Global Economic Outlook 2Q12 - BBVA Research
Upcoming SlideShare
Loading in...5
×
 

Global Economic Outlook 2Q12 - BBVA Research

on

  • 907 views

 

Statistics

Views

Total Views
907
Views on SlideShare
907
Embed Views
0

Actions

Likes
0
Downloads
4
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Global Economic Outlook 2Q12 - BBVA Research Global Economic Outlook 2Q12 - BBVA Research Presentation Transcript

  • Global recovery, butheightened risksGlobal Economic Outlook – Second Quarter 2012Madrid, 8 May 2012
  • Global Economic Outlook / Second Quarter 2012Main messages Global growth will gradually recover in1 2012 from the trough in 2011Q4. It will be Global growth (%) Fuente: BBVA Research between 3,5% and 4% in 2012 and 2013. 6 5.1 Risks to the global growth outlook are 52 strongly tilted to the downside as the 4 3.9 3.6 4.0 European crisis continues. 2.8 3 There have been some advances to solve 23 the European crisis, but crucial steps are 1 still pending: a more credible sovereign 0 firewall, a roadmap to a fiscal union and a pro-growth agenda. -1 -0.6 -2 Emerging economies are on track for a 2008 2009 2010 2011 (f) 2012 (f) 2013 (f)4 soft landing. They will contribute about Adv. Economies Emerging Economies 80% of global growth in 2012 and 2013. Baseline Feb-12 Baseline May-12 Page 2
  • Global Economic Outlook / Second Quarter 2012Contents1 The global economy will recover gradually in 20122 The European crisis is still the main global risk3 Recession in Europe, with high heterogeneity4 Oil prices are a moderate global risk5 Forecast revision Page 3
  • Global Economic Outlook / Second Quarter 2012 Global economy trough in 2011Q4 The global trough is likely to be behind us, although global growth will still be below trend and downside risks remain. Global GDP growth (%qoq at annual rates) Source: BBVA Research and Haver Analytics3 Wider growth divergence between Wider growth divergence between US and Japan vs Europe US and Japan vs Europe2 1 Emerging economies continue growing faster Emerging economies continue growing faster0 than advanced economies than advanced economies-1-2 Moderate global growth going forward Moderate global growth going forward-3 08 09 10 11 12 13 World Developed Emerging Page 4
  • Global Economic Outlook / Second Quarter 2012The rebound in Q1 is most evident inbusiness confidenceThe rebound of global activity is most evident in Asia.The recovery, however, is trapped in a modest range, with the US at the better end, the Euro area at theweaker end, and emerging markets somewhere in the middle. Business expectations (PMI) Industrial production (%qoq of 3-month moving avg) Source: BBVA Research and Bloomberg Source: BBVA Research , CPB and national sources65 8%60 6% 4%55 2%50 0% -2%45 -4%40 -6% -8%35 -10%30 -12% Oct 08 Apr 09 Oct 09 Apr 10 Oct 10 Apr 11 Oct 11 Apr 12 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 USA China EuroZone Brazil Global US Asia Euro Zone Latin America Global Page 5
  • Global Economic Outlook / Second Quarter 2012 US: ongoing but fragile recovery… Recent data suggest that growth will be resilient in 2012, but will be limited by the ongoing deleveraging. The declining trend in the unemployment rat in the context of moderate growth (below previous recoveries) represents not very positive news: it reflects the exit from the labor force of a large part of working-age population. US: GDP Growth (%yoy) US: Unemployment rate Source: BBVA Research Source: BBVA Research and Haver6 114 10 92 80 7-2 6-4 5-6 4 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Page 6
  • Global Economic Outlook / Second Quarter 2012…and fiscal policy represents one of the mainrisks ro growth in 2013.Monetary policy is burdened with most of the task of supporting private sector demand. But fiscal policyand structural reforms should take up the job in the medium term. Monetary policy Fiscal Policy The recovery reduces the probability of an If there are no new measures, there will be a If there are no new measures, there will be a The recovery reduces the probability of an sharp fiscal tightening at the end of 2012. sharp fiscal tightening at the end of 2012. additional quantitative easing (QE3) additional quantitative easing (QE3) It could induce a recession in 2013. It could induce a recession in 2013. Interest rates will be kept low Even with the electoral uncertainty, Even with the electoral uncertainty, Interest rates will be kept low we expect a gradual fiscal consolidation ,, we expect a gradual fiscal consolidation for an extended period for an extended period with slight negative effect on growth in 2013. with slight negative effect on growth in 2013. Nevertheless, further quantitative easing Nevertheless, further quantitative easing The main problem is the lack of progress to would be implemented rapidly would be implemented rapidly The main problem is the lack of progress to in case the outlook deteriorates tackle long-run fiscal consolidation tackle long-run fiscal consolidation in case the outlook deteriorates Page 7
  • Global Economic Outlook / Second Quarter 2012 China is on track to a soft landing Despite sharper-than-expected slowdown in Q1 (8.1% vs 8.9% in Q4) growth momentum should have bottomed and will rebound on policy support (monetary policy and fiscal stimulus). Recent reduction in GDP growth target for 2012 (from 8% to 7.5%) is not particularly significant because: (i) it was anticipated in the five-year plan published in 2011; (ii) 7,5% is more a floor than a target; China: quarterly growth (%yoy) China: GDP growth targets and outturns Source: BBVA Research and CEIC Source: BBVA Research and CEIC15 15 14 1210 10 10 85 5 6 40 0 2-5 -5 0 2007 2008 2009 2010 2011 2012 2013 1991-1995 1996-2000 2001-2005 2006-2010 2011-2015 (f) Consumption Investment Net Exports GDP growth Target Outturn Page 8
  • Global Economic Outlook / Second Quarter 2012 Latin America converges to its potential growth rate Growth in Latin America is also proving resilient, especially due to the strength of its domestic demand. Growth projections for the region remain mostly unchanged relative to February, around 4% for the next years. Even with some reduction in inflation, it will remain similar to 2011 levels. Except for Brazil, this will limit a reduction in official interest rates, contrary to big Asian countries (China and India). Latam: GDP Growth (%) Inflation in Emerging Economies (% annual average) Source: BBVA Research Source: BBVA Research7.0 9.0 8.06.0 Forecasts Feb 2012 7.05.0 Forecasts May 2012 6.04.0 5.0 4.03.0 3.02.0 2.0 1.01.0 0.0 2011 2012 20130.0 2010 2011 2012 2013 2014 2015 2016 Latam Emerging Asia exChina China Latam 6: ARG, BRA, COL, CHI, PER, VEN. Page 9
  • Global Economic Outlook / Second Quarter 2012Contents1 The global economy will recover gradually in 20122 The European crisis is still the main global risk3 Recession in Europe, with high heterogeneity4 Oil prices are a moderate global risk5 Forecast revision Page 10
  • Global Economic Outlook / Second Quarter 2012 European crisis: some timid advances, but there are important pending issues Advances Pending issues1 Greek PSI implemented Greek PSI implemented Credible liquidity firewall Credible liquidity firewall2 Fiscal compact is approved Fiscal compact is approved Further advances towards a fiscal union Further advances towards a fiscal union3 ECB long-term liquidity support ECB long-term liquidity support Pro-growth agenda Pro-growth agenda Persistent complacency in Europe results in muddling through the crisis, Persistent complacency in Europe results in muddling through the crisis, always behind the curve on what is needed always behind the curve on what is needed Page 11
  • Global Economic Outlook / Second Quarter 2012 1 Greece: Solvency concerns still linger. Greece• Many downside risks remain, threatening debt Greece and Portugal: public debt projections Source: BBVA Research and IMF reduction path: • Elections on 6 May, splintered congress • Hard road for further reforms, close monitoring by the troika • Recession to continue• New Greek bonds already under pressure Portugal• Fiscal adjustment and reforms are on track• External imbalance is closing• Yet this will not be enough to access markets in 2013Q3.• Our central scenario: second bailout and no restructuring Page 12
  • Global Economic Outlook / Second Quarter 2012 1Sovereign liquidity firewall (EFSF/ESM)not enough to reassure markets ESM agreement 30 March ESM/EFSF resources and gross financial needs in Spain and Italy (long-term debt and deficit) New available lending capacity: 500 bn EUR New available lending capacity: 500 bn EUR Source: BBVA Research and IBloomberg(apart from 200 bn EUR already committed by(apart from 200 bn EUR already committed by 800 EFSF) EFSF) 700 EFSF EFSF may continue lending until mid-2013 to EFSF may continue lending until mid-2013 to 600 committedcover the slow process of capitalizing the ESMcover the slow process of capitalizing the ESM f unds Italy 500 But … 400 300 ESM lending capacity It is not enough to reassure markets, given It is not enough to reassure markets, given 200 financing needs in Spain and Italy financing needs in Spain and Italy Spain 100Increase in IMF Resources (330 bn EUR) will notIncrease in IMF Resources (330 bn EUR) will not 0 necessarily be lent to Europe necessarily be lent to Europe Firewall Spain & Italy gross financing needs Spain & Italy gross financing needs 2012Q2-2013Q4 2012Q2-2013Q4 Page 13
  • Global Economic Outlook / Second Quarter 2012 Fiscal compact is agreed, but still 2waiting for a roadmap for Europe• Fiscal compact commits governments to establish a fiscal rule at constitutional level, limiting structural budget deficits to 0,5% of GDP.• Includes reverse majority rule needed to prevent sanctions of about 0.1% of GDP for deviations• Still, no talk of a roadmap to a fiscal union. Still pending: a roadmap to a Fiscal compact fiscal union Relatively lax: transitory deviations from Relatively lax: transitory deviations from Eurobonds: convenient as an insurance structural deficit rule permitted under structural deficit rule permitted under Eurobonds: convenient as an insurance “exceptional circumstances”. mechanism mechanism “exceptional circumstances”.Risk of it being ineffective to contain deficits inRisk of it being ineffective to contain deficits in Proposal of “blue” and “red” bonds has the Proposal of “blue” and “red” bonds has the the long-run the long-run advantage of maintaining market discipline advantage of maintaining market disciplineMay be seen as not strong enough to justify a May be seen as not strong enough to justify a Not necessarily a union with fiscal transfersmore forceful and decisive action by hardlinersmore forceful and decisive action by hardliners Not necessarily a union with fiscal transfers at the ECB or core Europe at the ECB or core Europe Page 14
  • Global Economic Outlook / Second Quarter 2012 3 Provision of long-term liquidity by the ECB calmed markets temporarily… 10y sovereign spread vs. Germany (bps) Source: Bloomberg and BBVA Research800 Ireland Spain Italy Belgium France Netherlands Liquidity risk on European banks eased during Liquidity risk on European banks eased during Austria the first quarter … the first quarter …600 … and funding markets were opening up … and funding markets were opening up cautiously, helping to reduce sovereign spreads, cautiously, helping to reduce sovereign spreads,400 but these effects have been short-lived. but these effects have been short-lived. Recent doubts on Spain have increased tensions Recent doubts on Spain have increased tensions200 In any case, the ECB can only serve as a bridge to In any case, the ECB can only serve as a bridge to the long run, which depends on structural the long run, which depends on structural 0 reforms and a growth agenda reforms and a growth agenda Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 Page 15
  • Global Economic Outlook / Second Quarter 2012 … but it has also increased the 3exposure of banks to the sovereignBanks: Holdings of euro area government debtover total assets (%)Source: ECB and BBVA Research8.07.5 Indirect intervention of the ECB in sovereign Indirect intervention of the ECB in sovereign7.0 bond markets through banks bond markets through banks6.56.0 Increased exposure of banks to the sovereign Increased exposure of banks to the sovereign increase potential negative feedback effects increase potential negative feedback effects5.55.0 Reinforces the need for a definitive solution to Reinforces the need for a definitive solution to doubts about sovereign solvency and the doubts about sovereign solvency and the4.5 provision of sovereign liquidity support provision of sovereign liquidity support4.0 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 Spain Italy Page 16
  • Global Economic Outlook / Second Quarter 2012A deepening European crisis is still themain risk to the global economy It is worrisome that the tensions came back so soon after: (i) the ECB’s two LTRO ;; It is worrisome that the tensions came back so soon after: (i) the ECB’s two LTRO Crisis Crisis (ii) the structural reforms is Spain and Italy, and (iii) the European Council (ii) the structural reforms is Spain and Italy, and (iii) the European Council advances in the fiscal compact and the ESM advances in the fiscal compact and the ESM Risk of negative feedback between fiscal austerity and recession Risk of negative feedback between fiscal austerity and recession Why? Why? Risk of sovereign debt a restructuring and ESM seniority Risk of sovereign debt a restructuring and ESM seniority Roadmap to fiscal integration Roadmap to fiscal integration Fiscal consolidation needs to be gradual and multiyear, with explicit targets. Fiscal consolidation needs to be gradual and multiyear, with explicit targets. Solution: Solution: Focus on structural deficits Focus on structural deficitseliminate tail eliminate tailrisk scenariosrisk scenarios We should not rely only on austerity measures. We should not rely only on austerity measures. But rather on structural reforms in exchange of a growth strategy But rather on structural reforms in exchange of a growth strategy Re-launch European investment in infrastructure Re-launch European investment in infrastructure Page 17
  • Global Economic Outlook / Second Quarter 2012Contents1 The global economy will recover gradually in 20122 The European crisis is still the main global risk3 Recession in Europe, with high heterogeneity4 Oil prices are a moderate global risk5 Forecast revision Page 18
  • Global Economic Outlook / Second Quarter 2012Financial stress in Europe continues to be veryhigh…As the short-run effect of long-term liquidity provided by the ECB fades, financial stress has resurfaced,especially in peripheral Europe. BBVA Financial Stress Index Source: BBVA Research 2.50 US EMU 2.00 1.50 1.00 0.50 0.00 -0.50 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Page 19
  • Global Economic Outlook / Second Quarter 2012Europe faces a mild recession in 2012,with wide heterogeneity and high risksIn the baseline scenario we assume that European authorities will continue to take decisive measuresthat will gradually lower financial tensions. Nonetheless, risks to the outlook are strongly tilted to thedownside.Growth in Europe will be slow relative to other advanced economies such as the US, and veryheterogeneous among EMU countries. Peripheral economies will be the most affected by financialtensions and fiscal consolidation plans.GDP growth in US and EMU (%yoy) GDP growth in EMU countriesSource BBVA Research Source: BBVA Research4 2.0 Forecast in May-12 1.6 Forecast in Feb-12 1.52 1.1 1.0 0.9 0.7 0.6 0.50 0.5 0.1 0.0-2 -0.2 -0.5 -1.0-4 -1.5 -1.3 -1.5-6 -2.0 2008 2009 2010 2011 2012 2013 2012 2012 2012 2012 2012 2013 2013 2013 2013 2013 US GDP growth (%, yoy) EMU GDP growth (%, yoy) EMU Germany France Italy Spain Page 20
  • Global Economic Outlook / Second Quarter 2012Contents1 The global economy will recover gradually in 20122 The European crisis is still the main global risk3 Recession in Europe, with high heterogeneity4 Oil prices are a moderate global risk5 Forecast revision Page 21
  • Global Economic Outlook / Second Quarter 2012 The increase in oil prices represents a moderate risk to global growth Oil prices in real terms (dollars of 2010) Source: BBVA Research and Haver140 Part of the increase in oil prices is the result of Part of the increase in oil prices is the result of tight supply and demand tight supply and demand120 Brent oil in 2010 dollars100 Geopolitical risk premium between 10-15 USD Geopolitical risk premium between 10-15 USD Log trend real prices (8% annual) per barrel. Persistent throughout 2012. per barrel. Persistent throughout 2012.8060 Very limited impact on growth given scant Very limited impact on growth given scant tightening reaction by central banks tightening reaction by central banks4020 In case of a stronger price spike In case of a stronger price spike growth could be affected due to growth could be affected due to 0 the consequent increase in global risk aversion the consequent increase in global risk aversion 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Page 22
  • Global Economic Outlook / Second Quarter 2012Contents1 The global economy will recover gradually in 20122 The European crisis is still the main global risk3 Recession in Europe, with high heterogeneity4 Oil prices are a moderate global risk5 Forecast revision Page 23
  • Global Economic Outlook / Second Quarter 2012 All in all: Growth heterogeneity among main economic areas Growth projections remain mostly unchanged relative to the February Global Economic Outlook. Growth will continue to be very heterogeneous between Europe, US and emerging countries. All in all, risks to the projections are strongly tilted to the downside due to the European crisis.Global growth (%)Source: BBVA Research 10.0 Forecasts in May-2012 8.7 8.3 Forecasts in Feb-2012 8.0 5.7 6.0 6.0 6.0 5.2 4.0 3.7 3.8 4.0 3.6 2.3 2.2 1.9 2.0 1.5 0.9 0.0 -0.2 -2.0 2012 2012 2012 2012 2012 2012 2012 2012 2013 2013 2013 2013 2013 2013 2013 2013 World Developed US EMU Emerging Latam7 Em Asia exc China China Page 24
  • Global Economic Outlook / Second Quarter 2012GDP Growth Forecasts 2011 2012 2013 World 3.9 3.6 4.0 Developed 1.6 1.5 1.9 US 1.7 2.3 2.2 EMU 1.5 ‐0.2 0.9   Spain 0.7 ‐1.3 0.6 Emerging 6.2 5.7 6.0 LatAm 7 4.3 3.7 3.8   Mexico 3.9 3.7 3.0 LatAm 6 4.5 3.8 4.1   Brazil 2.7 3.3 4.3 LatAm 5 6.7 4.4 3.9   Argentina 8.8 3.7 3.2   Chile 6.0 4.2 4.7   Colombia 5.9 5.0 5.2   Peru 6.9 6.0 5.7   Venezuela 4.2 3.9 1.9 EAGLES 6.7 5.8 6.4    Turkey 8.5 2.7 5.6 Asia Pacific 5.7 5.7 6.1 Emerging Asia 7.3 6.8 7.4    China 9.2 8.3 8.7     Emerging Asia ex China 5.4 5.2 6.0 Page 25
  • Global recovery, butheightened risksGlobal Economic Outlook – Second Quarter 2012Madrid, 8 May 2012