa
panEuro
zone UK
2009 2010 2011
Real GDP growth; % change, year on year. ASEAN = Assoc of South East Asian Nations. CIS = Russia, Ukraine etc. Source: EIU, CountryData.
Overtaken by events: China takes the lead
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,00020
08
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
CHINAGERMANYINDIAJAPANUNITED STATES
GDP; nominal; US$ bn
Economist Intelligence Unit, Country Data
More Information?
Data and analysis from today’s presentation were taken from the Economist Intelligence Unit’s country analysis and forecasting services. For more information on these services and other EIU capabilities, including risk assessment, industry trends, and economic data, please contact:
Holly DonahueMarket Development ManagerEconomist Intelligence [email protected] (212) 541 - 0596