Transcript Spending, Deficits and Debt

The Outlook for the U.S.
and Global Economies
April 2013
Dan North
Euler Hermes Chief Economist,
North America
1
2012 | © Copyright Euler Hermes
The Outlook April, 2013
•
•
•
•
•
•
•
Cautious optimism, but still weak growth, lots of risks
Global Growth 2.5% in 2013, 3.2% in 2014, most coming
from emerging markets, China, India, Latin America
Europe in recession, severe in some countries due to debt
crisis. Risk of disorderly default or exit from EMU low.
U.S. growth an anemic 2% in 2013, 2.5% in 2014, due in
part to our debt crisis
• Forces and measures
• Government responses
U.S. manufacturing rebirth
Conclusions
Gross Domestic Product (GDP): Everything produced by the
economy. It’s the “size” of the economy. Use it to measure the “size”
of other big numbers like budget deficit/debt. $16T, 3.3% ave. growth.
Broadest measure of economic health.
Euro
2013 | © Copyright Euler Hermes
2
European Debt Crisis Uncertainty
•
•
This started 3 yrs ago. Issue is possible default of
government bonds and commercial banks.
Latest plan: ECB says it will buy Spanish, Italian bonds
to keep interest rates down… “whatever it takes to
preserve the euro”
Taxpayer bailouts, debt restructuring
9 changes in government, 10 downgrades,17 countries,
ECB, IMF, EU.
Problem is UNCERTAINTY!
•
•
•
•
•
Possible effects on US:
Exports <2% of our GDP
Financial contagion
Fear hurting consumption
Combination is a small drag for now
•
•
•
US debt
2013 | © Copyright Euler Hermes
3
U.S. Debt Uncertainty
•
•
•
•
•
•
U.S. debt problem is different. In contrast to Europe, U.S.
will never have to default because we can do what no
one else can – print U.S. dollars.
U.S. problem is government has no plan to reduce debt
that’s so high it hurts the economy.
Deficits continue and debt/GDP at 100% for next 10
years. No entitlement reforms in place.
Moody’s warned of credit rating cut because no plan
Congress still stuck… budget battles, debt ceiling in
May… uncertainty
Uncertainty over taxes, regulation hurting growth. DoddFrank unfinished and unknown. Costs of Obamacare
unknown.
2013 | © Copyright Euler Hermes
4
The four forces which started and
ended the recession can help
forecast the outlook:
•
•
•
•
Oil
Housing
Fed policies
Fear in financial markets
2013 | © Copyright Euler Hermes
5
Oil Price Shocks and the Economy
400%
10%
Real Crude Prices (average of Brent, Dubai, WTI spot
prices), Y/Y% growth
290%
300%
Real GDP, Y/Y% growth
32%
200%
140%
5%
28%
1%
100%
21%
56%
38%
28%
36%
0%
0%
-36%
-100%
oil price shocks often
contribute to recessions
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
-5%
1972
-200%
Source: Dept. of Commerce, Dept. of Labor, World Bank, EHACI
More oil
2013 | © Copyright Euler Hermes
6
Oil Price Shocks and the Economy
400%
10%
Real Crude Prices (average of Brent, Dubai, WTI spot
prices), Y/Y% growth
290%
300%
Real GDP, Y/Y% growth
32%
200%
140%
5%
28%
1%
100%
21%
56%
38%
28%
36%
0%
0%
-36%
-100%
no headwind
in 2013
oil price shocks often
contribute to recessions
2012
2010
2008
2006
2004
-5%
2002
2000
1998
1996
1994
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1992
…with a lag…
-200%
Source: Dept. of Commerce, Dept. of Labor, World Bank, EHACI
housng
2013 | © Copyright Euler Hermes
7
Housing
U.S. Housing Market
housing price (right axis)
bubble bursts 2006,
leads recession...
5%
4%
...recovery
...but recovers
in 2009, helping
us out...
3%
20%
15%
10%
2%
5%
1%
0%
-1%
0%
Real GDP growth
(left axis)
-2%
...then slowed us
down again...
-3%
-10%
-15%
-4%
-5%
-5%
sources: S&P Case Shiller, Census
-20%
housng
2013 | © Copyright Euler Hermes
8
Housing
U.S. Housing Market
2,500
Fundamental Measures, Seasonally Adjusted Annualized Rates
7,000
6,000
2,000
Existing Sales;
+9% y/y, -31% from peak
Starts;
+28%, -60%
1,500
5,000
4,000
3,000
1,000
Permits;
+33%, -59%
2,000
500
1,000
sources: National Association of Realtors, Census
2013 | © Copyright Euler Hermes
0
Feb-13
Feb-12
Feb-10
Feb-09
Feb-08
Feb-07
Feb-06
Feb-05
Feb-04
Feb-03
0
Feb-11
New Sales;
+12%, -70%
Yld crve
9
Fed Policy
The Treasury Yield Spread (Curve) vs. GDP
10%
8%
500
Yield spread:
10yr-3 mo Treasuries (bps)
400
6%
300
4%
200
2%
100
0%
0
-2%
-100
-4%
-200
-6%
-300
Federal Reserve, BEA
2013source:
| © Copyright
Euler Hermes
10
Fed Policy
The Treasury Yield Spread (Curve) vs. GDP
10%
8%
500
Real GDP Growth,
Y/Y % Change
Yield spread:
10yr-3 mo Treasuries (bps)
400
6%
300
4%
200
2%
100
0%
0
-2%
-100
-4%
-200
-6%
-300
lending
Federal Reserve, BEA
2013source:
| © Copyright
Euler Hermes
11
Banks lending to best credits, but risk aversion (fear) still
makes credit for small businesses tough
Commercial and Industrial Loans
quarterly annualized % change
40%
Lending
resumed
30%
20%
10%
0%
-10%
one reason this recovery
has taken so long
compared to others
-20%
source: Federal Reserve
2013 | © Copyright Euler Hermes
3-13
1-11
11-08
9-06
7-04
5-02
3-00
1-98
11-95
9-93
7-91
5-89
3-87
1-85
11-82
9-80
7-78
5-76
3-74
-30%
recap
12
Recap
•
•
•
•
•
•
Four forces caused/ended recession
Oil has been a drag but improving
Housing recovering nicely but small
Yield curve positive
Lending OK
So things are looking up, but…
taxes
2013 | © Copyright Euler Hermes
13
Recap
•
•
•
•
•
•
•
Four forces caused/ended recession
Oil has been a drag but improving
Housing recovering nicely but small
Yield curve positive
Lending OK
So things are looking up, but…
New headwind in town – taxes. Higher rates
on the rich, capital gains, dividends, Medicare,
and 77% hit w/ increase in Soc. Sec. tax $1,000
per family
• Total $160 B, 1% of GDP when growth only 2%
• Taxes, Debt and Uncertainty are drags
• So what do the measures of the economy say?
GDP
2013 | © Copyright Euler Hermes
14
GDP weak
Real Gross Domestic Product (GDP)
annualized quarterly growth rate
10%
8%
6%
4%
2%
0%
-2%
-4%
still <
3.3% ave
-6%
-8%
-10%
even after
explanations,
still weak
source: BEA
pce
2013 | © Copyright Euler Hermes
15
The Consumer doing ok, not great
Personal Consumption Expenditures (PCE) & Disposable
Personal Income (DPI) real % growth rate, 3 mos. annualized
10%
temporary leap in
income to avoid taxes,
will reverse
5%
average
0%
consumption
<3.3% average
-5%
-10%
source: BEA
Corp prof
2013 | © Copyright Euler Hermes
16
Industry doing ok, profits growing faster than GDP
Real Corporate Profits
(pre tax w/IVA and CCadj)
30%
20%
10%
7.4%
full year
4.7%
0%
quarterly
annualized
-10%
12/12
9/12
6/12
3/12
12/11
9/11
6/11
3/11
source: BEA
12/10
-20%
employ
2013 | © Copyright Euler Hermes
17
Jobs Created and the Unemployment Rate
600
400
10%
Non-Farm Payroll Jobs
Created (000's) (left scale)
9%
200
8%
0
-200
7%
-400
6%
-600
-800
Unemployment
Rate (right axis)
-1,000
5%
4%
source: Labor Department
emplyment
2013 | © Copyright Euler Hermes
18
Jobs Created and the Unemployment Rate
600
400
10%
Non-Farm Payroll Jobs
Created (000's) (left scale)
9%
200
8%
0
-200
7%
-400
6%
-600
-800
Unemployment
Rate (right axis)
-1,000
5 yrs. later, only
68% recovered,
3M fewer jobs
5%
4%
source: Labor Department
recap
2013 | © Copyright Euler Hermes
19
Recap
•
•
•
•
•
•
Four forces caused/ended recession
Oil has been a drag but improving
Housing recovering but small
Yield curve positive
Lending OK
Taxes, Debt and Uncertainty are drags
• GDP anemic, consumer and industry OK
• Employment situation still terrible
• To fix it, the government has been
causing two big problems:
Debt & Potential Inflation
2013 | © Copyright Euler Hermes
20
FISCAL POLICY
Congress, Administration
Spending, taxing, borrowing
deficits/debt, budgets…
math
2013 | © Copyright Euler Hermes
21
Budget Math in Washington
• Year 1: spent $80
• Original budget for year 2: spend $110
• Final budget for year 2: spend $90
• In most places spending $10 more the second
year would be an increase in spending.
• Not in Washington. This is what they call a $20
“cut”; they wanted to spend $110 but only get to
spend $90.
• Both sides do this every time.
Dfct crtd
2013 | © Copyright Euler Hermes
22
Spending, Deficits and Debt
Gov’t spends
$10
Gov’t gets tax revenue
$7
Deficit
$3
Treas. gets loan, issues $3 notes/bonds
More def
2013 | © Copyright Euler Hermes
23
Spending, Deficits and Debt
Gov’t spends
$10
Gov’t gets tax revenue
$7
Deficit
$3
Treas. gets loan, issues $3 notes/bonds
This $3 is a TAX our kids will have to pay
(and we’re not paying enough tax?)
How big is $3T? Don’t know - measure
against size of the economy - GDP
debt
2013 | © Copyright Euler Hermes
24
Accumulated deficits become debt…
Federal Debt as a % of GDP
120%
110%
1991-2007
U.S.
63%
Italy
110%
Germ.
58%
UK
42%
100%
90%
80%
70%
60%
50%
40%
30%
2013 | © Copyright Euler Hermes
2022
2018
2014
2010
2006
2002
1998
1994
1990
1986
1982
1978
1974
1970
1966
1962
20%
25
Accumulated deficits become debt…
Federal Debt as a % of GDP
120%
110%
Debt>90% = -1% GDP
1991-2007
U.S.
63%
Italy
110%
Germ.
58%
UK
42%
100%
90%
80%
70%
60%
50%
40%
30%
2022
2018
2014
2010
2006
2002
1998
1994
1990
1986
1982
1978
1974
1970
1966
1962
20%
Smp Bwls
2013 | © Copyright Euler Hermes
26
The Simpson - Bowles Deficit Reduction
Commission finally said it out loud:
We must touch the “third rails” of
• Social Security, Medicare, entitlements
If we don’t we will never be able to balance
the budget - entitlements will become the
entire budget
The rest is whistling past the graveyard…
2013 | © Copyright Euler Hermes
27
2012 Outlays, $3.5T
HUD, Labor, Edu. Ag.,
State, Justice, Trans. ,
Energy, Homeland Sec,
Treasury, Commerce,
Interior, EPA
Discretionary,
14%
Health, 23%
Defense, 19%
Social
Security, 22%
Interest,
6%
Income
Security, 15%
defct
2013 | © Copyright Euler Hermes
28
2012 Outlays, $3.5T
HUD, Labor, Edu. Ag.,
State, Justice, Trans. ,
Energy, Homeland Sec,
Treasury, Commerce,
Interior, EPA
Discretionary,
14%
Health, 23%
deficit
Defense, 19%
Social
Security, 22%
Interest,
6%
Income
Security, 15%
seqstr
2013 | © Copyright Euler Hermes
29
2012 Outlays, $3.5T
HUD, Labor, Edu. Ag.,
State, Justice, Trans. ,
Energy, Homeland Sec,
Treasury, Commerce,
Interior, EPA
Discretionary,
14%
Health, 23%
sequester
Defense, 19%
Social
Security, 22%
Interest,
6%
Income
Security, 15%
Even w/sequester, total outlays still rise: 2012 = 3.54, 2013 = 3.55, 2014 = 3.62
entltmts
2013 | © Copyright Euler Hermes
30
Entitlements
• Entitlement spending, particularly Medicare or
some other form of national healthcare, will be
the issue for our time.
• One generation will not be getting the benefits
they think are owed.
• Another generation will be taxed to exhaustion to
try to provide them.
• 2024 Medicare fund exhausted, can only pay 87%
of costs.
• 2033 Social Security trust fund exhausted, can
only pay 75% of benefits.
• But it is not hopeless, the math is simple, legal
immigration could help.
• No political will to fix it.
2013 | © Copyright Euler Hermes
Bdgt comps
31
Budget Comparison
current policy/baseline is what will happen if no change
Source: Washington Post
Bdgt comps
2013 | © Copyright Euler Hermes
32
Budget Comparison
2023 in $T
Baseline
President
House
as % of GDP
Baseline
President
House
vs. Baseline
President
House
vs. 2012
President
House
Spending Revenue
$5.9
$5.0
$5.7
$5.2
$5.0
$5.0
Deficit
$0.9
$0.4
$0.0
Debt
$19.9
$19.0
$14.0
19%
20%
19%
4%
2%
0%
77%
73%
54%
Annual growth
$5.9
$5.0
-0.4%
0.4%
-1.6%
-0.1%
$0.9
-6.3%
-100%
$19.9
-0.4%
-3.2%
$1.1
-8.0%
-100%
$11.3
4.8%
2.0%
23%
22%
19%
$3.5
4.5%
3.2%
$2.4
7.3%
6.8%
President: $1T in new taxes, small entitlement reforms, undoes sequester,
ramps up spending and deficits in '14 and '15 and gets savings late
House: bigger entitlement reforms, sharp cuts to discretionary spending, no
review
new taxes, balances budget in 10 years
2013 | © Copyright Euler Hermes
33
Fiscal Policy Review
•
We need CLARITY, CERTAINTY, a plan, instead we have:
•
No budget in 2011, ’12, ‘13 and probably not ‘14. Budget
Control Act of 2011 (sequester) did nothing to reduce
debt, did nothing to reform Medicare and Social Security.
•
Upcoming ugly battles over budget and debt ceiling.
•
Moody’s threatens rating downgrade - no plan.
•
Borrowing more every day - 11:30 am $45,000,000,000,
yesterday $65,000,000,000, - this week $176,000,000,000
•
Would you spend a lot more than you have and then
stick your kids with the bill? It’s not politics, it’s just bad
policy to burden the next generation with debt that’s not
even theirs.
Mon pol
2013 | © Copyright Euler Hermes
34
MONETARY POLICY
The Federal Reserve Bank,
Ben Bernanke
Fed fnds
2013 | © Copyright Euler Hermes
35
MONETARY POLICY
•
Lowering the short term Fed Funds interest rate usually
works
Need QE
2013 | © Copyright Euler Hermes
36
MONETARY POLICY
•
•
•
•
•
•
•
•
•
•
•
Lowering the short term Fed Funds interest rate usually
works
But this time needed an extra boost, lowering long term
interest rates.
Quantitative easing:
Fed prints new $ bills
Buys Treasury/MBS bonds in open market
Raises bond prices, lowering interest rates (they move
in opposite directions)
Puts $ into financial system
And creates inflationary pressures
QE3 in Sept: unlimited purchases $40B MBS/mo.
QE4 in Dec: unlimited purchases $45B treasuries/mo.
Likely to have limited effect. Rates near record lows,
plenty of excess reserves - banks don’t want to lend.
Did wrk?
2013 | © Copyright Euler Hermes
37
Did QE2 work?
Yield on 10 year Treasury Note
4.0%
3.5%
3.0%
2.5%
Jackson
Hole '10
QE2
hoped
for this
2.0%
1.5%
4/13
1/13
11/12
9/12
7/12
5/12
2/12
12/11
10/11
8/11
6/11
3/11
1/11
11/10
9/10
7/10
source: Federal Reserve
4/10
1.0%
Qe wrk?
2013 | © Copyright Euler Hermes
38
Did QE2 work?
Yield on 10 year Treasury Note
4.0%
3.5%
but got this:
record rate of
increase,
inflationary
expectations
3.0%
2.5%
Jackson
Hole '10
QE2
2.0%
1.5%
4/13
1/13
11/12
9/12
7/12
5/12
2/12
12/11
10/11
8/11
6/11
3/11
1/11
11/10
9/10
7/10
source: Federal Reserve
4/10
1.0%
Qe wrk?
2013 | © Copyright Euler Hermes
39
Did QE2 work?
Yield on 10 year Treasury Note
4.0%
Arab Spring
Japan
3.5%
euro
worries
QE2 ends...
did it work?
3.0%
2.5%
Jackson
Hole '10
oil prices, weak
data, US &
euro worries
QE2
2.0%
1.5%
4/13
1/13
11/12
9/12
7/12
5/12
2/12
12/11
10/11
8/11
6/11
3/11
1/11
11/10
9/10
7/10
source: Federal Reserve
4/10
1.0%
risk
aversion
QE not wrk
2013 | © Copyright Euler Hermes
40
Did QE2 work?
Yield on 10 year Treasury Note
4.0%
Arab Spring
Japan
3.5%
euro
worries
QE2 ends...
did it work?
3.0%
2.5%
Jackson
Hole '10
oil prices, weak
data, US &
euro worries
QE2
J. Hole '12
mrtgs +6 bps
QE4
+16 bps
2.0%
1.5%
QE
doesn't work
QE does not work, does not address problem – already have huge excess
reserves and record low rates. Banks are risk-averse due to uncertainty
2013 | © Copyright Euler Hermes
4/13
1/13
11/12
9/12
7/12
5/12
2/12
12/11
10/11
8/11
6/11
3/11
1/11
11/10
9/10
7/10
source: Federal Reserve
4/10
1.0%
risk
aversion
No infl?
41
Fed says there’s no inflation
Really? How about asset inflation?
Since QE1:
• Gold
• Silver
+91%
+178%
Since QE2:
• Oil
• Commodities (GSCI)
• S&P 500, annualized
+42%
+25%
+14.7% (ave +7.4%)
• Y/Y mean new home
+15% (ave +6.7%)
All same
2013 | © Copyright Euler Hermes
42
QE2/3/4 = Inflation = Printing money = Dollar devaluation
They are all the same thing.
Example; suppose today there is
• one loaf of bread priced at $1, up for auction
• two hungry people, each with a printing press
• to out-bid the other, each runs his press as fast as
possible until one breaks
• by then, the price of the bread is $1M
2013 | © Copyright Euler Hermes
43
QE2/3/4 = Inflation = Printing money = Dollar devaluation
They are all the same thing.
Example; suppose today there is
• one loaf of bread priced at $1, up for auction
• two hungry people, each with a printing press
• to out-bid the other, each runs his press as fast as
possible until one breaks
• by then, the price of the bread is $1M
• printing money created inflation; price from $1 to $1M
• printing money devalued each $1 bill; each $1 bill
used to be worth one loaf of bread, but now is worth 1
millionth of a loaf of bread
• Money was printed (QE)
• Inflation was created
• The dollar was devalued
2013 | © Copyright Euler Hermes
44
$ Devalued, QE at Work
10%
Value of the USD from June 1, 2010
¥ +6%
0%
$C -3%
£ -4%
€ -6%
-10%
C¥ -9%
-20%
$A -19%
SF-19%
-30%
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
Jun-12
Apr-12
Feb-12
Dec-11
Oct-11
Aug-11
Jun-11
Apr-11
Jan-11
Dec-10
Oct-10
Aug-10
source: Federal Reserve Bank of New York
Jun-10
-40%
$US weakening
debt
2013 | © Copyright Euler Hermes
45
$ Devalued, QE at Work
$ Devalued = Debt Devalued
Simple example
Today: Lend $1 @10%. Loaf of Bread costs $1
Inflation goes to 20%
A Year later:
Creditor gets $1.10 back.
But now loaf of bread costs $1.20.
Creditors lose with inflation.
Debtors, like the U.S. government, win.
The U.S. government is ok with inflation.
The U.S. government is ok with a weaker dollar.
May be only way out of $16T in debt.
review
2013 | © Copyright Euler Hermes
46
MONETARY POLICY REVIEW
• Lowering the short term Fed Funds interest rate
usually works.
• But this time needed an extra boost to lower
long term interest rates, Quantitative Easing.
• Fed prints new money, pumps it into financial
system.
• Also causes $ and debt devaluation – huge
incentive to print money.
• QE3/4 unlikely to help. Risk of consumer
inflation in long term. Asset inflation is here
now.
Mon fisc
2013 | © Copyright Euler Hermes
47
Monetary & Fiscal Policy
Less debt, faster recovery. Debt kills.
10%
9%
# is
debt/GDP
line is central
bank rate
8%
Ind 45%
7%
6%
Chn 15%
5%
Chl 10%
Col 30%
4%
3%
S.K. 30%
2%
1%
1/12
3/11
5/10
7/09
9/08
11/12
2013 | © Copyright Euler Hermes
11/07
source: central banks, national stat. offices
1/07
0%
Eur 70%
UK 75%
US 100%
Jpn 200%
48
Monetary & Fiscal Policy
Less debt, faster recovery. Debt kills.
European politicians get it, but can’t fix it. U.S. politicians don’t even get it.
10%
9%
# is
debt/GDP
line is central
bank rate
8%
Ind 45%
7%
6%
Chn 15%
5%
Chl 10%
Col 30%
4%
3%
S.K. 30%
2%
1%
1/12
3/11
5/10
7/09
9/08
11/12
2013 | © Copyright Euler Hermes
11/07
source: central banks, national stat. offices
1/07
0%
Eur 70%
UK 75%
US 100%
Jpn 200%
recap
49
RECAP
• Monetary policy impotent w/ huge inflation risk.
• Fiscal policy a mess but can be fixed… crushing
debt load.
• Neither fixing structural unemployment caused
by mis-matched skills, low mobility (underwater
houses), incentives not to work.
• But despite headwinds, consumer, housing,
yield curve and corporate profits indicate
continued (slow) growth.
• More good news! Rebirth of U.S. manufacturing,
on-shoring.
ULC
2013 | © Copyright Euler Hermes
50
Unit Labor Cost (ULC):
labor cost to make one widget
Hourly wage
Hrs. to make
one widget
(productivity)
Unit labor
cost
U.S.
Country X
$20
$15
1
2
$20
$30
ULC
2013 | © Copyright Euler Hermes
51
U.S. Manufacturing Very Competitive;
low wage growth+high productivity=low ULC
Unit Labor Costs
200
Italy
Canada
150
Germany
Korea
100
Japan
U.S.
Taiwan
source: BLS
50
China gap
2013 | © Copyright Euler Hermes
52
The ULC Gap with China is Closing
Effective Manufacturing Wage Gap
$30
U.S.
$25
$7
$20
China
$15
$17
$10
$5
assumptions:
wages and yuan grow at historical rate 2006-19
U.S. worker 3.4x as productive
$0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
offset
2013 | © Copyright Euler Hermes
53
The ULC Gap with China is Closing
Effective Manufacturing Wage Gap
$30
U.S.
$25
$7
$20
$15
$10
The $7 benefit maybe not enough to offset:
• Quality
• Lower trans. cost
China
• Lower inventory cost
$17
• Time to market
• Keeping technology
$5
assumptions:
wages and yuan grow at historical rate 2006-19
U.S. worker 3.4x as productive
$0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
energy
2013 | © Copyright Euler Hermes
54
Big Advantage, Cheap Energy
Oil Prices, $/bbl
140
130
120
Global: Brent
110
$109
100
$93
90
80
U.S.: West Texas
Intermediate (WTI)
70
60
50
40
2013 | © Copyright Euler Hermes
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
source: World Bank
Mar-08
30
energy
55
0
2013 | © Copyright Euler Hermes
16
Mar-2013
Dec-2012
Sep-2012
Jun-2012
Mar-2012
Dec-2011
Sep-2011
Jun-2011
Mar-2011
Dec-2010
Sep-2010
Jun-2010
Mar-2010
Dec-2009
Sep-2009
Jun-2009
Mar-2009
Dec-2008
Sep-2008
Jun-2008
Mar-2008
Dec-2007
Sep-2007
Jun-2007
Mar-2007
Big Advantage, Cheap Energy
Price of Natural Gas, $/MMBtu
20
18
Japan
14
12
Korea
China
U.K.
10
Germ.
8
6
4
U.S.
2
source; Energy Intelligence
nergy flow
56
ng cars
2013 | © Copyright Euler Hermes
57
Nat Gas cars represent huge potential.
Only two Nat Gas passenger cars available
in US; Honda Civic, Chrysler Ram Pickup
Natural Gas
Country
Vehicles
Iran
3,300,000
Pakistan
3,100,000
Argentina
2,183,487
Brazil
1,733,469
China
1,500,000
India
1,500,000
Italy
746,470
Ukraine
388,000
Colombia
387,250
Thailand
352,652
Uzbekistan
310,000
Armenia
244,000
Bolivia
207,405
Egypt
178,000
Peru
136,662
U.S.
112,000
Others
671,357
Total
17,050,752
2013 | © Copyright Euler Hermes
%of
Refuelling
total
stations
19%
1,960
18%
3,330
13%
1,921
10%
1,793
9%
2,800
9%
724
4%
909
2%
324
2%
676
2%
481
2%
175
1%
345
1%
156
1%
160
1%
189
1%
1,035
4%
4,408
100%
21,386
%of
total
9%
16%
9%
8%
13%
3%
4%
2%
3%
2%
1%
2%
1%
1%
1%
5%
21%
100%
US change
58
Concl glbl
2013 | © Copyright Euler Hermes
59
Conclusions, Global
Global GDP growth:
• 2.5% in 2013, 3.2% in 2014
• most coming from China, India, Latin
America, emerging mkts
• Europe:
• recession, severe in some countries
• risk of exits or disorderly defaults low
• EMU probably holds, but will need:
• a lot of time
• fiscal unity, ECB, ESM, IMF/others
US concl
2013 | © Copyright Euler Hermes
60
Conclusions, U.S.
Positives
Negatives
•Super stimulative
monetary policy will
eventually help
•Yield curve positive
•Housing market firming
•Bank lending
•Consumer debt improved
•Auto Sales
•Dollar falling
•Global economy growing
•Manufacturing re-birth
•Energy
•Uncertainty from WDC,
Europe
•Taxes
•Debt drag
•Personal consumption,
income, confidence weak
•Housing market small
•High unemployment
•Future inflation risk
GDP growth anemic 2% in 2013, 2.5% in 2014…
not doomsday, not great
2013 | © Copyright Euler Hermes
61
Thank you
for your attention.