Transcript Five forces shaping the global economy

Economia Globale:
quasi-Stagnazione o Ripresa?
24 Novembre 2015
Emilio Rossi
EconPartners
Oxford Economics
[email protected]
[email protected]
AE recovering after 2008 crisis, EM slowing
• Improvement in US and EU compensates for EMs slowdown in 2015-2016
• Long-term global outlook affected by weak economic fundamentals
• Deleveraging, low commodity prices, reduced capital inflows and weak EM currencies
increase downside risks for EMs and global outlook
• World GDP growth in 2015 @2.5%; down from 2.9% expected at start of year
page 1
Economic forecasts – constant downward revisions
World: GDP growth forecast
%
3.5
Oxford Economics
2016
Consensus
3.3
2016
3.1
2015
2.9
2.7
2015
2.5
Nov 2013
May 2014
Nov 2014
Source : Oxford Economics/Haver Analytics
page 2
May 2015
Nov 2015
Will growth continue to disappoint in the next 10 years?
• AE better but yet low growth, EM now slowing
• Crisis legacy
or
• Structural reduction of long-term growth ?
• Most analysts (including Oxford Economics) consider “Secular
Stagnation” overly pessimistic…
• …but recognize the high likelihood of a global slowdown in long-term
growth (OECD, Policy challenges for the next 50 years)
• Risk of bubbles - policies may be excessively expansionary if trying to
achieve targets not recognizing low potential output growth
• L. Summers: “It may be impossible for an economy to achieve
simultaneously full employment, satisfactory growth and financial
stability simply through the operation of conventional monetary policy”
page 3
Weak fundamentals help explain low growth
R. Gordon:
• Slowing technical progress - leading
to lower TFP for a sustained period and scarce investment demand
despite low real interest rates
• Impact of technical changes in
previous industrial revolutions
(running water, electricity,
combustion engine, telephone…)
much greater than current changes
• Ageing (and expensive health
technology) leads to higher savings
page 4
Share of World GDP – Technology/Productivity are keys
Advanced
Source: Giovannini - A. Maddison, 2001, Groningen University data
page 5
Emerging
Weak fundamentals help explain low growth
L. Summers:
• excess savings  no attainable real
interest rate that brings the
economy to full employment
• CBs pushed to zero real interest
rates, can’t activate adequate
demand
300
Total Debt, % GDP
Corporate
250
Household
Government
200
• Income inequality
150
• Trade lesser growth engine
100
• High debt levels and need for
deleveraging (weighing on demand)
50
0
2007
2010
2014
Advanced economies
page 6
Other factors
2007
2010
2014
Emerging economies
Five forces shaping the global economy
Oil price: West Texas Intermediate
1. Oil shock triggered by US shale,
Saudi policy and slower demand
growth
• Boosted net oil importers (EZ, JP)
• Undermined oil exporters (Russia,
OPEC)
• Impact on US more neutral: positive
for consumers, lower shale oil&gas
investment
• Factors affecting price outlook
• potential supply increase
• little demand pressure
• shale oil&gas “flexible” production
• Political upheavals of last decade had
little impact on prices
• Price weakness likely to continue for
several years
page 7
US$ per Barrel
160
Oil price, nominal
140
Oil Price, real, Q3 2015 US prices
120
100
80
60
40
20
0
1973
1979
1985
1991
1997
Source : Oxford Economics/Haver Analytics
2003
2009
2015
Five forces shaping the global economy
2. Prospect of rising US interest
rates
• Pushed up dollar, deteriorated
China competitiveness
• Triggered sharp reversal in capital
flows for emerging markets
• What happens when the Fed does
actually raise rates?
3. Quantitative easing in
Eurozone and Japan
• Currency devaluations, shifts in
market shares
• Eased deflation worries
• Will the ECB and BoJ do more?
page 8
Five forces shaping the global economy
4. Slump in world trade
growth
• Trade slowing overall as well as
containers
• Trade/GDP multiplier halved
• How much of this is structural
and how much cyclical?
5. China slowdown
• Meant the end of the commodity
price super-cycle
• Hit regional trade hard with
knock-on effects to rest of the
world
• How severe will it get?
page 9
China - Rebalancing started, but it will take time
The production perspective
The expenditure perspective
%
%
Industry
60
70
Agriculture
Investment
65
Tertiary
50
Consumption
Household consumption
60
40
55
30
50
45
20
40
10
35
0
1990
1994
1998
2002
2006
Source: Oxford Economics, CEIC Data
page 10
2010
2014
30
2000
2004
2008
Source: Oxford Economics, CEIC Data
2012
Growth bearable for Beijing but bad for imports
This pattern of growth drags imports
down
Investment
% yoy
% yoy
GDP
35
Real normal goods imports (RHS)
30
40
25
30
20
20
15
10
10
0
5
0
2007
page 11
50
-10
-20
2009
2011
2013
Source: Oxford Economics, CEIC Data
2015
Emerging markets boom clearly over
EM: Commodity dependence
Net exports, % of GDP (average 2010-13)
Russia
Venezuela
Chile
Malaysia
Colombia
Argentina
Indonesia
Brazil
South Africa
Mexico
Poland
Romania
Thailand
Turkey
Hungary
Philippines
India
China
Taiwan
Korea
-20
Oil
Non-oil commodities
-10
0
10
20
Source : Oxford Economics/UNCTAD
• High debt and commodity dependence are drags on EM growth
• Private sector debt ratio in emerging Asia higher than in G7, private debt in EM
(ex-China) up 20% since 2007
• Risk of a deleveraging cycle in highly indebted countries, especially in case of
external shocks
page 12
30
India - a relatively bright spot
India: Contributions to GDP
India: Monetary conditions
% year
14
%
Domestic
demand
GDP
12
14
Forecast
CPI inflation
Forecast
12
10
10
8
6
8
4
2
6
0
4
Repo rate
-2
Net exports
-4
2
-6
1996
1999
2002
Source: Oxford Economics
2005
2008
2011
2014
2017
0
2006
2008
2010
2012
2014
2016
Source: Oxford Economics/Haver Analytics
• Indian economy – from euphoria to cautious optimism
• slow progress on reforms, stagnant private investment and weakness in
rural consumption indicators
• Low oil prices, supportive macro policy, including 125bp easing by RBI, push
overall growth to 7.2% in 2015 and 7.4% in 2016
page 13
2018
Brazil -- Deteriorating outlook
• Stubbornly high inflation eroding consumers' purchasing power and confidence
• Tightened credit markets, increasing household indebtedness and deterioration
in the labor market…
• ...on top, political corruption scandal. Outlook for GDP to fall 3.1% in 2015 and
decline another 2.0% 2016.
page 14
Russia -- Trouble in the ruble
• Recession deepened in Q2. GDP expected to fall 4.0% in 2015 and another
0.8% in 2016. Sharp retrenchment in consumer spending and investment.
• Triple hit from sanctions, ruble and oil. Outlook has worsened: ruble under
renewed pressure with oil prices slump
• Less space for monetary policy with inflation rampant (especially in the context
of Fed liftoff)
page 15
Japan - BoJ holds fire on more QE; fiscal boost likely
World: Central bank balance sheets
% of GDP, ratio
8
7
Japan/US
6
Japan/EZ
Forecast
5
4
3
2
1
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: Oxford Economics / Haver Analytics
•
Back into recession, but BoJ maintained QE in October at ¥80trn a year
•
Emphasized inflation ex energy rising & expects 2% inflation target met in late 2016
•
Negligible growth is likely through H2 as positive domestic demand >< faltering exports
•
Supplementary spending worth around 1% of GDP is likely in coming weeks, boosting
growth from 0.6% in 2015 to 1.5% in 2016
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US – overall positive, with conflicting signals
page 17
Oxford Economics baseline forecast
World GDP Growth
% Change on Previous Year
2014 2015 2016 2017
US
2.4
2.4
2.7
2.7
Canada
2.4
1.1
1.9
2.5
-0.1
0.6
1.5
1.1
0.9
1.5
1.8
1.8
Germany
1.6
1.6
2.3
2.0
France
0.2
1.1
1.5
1.7
-0.4
0.8
1.2
1.1
UK
2.9
2.4
2.5
2.5
China
7.3
6.9
6.3
5.8
India
7.1
7.2
7.4
7.2
Other Asia
3.5
3.1
3.8
4.0
Mexico
2.1
2.3
2.9
3.3
Brazil
0.1
-3.1
-2.0
0.9
Other Latin America
1.6
1.3
1.8
3.2
Eastern Europe
1.3
-0.7
1.4
2.6
MENA
3.7
3.2
3.5
4.0
World
2.6
2.5
2.7
3.0
World (PPP)
3.3
3.0
3.5
3.8
Japan
Eurozone
of which:
Italy
Updated as of November 20, 2015
page 18
Summary
• Currently favorable global context - weak oil and commodities prices, overall
expansionary monetary and fiscal policies
• Nonetheless, world growth only 2.5% in 2015, 2.7% for 2016
• Weak for a recovery period, low growth rates for a prolonged period
• Unfavorable fundamentals
• low productivity growth, ageing population, savings glut, low corporate
investment, high debt levels, world trade loosing steam as growth engine
• Risks to world growth – adverse reaction to FED rate hike, slowdown in China
• hit other emerging markets
• Eurozone so far relatively resilient to the shock
• In a low growth environment, fiscal policies become more difficult to balance
• need to reduce taxes and invest on R&D, Technology, Infrastructure,
Education
page 19