the global economic & financial outlook - vermont...
TRANSCRIPT
The Global Economic & Financial Outlook
Neil Shankar Economist
TD Economics
January 6, 2016
Economic & Financial Themes
Global
• Weaker potential growth = thin cushion for data or event risk = to absorb market volatility
• Laundry list of risks: post-Brexit uncertainty, China slowdown, other geopolitical factors
• Implicit central bank backstop means bad news can be good news
Canada
• Positive: Benefits from stronger U.S. growth and weaker currency in the near-term
• Negative: Potential trade barriers = increased business uncertainty
US
• The Federal Reserve caught in a dual world
domestic economy resilient; inflation diverging with global peers
global instability and disinflation can undermine the US cyclical advantage
2
Running Speed Of Key Economies: Slowing Down
3
2.5 2.5 2.3
1.7
4.0
1.7 1.5
1.7
1.1
3.3
U.S. Canada UK Euro Area Global Growth
What potential GDP is believed to have been, 2002-07, %
What economists think potential GDP is, 2015-20, %
Source: OECD November 2007 & 2016 June Economic Outlook & May 2014 Long-Term Baseline Projection.
Calculations by TD Economics.
Global Outlook Maintains Low And Slow Path
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
U.S. Canada UK Eurozone EMs ex-China Global
2016 2017 2018
Real GDP growth, y/y %
Source: TD Economics. Forecast as at December 2016.
4
China's Economy Not What It Used To Be
5
10 11
8 8
18
25
2001-2005 2006-2010 2011-2015 2016-2020**
Actual GDP growth (Avg. Y/Y % Chg. for period)
Middle class as a % of total population*
Source: China National Bureau of Statistics, Haver Analytics.*Note: 2011-2015 figure for middle class as a share of total population is estimate as of
2011. **Forecast by TD Economics/IMF.
6-6.5
China's Two World Economy
6
-10
-5
0
5
10
15
20
ElectricityConsumption -Manufacturing
Freight Traffic (Tons) ElectricityConsumption -Services andHouseholds
Civil AviationPassenger Traffic
(Persons)
Retail Sales
Old Economy New Economy
2014 2015 2016 *
Y/Y % Chg.
Source: Haver Analytics. As of November 2016.
7
What Does This New Economy Mean?
0
10
20
30
40
50
60
70
80
90
100
Primary Secondary Tertiary
Industry sector share of total output, %
Source: China National Bureau of Statistics, TD Economics
China Is Following The Evolution Of Others Into Services
8
0
10,000
20,000
30,000
40,000
50,000
60,000
30 40 50 60 70 80 90
China
South Korea
Taiwan
United States
Japan
Source: National statistical agencies via Haver Analytics, TD Economics.
Real GDP per capita, $2010 U.S. dollars
Services share of GDP, %
2015
1987 2015
1992
2015
1980
2014
1947
2015
1987
Why Canada Matters For Vermont
9
0 5 10 15 20 25 30 35 40 45
UK
Mexico
China
Malaysia
AsianTigers
Canada
Source: U.S. Census Bureau, TD Economics. As of October 2016.
Asian Tigers are the highly developed economies of Hong Kong, Singapore, South Korea and Taiwan
Share of total exports, %
Vermont's Manufacturing More Outward Focus
10
40
60
80
100
120
140
160
180
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Vermont U.S.
Source: U.S. BEA, U.S. Census Bureau, TD Economics.
Manufacturing exports as a share of total manufacturing output, %
Exports as a share of GDP
VT U.S.
2005 16.4% 6.4%
2015 11.8% 9.3%
Beneath The Surface: Soft Underbelly In Canadian Economy
-0.8%
-0.6%
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
Jun-2015 Dec-2015 Jun-2016
GDP GDP ex. Energy
Canada Real GDP, M/M % Chg.
Source: Statistics Canada, TD Economics
GDP Forecasts, Y/Y % Chg.
TD
Economics
Bank of
Canada
2016 1.4 1.1
2017 1.8 2.0
2018 1.7 2.1
11
Investment And Export Swing Needed To Drive Growth
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2014 2015 2016 2017 2018
Consumption + InventoriesNet ExportsResidential InvestmentBusiness InvestmentGovernmentGDP
Q4/Q4 % Chg; p.p. Contribution to GDP Growth.
Source: Statistics Canada, Forecast by TD Economics as at December 2016.
Forecast
12
Silver Lining: Canadian Investment Trough Within Sight
-450
-350
-250
-150
-50
50
150
250
350
450
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
2014 2015 2016 2017 2018
Contribution to GDP growth; Engineeringstructures (LHS); Canada
Oil & Gas Rotary Rigs; Canada (RHS)
Percentage Points
Source: BEA, Baker Hughes. Forecast By TD Economics as at November 2016.
Forecast
Units
13
Tourism-Related Sectors Underpin Job Gains
-100.0
-50.0
0.0
50.0
100.0
150.0
200.0
250.0
300.0
2011 2012 2013 2014 2015 2016 YTD
Other
Information Culture & Recreation
Educational Services & Health Care
Professional, Scientific & Technical Services
Manufacturing, Oil & Gas Extraction
Change in Employment, 000's
Source: Statistics Canada, TD Economics.
14
No Lack Of European Political Uncertainty On Deck For 2017
2017
German Elections
Dutch General Election
French Elections Norwegian
General Election UK exit from
EU?
December 2016
Austrian Presidential Election Italian constitutional referendum
15
Central Banks Rely On Negative Rate Policy
0
10
20
30
40
Q2-2014 Q3-2014 Q4-2014 Q2-2016 Current
Source: Bloomberg, TD Economics. *Includes 21 developed countries. As at January 2016.
%, Government bonds with a negative yield as a percentage of total outstanding
16
In Search of Yields: Investors Flood Into Emerging Markets
17
-30
-20
-10
0
10
20
30
Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16
Daily portfolio flows to EMs* since Aug. 1 2015, $ U.S. billion
Source: IIF, TD Economics. Last observation December 7, 2016. *Includes daily portfolio flows for Indonesia, India, Thailand, Korea, South Africa, Brazil,
Hungary, Turkey, Mexico.
U.S. Dollar Strength Has Triggered EM Capital Outflows
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
Oct-05-16 Oct-20-16 Nov-04-16 Nov-19-16 Dec-04-16 Dec-19-16
Total Equity* Debt**
Daily portfolio flows to EMs since October 5, 2016, $U.S. billion
Source: IIF, TD Economics. *Includes daily equity flows for Indonesia, India, Korea, Thailand, South Africa, Brazil, Philippines, Turkey. **Includes daily debt flows for
Indonesia, India, Thailand, South Africa, Hungary, Turkey, Mexico.
Last observation: December 20, 2016.
18
Market Expectations for Fed Hikes Moved Higher Post-Election
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Current 2016 2017 2018 2019 Longer Term
Federal Reserve Expectations (As of December 14, 2016 Meeting)
TD Forecast (Forecast as of December 2016)
Market Expectations Pre-Election
Current Market Expectations*
Source: Federal Reserve Board, Bloomberg, TD Economics. *OIS curve: December 22, 2016.
Median FOMC participant projection & market expectation; %
19
U.S. Dollar Likely To Remain Elevated Due To Global Adjustment
20
90
95
100
105
110
115
120
125
130
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
vs. Other Trading Partners
vs. Major Trading Partners
Nominal trade-weighted US dollar (Q2-2014=100)
Source: Haver Analytics. Forecast by TD Economics as at December 2016.
Forecast
Some EMs More Vulnerable Than Others
21
0
5
10
15
20
25
30
35
40
Increased vulnerability
Source: IIF EM debt monitor database. Last observation: 2016Q2
Total U.S. dollar denominated debt, % share of GDP
22
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