Transcript Acropolis Now Where next for the global economy?

Uphill struggle: Struggling to keep the
economic recovery
on track
Aidan Manktelow
Senior Economist
IBCL
September 2011
Slowdown? Ask purchasing managers
65
PMI close to stagnant in July, August
60
55
50
45
US
China
Euro zone
40
35
30
Aug-11
Jun-11
Apr-11
Feb-11
Dec-10
Oct-10
Aug-10
Jun-10
Apr-10
Feb-10
Dec-09
Oct-09
Aug-09
Jun-09
Apr-09
Feb-09
Dec-08
Oct-08
Aug-08
Jun-08
Apr-08
Feb-08
Dec-07
Diffusion index; 50 is dividing line between expansion and
contraction. Source: Bloomberg
Key points for 2011-12
• Shocks and stresses





Euro zone debt crisis
US debt debacle, downgrade
Volatile commodity prices
Inflationary pressures
Political tensions
• Developed countries stalling

Fragile recovery, shocks impact confidence
• Emerging markets

Will they calibrate policy tightening correctly?

Resilience to renewed slowdown in OECD?
• Slowdown or meltdown?
Our scenarios
• Slow, sustained recovery




Richer countries continue to grow
In 2012 US slows to 2%, euro zone to 0.8%
Emerging markets slow but outperform
Euro zone crisis contained; oil price recedes
50%
• Recession

Shocks derail the recovery
◦ Asset price declines hit confidence



45%
US and euro zone suffer recessions
Defaults, break-up of euro zone
Emerging markets hit
• Recovery strengthens


Policymakers get their act together
Confidence surges
5%
Euro zone: Crisis escalates
Economic growth weakens (even in
Germany)
3
Bond yield, %
Source: Haver Analytics
Sep 14 2011
•
Aug 25 2011
4
Aug 5 2011
More fiscal consolidation announced
by Italy, Spain
Jul 18 2011
•
Jun 28 2011
5
Jun 8 2011
ECB starts buying Italian and
Spanish government bonds
Spain
May 19 2011
•
Apr 29 2011
6
Apr 11 2011
Crisis engulfs Italy and Spain
 Much larger economies, debts
Mar 22 2011
•
Mar 2 2011
7
Feb 10 2011
Greece bail-out and changes to
EFSF fail to restore confidence
Jan 21 2011
•
Jan 3 2011
Italy
2nd
Euro zone: Which way out?
Three possible outcomes:
1. Some form of fiscal union and joint euro bonds

Would be a lengthy process
 But moves would do much to reassure markets
2. ECB undertakes massive bond purchases

Mimicking the US Fed
 Reluctant, but already some moves in this direction
3. Euro-zone break-up

Policy response fails to protect Italy and Spain
 Ructions could spell the end for the euro
Where’s the growth?
Real GDP growth; % change, year on year. ASEAN = Association of South East Asian Nations.
Source: Economist Intelligence Unit, CountryData.
Relative market size: G7 vs E7
GDP,
US$ trn
E7 is 22%
bigger than
the G7
120
100
G7
E7
E7 is half
the size of
the G7
80
60
40
20
0
2011
2020
G7 = US, Japan, Germany, UK, France, Italy, Canada. E7 = China, Brazil,
India, Indonesia, Russia, Mexico, Turkey. Source: Economist Intelligence Unit,
CountryData.
2030
Implications for marketing strategies
• Prepare for volatility

Short-term outlook is highly uncertain
• Geographic refocusing

Emerging markets will become the primary source of revenue and profit
• Balancing the short and long-term

Surviving today vs necessary investment in a changing world