Transcript Ingen bildrubrik

THE GLOBAL
ECONOMY:
TERROR ON TOP OF
RECESSION
Klas Eklund, SEB
SNS, October 23, 2001
1
STARTING POINT:
OECD INDUSTRY IN RECESSION
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
90
91
92
93
94
95
96
97
98
99
00
01
OEC D
0
2
IP
to ta l
i n d u s try
US PRE-TERROR:
BOTTOMING OUT?
30
65
20
60
10
55
0
50
-1 0
45
-2 0
40
-3 0
-4 0
97
98
US A
US A
US A
3
99
00
35
01
C hi cago P MI sa
P hi ladelphi a Fed general bu
NA P M P urchasi ng manage
THE KEY:
CONSUMER CONFIDENCE
150
6
140
5
130
120
4
110
3
100
90
2
80
1
70
60
0
50
40
-1
90
91
92
93
94
95
96
97
98
99
00
01
US A
US A
4
C onsumer confi dence, sa
P ersonal consumpti on ex
RISING UNEMPLOYMENT
6, 00
5, 75
5, 50
5, 25
5, 00
4, 75
4, 50
4, 25
4, 00
3, 75
95
96
97
98
99
00
01
USA
5
Unemploy men
US CYCLE, PRE-TERROR
Y-o-y percentage change
6
6
5
5
4
4
3
3
2
2
1
1
0
6
Forecast SEB
00
01
Sources: EcoWin, SEB
02
03
0
THE ATTACKS:
IMMEDIATE EFFECTS
• In a macro perspective, small material
damage: 0.1-0.2% of GDP
• But nonetheless recession in Q3-Q4
– Losses in communications sectors, finance,
tourism, retail, etc
– Supply chain broken
• Financial markets: Flight to safety
• Central banks in successful concerted action
to guarantee liquidity
• Steeper yield curves: Short rates fall, while
bonds are affected by opposite forces
7
STOCK MARKET:
DOWN AND UP
1400
3000
1350
2750
1300
2500
1250
1200
2250
1150
2000
1100
1750
1050
1500
1000
950
1250
Feb
M ar
A pr
M ay
Jun
Jul
A ug
S ep
Oc t
US A
US A
8
S&P
500 index ,
c los e
Nas daq Com pos it e ind
YIELD CURVE: STEEPER
6, 5
6, 0
5, 5
5, 0
4, 5
4, 0
3, 5
3, 0
2, 5
2, 0
Feb
M ar
Apr
M ay
Jun
Jul
Aug
Sep
O ct
01
USA 10 year governm ent bond, c
USA 3 m onths treas ury bills , clos
9
NOW: AN INTERIM STAGE
• Consumer confidence and retail sales
down
• Important industries severely hit
• Monetary and fiscal stimulus in the US
• Building broad political coalition, ground
troops on their way
• The future will be decided by military/
political developments and effects on
consumer confidence - and how this
affects the fragile recovery
10
THREE SCENARIOS
• Quick solution
– Earthquake scenario
• Drawn out conflict
– Gulf War scenario
• The ugly case
– Dramatic escalation of conflict
Remember: Our starting point was
below consensus
11
SCENARIOS
Y-o-y percentage change
6
6
5
5
4
Forecast SEB
4
3
3
2
2
1
1
0
12
00
01
Sources: EcoWin, SEB
02
03
0
1. THE QUICK SOLUTION
• Successful retaliation
• No further terror attacks; the Anthrax
scare fades away
• Low oil price
• Confidence restored after some months
• Fiscal stimulus works well
• Stock markets rebound
• Very short recession: Economic recovery
in 2-3 quarters
13
US FISCAL INITIATIVES
When?
Before Sep 11
Immediately after
Now discussed
Sum new initiatives
Total stimulus
14
What? How much?
Tax cuts 40
Emergency relief 40
Guarantees 15
Military spending 35
Special stimulus 60-75
150-175
Around 200
IMPACT OF SHOCKS
2002 GDP impact
NEGATIVE SHOCKS
POSITIVE SHOCKS
0.5% higher
unemployment:
1.0%
20% decline in stock
market:
0.7%
Global repercussions:
0.5%
Fiscal easing:
1.5%
Monetary easing:
1.0%
Total negative impact:
2.0-2.5%
Total positive impact:
2.5%
15
US GDP IN
“EARTHQUAKE” SCENARIO
Per cent
6
Y-o-y percent change
Per cent
6
5
5
4
4
Forecast SEB
3
3
2
2
1
1
0
0
-1
16
00
Sources: EcoWin, SEB
01
02
03
-1
2. A DRAWN-OUT
CRISIS
•
•
•
•
•
•
•
•
Limited success in retaliation
The broad coalition breaks down
Risks of more terror attacks
Stability in the Middle East is threatened. Oil
prices move up
Equity prices decline further
Consumer confidence takes a hit
Over-capacity remains a great problem;
continued cuts of personnel and capex
Economic recovery is delayed until 2003
17
CONSUMER CONFIDENCE:
PREVIOUS EXPERIENCES
EVENT
1973
1980
1987
1990
1998
18
Oil shock
Credit squeeze
Market crash
Gulf war
LTCM collapse
CONFIDENCE
-
53
36
15
47
19
CONFIDENCE NOW...
150
6
140
5
130
120
4
110
3
100
90
2
80
1
70
60
0
50
40
-1
90
91
92
93
94
95
96
97
98
99
00
01
US A
US A
19
C onsumer confi dence,
P ersonal consumpti on e
…AND TOMORROW?
150
6
140
5
130
120
4
110
3
100
90
2
80
1
70
60
0
50
40
-1
90
91
92
93
94
95
96
97
98
99
00
01
US A
US A
20
C onsumer confi dence,
P ersonal consumpti on e
SAVINGS RATE MOVES UP
• According to IMF (2001), US personal
savings have been lowered by:
–
–
–
–
–
Higher equity wealth
Higher public saving
Higher per capita Medicare transfers
Improved household access to credit
Lower inflationary expectations
• Major influences now point to increasing
savings
• 1% change of savings ratio means 0.7%
change of GDP
21
SAVINGS RATE AND
STOCK MARKETS
1600
11
1500
10
1400
9
1300
8
1200
7
1100
1000
6
900
5
800
4
700
3
600
2
500
1
400
300
0
91
92
93
94
95
96
97
98
99
00
01
US A
US A
22
P ers onal
S&P
500
s av
ing
index
r
RICARDIAN EQUIVALENCE
11
10
-5
-4
9
8
-3
7
-2
6
5
-1
4
0
3
1
2
1
2
0
3
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
USA Personal saving rat
((usa12605*1000)/(usa0
23
US INDUSTRIAL
PRODUCTION
1 0 ,0
7 ,5
5 ,0
2 ,5
0 ,0
-2 ,5
-5 ,0
-7 ,5
89
90
91
92
93
94
95
96
97
98
99
00
01
U SA IP
24
to ta l
i n d e x,
Vo l u m e ,
s a
[c.o .p
CAPACITY UTILISATION
87,5
85,0
82,5
80,0
77,5
75,0
72,5
70,0
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
USA
25
Capacity
utilization
r ate
NEW ORDERS
25
20
15
10
5
0
-5
-10
-15
-20
90
91
92
93
94
95
96
97
98
99
00
01
US A
0
26
M frs '
new
orders ,
nondefens e
INVESTMENTS
30
25
20
15
10
5
0
-5
-10
-15
-20
89
90
91
92
93
94
95
96
97
98
99
00
01
US A
US A
0
27
Fix ed inv
es t ,
c ompu
Gros s
priv
at e dome
DEFAULT RATE
(High yield, Emerging markets, Convertibles)
Per cent
12
Per cent
12
10
10
8
8
6
6
4
4
2
2
0
28
88 89 90 91
Source: Moody's
92
93
94
95
96
97
98
99
00
01
02
0
STOCK MARKETS
• Many claim the Fed model showed “fair
value” before Sep 11
• That claim was based on optimistic
earnings estimates for 2002
• The 64,000 dollar question: What is
priced in?
• If earnings estimates are overly
optimistic - then the recent market
rebound is a false start
29
EARNINGS ESTIMATES
30
US GDP IN
“GULF WAR” SCENARIO
Per cent
6
Y-o-y per cent change
Per cent
6
4
4
Forecast SEB
2
2
0
0
-2
00
Sources: EcoWin, SEB
31
01
02
03
-2
3. THE UGLY CASE
• Escalation of terrorist attacks and
retaliation. Attacks spread to Europe.
• Many Muslim countries hostile to the US
and its allies. The Saudi House is toppled
and Pakistan (nuclear state) turns
militant Muslim supporting the Talibans
• Oil supplies in disorder and prices soar
• More fiscal and monetary stimulus, but
inflation fears push up bond rates and
savings ratio rises
32
EFFECTS ON EUROPE
• Europe is not insulated
• Several economic transmission
mechanisms
– Direct trade links
– Stock market links
– Consumer confidence
• ECB will cut further
• Some fiscal stimulus - but careful
• Conclusion: Euro zone will follow
the US, but the amplitude will be
smaller
33
JAPANESE TRIPLE DIP
• Deflation, banking sector crises, debt
explosion
• Structural reforms, NPL solution and
monetary policy must be co-ordinated
• Reforms in the pipeline - but only
slowly
• BoJ prints money
• Deep recession 2001-02, slow
recovery earliest by 2003
• Is Koizumi Thatcher or Gorbachev?
34
EMERGING MARKETS
•
•
•
•
•
Increased risks; premium high
Tourism severely affected
China strong: WTO and reforms
Rest of Asia: Mixed picture
Eastern Europe relatively stable, but
Poland in crisis
• Turkey: A drawn-out crisis
• Argentina: Large or small default?
Devaluation or dollarisation?
– Contagion effects?
35
GROWTH IN
DIFFERENT SCENARIOS
2001 2002 2003
US
“Earthquake”
“Gulf”
Euro zone
“Earthquake”
“Gulf”
36
1.0
0.8
1.5
-0.3
3.5
2.9
1.5
1.4
1.7
0.7
2.6
2.6
CONSENSUS FORECASTS
GDP forecasts for 2002
4
3,5
3
2,5
2
1,5
1
0,5
0
-0,5 y
r
-1ua
n
a
J
37
USA
Euro Zone
Japan
A
i
r
p
l
ly
u
J
o
ct
O
r
e
b
HUGE UNCERTAINTY
• New prel. OECD forecast 2001-2002:
–
–
–
–
US 1.1% and 1.3%
Japan -0.7% and -0,8%
Germany 0.7% and 1.0%
OECD 1.0% and 1.2%
i.e close to SEB’s “earthquake” scenario
• Analysts’ forecasts wildly scattered
– standard deviation doubled
– On the V side: Goldman, Deutsche
– On the recession side: CSFB, MSDW
38
V SCENARIO PROBLEMS
• Even if the effects of terror attacks per se
look like a V, they come on top of a weak
US economy
• Fed cuts are counteracted by lower credit
quality and falling investments...
…and tax cuts by higher savings
• Profit margins are low
• Even if the US effects were to be mild, the
risks of a global recession increase
– Japan is on the brink
– Emerging markets slide
39
WISHFUL THINKING?
“It is surely wishful thinking to
hope that the bursting of one of
the biggest financial bubbles in
history, combined with the
aftershocks from the most
serious attack ever on
America’s soil, will be followed
by the mildest recession in
history”
The Economist, Oct 20
40
MULTIPLE EQUILIBRIA?
• Best case scenario still pretty
good
• But worse case significantly
worse
• Risk-weighted outcome may not
follow normal distribution
• Several likely outcomes,
depending on small shifts
• Will make market adjustment
jittery
41
SUMMARY
• US and Japan are moving into recession,
Europe more resistant
• The consensus view is a rebound early
next year. But do not preclude a drawnout recession!
• The problem is the combination of
– hangover from a burst bubble
– psychological effects of terror
– global interaction
• Volatile stock markets, risk of a false
start. Steep yield curves
42