Neil blake final_presentation

585 views

Published on

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
585
On SlideShare
0
From Embeds
0
Number of Embeds
20
Actions
Shares
0
Downloads
4
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Neil blake final_presentation

  1. 1. Dangerous Times: The Global Economic Outlook<br />Dr Neil Blake<br />Director of Economic Analysis<br />nblake@oxfordeconomics.com<br />13th October 2011<br />
  2. 2. Overview<br />Recent Economic Developments: why is the economic recovery running out of steam?<br />The economic outlook:<br />Can the Eurozone muddle through?<br />Will fiscal constraints strangle the US recovery?<br />Where does the UK fit in?<br />Can the emergers drive global economic growth?<br />Is the inflationary threat over?<br />Implications for investors<br />
  3. 3. Stock Markets are on the slide …<br />
  4. 4. …and business confidence is collapsing<br />
  5. 5. What has gone wrong?<br />Partly a normal inventory cycle<br />High commodity prices damaging consumer spending power<br />Coordinated fiscal retrenchment + monetary tightening in emerging markets<br />Ongoing problems of the Eurozone – danger of a second banking crisis<br />Continued weakness of bank lending and/or credit demand<br />Worries over a double dip in the US<br />
  6. 6. Currency areas are creating tensions<br />Some euro area countries have current account deficits with offsetting capital flows financed by ECB, IMF and surplus governments.<br />The deficit countries have weak growth but monetary policy is tightening and confidence is fragile<br />All member countries want to maintain the euro but still not clear that they will take the necessary measures to do so<br />The US has a large current account deficit with China financing it by buying treasuries<br />The US has weak growth but monetary policy is set to remain expansionary and fiscal policy has tightened but..<br />China etc has inflationary problems but is resisting any exchange rate changes<br />
  7. 7.
  8. 8. Worries about Debt<br />
  9. 9. An age of fiscal retrenchment<br />
  10. 10. Eurozone Problems<br />The immediate problem is one of excessive public deficits and debts in some countries<br />The longer-run problem is one of low external competitiveness and deficits in those same countries<br />Austerity in Greece, Ireland or Portugal (but also in Spain or Italy) can help reduce both sets of deficits, but only at the cost of a prolonged period of very low growth<br />Policy makers running at a different speed to markets<br />Emerging policy reaction appears to accept the possibility of a Greek default but not of a Greek devaluation; focus is protecting banks and on stopping contagion <br />Should permit slow though positive growth in 2012, but …<br />Policymakers could be over-taken by events; cannot rule out the breakup of the Euro area<br />
  11. 11. There is a significant risk of financial contagion<br />
  12. 12. US appears to be teetering on the brink of recession<br />Labour market data has been particularly weak<br />House prices are falling sharply once more<br />The Fed has launched ‘Operation Twist’, selling shorter-term assets to buy long-term US treasuries. It will also reinvest principal payments from its agency holdings in agency mortgage-backed securities, in an attempt to support the housing market<br />Operation Twist has had a modest effect on long-term rates which in turn should provide a modest boost to the economy. But more QE may still be on the way<br />Emerging markets are still reporting high inflation rates and there are signs of property bubbles in some markets<br />Policy has been tightened aggressively and there are signs that growth is slowing…but might this need to be reversed?<br />There are other global concerns too<br />
  13. 13. US situation was fragile with unemployment high…<br />
  14. 14. And house prices falling again<br />
  15. 15. Inflation at uncomfortable levels in emergers<br />
  16. 16. …and consumption growth has eased…..<br />
  17. 17. The UK recovery has been a bumpy ride so far<br />
  18. 18. Post-Royal Wedding Bounceback Has Stalled<br />
  19. 19. …and confidence to deteriorate sharply…<br />
  20. 20. …now surveys point to a renewed slowdown<br />
  21. 21. …intensifying the squeeze on household finances<br />
  22. 22. Household debt levels remain very high…<br />
  23. 23. …unemployment is rising…<br />
  24. 24. Plenty of cash on corporate balance sheets…<br />
  25. 25. Low-ish borrowing costs…<br />
  26. 26. Company borrowing has stalled<br />
  27. 27. Domestically generated inflation is under control but …<br />
  28. 28. Inflation set to rise further…<br />
  29. 29. Policy Options?<br />Fiscal policy<br />Automatic fiscal stabilisers will provide support if weakness continues – government spending on social benefits, etc will rise and tax revenues will fall<br />Temporary VAT cut - unlikely<br />Bring capital spending forwards – distinct possibility<br /> Monetary Policy<br />Another round of QE – just happened<br />A public sector small business bank – unlikely<br />Credit Easing – likely, not sure in what form yet<br /> Other Policies<br />Planning liberalisation – on the way<br />Broader business support – likely to cost too much<br />
  30. 30. China is becoming the world’s major export market<br />
  31. 31. Emerging Markets Increase in Importance<br />(Exports of goods only)<br />
  32. 32. …. But structural change is slow<br />China is a mixed blessing to advanced economies:<br />New export opportunities but..<br />A competitive threat<br />Pressure on commodity prices<br />Has a long way to go before it looks like a western economy<br />Still heavily export dependent<br />Structural change will provide new & different opportunities<br />Same is true of many other emerging markets<br />Over-reliance on investment? Threat of a crash?<br />
  33. 33. Downside risks to Oxford Economics’ forecast<br /><ul><li>Eurozone financial contagion
  34. 34. Confidence in peripheral countries’ finances deteriorates further, leading to an eventual disorderly default
  35. 35. Pressure intensifies to cut budget deficits rapidly in all major economies
  36. 36. Rising unemployment and business failures feed back into banking
  37. 37. New wave of loan losses for global banks leads to tighter credit conditions
  38. 38. Limited scope for monetary policy offset
  39. 39. Recession in USA
  40. 40. Risk premiums rise and global stock markets tumble again with falls in business confidence
  41. 41. Continued political deadlock between Democrats and Republicans leads to fiscal paralysis
  42. 42. Slump in labour market fuels household retrenchment and consumption falls
  43. 43. Renminbi rises sharply as trade pressures grow</li></ul>Bond market stress<br /><ul><li>China/Emerger hardlanding
  44. 44. Flight from risk leads to falling share & property prices
  45. 45. Commercial property crash & external weakness leads to banking sector stress
  46. 46. Investment slumps in China as government recapitalises banks
  47. 47. Asian supply chain effected as domestic engine of growth stalls
  48. 48. Oxford forecast
  49. 49. Gradual rise in business confidence encourages corporates to invest
  50. 50. But weak banks & excess capacity limit scale of investment recovery
  51. 51. Consumer spending recovery limited by pace of job growth and fiscal retrenchment
  52. 52. But recovery strong enough that fiscal crisis remains contained
  53. 53. Controlled debt restructuring</li></ul>Corporate confidence<br />
  54. 54. Downside risks to Oxford Economics’ forecast<br /><ul><li>Eurozone financial contagion
  55. 55. Confidence in peripheral countries’ finances deteriorates further, leading to an eventual disorderly default
  56. 56. Pressure intensifies to cut budget deficits rapidly in all major economies
  57. 57. Rising unemployment and business failures feed back into banking
  58. 58. New wave of loan losses for global banks leads to tighter credit conditions
  59. 59. Limited scope for monetary policy offset
  60. 60. Recession in USA
  61. 61. Risk premiums rise and global stock markets tumble again with falls in business confidence
  62. 62. Continued political deadlock between Democrats and Republicans leads to fiscal paralysis
  63. 63. Slump in labour market fuels household retrenchment and consumption falls
  64. 64. Renminbi rises sharply as trade pressures grow</li></ul>Bond market stress<br /><ul><li>China/Emerger hardlanding
  65. 65. Flight from risk leads to falling share & property prices
  66. 66. Commercial property crash & external weakness leads to banking sector stress
  67. 67. Investment slumps in China as government recapitalises banks
  68. 68. Asian supply chain effected as domestic engine of growth stalls
  69. 69. Oxford forecast
  70. 70. Gradual rise in business confidence encourages corporates to invest
  71. 71. But weak banks & excess capacity limit scale of investment recovery
  72. 72. Consumer spending recovery limited by pace of job growth and fiscal retrenchment
  73. 73. But recovery strong enough that fiscal crisis remains contained
  74. 74. Controlled debt restructuring</li></ul>Corporate confidence<br />
  75. 75. <ul><li>Oxford forecast
  76. 76. Gradual rise in business confidence encourages corporates to invest
  77. 77. But weak banks & excess capacity limit scale of investment recovery
  78. 78. Consumer spending recovery limited by pace of job growth and fiscal retrenchment
  79. 79. But recovery strong enough that fiscal crisis remains contained
  80. 80. Controlled debt restructuring</li></ul>Bond market stress<br />
  81. 81. Downside risks to Oxford Economics’ forecast<br /><ul><li>Eurozone financial contagion
  82. 82. Confidence in peripheral countries’ finances deteriorates further, leading to an eventual disorderly default
  83. 83. Pressure intensifies to cut budget deficits rapidly in all major economies
  84. 84. Rising unemployment and business failures feed back into banking
  85. 85. New wave of loan losses for global banks leads to tighter credit conditions
  86. 86. Limited scope for monetary policy offset
  87. 87. Recession in USA
  88. 88. Risk premiums rise and global stock markets tumble again with falls in business confidence
  89. 89. Continued political deadlock between Democrats and Republicans leads to fiscal paralysis
  90. 90. Slump in labour market fuels household retrenchment and consumption falls
  91. 91. Renminbi rises sharply as trade pressures grow</li></ul>Bond market stress<br /><ul><li>China/Emerger hardlanding
  92. 92. Flight from risk leads to falling share & property prices
  93. 93. Commercial property crash & external weakness leads to banking sector stress
  94. 94. Investment slumps in China as government recapitalises banks
  95. 95. Asian supply chain effected as domestic engine of growth stalls
  96. 96. Oxford forecast
  97. 97. Gradual rise in business confidence encourages corporates to invest
  98. 98. But weak banks & excess capacity limit scale of investment recovery
  99. 99. Consumer spending recovery limited by pace of job growth and fiscal retrenchment
  100. 100. But recovery strong enough that fiscal crisis remains contained
  101. 101. Controlled debt restructuring</li></ul>Corporate confidence<br />
  102. 102. <ul><li>Eurozone financial contagion
  103. 103. Confidence in peripheral countries’ finances deteriorates further, leading to an eventual disorderly default
  104. 104. Pressure intensifies to cut budget deficits rapidly in all major economies
  105. 105. Rising unemployment and business failures feed back into banking
  106. 106. New wave of loan losses for global banks leads to tighter credit conditions
  107. 107. Limited scope for monetary policy offset</li></ul>Bond market stress<br />
  108. 108. Downside risks to Oxford Economics’ forecast<br /><ul><li>Eurozone financial contagion
  109. 109. Confidence in peripheral countries’ finances deteriorates further, leading to an eventual disorderly default
  110. 110. Pressure intensifies to cut budget deficits rapidly in all major economies
  111. 111. Rising unemployment and business failures feed back into banking
  112. 112. New wave of loan losses for global banks leads to tighter credit conditions
  113. 113. Limited scope for monetary policy offset
  114. 114. Recession in USA
  115. 115. Risk premiums rise and global stock markets tumble again with falls in business confidence
  116. 116. Continued political deadlock between Democrats and Republicans leads to fiscal paralysis
  117. 117. Slump in labour market fuels household retrenchment and consumption falls
  118. 118. Renminbi rises sharply as trade pressures grow</li></ul>Bond market stress<br /><ul><li>China/Emerger hardlanding
  119. 119. Flight from risk leads to falling share & property prices
  120. 120. Commercial property crash & external weakness leads to banking sector stress
  121. 121. Investment slumps in China as government recapitalises banks
  122. 122. Asian supply chain effected as domestic engine of growth stalls
  123. 123. Oxford forecast
  124. 124. Gradual rise in business confidence encourages corporates to invest
  125. 125. But weak banks & excess capacity limit scale of investment recovery
  126. 126. Consumer spending recovery limited by pace of job growth and fiscal retrenchment
  127. 127. But recovery strong enough that fiscal crisis remains contained
  128. 128. Controlled debt restructuring</li></ul>Corporate confidence<br />
  129. 129. <ul><li>Recession in USA
  130. 130. Risk premiums rise and global stock markets tumble again with falls in business confidence
  131. 131. Continued political deadlock between
  132. 132. Slump in labour market fuels household retrenchment and consumption falls
  133. 133. Renminbi rises sharply as trade pressures grow</li></ul>Bond market stress<br />
  134. 134. Downside risks to Oxford Economics’ forecast<br /><ul><li>Eurozone financial contagion
  135. 135. Confidence in peripheral countries’ finances deteriorates further, leading to an eventual disorderly default
  136. 136. Pressure intensifies to cut budget deficits rapidly in all major economies
  137. 137. Rising unemployment and business failures feed back into banking
  138. 138. New wave of loan losses for global banks leads to tighter credit conditions
  139. 139. Limited scope for monetary policy offset
  140. 140. Recession in USA
  141. 141. Risk premiums rise and global stock markets tumble again with falls in business confidence
  142. 142. Continued political deadlock between Democrats and Republicans leads to fiscal paralysis
  143. 143. Slump in labour market fuels household retrenchment and consumption falls
  144. 144. Renminbi rises sharply as trade pressures grow</li></ul>Bond market stress<br /><ul><li>China/Emerger hardlanding
  145. 145. Flight from risk leads to falling share & property prices
  146. 146. Commercial property crash & external weakness leads to banking sector stress
  147. 147. Investment slumps in China as government recapitalises banks
  148. 148. Asian supply chain effected as domestic engine of growth stalls
  149. 149. Oxford forecast
  150. 150. Gradual rise in business confidence encourages corporates to invest
  151. 151. But weak banks & excess capacity limit scale of investment recovery
  152. 152. Consumer spending recovery limited by pace of job growth and fiscal retrenchment
  153. 153. But recovery strong enough that fiscal crisis remains contained
  154. 154. Controlled debt restructuring</li></ul>Corporate confidence<br />
  155. 155. <ul><li>China/Emerger hardlanding
  156. 156. Flight from risk leads to falling share & property prices
  157. 157. Commercial property crash & external weakness leads to banking sector stress
  158. 158. Investment slumps in China as government recapitalises banks
  159. 159. Asian supply chain effected as domestic engine of growth stalls</li></ul>Bond market stress<br />
  160. 160. Investor Implications<br />Inflation on the wane….but what about QE II?<br />Emerging markets look strong – but already on the slide/danger of a bubble (especially in real estate)<br />Corporate finances and profitability surprisingly good in western economies – by and large – but confidence lacking – and detailed research needed<br />Government bond rate normalisation will happen but not for several years<br />This document is for information purposes only. The information herein is believed to be correct, but cannot be guaranteed, and the opinions expressed in it constitute our judgement as of this date but are subject to change.  Reliance should not be placed on the information and opinions set out herein for the purposes of any particular transaction or advice. Oxford Economics cannot accept any liability arising from any use of this document.<br />

×