British GRI 2012 - Keynote Presentation

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British GRI 2012 - Keynote Presentation

  1. 1. European Sovereign Debt Crisis:Still Not ContainedPETR ZEMCIK, DIRECTOR Economic Outlook Conference, May 9-10, 2012
  2. 2. Global Business Cycle Status April 2012 Expansion Recovery At riskSource: Moody’s Analytics In recession 4
  3. 3. Fiscal Burden IncreasesGeneral government gross debt, % of GDP Greece Italy Ireland 2001 Portugal 2011E Belgium Euro area France U.K. Germany Spain Netherlands 0 50 100 150 200Sources: European Commission, Moody’s Analytics 5
  4. 4. European Firewalls May Not SufficeHow the EFSF and ESM Differ EFSF ESM Private company owned by euro IntergovernmentalInstitutional form zone states organization Guarantees and over-guarantees €80 billion paid-in capital,Capital structure from the euro zone countries €620 billion callable capital €440 billion; about €240 billion €500 billionLending capacity remains Funding costs + 200 bps for 3 Funding costs + 200 bpsLending costs years, 300 bps afterwardsDuration Until June 2013 From July 2012Financing Intergovernmental decision Linked to the TreatySources: European Financial Stability Facility, European Stability Mechanism, ECB,Moody’s Analytics 6
  5. 5. Macreconomic Imbalance Across EuropeCurrent account, % of GDPNetherlands Austria Germany Ireland Euro area Belgium France 2011E Spain U.K. 2012F Italy Greece Portugal -15 -10 -5 0 5 10Source: Moody’s Analytics 7
  6. 6. ECB Follows Taylor RulePolicy rates in %, actual rate for ECB, Taylor rule based otherwise12 ECB Germany10 Greece Euro zone 8 6 4 2 0-2-4-6 01Q3 03Q1 04Q3 06Q1 07Q3 09Q1 10Q3 12Q1Source: Moody’s Analytics 8
  7. 7. ECB Becomes the Lender of Last ResortGovernment bond yields, %7.5 25 ECB bond purchases, € bil (R)7.0 Italian 10-yr yield (L) 206.5 Spanish 10-yr yield (L)6.0 155.55.0 104.5 54.03.5 0 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12Sources: Bloomberg, Moody’s Analytics 9
  8. 8. Inter-Bank Lending Has Been ImprovingSpread in basis points180 LTROs160 Euribor-OIS140 Libor-OIS120100 80 60 40 20 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12Sources: Bloomberg, Moody’s Analytics 10
  9. 9. Banks Park Large Sums on ECB’s DepositsDeposit facility, € mil1,000 900 800 700 600 500 400 300 200 100 0 Aug Sep Oct Nov Dec Jan Feb Mar AprSources: Moody’s Analytics, ECB 11
  10. 10. Bond Yields Remain ElevatedGeneric 10-year government bond yields, %20 40 LTROs18 35 Italy (L)16 Spain (L) 3014 Portugal (L) 2512 Greece (R) 2010 15 8 10 6 5 4 0 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12Sources: Bloomberg, Moody’s Analytics 12
  11. 11. Credit To Private Sector Is TighteningNet % of the euro zone banks reporting4035 Tightening of credit lines30 Expected tightening of credit lines25201510 5 0 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1Sources: ECB, Moody’s Analytics 13
  12. 12. Inflation Expectations Remain Subdued in EuropeHCPI forecast, % change2.5 One year ahead Two years ahead2.01.51.0 99 00 01 02 03 04 05 06 07 08 09 10 11Sources: ECB, Moody’s Analytics 14
  13. 13. Most Euro Zone Countries Are in DeficitFiscal balance in 2011, % of GDP Ireland Greece Cyprus Spain Portugal France Slovakia SloveniaNetherlands Italy Belgium Austria Malta Germany FinlandLuxembourg Estonia -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1Sources: European Commission, Moody’s Analytics 15
  14. 14. Further Sharp Fiscal Consolidation RequiredBudget deficit, % of GDP12 31.3% 2010 2011E 2012F 2013F 2014F 2015F1110 Maximum deficit allowed 9 under EU fiscal rules 8 7 6 5 4 3 2 1 0 Ireland Greece Portugal Spain France ItalySources: Eurostat, Moody’s Analytics 16
  15. 15. French and German Banks Highly ExposedHoldings of foreign debt, % of total, as of end Sep 201140 French banks German banks353025201510 5 0 Greece Ireland Portugal Italy SpainSources: Bank for International Settlements, Moody’s Analytics 17
  16. 16. Fiscal Tightening Has Hurt Greece’s Economy% 8 4 0 -4 -8 Ratio of fiscal deficit to GDP-12 Annual GDP growth-16 01 02 03 04 05 06 07 08 09 10 11ESources: OECD, Moody’s Analytics 18
  17. 17. Outside Strength May Provide a BolsterOECD composite leading indicator index105104103102101100 99 OECD U.S. Japan Russia 98 G7 Euro zone 97 10 11 12Sources: OECD, Moody’s Analytics 19
  18. 18. The Majority of Germany Exports Go to EuropeExport share by destination, 2010 Euro zone 29% 41% Rest of Europe Other 30%Sources: German Federal Statistics Office, Moody’s Analytics 20
  19. 19. Euro zone Crisis ScenarioReal GDP, rebased 2008Q1=100105 Euro zone baseline Euro zone crisis100 95 90 08 09 10 11 12F 13F 14FSource: Moody’s Analytics 21
  20. 20. Europe Falling Behind the RestReal GDP, rebased 2008Q1=100115 Euro zone Germany France110 Italy U.K. U.S. World105100 95 90 08 09 10 11F 12F 13FSources: National Statistical Offices, Moody’s Analytics 22
  21. 21. Greece and Portugal Stuck Deep in RecessionGDP, % change yr ago 6 Greece Ireland Portugal 4 2 0-2-4-6-8 07 08 09 10 11 12F 13F 14FSources: Eurostat, National Statistics Offices, Moody’s Analytics 23
  22. 22. Polish Economy Outperforms CEReal GDP growth, % change yr ago5 Poland Czech Republic4 Hungary3 Germany210-1 10 11 12F 13FSources: National Statistical Offices, Moody’s Analytics 24
  23. 23. CE Capitals Less Exposed to Fiscal RiskEmployment, public admin. & community service, % of total 2008 The Hague Rome Brussels BerlinCopenhagen London Paris Helsinki Lisbon Vienna Madrid Athens Stockholm Warsaw Vilnius Ljubljana Central Bratislava Riga Europe Bucharest Prague 0 5 10 15 20 25 30 35 40 45Source: Eurostat 25
  24. 24. European cities Real GDP, SA, 2008 Q1=100110 Moscow Berlin105 London Paris100 Rome 95 90 85 * forecasts 80 75 70 08Q1 08Q4 09Q3 10Q2 11Q1 11Q4* 12Q3* 13Q2* Source: Moody’s Analytics 26
  25. 25. Moscow & London Defy Country TrendsAverage quarterly y/y change of the house prices, % Vienna Gothenburg Mosow Stockholm 2003Q1-2008Q2 Bergen 2008Q3-2011Q4 Antwerpen Oslo Brussels London Budapest Paris St. Petersburg Prague* Barcelona Warsaw* Athens* Madrid Sofia Notation: Tallin* * data begins after 2003Q1 Dublin** ** data until 2010Q4 -15 -10 -5 0 5 10 15 20 25 30 35 40Source: Moody’s Analytics, Bank of International Settlements 27
  26. 26. Scandinavian House Prices Overtake GDPRatio of house prices to GDP per capita1.6 Bergen (NOR) Oslo (NOR)1.51.4 Goethenburg (SWE) Stockholm (SWE)1.31.21.1 10.90.80.70.6 02Q1 03Q1 04Q1 05Q1 06Q1 07Q1 08Q1 10Q3 11Q3Sources: Moody’s Analytics 28
  27. 27. Swiss Real Estate Prices Rise 2002Q1=100, Owner-occupied Houses130 Price To Per Capita125 GDP120 Price To Rent1151101051009590 02 03 04 05 06 07 08 09 10 11 Sources: SNB, Moody’s Analytics 29
  28. 28. Geneva and West Lead The Way Prices Single-Family Houses, 2002=100190 Zurich East Central Northwest Bern South170 Geneva West15013011090 02 06 10 Sources: SNB, Moody’s Analytics 30
  29. 29. In the U.K., Only London Remains Buoyant…Median sales price, existing homes, 2008Q3=100120 Birmingham Bristol Cardiff115 Leeds London Manchester Newcastle110105100 95 90 Forecast 85 08Q3 09Q3 10Q3 11Q3 12Q3Sources: DCLG, Moody’s Analytics 31
  30. 30. …But in Spain, Madrid Is Almost the WeakestMedian sales price, existing homes110 Asturias Barcelona105 Bilbao Madrid Malaga Las Palmas100 95 90 85 80 75 Forecast 70 08Q3 09Q3 10Q3 11Q3 12Q3Sources: INE Spain, Moody’s Analytics 32
  31. 31. United States www.economy.com121 North Walnut StreetSuite 500West Chester, PA 19380+1.610.235.5299United KingdomOne Canada SquareCanary WharfLondon E14 5FA+44.20.7772.5454AustraliaLevel 101 OConnell StreetSydney, NSW, 2000Australia+61.2.9270.8111
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