SlideShare a Scribd company logo
1 of 4
Download to read offline
US rate rise impacts, G7 growth rankings
and the ongoing crisis in Greece
Visit our blog for periodic updates at:
pwc.blogs.com/economics_in_business
Fig 1: The US policy rate is expected to rise to around 3.75% by the end of 2020
Sources: PwC analysis, Federal Reserve, Datastream
Global Economy Watch
July 2015
Kind regards,
Richard Boxshall
PwC | Senior Economist
Dear readers,
Before the end of this year, the Federal Reserve is expected to raise interest rates
for the first time in almost a decade. This will be an important event not just for
the US, but for the global economy. We have analysed the potential impact on
US households and businesses if interest rates rise to 3.75% by the end of 2020,
in line with US policymakers’ expectations. We conclude that this impact will be
relatively limited as households and businesses have restructured and brought
down their dependency on debt. Instead, based on research in our May edition
of the Global Economy Watch (GEW), we think that the biggest impact of the
Fed’s rate rise may be felt outside the US, particularly in emerging markets.
With interest rates on our mind, we have also explored why businesses have
been hoarding their cash at a time when the returns on it have been so low. We
suggest that there are three reasons why they have done so: caution, a low
growth environment and the anticipation of higher interest rates. Interest rates
are likely to rise soon, and we anticipate that the pick-up in growth which will
lead to this will also see businesses start to invest more. This may be the signal
that businesses have been waiting for to start to spend some of their cash. The
years of cash hoarding can’t last forever.
As we enter the second half of 2015, it looks as if the UK and US are caught in a
battle for the title of ‘fastest growing G7 economy’. We expect the UK to come
out on top for the second year in a row, with growth of around 2.6%. While in
the US, economic growth is projected to be around 2.3% after a disappointing
start to the year.
Finally, I couldn’t write this letter without mentioning Greece. Its future in the
Eurozone is beginning to look more stable, with the announcement of a deal that
could lead to another bailout. However, there are still some steps to take before
a Greek exit can be completely ruled out. In the now less likely event that this
does occur, our expectation would be that the wider Eurozone would come
through a Greek exit relatively unharmed with economic growth remaining
positive both this year and next (see our March edition of the GEW).
0
2
4
6
8
10
12
14
16
18
20
1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019
UpperlimitoftheFederalReservetarget
forthefederalfundsrate(%)
1973: First oil
price shock
1979: Second oil
price shock
2000: Dotcom
bubble bursts
Note: Chart shows the interest rate at the end of December of the year on the axis
Main
scenario
2008: Financial
crisis begins
Can anyone catch the US?
Since 1980, the US has topped the G7 economic growth league table on 12 occasions, far
more than any other country in the group (see Figure 2). It has also been the only G7
economy that has never ended up at the bottom of the growth league table in any year.
As far as competition is concerned, the closest rival to the US is Japan, which topped
the rankings as the fastest growing economy on seven occasions. However, six of these
occasions occurred back in the 1980s before the beginning of Japan’s ‘lost decade’.
Canada and Germany have also had their share of strong years, but not as consistently
as the US (though the latter may be flattered by relatively high population growth
boosted by immigration – something also seen more recently in the UK).
Who will top the table in 2015?
Based on our current projections, the UK is expected to top the table this year, although
at this stage it is still too early to call with any great confidence. UK economic growth is
expected to be around 2.6% while GDP growth in the US, the UK’s biggest rival for first
place, is projected to be around 2.3%. If the UK does comes out on top, it will be the
second year in a row that it has been the fastest growing G7 economy.
Perhaps the biggest risk to another UK success relates to spillover effects from the
macroeconomic and political uncertainty in the Eurozone. This could have an adverse
impact on UK exports to the bloc, which would pull down growth. However, the strong
dollar is also expected to act as a drag on US exports, while domestic demand growth
remains relatively strong in the UK.¹
¹We will provide a much more detailed review of the UK’s economic prospects in our next UK
Economic Outlook report, which is scheduled for release on 21 July.
Fig 2: It would take at least 6 years before anyone
could displace the US from the top of the rankings
Source: PwC analysis, IMF
Economic update: who will top the G7 economic
growth league table?
S 7
m
Since the beginning of the financial crisis,
businesses in many countries have increased
their cash holdings. Figure 3 looks at non-
financial corporations (NFCs) holdings of cash as
a percentage of GDP in the US, the UK and the
three largest Eurozone countries for which data
were available. Our analysis shows that, since the
financial crisis, NFCs relative cash holdings have
increased in all of the economies in our sample
with the exception of Spain. Specifically, the
largest increase was recorded in France (9.5
percentage points) while the smallest increase
was recorded in Germany (0.4 percentage
points).
Why does this matter?
Before the financial crisis, a small return could be
made on cash. But recent low interest rates have
meant this is no longer possible. Instead of
hoarding this cash, businesses could do one of
two things with it:
• Invest: Investing in new capital, research and
development or staff training could provide a
rates and cheap finance will not last forever.
Building up cash has been a way of preparing
for an interest rate rise. These reserves can be
used to pay future higher debt costs, or to
offset some of the need for future borrowing.
As a result, tighter monetary policy is
expected to have a more limited impact on
businesses and allow them to devise growth
strategies without the burden of higher debt
costs hanging over them.
Businesses getting ready to pounce?
The shrinking output gap in most of the
economies we have looked at means that
businesses and government will need to invest
to increase the productive capacity of the
economy. This means that companies might
start to run down some of their large cash
reserves quite soon. Businesses have been
patient and cautious, but this can’t go on
forever.
long-term benefit to the economy through
increased labour productivity.
• Return it to investors: Giving money back to
investors could boost consumption if they
choose to spend it, or business activity if they
invest in organisations looking to expand.
Either way, these macroeconomic benefits are not
being realised while businesses are holding this
cash. Businesses and investors could make more
of a return on this asset.
Why are businesses doing this?
Building up excess cash reserves seems to go
against the economic theory that all agents are
profit maximising. Nevertheless, businesses have
decided to hold cash. We suggest there are three
reasons why they have done so:
• Caution: The financial crisis was a source of
great pain and uncertainty for many businesses.
As a result, business leaders have become more
cautious. Businesses have held on to liquid
assets (e.g. cash) because they protect against a
liquidity squeeze and provide a buffer against
adverse economic shocks. This means that
businesses have increased their probability of
surviving another economic downturn.
• Low growth environment: The recent
economic downturn has rumbled on for longer
than initially expected. For example, Figure 4
shows how the 2014 advanced economies GDP
growth rate that was expected in 2010-11 did not
materialise. Also, since 2009 some economies
have had a negative output gap, meaning output
has been below its potential level. This means
that companies haven’t had to invest their cash
due to spare capacity existing in the economy.
However, the cash that companies have saved
means that, when they want to undertake large-
scale investment projects, they will be able to do
so.
• Anticipation of higher interest rates:
Businesses know that the years of low interest
Fig 3: Many businesses have been
hoarding cash since the financial crisis
Sources: PwC analysis, Federal Reserve, Eurostat
Why are businesses hoarding cash?
0
2
4
6
8
10
12
14
Numberoftimestheeconomyhastopped
theG7growthleague
Fig 4: 2014 advanced economies GDP
growth was lower than early projections
Source: IMF
1.0
1.5
2.0
2.5
3.0
2014advancedeconomiesreal
GDPgrowthprojectons(%)
Long-term average
5%
10%
15%
20%
25%
30%
35%
2000
Q1
2002
Q1
2004
Q1
2006
Q1
2008
Q1
2010
Q1
2012
Q1
2014
Q1
NFCcurrencyanddeposits(%of
GDP)
US UK Germany
France Spain
Collapse of
Lehman Brothers
Fed ready to raise rates – what will be the impact
on the US and global economies?
Watch out for the Fed policy action later in the year
One of the biggest economic events of 2015 is likely to be the Fed hiking up
its policy rate later in the year. Assuming this happens, this will be
particularly important because what the Fed does matters for the global
economy, not just the US. It will also be a symbolic event as the policy rate
hasn’t increased for almost a decade.
So what will the impact of a higher interest rate be on domestic businesses
and households? Our analysis assumes that the Fed’s interest rate will hit
the 3.75% mark by the end of 2020 (see Figure 1). This view was informed
by US policymakers who expect the policy rate to hit that level in the long-
term (according to information from Fed projections).
US households insulated from rate rise
In the years following the financial crisis, US households have reduced their
dependency on debt (see Figure 5) and our analysis suggests that they will
be largely shielded from Fed action. In the US, around 83% of mortgage
debt is tied up in fixed rate agreements, so most homeowners have hedged
against future rate rises for the duration of their loans. On the flip-side, the
minority of mortgage holders on variable contracts will be the ones exposed
to a rate hike. Assuming this is the case, we think that mortgage interest
payments will be around $60 billion higher by 2020 (see Figure 6). This
equates to less than 0.5% of current US GDP. At a macro-level, and
assuming real wages continue to grow, aggregate household disposable
income will remain relatively unaffected by tighter monetary policy.
What does this mean for the Fed? The main channel through which a tighter
monetary policy works is by raising the cost of borrowing, thus putting the
brakes on household consumption, which makes up around 70% of
economic activity. If this transmission mechanism is weakened, then the
Fed might have to increase its rates faster than it had initially planned.
Business expenditure on higher interest payments around 1% of
US GDP
So, what about businesses? There is some evidence which suggests the
financial crisis changed the capital structure of companies. For example,
Figure 5 shows business debt has dropped from 73% of GDP at the end of
2008 to 69% today. At face value this suggests business activity is less
sensitive to the Fed’s policy decisions.
The direct impact of a rate rise on US businesses largely depends on the
maturity profile of their debt. Our scenario based analysis in Figure 7
suggests that, in a case where 50% of business debt is refinanced (and so
subject to higher interest rates), businesses would have to pay around an
additional 1% of current US GDP in interest payments each year. However,
this is a relatively extreme scenario.
The bigger implication on US businesses is expected to be felt via the dollar
rising, which makes local goods and services more expensive on
international markets.
Emerging markets should watch out
The Fed’s policies don’t just have an impact on the US economy. The
dollar’s unique role as the world’s reserve currency means that monetary
policy decisions in the US have consequences for the global economy.
The expectation of higher policy rates in the US has already had an impact
on the value of the dollar, which has increased by around 19% in trade-
weighted terms since July 2014. This is a worrying sign for some emerging
economies that have binged on cheap dollar debt to fund either large scale
investment projects or consumption. In our May 2015 Global Economy
Watch we looked at the vulnerability of 14 emerging markets with regards to
their holdings of this debt. We found that Turkey is particularly vulnerable
to a strong dollar while other large emerging markets, such as Brazil and
Indonesia, are worth keeping an eye on. In short, we think the biggest
impact of the Fed’s monetary policy may be felt outside the US, and in
particular, in emerging markets.
Fig 5: US households and businesses have restructured
their finances so are less exposed to rising debt costs
Fig 6: Even with a rate rise, mortgage interest
payments in 2020 could be 25% below their 2007 peak
Fig 7: The average annual additional cost to businesses
of a rate rise could be between 0.2%-0.8% of GDP
Sources: PwC analysis, Federal Reserve, Federal Reserve Bank of
New York, US BEA, Datastream
Note: Data is for the end of the calendar year
Sources: PwC analysis, US BEA
Sources: PwC analysis, Federal Reserve
0%
2%
4%
6%
8%
10%
12%
14%
0
100
200
300
400
500
600
700
1980 1985 1990 1995 2000 2005 2010 2015 2020
InterestrateonmortgagesintheUS
MortgageinterestpaidintheUS($bn)
Mortgage interest paid Interest rate on mortgages
Scenario
60%
65%
70%
75%
80%
85%
90%
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Q1
2014
Q1
2015
Q1
DebttoGDPratio
Nonfinancial businesses Households
0
50
100
150
200
250
2015 2016 2017 2018 2019 2020
Increaseinnonfinancialbusinesses
interestpayments($bn)
10% of outstanding debt subject to higher interest rate
25% of outstanding debt subject to higher interest rate
50% of outstanding debt subject to higher interest rate
PPP MER 2014 2015p 2016p 2017-2021p 2014 2015p 2016p 2017-2021p
Global (Market Exchange Rates) 1 00% 2.8 2.7 3.2 3.1 2.3 1 .8 2.6 2.5
Global (PPP rates) 1 00% 3.4 3.3 3.8 3.6
United States 1 6.1 % 22.5% 2.4 2.3 2.7 2.5 1 .6 0.2 1 .8 1 .9
China 1 6.3% 1 3.4% 7 .6 7 .0 7 .0 5.7 2.1 1 .9 1 .8 3.0
Japan 4.4% 6.0% -0.1 1 .1 1 .7 1 .3 2.7 1 .4 1 .5 1 .9
United Kingdom 2.4% 3.8% 3.0 2.6 2.4 2.3 1 .5 0.3 1 .7 2.0
Eurozone 1 2.2% 1 7 .4% 0.9 1 .5 1 .7 1 .8 0.5 0.1 1 .4 1 .4
France 2.4% 3.7 % 0.4 1 .3 1 .4 1 .9 0.6 0.1 1 .1 1 .2
Germany 3.4% 5.0% 1 .6 1 .7 1 .9 1 .6 0.8 0.2 1 .8 1 .7
Greece 0.3% 0.3% 0.7 -1 .5 0.7 2.5 -1 .4 -0.8 0.3 1 .4
Ireland 0.2% 0.3% 4.8 3.4 3.4 2.5 0.3 0.2 1 .1 1 .5
Italy 2.0% 2.8% -0.4 0.6 1 .2 1 .3 0.2 -0.1 1 .8 1 .4
Netherlands 0.7 % 1 .1 % 0.8 1 .4 1 .6 1 .9 1 .0 1 .2 1 .1 1 .3
Portugal 0.3% 0.3% 0.9 1 .5 1 .7 1 .8 -0.2 0.1 0.8 1 .5
Spain 1 .5% 1 .8% 1 .4 3.0 2.4 2.2 -0.2 -0.8 1 .0 1 .2
Poland 0.9% 0.7 % 3.3 3.4 3.5 3.2 0.2 -0.1 1 .7 2.5
Russia 3.3% 2.4% 0.2 -5.0 -0.5 1 .9 7 .8 1 5.0 8.0 4.3
Turkey 1 .4% 1 .0% 2.9 2.8 3.5 3.7 8.9 7 .7 6.8 6.2
Australia 1 .0% 1 .9% 0.7 2.9 2.0 2.9 2.6 2.5 2.6 2.5
India 6.8% 2.7 % 7 .0 7 .5 7 .9 6.1 3.8 -2.2 3.9 6.0
Indonesia 2.5% 1 .1 % 1 .2 4.9 5.0 5.4 6.4 6.8 5.8 5.1
South Korea 1 .6% 1 .8% 3.3 3.1 3.5 3.5 1 .3 1 .0 2.0 2.9
Argentina 0.9% 0.7 % 0.5 0.8 1 .8 2.1 - 20.0 25.0 -
Brazil 3.0% 3.0% 0.1 -0.9 0.7 3.1 6.3 8.0 6.0 4.8
Canada 1 .5% 2.3% 2.4 1 .4 2.2 2.2 1 .9 0.9 1 .9 2.1
Mexico 2.0% 1 .7 % 2.1 2.7 3.3 3.9 4.0 3.0 3.3 3.1
South Africa 0.7 % 0.5% 1 .5 1 .8 2.0 3.2 6.1 4.8 5.6 5.3
Nigeria 1 .0% 0.7 % 6.2 4.0 4.5 6.0 8.1 1 0.5 1 0.0 7 .3
Saudi Arabia 1 .5% 1 .0% 3.5 2.6 3.0 4.4 2.7 2.3 3.0 3.4
Share of 2014 world GDP Real GDP growth Inflation
Projections: July 2015
Sources: PwC analysis, National statistical authorities, Datastream and IMF. All inflation indicators relate to the Consumer Price Index (CPI), with the exception of
the Indian indicator which refers to the Wholesale Price Index (WPI). Argentina's inflation projections use the IPCNu Index. We will provide a 2017-2021 inflation
projection once a longer time series of data is available. There is not a complete series of year-on-year price growth data available for 2014 so we have not provided
an estimate for annual inflation in this year. Also note that the tables above form our main scenario projections and are therefore subject to considerable
uncertainties. We recommend that our clients look at a range of alternative scenarios.
Interest rate outlook of major economies
Current rate (Last change) Expectation Next meeting
Federal Reserve 0-0.25% (December 2008) Rate to start to rise later in 2015 28-29 July
European Central Bank 0.05% (September 2014) Rate on hold until at least late 2016 16 July
Bank of England 0.5% (March 2009) First rate rise expected in 2016 6 August
Richard Boxshall
T: +44 (0) 20 7213 2079
E: richard.boxshall@uk.pwc.com
Conor Lambe
T: +44 (0) 20 7212 8783
E: conor.r.lambe@uk.pwc.com
Barret Kupelian
T: + 44 (0) 20 7213 1579
E: barret.g.kupelian@uk.pwc.com
The GCI is a monthly updated index providing an early steer on consumer spending and
growth prospects in the world’s 20 largest economies. For more information, please visit
www.pwc.co.uk/globalconsumerindex
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this
publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this
publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any
consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
© 2015 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate
legal entity. Please see www.pwc.com/structure for further details.
We help you understand how big economic, demographic, social, and environmental changes affect your organisation by setting out scenarios that
identify growth opportunities and risks on a global, regional, national and local level. We help make strategic and tactical operational, pricing and
investment decisions to support business value creation. We work together with you to achieve sustainable growth.
PwC’s Global Consumer Index
After a brief recovery, the GCI declined
once more in June. The new data reflects
less buoyant equity markets and consumer
confidence in response to increasing
macroeconomic uncertainty, particularly in
Europe. This could deteriorate further
depending on the outcome of the Greek
sovereign debt crisis. There are some signs
of improving industrial production in Asia,
which may provide a small boost to the
GCI in the medium-term.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
YoYgrowth
Long-term growth
1.7%

More Related Content

More from PwC España

Clarity from above
Clarity from aboveClarity from above
Clarity from abovePwC España
 
Business through new lens
Business through new lensBusiness through new lens
Business through new lensPwC España
 
Fundaciones corporativas-alma-empresas
Fundaciones corporativas-alma-empresasFundaciones corporativas-alma-empresas
Fundaciones corporativas-alma-empresasPwC España
 
Empleo futuro-sector-audiovisual
Empleo futuro-sector-audiovisualEmpleo futuro-sector-audiovisual
Empleo futuro-sector-audiovisualPwC España
 
Pwc fintech-global-report-2016
Pwc fintech-global-report-2016Pwc fintech-global-report-2016
Pwc fintech-global-report-2016PwC España
 
Total retail-2016
Total retail-2016Total retail-2016
Total retail-2016PwC España
 
Modern mobility: Moving women with purpose
Modern mobility: Moving women with purposeModern mobility: Moving women with purpose
Modern mobility: Moving women with purposePwC España
 
'¿Moda por un tubo? La relación con el cliente omnicanal en el sector moda en...
'¿Moda por un tubo? La relación con el cliente omnicanal en el sector moda en...'¿Moda por un tubo? La relación con el cliente omnicanal en el sector moda en...
'¿Moda por un tubo? La relación con el cliente omnicanal en el sector moda en...PwC España
 
Tendencias emergentes-sector-inmobiliario-europa-2016
Tendencias emergentes-sector-inmobiliario-europa-2016Tendencias emergentes-sector-inmobiliario-europa-2016
Tendencias emergentes-sector-inmobiliario-europa-2016PwC España
 
19th annual global ceo survey-jan2016
19th annual global ceo survey-jan2016 19th annual global ceo survey-jan2016
19th annual global ceo survey-jan2016 PwC España
 
Baremo concursal-2015
Baremo concursal-2015Baremo concursal-2015
Baremo concursal-2015PwC España
 
Observatorio-industria-hotelera-invierno-2015-2016
Observatorio-industria-hotelera-invierno-2015-2016Observatorio-industria-hotelera-invierno-2015-2016
Observatorio-industria-hotelera-invierno-2015-2016PwC España
 
Union bancaria-suma-sigue
Union bancaria-suma-sigueUnion bancaria-suma-sigue
Union bancaria-suma-siguePwC España
 
Consenso economico-4t-2015
Consenso economico-4t-2015Consenso economico-4t-2015
Consenso economico-4t-2015PwC España
 
Consenso fiscal-segundo-semestre-2015
Consenso fiscal-segundo-semestre-2015Consenso fiscal-segundo-semestre-2015
Consenso fiscal-segundo-semestre-2015PwC España
 
Carbon disclosure-project-2015-esp
Carbon disclosure-project-2015-espCarbon disclosure-project-2015-esp
Carbon disclosure-project-2015-espPwC España
 
Informe gemo-2015-2019
Informe gemo-2015-2019Informe gemo-2015-2019
Informe gemo-2015-2019PwC España
 
Séptima Encuesta Mundial del Coeficiente Digital de las empresas
Séptima Encuesta Mundial del Coeficiente Digital de las empresasSéptima Encuesta Mundial del Coeficiente Digital de las empresas
Séptima Encuesta Mundial del Coeficiente Digital de las empresasPwC España
 
Baremo concursal-tercer-trimestre-2015
Baremo concursal-tercer-trimestre-2015Baremo concursal-tercer-trimestre-2015
Baremo concursal-tercer-trimestre-2015PwC España
 
Resumen banana skins 2015. pdf
Resumen banana skins 2015. pdfResumen banana skins 2015. pdf
Resumen banana skins 2015. pdfPwC España
 

More from PwC España (20)

Clarity from above
Clarity from aboveClarity from above
Clarity from above
 
Business through new lens
Business through new lensBusiness through new lens
Business through new lens
 
Fundaciones corporativas-alma-empresas
Fundaciones corporativas-alma-empresasFundaciones corporativas-alma-empresas
Fundaciones corporativas-alma-empresas
 
Empleo futuro-sector-audiovisual
Empleo futuro-sector-audiovisualEmpleo futuro-sector-audiovisual
Empleo futuro-sector-audiovisual
 
Pwc fintech-global-report-2016
Pwc fintech-global-report-2016Pwc fintech-global-report-2016
Pwc fintech-global-report-2016
 
Total retail-2016
Total retail-2016Total retail-2016
Total retail-2016
 
Modern mobility: Moving women with purpose
Modern mobility: Moving women with purposeModern mobility: Moving women with purpose
Modern mobility: Moving women with purpose
 
'¿Moda por un tubo? La relación con el cliente omnicanal en el sector moda en...
'¿Moda por un tubo? La relación con el cliente omnicanal en el sector moda en...'¿Moda por un tubo? La relación con el cliente omnicanal en el sector moda en...
'¿Moda por un tubo? La relación con el cliente omnicanal en el sector moda en...
 
Tendencias emergentes-sector-inmobiliario-europa-2016
Tendencias emergentes-sector-inmobiliario-europa-2016Tendencias emergentes-sector-inmobiliario-europa-2016
Tendencias emergentes-sector-inmobiliario-europa-2016
 
19th annual global ceo survey-jan2016
19th annual global ceo survey-jan2016 19th annual global ceo survey-jan2016
19th annual global ceo survey-jan2016
 
Baremo concursal-2015
Baremo concursal-2015Baremo concursal-2015
Baremo concursal-2015
 
Observatorio-industria-hotelera-invierno-2015-2016
Observatorio-industria-hotelera-invierno-2015-2016Observatorio-industria-hotelera-invierno-2015-2016
Observatorio-industria-hotelera-invierno-2015-2016
 
Union bancaria-suma-sigue
Union bancaria-suma-sigueUnion bancaria-suma-sigue
Union bancaria-suma-sigue
 
Consenso economico-4t-2015
Consenso economico-4t-2015Consenso economico-4t-2015
Consenso economico-4t-2015
 
Consenso fiscal-segundo-semestre-2015
Consenso fiscal-segundo-semestre-2015Consenso fiscal-segundo-semestre-2015
Consenso fiscal-segundo-semestre-2015
 
Carbon disclosure-project-2015-esp
Carbon disclosure-project-2015-espCarbon disclosure-project-2015-esp
Carbon disclosure-project-2015-esp
 
Informe gemo-2015-2019
Informe gemo-2015-2019Informe gemo-2015-2019
Informe gemo-2015-2019
 
Séptima Encuesta Mundial del Coeficiente Digital de las empresas
Séptima Encuesta Mundial del Coeficiente Digital de las empresasSéptima Encuesta Mundial del Coeficiente Digital de las empresas
Séptima Encuesta Mundial del Coeficiente Digital de las empresas
 
Baremo concursal-tercer-trimestre-2015
Baremo concursal-tercer-trimestre-2015Baremo concursal-tercer-trimestre-2015
Baremo concursal-tercer-trimestre-2015
 
Resumen banana skins 2015. pdf
Resumen banana skins 2015. pdfResumen banana skins 2015. pdf
Resumen banana skins 2015. pdf
 

Recently uploaded

一比一原版(Caltech毕业证书)加利福尼亚理工学院毕业证成绩单学位证书
一比一原版(Caltech毕业证书)加利福尼亚理工学院毕业证成绩单学位证书一比一原版(Caltech毕业证书)加利福尼亚理工学院毕业证成绩单学位证书
一比一原版(Caltech毕业证书)加利福尼亚理工学院毕业证成绩单学位证书atedyxc
 
NO1 Popular Black Magic Specialist Expert Amil baba in Norway Poland Portugal...
NO1 Popular Black Magic Specialist Expert Amil baba in Norway Poland Portugal...NO1 Popular Black Magic Specialist Expert Amil baba in Norway Poland Portugal...
NO1 Popular Black Magic Specialist Expert Amil baba in Norway Poland Portugal...Amil Baba Dawood bangali
 
Understanding China(International Trade-Chinese Model of development-Export l...
Understanding China(International Trade-Chinese Model of development-Export l...Understanding China(International Trade-Chinese Model of development-Export l...
Understanding China(International Trade-Chinese Model of development-Export l...Arifa Saeed
 
一比一原版(UBC毕业证书)不列颠哥伦比亚大学毕业证成绩单学位证书
一比一原版(UBC毕业证书)不列颠哥伦比亚大学毕业证成绩单学位证书一比一原版(UBC毕业证书)不列颠哥伦比亚大学毕业证成绩单学位证书
一比一原版(UBC毕业证书)不列颠哥伦比亚大学毕业证成绩单学位证书atedyxc
 
Maximize Your Business Potential with Falcon Invoice Discounting
Maximize Your Business Potential with Falcon Invoice DiscountingMaximize Your Business Potential with Falcon Invoice Discounting
Maximize Your Business Potential with Falcon Invoice DiscountingFalcon Invoice Discounting
 
How do I sell my Pi Network currency in 2024?
How do I sell my Pi Network currency in 2024?How do I sell my Pi Network currency in 2024?
How do I sell my Pi Network currency in 2024?DOT TECH
 
一比一原版(Cornell毕业证书)康奈尔大学毕业证成绩单学位证书
一比一原版(Cornell毕业证书)康奈尔大学毕业证成绩单学位证书一比一原版(Cornell毕业证书)康奈尔大学毕业证成绩单学位证书
一比一原版(Cornell毕业证书)康奈尔大学毕业证成绩单学位证书atedyxc
 
一比一原版(Concordia毕业证书)康卡迪亚大学毕业证成绩单学位证书
一比一原版(Concordia毕业证书)康卡迪亚大学毕业证成绩单学位证书一比一原版(Concordia毕业证书)康卡迪亚大学毕业证成绩单学位证书
一比一原版(Concordia毕业证书)康卡迪亚大学毕业证成绩单学位证书atedyxc
 
How can I withdraw my pi coins to real money in India.
How can I withdraw my pi coins to real money in India.How can I withdraw my pi coins to real money in India.
How can I withdraw my pi coins to real money in India.DOT TECH
 
20240514-Calibre-Q1-2024-Conference-Call-Presentation.pdf
20240514-Calibre-Q1-2024-Conference-Call-Presentation.pdf20240514-Calibre-Q1-2024-Conference-Call-Presentation.pdf
20240514-Calibre-Q1-2024-Conference-Call-Presentation.pdfAdnet Communications
 
一比一原版(UIUC毕业证书)UIUC毕业证香槟分校毕业证成绩单学位证书
一比一原版(UIUC毕业证书)UIUC毕业证香槟分校毕业证成绩单学位证书一比一原版(UIUC毕业证书)UIUC毕业证香槟分校毕业证成绩单学位证书
一比一原版(UIUC毕业证书)UIUC毕业证香槟分校毕业证成绩单学位证书atedyxc
 
First Order System Time Resphhhonse.pptx
First Order System Time Resphhhonse.pptxFirst Order System Time Resphhhonse.pptx
First Order System Time Resphhhonse.pptxjoshuaclack73
 
L1 2024 Prequisite QM persion milad1371.pdf
L1 2024 Prequisite QM persion milad1371.pdfL1 2024 Prequisite QM persion milad1371.pdf
L1 2024 Prequisite QM persion milad1371.pdfmiladsojoudi211
 
Bond Bazaar Powerpoint Presentation in Details
Bond Bazaar Powerpoint Presentation in DetailsBond Bazaar Powerpoint Presentation in Details
Bond Bazaar Powerpoint Presentation in DetailsChandrakant Akela
 
一比一原版(BU毕业证书)波士顿大学毕业证成绩单学位证书
一比一原版(BU毕业证书)波士顿大学毕业证成绩单学位证书一比一原版(BU毕业证书)波士顿大学毕业证成绩单学位证书
一比一原版(BU毕业证书)波士顿大学毕业证成绩单学位证书atedyxc
 
Rapport annuel de Encevo Group pour l'année 2023
Rapport annuel de Encevo Group pour l'année 2023Rapport annuel de Encevo Group pour l'année 2023
Rapport annuel de Encevo Group pour l'année 2023Paperjam_redaction
 
Managing personal finances wisely for financial stability and
Managing personal finances wisely for financial stability  andManaging personal finances wisely for financial stability  and
Managing personal finances wisely for financial stability andraqibmifysolutions
 
原版一模一样(bu文凭证书)美国贝翰文大学毕业证文凭证书制作
原版一模一样(bu文凭证书)美国贝翰文大学毕业证文凭证书制作原版一模一样(bu文凭证书)美国贝翰文大学毕业证文凭证书制作
原版一模一样(bu文凭证书)美国贝翰文大学毕业证文凭证书制作uotyyd
 
The Pfandbrief Roundtable 2024 - Covered Bonds
The Pfandbrief Roundtable 2024 - Covered BondsThe Pfandbrief Roundtable 2024 - Covered Bonds
The Pfandbrief Roundtable 2024 - Covered BondsNeil Day
 
Class XII Business Studies-Mind Maps.pdf
Class XII Business Studies-Mind Maps.pdfClass XII Business Studies-Mind Maps.pdf
Class XII Business Studies-Mind Maps.pdfshan_1900
 

Recently uploaded (20)

一比一原版(Caltech毕业证书)加利福尼亚理工学院毕业证成绩单学位证书
一比一原版(Caltech毕业证书)加利福尼亚理工学院毕业证成绩单学位证书一比一原版(Caltech毕业证书)加利福尼亚理工学院毕业证成绩单学位证书
一比一原版(Caltech毕业证书)加利福尼亚理工学院毕业证成绩单学位证书
 
NO1 Popular Black Magic Specialist Expert Amil baba in Norway Poland Portugal...
NO1 Popular Black Magic Specialist Expert Amil baba in Norway Poland Portugal...NO1 Popular Black Magic Specialist Expert Amil baba in Norway Poland Portugal...
NO1 Popular Black Magic Specialist Expert Amil baba in Norway Poland Portugal...
 
Understanding China(International Trade-Chinese Model of development-Export l...
Understanding China(International Trade-Chinese Model of development-Export l...Understanding China(International Trade-Chinese Model of development-Export l...
Understanding China(International Trade-Chinese Model of development-Export l...
 
一比一原版(UBC毕业证书)不列颠哥伦比亚大学毕业证成绩单学位证书
一比一原版(UBC毕业证书)不列颠哥伦比亚大学毕业证成绩单学位证书一比一原版(UBC毕业证书)不列颠哥伦比亚大学毕业证成绩单学位证书
一比一原版(UBC毕业证书)不列颠哥伦比亚大学毕业证成绩单学位证书
 
Maximize Your Business Potential with Falcon Invoice Discounting
Maximize Your Business Potential with Falcon Invoice DiscountingMaximize Your Business Potential with Falcon Invoice Discounting
Maximize Your Business Potential with Falcon Invoice Discounting
 
How do I sell my Pi Network currency in 2024?
How do I sell my Pi Network currency in 2024?How do I sell my Pi Network currency in 2024?
How do I sell my Pi Network currency in 2024?
 
一比一原版(Cornell毕业证书)康奈尔大学毕业证成绩单学位证书
一比一原版(Cornell毕业证书)康奈尔大学毕业证成绩单学位证书一比一原版(Cornell毕业证书)康奈尔大学毕业证成绩单学位证书
一比一原版(Cornell毕业证书)康奈尔大学毕业证成绩单学位证书
 
一比一原版(Concordia毕业证书)康卡迪亚大学毕业证成绩单学位证书
一比一原版(Concordia毕业证书)康卡迪亚大学毕业证成绩单学位证书一比一原版(Concordia毕业证书)康卡迪亚大学毕业证成绩单学位证书
一比一原版(Concordia毕业证书)康卡迪亚大学毕业证成绩单学位证书
 
How can I withdraw my pi coins to real money in India.
How can I withdraw my pi coins to real money in India.How can I withdraw my pi coins to real money in India.
How can I withdraw my pi coins to real money in India.
 
20240514-Calibre-Q1-2024-Conference-Call-Presentation.pdf
20240514-Calibre-Q1-2024-Conference-Call-Presentation.pdf20240514-Calibre-Q1-2024-Conference-Call-Presentation.pdf
20240514-Calibre-Q1-2024-Conference-Call-Presentation.pdf
 
一比一原版(UIUC毕业证书)UIUC毕业证香槟分校毕业证成绩单学位证书
一比一原版(UIUC毕业证书)UIUC毕业证香槟分校毕业证成绩单学位证书一比一原版(UIUC毕业证书)UIUC毕业证香槟分校毕业证成绩单学位证书
一比一原版(UIUC毕业证书)UIUC毕业证香槟分校毕业证成绩单学位证书
 
First Order System Time Resphhhonse.pptx
First Order System Time Resphhhonse.pptxFirst Order System Time Resphhhonse.pptx
First Order System Time Resphhhonse.pptx
 
L1 2024 Prequisite QM persion milad1371.pdf
L1 2024 Prequisite QM persion milad1371.pdfL1 2024 Prequisite QM persion milad1371.pdf
L1 2024 Prequisite QM persion milad1371.pdf
 
Bond Bazaar Powerpoint Presentation in Details
Bond Bazaar Powerpoint Presentation in DetailsBond Bazaar Powerpoint Presentation in Details
Bond Bazaar Powerpoint Presentation in Details
 
一比一原版(BU毕业证书)波士顿大学毕业证成绩单学位证书
一比一原版(BU毕业证书)波士顿大学毕业证成绩单学位证书一比一原版(BU毕业证书)波士顿大学毕业证成绩单学位证书
一比一原版(BU毕业证书)波士顿大学毕业证成绩单学位证书
 
Rapport annuel de Encevo Group pour l'année 2023
Rapport annuel de Encevo Group pour l'année 2023Rapport annuel de Encevo Group pour l'année 2023
Rapport annuel de Encevo Group pour l'année 2023
 
Managing personal finances wisely for financial stability and
Managing personal finances wisely for financial stability  andManaging personal finances wisely for financial stability  and
Managing personal finances wisely for financial stability and
 
原版一模一样(bu文凭证书)美国贝翰文大学毕业证文凭证书制作
原版一模一样(bu文凭证书)美国贝翰文大学毕业证文凭证书制作原版一模一样(bu文凭证书)美国贝翰文大学毕业证文凭证书制作
原版一模一样(bu文凭证书)美国贝翰文大学毕业证文凭证书制作
 
The Pfandbrief Roundtable 2024 - Covered Bonds
The Pfandbrief Roundtable 2024 - Covered BondsThe Pfandbrief Roundtable 2024 - Covered Bonds
The Pfandbrief Roundtable 2024 - Covered Bonds
 
Class XII Business Studies-Mind Maps.pdf
Class XII Business Studies-Mind Maps.pdfClass XII Business Studies-Mind Maps.pdf
Class XII Business Studies-Mind Maps.pdf
 

Global Economy Watch July 2015

  • 1. US rate rise impacts, G7 growth rankings and the ongoing crisis in Greece Visit our blog for periodic updates at: pwc.blogs.com/economics_in_business Fig 1: The US policy rate is expected to rise to around 3.75% by the end of 2020 Sources: PwC analysis, Federal Reserve, Datastream Global Economy Watch July 2015 Kind regards, Richard Boxshall PwC | Senior Economist Dear readers, Before the end of this year, the Federal Reserve is expected to raise interest rates for the first time in almost a decade. This will be an important event not just for the US, but for the global economy. We have analysed the potential impact on US households and businesses if interest rates rise to 3.75% by the end of 2020, in line with US policymakers’ expectations. We conclude that this impact will be relatively limited as households and businesses have restructured and brought down their dependency on debt. Instead, based on research in our May edition of the Global Economy Watch (GEW), we think that the biggest impact of the Fed’s rate rise may be felt outside the US, particularly in emerging markets. With interest rates on our mind, we have also explored why businesses have been hoarding their cash at a time when the returns on it have been so low. We suggest that there are three reasons why they have done so: caution, a low growth environment and the anticipation of higher interest rates. Interest rates are likely to rise soon, and we anticipate that the pick-up in growth which will lead to this will also see businesses start to invest more. This may be the signal that businesses have been waiting for to start to spend some of their cash. The years of cash hoarding can’t last forever. As we enter the second half of 2015, it looks as if the UK and US are caught in a battle for the title of ‘fastest growing G7 economy’. We expect the UK to come out on top for the second year in a row, with growth of around 2.6%. While in the US, economic growth is projected to be around 2.3% after a disappointing start to the year. Finally, I couldn’t write this letter without mentioning Greece. Its future in the Eurozone is beginning to look more stable, with the announcement of a deal that could lead to another bailout. However, there are still some steps to take before a Greek exit can be completely ruled out. In the now less likely event that this does occur, our expectation would be that the wider Eurozone would come through a Greek exit relatively unharmed with economic growth remaining positive both this year and next (see our March edition of the GEW). 0 2 4 6 8 10 12 14 16 18 20 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 UpperlimitoftheFederalReservetarget forthefederalfundsrate(%) 1973: First oil price shock 1979: Second oil price shock 2000: Dotcom bubble bursts Note: Chart shows the interest rate at the end of December of the year on the axis Main scenario 2008: Financial crisis begins
  • 2. Can anyone catch the US? Since 1980, the US has topped the G7 economic growth league table on 12 occasions, far more than any other country in the group (see Figure 2). It has also been the only G7 economy that has never ended up at the bottom of the growth league table in any year. As far as competition is concerned, the closest rival to the US is Japan, which topped the rankings as the fastest growing economy on seven occasions. However, six of these occasions occurred back in the 1980s before the beginning of Japan’s ‘lost decade’. Canada and Germany have also had their share of strong years, but not as consistently as the US (though the latter may be flattered by relatively high population growth boosted by immigration – something also seen more recently in the UK). Who will top the table in 2015? Based on our current projections, the UK is expected to top the table this year, although at this stage it is still too early to call with any great confidence. UK economic growth is expected to be around 2.6% while GDP growth in the US, the UK’s biggest rival for first place, is projected to be around 2.3%. If the UK does comes out on top, it will be the second year in a row that it has been the fastest growing G7 economy. Perhaps the biggest risk to another UK success relates to spillover effects from the macroeconomic and political uncertainty in the Eurozone. This could have an adverse impact on UK exports to the bloc, which would pull down growth. However, the strong dollar is also expected to act as a drag on US exports, while domestic demand growth remains relatively strong in the UK.¹ ¹We will provide a much more detailed review of the UK’s economic prospects in our next UK Economic Outlook report, which is scheduled for release on 21 July. Fig 2: It would take at least 6 years before anyone could displace the US from the top of the rankings Source: PwC analysis, IMF Economic update: who will top the G7 economic growth league table? S 7 m Since the beginning of the financial crisis, businesses in many countries have increased their cash holdings. Figure 3 looks at non- financial corporations (NFCs) holdings of cash as a percentage of GDP in the US, the UK and the three largest Eurozone countries for which data were available. Our analysis shows that, since the financial crisis, NFCs relative cash holdings have increased in all of the economies in our sample with the exception of Spain. Specifically, the largest increase was recorded in France (9.5 percentage points) while the smallest increase was recorded in Germany (0.4 percentage points). Why does this matter? Before the financial crisis, a small return could be made on cash. But recent low interest rates have meant this is no longer possible. Instead of hoarding this cash, businesses could do one of two things with it: • Invest: Investing in new capital, research and development or staff training could provide a rates and cheap finance will not last forever. Building up cash has been a way of preparing for an interest rate rise. These reserves can be used to pay future higher debt costs, or to offset some of the need for future borrowing. As a result, tighter monetary policy is expected to have a more limited impact on businesses and allow them to devise growth strategies without the burden of higher debt costs hanging over them. Businesses getting ready to pounce? The shrinking output gap in most of the economies we have looked at means that businesses and government will need to invest to increase the productive capacity of the economy. This means that companies might start to run down some of their large cash reserves quite soon. Businesses have been patient and cautious, but this can’t go on forever. long-term benefit to the economy through increased labour productivity. • Return it to investors: Giving money back to investors could boost consumption if they choose to spend it, or business activity if they invest in organisations looking to expand. Either way, these macroeconomic benefits are not being realised while businesses are holding this cash. Businesses and investors could make more of a return on this asset. Why are businesses doing this? Building up excess cash reserves seems to go against the economic theory that all agents are profit maximising. Nevertheless, businesses have decided to hold cash. We suggest there are three reasons why they have done so: • Caution: The financial crisis was a source of great pain and uncertainty for many businesses. As a result, business leaders have become more cautious. Businesses have held on to liquid assets (e.g. cash) because they protect against a liquidity squeeze and provide a buffer against adverse economic shocks. This means that businesses have increased their probability of surviving another economic downturn. • Low growth environment: The recent economic downturn has rumbled on for longer than initially expected. For example, Figure 4 shows how the 2014 advanced economies GDP growth rate that was expected in 2010-11 did not materialise. Also, since 2009 some economies have had a negative output gap, meaning output has been below its potential level. This means that companies haven’t had to invest their cash due to spare capacity existing in the economy. However, the cash that companies have saved means that, when they want to undertake large- scale investment projects, they will be able to do so. • Anticipation of higher interest rates: Businesses know that the years of low interest Fig 3: Many businesses have been hoarding cash since the financial crisis Sources: PwC analysis, Federal Reserve, Eurostat Why are businesses hoarding cash? 0 2 4 6 8 10 12 14 Numberoftimestheeconomyhastopped theG7growthleague Fig 4: 2014 advanced economies GDP growth was lower than early projections Source: IMF 1.0 1.5 2.0 2.5 3.0 2014advancedeconomiesreal GDPgrowthprojectons(%) Long-term average 5% 10% 15% 20% 25% 30% 35% 2000 Q1 2002 Q1 2004 Q1 2006 Q1 2008 Q1 2010 Q1 2012 Q1 2014 Q1 NFCcurrencyanddeposits(%of GDP) US UK Germany France Spain Collapse of Lehman Brothers
  • 3. Fed ready to raise rates – what will be the impact on the US and global economies? Watch out for the Fed policy action later in the year One of the biggest economic events of 2015 is likely to be the Fed hiking up its policy rate later in the year. Assuming this happens, this will be particularly important because what the Fed does matters for the global economy, not just the US. It will also be a symbolic event as the policy rate hasn’t increased for almost a decade. So what will the impact of a higher interest rate be on domestic businesses and households? Our analysis assumes that the Fed’s interest rate will hit the 3.75% mark by the end of 2020 (see Figure 1). This view was informed by US policymakers who expect the policy rate to hit that level in the long- term (according to information from Fed projections). US households insulated from rate rise In the years following the financial crisis, US households have reduced their dependency on debt (see Figure 5) and our analysis suggests that they will be largely shielded from Fed action. In the US, around 83% of mortgage debt is tied up in fixed rate agreements, so most homeowners have hedged against future rate rises for the duration of their loans. On the flip-side, the minority of mortgage holders on variable contracts will be the ones exposed to a rate hike. Assuming this is the case, we think that mortgage interest payments will be around $60 billion higher by 2020 (see Figure 6). This equates to less than 0.5% of current US GDP. At a macro-level, and assuming real wages continue to grow, aggregate household disposable income will remain relatively unaffected by tighter monetary policy. What does this mean for the Fed? The main channel through which a tighter monetary policy works is by raising the cost of borrowing, thus putting the brakes on household consumption, which makes up around 70% of economic activity. If this transmission mechanism is weakened, then the Fed might have to increase its rates faster than it had initially planned. Business expenditure on higher interest payments around 1% of US GDP So, what about businesses? There is some evidence which suggests the financial crisis changed the capital structure of companies. For example, Figure 5 shows business debt has dropped from 73% of GDP at the end of 2008 to 69% today. At face value this suggests business activity is less sensitive to the Fed’s policy decisions. The direct impact of a rate rise on US businesses largely depends on the maturity profile of their debt. Our scenario based analysis in Figure 7 suggests that, in a case where 50% of business debt is refinanced (and so subject to higher interest rates), businesses would have to pay around an additional 1% of current US GDP in interest payments each year. However, this is a relatively extreme scenario. The bigger implication on US businesses is expected to be felt via the dollar rising, which makes local goods and services more expensive on international markets. Emerging markets should watch out The Fed’s policies don’t just have an impact on the US economy. The dollar’s unique role as the world’s reserve currency means that monetary policy decisions in the US have consequences for the global economy. The expectation of higher policy rates in the US has already had an impact on the value of the dollar, which has increased by around 19% in trade- weighted terms since July 2014. This is a worrying sign for some emerging economies that have binged on cheap dollar debt to fund either large scale investment projects or consumption. In our May 2015 Global Economy Watch we looked at the vulnerability of 14 emerging markets with regards to their holdings of this debt. We found that Turkey is particularly vulnerable to a strong dollar while other large emerging markets, such as Brazil and Indonesia, are worth keeping an eye on. In short, we think the biggest impact of the Fed’s monetary policy may be felt outside the US, and in particular, in emerging markets. Fig 5: US households and businesses have restructured their finances so are less exposed to rising debt costs Fig 6: Even with a rate rise, mortgage interest payments in 2020 could be 25% below their 2007 peak Fig 7: The average annual additional cost to businesses of a rate rise could be between 0.2%-0.8% of GDP Sources: PwC analysis, Federal Reserve, Federal Reserve Bank of New York, US BEA, Datastream Note: Data is for the end of the calendar year Sources: PwC analysis, US BEA Sources: PwC analysis, Federal Reserve 0% 2% 4% 6% 8% 10% 12% 14% 0 100 200 300 400 500 600 700 1980 1985 1990 1995 2000 2005 2010 2015 2020 InterestrateonmortgagesintheUS MortgageinterestpaidintheUS($bn) Mortgage interest paid Interest rate on mortgages Scenario 60% 65% 70% 75% 80% 85% 90% 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 DebttoGDPratio Nonfinancial businesses Households 0 50 100 150 200 250 2015 2016 2017 2018 2019 2020 Increaseinnonfinancialbusinesses interestpayments($bn) 10% of outstanding debt subject to higher interest rate 25% of outstanding debt subject to higher interest rate 50% of outstanding debt subject to higher interest rate
  • 4. PPP MER 2014 2015p 2016p 2017-2021p 2014 2015p 2016p 2017-2021p Global (Market Exchange Rates) 1 00% 2.8 2.7 3.2 3.1 2.3 1 .8 2.6 2.5 Global (PPP rates) 1 00% 3.4 3.3 3.8 3.6 United States 1 6.1 % 22.5% 2.4 2.3 2.7 2.5 1 .6 0.2 1 .8 1 .9 China 1 6.3% 1 3.4% 7 .6 7 .0 7 .0 5.7 2.1 1 .9 1 .8 3.0 Japan 4.4% 6.0% -0.1 1 .1 1 .7 1 .3 2.7 1 .4 1 .5 1 .9 United Kingdom 2.4% 3.8% 3.0 2.6 2.4 2.3 1 .5 0.3 1 .7 2.0 Eurozone 1 2.2% 1 7 .4% 0.9 1 .5 1 .7 1 .8 0.5 0.1 1 .4 1 .4 France 2.4% 3.7 % 0.4 1 .3 1 .4 1 .9 0.6 0.1 1 .1 1 .2 Germany 3.4% 5.0% 1 .6 1 .7 1 .9 1 .6 0.8 0.2 1 .8 1 .7 Greece 0.3% 0.3% 0.7 -1 .5 0.7 2.5 -1 .4 -0.8 0.3 1 .4 Ireland 0.2% 0.3% 4.8 3.4 3.4 2.5 0.3 0.2 1 .1 1 .5 Italy 2.0% 2.8% -0.4 0.6 1 .2 1 .3 0.2 -0.1 1 .8 1 .4 Netherlands 0.7 % 1 .1 % 0.8 1 .4 1 .6 1 .9 1 .0 1 .2 1 .1 1 .3 Portugal 0.3% 0.3% 0.9 1 .5 1 .7 1 .8 -0.2 0.1 0.8 1 .5 Spain 1 .5% 1 .8% 1 .4 3.0 2.4 2.2 -0.2 -0.8 1 .0 1 .2 Poland 0.9% 0.7 % 3.3 3.4 3.5 3.2 0.2 -0.1 1 .7 2.5 Russia 3.3% 2.4% 0.2 -5.0 -0.5 1 .9 7 .8 1 5.0 8.0 4.3 Turkey 1 .4% 1 .0% 2.9 2.8 3.5 3.7 8.9 7 .7 6.8 6.2 Australia 1 .0% 1 .9% 0.7 2.9 2.0 2.9 2.6 2.5 2.6 2.5 India 6.8% 2.7 % 7 .0 7 .5 7 .9 6.1 3.8 -2.2 3.9 6.0 Indonesia 2.5% 1 .1 % 1 .2 4.9 5.0 5.4 6.4 6.8 5.8 5.1 South Korea 1 .6% 1 .8% 3.3 3.1 3.5 3.5 1 .3 1 .0 2.0 2.9 Argentina 0.9% 0.7 % 0.5 0.8 1 .8 2.1 - 20.0 25.0 - Brazil 3.0% 3.0% 0.1 -0.9 0.7 3.1 6.3 8.0 6.0 4.8 Canada 1 .5% 2.3% 2.4 1 .4 2.2 2.2 1 .9 0.9 1 .9 2.1 Mexico 2.0% 1 .7 % 2.1 2.7 3.3 3.9 4.0 3.0 3.3 3.1 South Africa 0.7 % 0.5% 1 .5 1 .8 2.0 3.2 6.1 4.8 5.6 5.3 Nigeria 1 .0% 0.7 % 6.2 4.0 4.5 6.0 8.1 1 0.5 1 0.0 7 .3 Saudi Arabia 1 .5% 1 .0% 3.5 2.6 3.0 4.4 2.7 2.3 3.0 3.4 Share of 2014 world GDP Real GDP growth Inflation Projections: July 2015 Sources: PwC analysis, National statistical authorities, Datastream and IMF. All inflation indicators relate to the Consumer Price Index (CPI), with the exception of the Indian indicator which refers to the Wholesale Price Index (WPI). Argentina's inflation projections use the IPCNu Index. We will provide a 2017-2021 inflation projection once a longer time series of data is available. There is not a complete series of year-on-year price growth data available for 2014 so we have not provided an estimate for annual inflation in this year. Also note that the tables above form our main scenario projections and are therefore subject to considerable uncertainties. We recommend that our clients look at a range of alternative scenarios. Interest rate outlook of major economies Current rate (Last change) Expectation Next meeting Federal Reserve 0-0.25% (December 2008) Rate to start to rise later in 2015 28-29 July European Central Bank 0.05% (September 2014) Rate on hold until at least late 2016 16 July Bank of England 0.5% (March 2009) First rate rise expected in 2016 6 August Richard Boxshall T: +44 (0) 20 7213 2079 E: richard.boxshall@uk.pwc.com Conor Lambe T: +44 (0) 20 7212 8783 E: conor.r.lambe@uk.pwc.com Barret Kupelian T: + 44 (0) 20 7213 1579 E: barret.g.kupelian@uk.pwc.com The GCI is a monthly updated index providing an early steer on consumer spending and growth prospects in the world’s 20 largest economies. For more information, please visit www.pwc.co.uk/globalconsumerindex This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2015 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. We help you understand how big economic, demographic, social, and environmental changes affect your organisation by setting out scenarios that identify growth opportunities and risks on a global, regional, national and local level. We help make strategic and tactical operational, pricing and investment decisions to support business value creation. We work together with you to achieve sustainable growth. PwC’s Global Consumer Index After a brief recovery, the GCI declined once more in June. The new data reflects less buoyant equity markets and consumer confidence in response to increasing macroeconomic uncertainty, particularly in Europe. This could deteriorate further depending on the outcome of the Greek sovereign debt crisis. There are some signs of improving industrial production in Asia, which may provide a small boost to the GCI in the medium-term. 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 YoYgrowth Long-term growth 1.7%