The Global Economic Outlook:   More Bad News Ahead   Pam Woodall Asia Economics Editor,  The Economist June 2008
Key points <ul><li>The current US recession will be much deeper than in 1991 or 2001  </li></ul><ul><li>Yet Asia’s growth ...
Global growth: fastest for over 30 years <ul><li>Two main engines of global economic growth: </li></ul><ul><li>1. US housi...
US personal saving <ul><li>A sign in a US bank:  </li></ul><ul><li>“ We can loan you enough money to get you completely ou...
The biggest bubble in history Ratio of US house prices to average income  1975-2000 average = 100 Source: The Economist
The worst is now over? <ul><li>&quot; I am convinced we have now passed through the worst and we shall rapidly recover. Th...
The biggest house-price crash in history Source: Robert Shiller US house prices,  % change on previous year
Falling house prices will hit  consumer spending
Comparison of financial crises Total financial losses  Source: IMF
The biggest oil shock in history <ul><li>Higher oil prices act like a tax increase </li></ul><ul><li>Rising inflation coul...
America in the jaws of recession <ul><li>Worst financial crisis since the Great Depression  </li></ul><ul><li>Interest-rat...
House Prices, % change 1997-2007 Source: The Economist
Personal Saving as  % disposable income <ul><li>In most European countries households borrowed less as  house prices soare...
Don’t write off Japan <ul><li>Still the world’s second biggest economy </li></ul><ul><li>Fastest growth in GDP per head am...
Europe and Japan keep chugging as the US economy stalls GDP, % increase
If America sneezes will Asia catch a cold? <ul><li>As US demand has slowed, Asia continues to boom </li></ul><ul><li>Asia’...
Asia’s non-US exports remain strong <ul><li>Asia is now less dependent on the US </li></ul><ul><li>China’s exports to US: ...
China’s growth is driven largely by domestic demand NOT exports Breakdown of China’s GDP growth %
Housing bubbles everywhere but Asia % change in house prices relative to average income 2000-2007
Asian economies’ exposure to  a US recession <ul><li>Smaller Asian economies are more dependent on US </li></ul><ul><li>Bu...
Asia hit hard by America’s 2001 recession
Asia will slow by much less than in 2001 GDP growth , %
The return of inflation <ul><li>Average world inflation rate: 5.5%--highest since 1999 </li></ul><ul><li>Biggest increase ...
Inflation: not just food prices Money-supply growth  2000=100 Food as % of  consumer-price index Emerging economies G7
Asia is more important than the US  as a driver of global growth % of world GDP growth * * At purchasing-power parity
Asia leaps ahead % of world GDP* Asia * At purchasing-power parity EU US
The world’s five biggest economies 2006 2030   Goldman Sachs forecasts US =100* * GDPs converted at market exchange rates
The dwindling dollar Trade-weighted index,  January 1973=100
The dollar has further to fall <ul><li>The beginning of the end for the dollar as the main reserve currency </li></ul><ul>...
The new world order <ul><li>Thanks to the vigour of Asia and other emerging economies, a US recession need not drag the wh...
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Global Economic Outlook

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  • Global Economic Outlook

    1. 1. The Global Economic Outlook: More Bad News Ahead Pam Woodall Asia Economics Editor, The Economist June 2008
    2. 2. Key points <ul><li>The current US recession will be much deeper than in 1991 or 2001 </li></ul><ul><li>Yet Asia’s growth will slow by less than in previous US recessions: it is now less dependent on US demand </li></ul><ul><li>Asia is increasingly important as the main engine of global growth. </li></ul><ul><li>The beginning of the end for the dollar as the main reserve currency </li></ul>
    3. 3. Global growth: fastest for over 30 years <ul><li>Two main engines of global economic growth: </li></ul><ul><li>1. US housing bubble and consumer spending boom </li></ul><ul><li>2. Rapid growth in China, India and other emerging economies: the most powerful economic revolution in history </li></ul>World GDP, % increase Five years ending:
    4. 4. US personal saving <ul><li>A sign in a US bank: </li></ul><ul><li>“ We can loan you enough money to get you completely out of debt.” </li></ul>as % of disposable income American consumers on a binge
    5. 5. The biggest bubble in history Ratio of US house prices to average income 1975-2000 average = 100 Source: The Economist
    6. 6. The worst is now over? <ul><li>&quot; I am convinced we have now passed through the worst and we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us.“ </li></ul><ul><li>– Herbert Hoover, President of the United States, </li></ul><ul><li>May 1, 1930 </li></ul>
    7. 7. The biggest house-price crash in history Source: Robert Shiller US house prices, % change on previous year
    8. 8. Falling house prices will hit consumer spending
    9. 9. Comparison of financial crises Total financial losses Source: IMF
    10. 10. The biggest oil shock in history <ul><li>Higher oil prices act like a tax increase </li></ul><ul><li>Rising inflation could limit the Fed’s room to cut interest rates </li></ul>Crude oil price, $/barrel
    11. 11. America in the jaws of recession <ul><li>Worst financial crisis since the Great Depression </li></ul><ul><li>Interest-rate/tax cuts less effective than in 2001-02 </li></ul><ul><li>Weak dollar will lift exports, but only 12% of GDP (consumer spending 70%) </li></ul><ul><li>The deepest US recession for several decades </li></ul>
    12. 12. House Prices, % change 1997-2007 Source: The Economist
    13. 13. Personal Saving as % disposable income <ul><li>In most European countries households borrowed less as house prices soared </li></ul><ul><li>A drop in house prices is less likely to trigger recession </li></ul>France US Less sign of a binge in Europe UK Germany
    14. 14. Don’t write off Japan <ul><li>Still the world’s second biggest economy </li></ul><ul><li>Fastest growth in GDP per head among the big three economies </li></ul><ul><li>No recession 2008, but moderate growth </li></ul>% growth annual average 2003-07
    15. 15. Europe and Japan keep chugging as the US economy stalls GDP, % increase
    16. 16. If America sneezes will Asia catch a cold? <ul><li>As US demand has slowed, Asia continues to boom </li></ul><ul><li>Asia’s exports to rest of world remain robust </li></ul><ul><li>Stronger domestic demand in Asia </li></ul>Emerging Asia’s GDP US domestic demand
    17. 17. Asia’s non-US exports remain strong <ul><li>Asia is now less dependent on the US </li></ul><ul><li>China’s exports to US: 34% of total in 1999, now 24% </li></ul>Asia’s exports % change on year ago to rest of the world to US
    18. 18. China’s growth is driven largely by domestic demand NOT exports Breakdown of China’s GDP growth %
    19. 19. Housing bubbles everywhere but Asia % change in house prices relative to average income 2000-2007
    20. 20. Asian economies’ exposure to a US recession <ul><li>Smaller Asian economies are more dependent on US </li></ul><ul><li>But all in better economic shape than in past. Room for fiscal stimulus to boost spending </li></ul>
    21. 21. Asia hit hard by America’s 2001 recession
    22. 22. Asia will slow by much less than in 2001 GDP growth , %
    23. 23. The return of inflation <ul><li>Average world inflation rate: 5.5%--highest since 1999 </li></ul><ul><li>Biggest increase is in emerging economies </li></ul><ul><li>Measured correctly, two-thirds of the world’s population have double-digit inflation </li></ul>CPI inflation, % G7 Developed economies Emerging economies
    24. 24. Inflation: not just food prices Money-supply growth 2000=100 Food as % of consumer-price index Emerging economies G7
    25. 25. Asia is more important than the US as a driver of global growth % of world GDP growth * * At purchasing-power parity
    26. 26. Asia leaps ahead % of world GDP* Asia * At purchasing-power parity EU US
    27. 27. The world’s five biggest economies 2006 2030 Goldman Sachs forecasts US =100* * GDPs converted at market exchange rates
    28. 28. The dwindling dollar Trade-weighted index, January 1973=100
    29. 29. The dollar has further to fall <ul><li>The beginning of the end for the dollar as the main reserve currency </li></ul><ul><li>Central banks and private investors becoming more reluctant to hold dollars </li></ul><ul><li>The dollar's decline is already equivalent to the biggest default in history </li></ul>
    30. 30. The new world order <ul><li>Thanks to the vigour of Asia and other emerging economies, a US recession need not drag the whole world into recession </li></ul><ul><li>A prolonged downturn in the US, while emerging economies continue to grow rapidly will reinforce the shift in global power from the old industrial world to the new emerging markets </li></ul><ul><li>In future the world economy will be steered not by the US and Europe, but increasingly by Asia </li></ul>

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