Hope, headwinds or hurricanes?  Charting a course for  the global  economy   Leila Butt Senior Economist, Eastern Europe  ...
<ul><li>Most economies now growing again </li></ul><ul><li>Emerging markets are booming </li></ul><ul><li>Unemployment rem...
Key short-term points   <ul><li>A recovery is under way … </li></ul><ul><ul><li>US: 800,000 private jobs Jan-Sept ’10 beat...
Key longer-term points   <ul><li>Growth will not return to 2004-07 levels </li></ul><ul><ul><li>Fuelled by a bubble  </li>...
Where are we now?
Global: World trade recovers strongly World trade volumes. 2000=100. Seasonally adjusted. Source: CPB Netherlands Bureau f...
Stock prices are higher, but volatile… US$m. Source: Bloomberg Stockmarket capitalisation
…  and borrowing costs are mostly contained 3-month US$ LIBOR minus 3-month US Treasuries Source: Haver Spread between the...
Government debt soars <ul><li>Budgets deeply in the red </li></ul><ul><ul><li>Worst in rich countries </li></ul></ul><ul><...
Global outlook: Upswing, but uneven GDP growth, % year on year  Source: EIU estimates Developed Emerging World Credit crun...
US and Europe
This is already a jobless recovery Sources: Bureau of Labour Statistics; EIU. US: % of jobs relative to peak employment
The great deleveraging continues in the US… Sources: BEA; EIU . US personal savings rate, % of disposable income.
US: Housing still very weak… US housing starts, ‘000s, SAAR. Source: Bureau of the Census Spot the recovery!
Home foreclosures still awful <ul><li>Jan-Sept 2010 foreclosures: 2,970,000 </li></ul><ul><li>Worse than last year </li></...
Euro area: Worst crisis ever…but signs of life <ul><li>Debt sinking the periphery </li></ul><ul><ul><li>Bailout has helped...
Euro zone: Solvency stresses will continue 211% of GDP 192% 234% 92% 150% 111% 112% 110% Bank claims on private sector,  €...
Euro zone: There’s no way out. Exiting would mean… <ul><li>Wipe-out of exiting country’s banking sector, households defaul...
Emerging markets
Asia: Powering ahead Real GDP, % change on year earlier, Haver
Asian bubbles? <ul><li>Asia is importing monetary stimulus from US </li></ul><ul><ul><li>Consequence of active exchange-ra...
China: An explosive recovery <ul><li>Chinese growth slowed only modestly in 2009 </li></ul><ul><ul><li>Big bounce-back in ...
What’s ahead for the major currencies? <ul><li>US$/€ strongly correlated with risk perception </li></ul><ul><li>Euro zone ...
Is there a currency war? Three weapons of attack <ul><li>China won’t let the renminbi appreciate </li></ul><ul><ul><li>The...
What does all this mean?
What does that mean? <ul><li>Then </li></ul><ul><li>Fast growth </li></ul><ul><li>Rich world </li></ul><ul><li>Easy credit...
Where’s the growth? Real GDP growth; % change, year on year. ASEAN = Association of South East Asian Nations. CIS = Russia...
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Economist Intelligence Unit Global Outlook nov 2 2010_Boston

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On November 2, 2010, EIU Senior Economist Leila Butt, presented the Economist Intelligence Unit Global Outlook in Boston. Key points in this presentation include:

- Most economies are growing again
- Emerging markets are booming
- Unemployment remains very high
- Consumers are rebuilding balance sheets
- Countries are heavily indebted
- Deflation is a risk in rich countries
- Asset bubbles are a risk in emerging markets

Published in: News & Politics
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Economist Intelligence Unit Global Outlook nov 2 2010_Boston

  1. 1. Hope, headwinds or hurricanes? Charting a course for the global economy Leila Butt Senior Economist, Eastern Europe November 2010
  2. 2. <ul><li>Most economies now growing again </li></ul><ul><li>Emerging markets are booming </li></ul><ul><li>Unemployment remains very high </li></ul><ul><li>Consumers rebuilding balance sheets </li></ul><ul><li>Countries are heavily indebted </li></ul><ul><li>Deflation a risk in rich countries </li></ul><ul><li>Asset bubbles a risk in emerging markets </li></ul>H H H ope eadwinds urricanes
  3. 3. Key short-term points <ul><li>A recovery is under way … </li></ul><ul><ul><li>US: 800,000 private jobs Jan-Sept ’10 beats 4.4m jobs lost in ’09 </li></ul></ul><ul><ul><ul><li>But job growth is very slow; still 7.5m jobs below the peak </li></ul></ul></ul><ul><ul><li>Europe shows signs of life </li></ul></ul><ul><li>Renewed risk taking is underway </li></ul><ul><ul><li>Positive growth, loose monetary policy; assets on a tear </li></ul></ul><ul><li>Less fear of double-dip </li></ul><ul><ul><li>Supportive policy </li></ul></ul><ul><li>China looks stronger </li></ul><ul><ul><li>Crash unlikely </li></ul></ul><ul><li>Recovery still in doubt </li></ul><ul><ul><li>Fed returns to QE </li></ul></ul>
  4. 4. Key longer-term points <ul><li>Growth will not return to 2004-07 levels </li></ul><ul><ul><li>Fuelled by a bubble </li></ul></ul><ul><li>Rich countries: years of slower growth </li></ul><ul><ul><li>Overstretched consumers </li></ul></ul><ul><ul><li>Battered financial sector </li></ul></ul><ul><li>Crisis accelerated emerging markets </li></ul><ul><ul><li>Significant drivers of global growth </li></ul></ul><ul><ul><li>But weakening in West will be felt </li></ul></ul><ul><ul><li>Slow shift to domestic demand </li></ul></ul><ul><ul><li>Risks of bubbles </li></ul></ul><ul><li>New perspective on global economy </li></ul><ul><ul><li>Greater volatility </li></ul></ul>
  5. 5. Where are we now?
  6. 6. Global: World trade recovers strongly World trade volumes. 2000=100. Seasonally adjusted. Source: CPB Netherlands Bureau for Economic Policy Analysis.
  7. 7. Stock prices are higher, but volatile… US$m. Source: Bloomberg Stockmarket capitalisation
  8. 8. … and borrowing costs are mostly contained 3-month US$ LIBOR minus 3-month US Treasuries Source: Haver Spread between the cost of government borrowing and private-sector borrowing, basis points Post-Lehman Bros panic Stimulus plans feed through Greece, EU debt crisis Fed intervenes; QE
  9. 9. Government debt soars <ul><li>Budgets deeply in the red </li></ul><ul><ul><li>Worst in rich countries </li></ul></ul><ul><ul><li>Governments offered subsidies, incentives, tax cuts, bailouts </li></ul></ul><ul><ul><ul><li>Banks, car companies </li></ul></ul></ul><ul><ul><li>More stimulus? </li></ul></ul><ul><li>Interest rates still low </li></ul><ul><ul><li>Fed considering further steps </li></ul></ul><ul><li>Inventories being rebuilt </li></ul><ul><ul><li>Filling the shelves helps manufacturers </li></ul></ul><ul><ul><li>But it’s temporary </li></ul></ul>Budget deficit; % of GDP Source: Economist Intelligence Unit, Country Data
  10. 10. Global outlook: Upswing, but uneven GDP growth, % year on year Source: EIU estimates Developed Emerging World Credit crunch starts
  11. 11. US and Europe
  12. 12. This is already a jobless recovery Sources: Bureau of Labour Statistics; EIU. US: % of jobs relative to peak employment
  13. 13. The great deleveraging continues in the US… Sources: BEA; EIU . US personal savings rate, % of disposable income.
  14. 14. US: Housing still very weak… US housing starts, ‘000s, SAAR. Source: Bureau of the Census Spot the recovery!
  15. 15. Home foreclosures still awful <ul><li>Jan-Sept 2010 foreclosures: 2,970,000 </li></ul><ul><li>Worse than last year </li></ul><ul><ul><li>March foreclosures: a record 367,000 </li></ul></ul><ul><ul><li>1 in 4 mortgage holders with negative equity </li></ul></ul><ul><ul><li>Pent-up listings will keep homes coming to market, restraining prices </li></ul></ul><ul><li>Yes, housing has stabilised </li></ul><ul><ul><li>But new home sales are moribund </li></ul></ul><ul><ul><li>Prices are largely stagnant </li></ul></ul><ul><li>Nationally, 14+% of mortgages delinquent or foreclosed </li></ul>Number of foreclosures Source: Realty Trac
  16. 16. Euro area: Worst crisis ever…but signs of life <ul><li>Debt sinking the periphery </li></ul><ul><ul><li>Bailout has helped, but… </li></ul></ul><ul><ul><li>… only buying time; massive fiscal adjustment required </li></ul></ul><ul><ul><li>Must improve competitiveness </li></ul></ul><ul><li>But Germany is rebounding </li></ul><ul><ul><li>Exports, business investment, stockbuilding </li></ul></ul><ul><ul><li>But unemployment is high, consumers hesitant </li></ul></ul><ul><li>Less impressive in rest of EU </li></ul><ul><ul><li>Second quarter 2010? As good as it will get </li></ul></ul>GDP growth; % change, Y o Y Source: Economist Intelligence Unit, Country Data Economic growth
  17. 17. Euro zone: Solvency stresses will continue 211% of GDP 192% 234% 92% 150% 111% 112% 110% Bank claims on private sector, € bn. (UK bank lending at 213% of GDP in 2009, £3trn.) Sources: IMF, International Financial Statistics; EIU, CountryData .
  18. 18. Euro zone: There’s no way out. Exiting would mean… <ul><li>Wipe-out of exiting country’s banking sector, households default on euro debt </li></ul><ul><li>Collateral damage to foreign banks, particularly in the euro zone, and companies and households </li></ul><ul><li>Contagion—markets pick off weaker countries following exit, triggering further turmoil </li></ul><ul><li>Euro collapse would trigger depression for the euro zone? </li></ul><ul><li>Leaving the euro would be a political decision, not an economic one </li></ul>
  19. 19. Emerging markets
  20. 20. Asia: Powering ahead Real GDP, % change on year earlier, Haver
  21. 21. Asian bubbles? <ul><li>Asia is importing monetary stimulus from US </li></ul><ul><ul><li>Consequence of active exchange-rate management </li></ul></ul><ul><li>Economic conditions are much stronger in Asia </li></ul><ul><ul><li>Monetary policy is too loose for Asian circumstances </li></ul></ul><ul><ul><li>Fiscal stimulus was very large </li></ul></ul><ul><li>Food commodity prices are again a concern </li></ul><ul><ul><li>El Niño, bad monsoon in India </li></ul></ul><ul><li>Fears of inflation/asset bubbles in Asia </li></ul>
  22. 22. China: An explosive recovery <ul><li>Chinese growth slowed only modestly in 2009 </li></ul><ul><ul><li>Big bounce-back in 2010; GDP rose by 11.9% in Q1, 10.3% in Q2 </li></ul></ul><ul><li>Government now trying to slow economy </li></ul><ul><ul><li>But it’s all relative; industrial production “only” growing by 10% instead of 15% </li></ul></ul><ul><ul><li>Retail sales growth down to 15% from 20% </li></ul></ul>% change, year on year. Source: Haver
  23. 23. What’s ahead for the major currencies? <ul><li>US$/€ strongly correlated with risk perception </li></ul><ul><li>Euro zone structural concerns to dominate over medium term—the euro will remain structurally weak </li></ul><ul><li>US$1.30:€1 in 2010, US$1.20:€1 in 2011—slightly weaker thereafter </li></ul><ul><li>But expect volatility </li></ul><ul><li>Pity the yen </li></ul><ul><li>Yen strength is an expression of risk aversion </li></ul><ul><li>No relation to Japan’s economic performance </li></ul><ul><li>Intervention won’t change secular trends </li></ul><ul><li>Emerging markets </li></ul><ul><li>RMB to continue slow appreciation against US$ </li></ul><ul><li>Emerging market currency strength to depend on risk tolerance </li></ul>Source: Haver Analytics . Average Sept 14 2010
  24. 24. Is there a currency war? Three weapons of attack <ul><li>China won’t let the renminbi appreciate </li></ul><ul><ul><li>The currency is undervalued; US$2.6trn in reserves </li></ul></ul><ul><ul><li>Generating sharp political criticism </li></ul></ul><ul><ul><li>And not just from the US </li></ul></ul><ul><li>Rich-world monetary policy </li></ul><ul><ul><li>Easy money depresses their </li></ul></ul><ul><ul><ul><li>currencies </li></ul></ul></ul><ul><ul><li>Re-directs investors to EM </li></ul></ul><ul><ul><ul><li>currencies, pushing them up; risks export competitiveness </li></ul></ul></ul><ul><li>Emerging-market interventions </li></ul><ul><ul><li>Currency purchases to hold down value </li></ul></ul><ul><ul><li>Capital controls, such as taxes on foreign purchases of domestic debt </li></ul></ul>
  25. 25. What does all this mean?
  26. 26. What does that mean? <ul><li>Then </li></ul><ul><li>Fast growth </li></ul><ul><li>Rich world </li></ul><ul><li>Easy credit </li></ul><ul><li>Rising asset price </li></ul><ul><li>Momentum driven </li></ul><ul><li>Now </li></ul><ul><li>Slow growth </li></ul><ul><li>Emerging world </li></ul><ul><li>No credit </li></ul><ul><li>Flat asset prices </li></ul><ul><li>Value driven </li></ul>
  27. 27. Where’s the growth? Real GDP growth; % change, year on year. ASEAN = Association of South East Asian Nations. CIS = Russia, Ukraine etc. As of October 2010. Source: Economist Intelligence Unit, CountryData.

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