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Eiu global outlook oct 2010 public
 

Eiu global outlook oct 2010 public

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    Eiu global outlook oct 2010 public Eiu global outlook oct 2010 public Presentation Transcript

    • Hope, headwinds or hurricanes? Charting a course for the global economy Robert Powell Senior Editor/Economist Chicago October 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 170 160 150 140 130 120 110 100 90 80 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% US China -15% Euro India -20% -25% Jan-05 Sep-05 Jan-06 Sep-06 Jan-07 Sep-07 Jan-08 Sep-08 Jan-09 Sep-09 Jan-10 May-05 May-06 May-07 May-08 May-09 May-10 % change, year over year in production volumes, Source: National governments, Haver
    • … and borrowing costs are mostly contained Post-Lehman Bros panic 5 Spread between the cost of government 4.5 borrowing and private-sector borrowing, basis points 4 Federal Reserve intervenes 3.5 3 2.5 Stimulus plans Greece, EU feed through debt crisis 2 1.5 1 0.5 0 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 3-month US$ LIBOR minus 3-month US Treasuries Source: Haver
    • Why the bounce-back? Too fast, too hard Firms cut back very aggressively in a climate of fear and panic o Overdid it o Correcting inventory overhang International rescue o Interest rates slashed o Printing money o Government spending splurge o Tax cuts o Bank bailouts Emerging market serenity o Domestic demand o More trade amongst themselves o Less banking stress
    • Global outlook: Upswing, but uneven Developed 10 Emerging 8 World 6 4 2 0 Credit -2 crunch starts -4 -6 99 Q1 99 Q3 00 Q1 00 Q3 01 Q1 01 Q3 02 Q1 02 Q3 03 Q1 03 Q3 04 Q1 04 Q3 05 Q1 05 Q3 06 Q1 06 Q3 07 Q1 07 Q3 08 Q1 08 Q3 09 Q1 09 Q3 10 Q1 10 Q3 11 Q1 11 Q3 GDP growth, % year on year Source: EIU estimates
    • US, Europe and Japan
    • US: Weakening after strong surge… … as pent-up demand, stimulus Real GDP growth, % change fade; growth will average 2.3% 10 for the year 8 6 Inventories tell the tale Re-stocking contributed 4 around 60% of growth on 2 average in last 3 qtrs 0 But investment spending up -2 Equipment and software rose -4 Recessions 20%-plus in last two qtrs; most in four years -6 -8 Consumers fading again? 2000q1 2001q2 2002q3 2003q4 2005q1 2006q2 2007q3 2008q4 2010q1 Spending rose by 2% in Q2 % change year on year Source: Bureau of Economic Analysis
    • Jobs market remains tough US jobs market 600 12 400 10 200 8 0 -200 6 -400 4 -600 Net new jobs 2 -800 Unemployment rate -1,000 0 2000 - Nov 2002 - Jul 2005 - Nov 2007 - Jul 2000 - Jan 2005 - Jan 2010 - Jan 2001 - Sep 2006 - Sep 2004 - Mar 2009 - Mar 2003 - May 2008 - May Jobs in ‘000s; unemployment, %. Source: Bureau of Labor Statistics.
    • 500 700 900 1,100 1,300 1,500 1,700 1,900 2,100 2,300 2,500 1959 - Q1 1961 - Q1 1963 - Q1 1965 - Q1 Source: Bureau of the Census 1967 - Q1 US housing starts, ‘000s, SAAR. 1969 - Q1 1971 - Q1 1973 - Q1 1975 - Q1 1977 - Q1 1979 - Q1 1981 - Q1 1983 - Q1 1985 - Q1 1987 - Q1 1989 - Q1 US: Housing still very weak… 1991 - Q1 1993 - Q1 1995 - Q1 1997 - Q1 1999 - Q1 2001 - Q1 2003 - Q1 2005 - Q1 2007 - Q1 2009 - Q1
    • Home foreclosures still awful 400000 1H 2010 foreclosures: 1,961,000, and more than 1m in Q3 350000 Worse than last year 300000 1 in 4 mortgage holders with negative 250000 equity Pent-up listings will keep homes 200000 coming to market, restraining prices 150000 Yes, housing has stabilised 100000 But new home sales are moribund 50000 Prices are largely stagnant Nationally, 14+% of mortgages 0 delinquent or foreclosed 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 “Delay and Pray” Foreclosure rate: % change, year on year Source: Realty Trac
    • Euro area: Worst crisis ever…but signs of life 150 Germany Spain Debt sinking the periphery 145 Greece Ireland Bailout has helped, but… 140 … only buying time; massive 135 fiscal adjustment required 130 Must improve competitiveness 125 But Germany is rebounding 120 Exports, business investment, 115 stockbuilding 110 But unemployment is high, 105 consumers hesitant 100 Less impressive in rest of EU 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Second quarter 2010? As good as it will get Real private consumption, 2000 Q1=100. Source: Economist Intelligence Unit, CountryData.
    • Euro zone: Acropolis Now? Liquidity 11 Cut out of capital markets 9 Fixed by the $1trn bailout? 7 Solvency Greece is almost certainly 5 insolvent Less clear about the others 3 o Interest costs, growth, fiscal tightening 1 The outcome -1 Low growth for years to come J a n -0 8 M a r-0 8 M a y -0 8 J u l-0 8 S e p -0 8 N o v -0 8 J a n -0 9 M a r-0 9 M a y -0 9 J u l-0 9 S e p -0 9 N o v -0 9 J a n -1 0 M a r-1 0 M a y -1 0 J u l-1 0 S e p -1 0 Structural reform; wage cuts Default (restructuring) Italy Portugal Greece Spain Ireland Monetary AND fiscal union?? Euro exit Spreads of 10-year govt bonds over German bunds. Percentage points. Source: Haver.
    • Japan Foreign demand supports growth 2.5 Output per worker Helped by fiscal leakage elsewhere Yen a significant risk 2.0 But firms are profitable and can take some pain Structural issues cloud picture 1.5 Declining population Renewed deflation 1.0 Fiscal woes Cash cow country? 0.5 Japan Japan measures up on traditional US measures of economic efficiency 0.0 ◦ But declining workforce means 1990 1993 1996 1999 2002 2005 2008 poor top-line performance Labour productivity growth, % change
    • Emerging markets
    • Asia: Powering ahead 25 China Hong Kong India 20 Indonesia Malaysia Philippines Singapore Taiwan Thailand 15 10 5 0 -5 -10 -15 Q1-00 Q4-00 Q3-01 Q2-02 Q1-03 Q4-03 Q3-04 Q2-05 Q1-06 Q4-06 Q3-07 Q2-08 Q1-09 Q4-09 Real GDP, % change on year earlier, Haver
    • But Asian governments are in driver’s seat Robust recovery in train 7 Expanding fiscal deficits Only a gentle slowdown 6 next year 5 Policy stimulus is the key 4 Domestic recovery stronger 3 than usual 2 China acting as a boost to rest of region 1 Asian and trading partner 0 stimulus accounts for half na Th re a do ia M sia nd of GDP growth Si ysi d o hi la ne In ap a C ai al ng In 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 circumstances Fiscal 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? 2000 14 Why are investors worried? New loans 12 Inflationary asset price bubble US-style property crisis 1500 House 10 Government inspired crash prices 8 Government also worried about: 1000 Poor allocation of capital 6 Inflation causing social ills 4 Government has reacted 500 Have the brakes have gone on 2 too hard? 0 ◦ Government can step in 0 again if necessary 11/30/2000 8/31/2001 5/31/2002 2/28/2003 11/30/2003 8/31/2004 5/31/2005 2/28/2006 11/30/2006 8/31/2007 5/31/2008 2/28/2009 11/30/2009 -2 Will all the lending of 2009 turn sour? -500 -4 New loans, m RMB; House prices,% change YoY. Source China Economic Info Net, Natl Reform and Development Commission
    • India: Outperforming China—one day Strong prospects 190 Population India Median age: 24 years (1990=100) 170 India will have world’s largest population in 2030s, overtaking China 150 India will be growing more rapidly than China by 2018 130 China Labour-force growth to remain strong while China, others see 110 decline Challenges 90 Absorbing labour force growth Russia will be challenge in absence of 70 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 sufficient education, structural change Fiscal consolidation is needed Source: Economist Intelligence Unit.
    • Latin America has shown resilience 16,000 GDP/head PPP 7 Region will grow by 4-5% in 2010 GDP growth Brazil: outsized performance 6 14,000 5 12,000 Countries linked to the US are doing 4 better than expected 10,000 3 Mexico will grow 4.7% this year 8,000 2 ◦ Will feel the effects of US slowdown in 2011 1 6,000 Regionally, not back to boom years 0 4,000 But better fiscal positions -1 Flexible exchange rates 2,000 -2 Better trade performance 0 -3 Countries with Asian exposure further ahead 2001 2003 2005 2007 2009 2011 2013 ◦ 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: €1 2011: Av: US$1.40: €1 2012: Av: US$1.15: €1 • Pity the yen Racing up against the € and keeping up with the US$. Bad news for Japan’s exporters and for its deflation Emerging markets RMB “wobbly peg” to US$ EMs to depend on risk tolerance
    • Oil price outlook: Long term 120 Weaker demand will restrain prices in the medium term; they will rise thereafter as broad-based growth returns, and EMs accelerate 100 80 60 40 20 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Oil price: Brent dated, US$/barrel; % change, year on year. Source: Economist Intelligence Unit
    • Where’s the growth? 2009 2010 2011 8 6 4 2 0 -2 -4 -6 -8 st N IS na S a K a a n pe e ic di ic U n A pa U Ea C hi ro zo er SE In fr Ja C A Eu m le ro A d A Eu E id tin M La Real GDP growth; % change, year on year. ASEAN = Assoc of South East Asian Nations. CIS = Russia, Ukraine etc. Source: EIU, CountryData.
    • Overtaken by events: China takes the lead 40,000 GDP; nominal; US$ bn CHINA 35,000 GERMANY INDIA 30,000 JAPAN 25,000 UNITED STATES 20,000 15,000 10,000 5,000 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 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 Donahue Market Development Manager Economist Intelligence Unit hollydonahue@economist.com 1 (212) 541 - 0596