Transcript ajc_globalasia1010

Is the global recovery stalling?
Adrian Cooper
[email protected]
October 2010
Oxford Economics
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2
Our track record
Oxford Economics
Forecasting Record
2007-2009
(average absolute forecast divergence for real GDP growth)
USA
Eurozone
Japan
OE
0.7
1.4
2.0
EIU
Global Insight
IMF
OECD
Consensus Economics
Macro Advisors
1.0
0.7
1.6
1.1
1.0
1.2
2.2
1.7
2.2
1.8
1.8
-
2.6
2.4
2.9
2.7
2.4
-
Note: Forecasts made in December for year ahead.
Global growth better than expected in 2010
World: Global real GDP growth
% yr
5
Forecast
4
3
October 2010
forecast
2
January 2010
forecast
1
0
-1
-2
-3
1999
2001
2003
2005
2007
2009
Source : Oxford Economics/Haver Analytics
2011
2013
World trade has bounced back very strongly
Global Trade and GDP during the Crisis
2008Q1=100
105
100
GDP
95
90
Trade
85
80
2008Q3
Q4
2009Q1
Q2
Q3
Source : Oxford Economics/Haver Analytics
Q4
2010Q1
Q2
Two key points
 There is still a very high level of uncertainty about the outlook,
especially in the US and Europe
 The recession was driven by the corporate sector and the
shape of the recovery will depend on how corporates react in
different countries
US weaker than Europe in Q2…
GDP growth
% quarter
09Q1
09Q2
09Q3
09Q4
10Q1
10Q2
3
2
1
0
-1
-2
-3
-4
US
Eurozone
Source : Oxford Economics
Germany
UK
…although Europe still lagging US recovery
GDP: US, UK, Eurozone & Germany
2008 Q1 = 100
101
100
99
US
98
97
96
Germany
95
94
UK
93
92
2008
Q1
Eurozone
2008
Q2
2008 2008
Q3
Q4
Source: Oxford Economics
2009
Q1
2009
Q2
2009 2009
Q3
Q4
2010
Q1
2010
Q2
Why has the US recovery slowed?
 Q2 pulled down by surging imports and easing of restocking
cycle
 Domestic demand was still strong
 And many recent indicators encouraging
 Two main areas of worry:
■ Housing sector is still a mess
■ Jobs recovery disappointing
Why has the US recovery slowed?
 Q2 pulled down by surging imports and easing of restocking
cycle
 Domestic demand was still strong
 And many recent indicators encouraging
 Two main areas of worry:
■ Housing sector is still a mess
■ Jobs recovery disappointing
US domestic demand still strong in Q2
Why has the US recovery slowed?
 Q2 pulled down by surging imports and easing of restocking
cycle
 Domestic demand was still strong
 And many recent indicators encouraging
 Two main areas of worry:
■ Housing sector is still a mess
■ Jobs recovery disappointing
ISM points to sustained healthy growth
ISM indexes
Index
65
Non-manufacturing
60
55
50
45
Manufacturing
40
35
30
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Institute for Supply Management
Why has the US recovery slowed?
 Q2 pulled down by surging imports and easing of restocking
cycle
 Domestic demand was still strong
 And many recent indicators encouraging
 Two main areas of worry:
■ Housing sector is still a mess
■ Jobs recovery disappointing
Why has the US recovery slowed?
 Q2 pulled down by surging imports and easing of restocking
cycle
 Domestic demand was still strong
 And many recent indicators encouraging
 Two main areas of worry:
■ Housing sector is still a mess
■ Jobs recovery disappointing
Why has the US recovery slowed?
 Q2 pulled down by surging imports and easing of restocking
cycle
 Domestic demand was still strong
 And many recent indicators encouraging
 Two main areas of worry:
■ Housing sector is still a mess
■ Jobs recovery disappointing
But corporates are still not hiring in the US…
US: Monthly change in private employment
000's
300
200
100
0
-100
-200
-300
-400
-500
-600
-700
-800
-900
Jan-09
Apr-09
Jul-09
Source: National Statistics
Oct-09
Jan-10
Apr-10
Jul-10
Strong productivity promised jobs rebound…
US: Productivity growth
% year
6
F'cast
5
4
Whole economy
3
2
1
0
-1
-2
-3
1981
1985
1989
Source: Oxford Economics
1993
1997
2001
2005
2009
…given US productivity level very high
Productivity: GDP per hour worked (2009)
US$
70
60
50
40
30
20
10
0
US
Japan
Germany
Source: Oxford Economics' calculation
France
UK
Why aren’t companies hiring in the US?
 Long-term unemployment encouraged by more generous
benefits?
 Job losses concentrated in construction and outlook in this
sector is bleak
 Regional mismatch between labour demand and supply
 Uncertainty
Why aren’t companies hiring in the US?
 Long-term unemployment encouraged by more generous
benefits?
 Job losses concentrated in construction
 Regional mismatch between labour demand and supply
 Uncertainty
Why aren’t companies hiring in the US?
 Long-term unemployment encouraged by more generous
benefits?
 Job losses concentrated in construction
 Regional mismatch between labour demand and supply
 Uncertainty
Changes in US unemployment - worst & best
Peak to trough change in unemployment
North Dakota
Smallest impact
South Dakota
Alaska
New York
Large states
Texas
Pennsylvania
California
Biggest impact
Florida
Nevada
0
2
Source : Haver Analytics
4
6
8
10
12
Why aren’t companies hiring in the US?
 Long-term unemployment encouraged by more generous
benefits?
 Job losses concentrated in construction
 Regional mismatch between labour demand and supply
 Uncertainty
Bernanke on uncertainty
Statement to Senate Banking Committee, 22 July:
"Even as the Federal Reserve continues prudent planning for the
ultimate withdrawal of monetary policy accommodation, we also
recognise that the economic outlook remains unusually
uncertain.“
Keynote speech at Jackson Hole, Wyoming, 27 August:
“…macroeconomic projections are inherently uncertain, and the
economy remains vulnerable to unexpected developments.”
The recession wasn’t consumer driven in US…
US : Consumer spending
trough=100
108
1975Q1
106
104
1980Q3
2009Q2
102
100
1991Q1
98
1982Q4
96
94
2001Q4
92
90
-6
-5
-4
-3
-2
Source : Oxford Economics
-1
0
1
2
3
Periods from trough
4
…and even less so in Germany
Germany : Consumer spending
trough=100
106
Early 1970s
104
Early 1990s
Early 1980s
102
100
2008-10
98
96
94
-6
-5
-4
-3
-2
Source : Oxford Economics
-1
0
1
2
3
Periods from trough
4
Nor were bank job cuts as bad as feared
Sectoral contribution to employment losses
Contribution to peak-to-trough change in employment, % pts
1
0
-1
-2
-3
Government
Other services
Finance/business
Industry
Construction
Agriculture
-4
-5
-6
-7
US
Japan
UK
Germany
Source : Oxford Economics/Haver Analytics
France
Italy
Corporates have driven the cycle – in the US…
…and globally, then magnified through trade
Germany: Investment recoveries compared
100= GDP trough
115
113
2008-10
111
Early 1990s
109
107
105
103
101
99
Early 1980s
97
95
Q-5
Early 1970s
Q-4
Q-3
Q-2
Source: Oxford Economics
Q-1
Q0
Q1
Q2
Q3
Q4
Q5
Corporate sector now running big surpluses
Total corporate financial balance
% of GDP, 4QMA
20
15
Japan
10
UK
5
0
France
-5
Germany
US
-10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Oxford Economics
Partly that is banks…
Financial corporate balance
% of GDP, 4QMA
5
4
Germany
3
Japan
2
1
0
-1
US
-2
-3
France
UK
-4
-5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Oxford Economics
…but critically it is also non-financials
Non financial corporate balance
% of GDP, 4QMA
15
Japan
10
UK
5
0
France
-5
Germany
US
-10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Oxford Economics
Government retrenchment intensifying…
…amid threat of Eurozone sovereign debt crisis
Eurozone: Credit spreads
% spread of 10-year bonds over German
bunds
12.0
10.0
Greece
Spain
Portugal
Ireland
Italy
8.0
6.0
4.0
2.0
0.0
Jan-2008 Jul-2008 Jan-2009 Jul-2009 Jan-2010 Jul-2010
Source : Oxford Economics/Haver Analytics
And households constrained not only by debt…
Household debt
% of income
250
Ireland
200
UK
150
US
100
Germany
50
Eurozon
Eurozone
e
Spain
0
1995
1997
1999
Source : Oxford Economics
2001
2003
2005
2007
2009
…but also the weak labour market…
World: Unemployment
%
12
France
Forecast
11
10
Eurozon
e
9
8
UK
7
Germany
6
5
US
4
3
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Source : Oxford Economics
…and squeeze on real wages as well as higher taxes
Real wages
Annual % change
6
Forecast
5
4
3
UK
US
2
1
0
-1
Eurozone
-2
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Source : Oxford Economics
Financial surpluses here for extended period
Household financial balance
% of GDP, 4QMA
10
France
8
Germany
6
4
2
Japan
0
US
-2
UK
-4
-6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Oxford Economics
So consumers will lag rather than lead recovery
Corporate surpluses normally get spent in US…
US: Investment and corporate money
% year
30
25
20
15
10
5
0
-5
-10
-15
-20
Real corporate
broad money
Nonresidential
investment
-25
1971 1975 1979 1983 1987 1991 1995 1999 2003 2007
Source : Oxford Economics/Haver Analytics
…and elsewhere
UK: Corporate liquidity and investment
% year
50
40
30
Business Investment
20
10
0
-10
-20
Real PNFC M4
-30
1970
1976
1982
1988
1994
Source : Oxford Economics/Haver Analytics
2000
2006
We are seeing some recovery in M&A
World: M&A
US$ bn
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
1996
1998
2000
2002
Source : Dealogic/Thomson Reuters
2004
2006
2008
2010
Jan-Jul
ann.
What might hold companies back this time?
 Unusual uncertainty
 Excess capacity
 Debt
 Credit constraints
What might hold companies back this time?
 Unusual uncertainty
 Excess capacity
 Debt
 Credit constraints
Excess capacity holding back investment
US: Capacity utilisation and real nonresidential investment
Eurozone: Capacity utilisation and real nonLow capacity
discourages new investment
residential
investment
% year
% point
90
15
Capacity
utilisation
(LHS)
85
10
5
80
0
-5
Non residential
investment
(RHS)
75
-10
70
-15
65
1995
-20
1997
1999
2001
2003
2005
Source: Oxford Economics, Haver Analytics
2007
2009
What might hold companies back this time?
 Unusual uncertainty
 Excess capacity
 Debt
 Credit constraints
Companies seeking to pay down debt
What might hold companies back this time?
 Unusual uncertainty
 Excess capacity
 Debt
 Credit constraints
Corporate lending very weak
World: Lending to PNFCs*
% year
28
UK
24
20
16
12
8
Eurozone
4
0
-4
-8
-12
US
-16
-20 *3 month moving average
-24
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Haver Analytics
Forecast takes a hopeful view on investment for US
Subdued recovery for major economies
Interest rates to remain low for some time
World: Interest rates
3-month interest rates, %
16
14
Forecast
UK
12
10
8
6
4
2
US
Euro
Japan
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: Oxford Economics
Emergers leading recovery despite slowing in some
BRICS: Industrial production
% year
25
20
China
15
India
10
5
0
Brazil
-5
Russia
-10
-15
3 month moving average
-20
2005
2006
Source: Haver Analytics
2007
2008
2009
2010
Consumption is robust in China…
China: Retail sales
% year
24
Value
sales
21
18
15
12
Volume
sales
9
6
3
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Haver Analytics
…pulling up rest of Asia…
China import* growth and regional IP*
% yr
% yr
60
Korea (LHS)
80
Japan (LHS)
50
60
40
Singapore (LHS)
China (RHS)
30
40
20
10
20
0
0
-10
-20
-30
-20
*3 month moving average
-40
200501
-40
200601
200701
200801
Source : Oxford Economics/Haver Analytics
200901
201001
…and supporting Asian consumer
Emerging Asia: Consumer spending
% year
15
Thailand
12
Malaysia
9
6
3
0
-3
Taiwan
Korea
-6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Haver Analytics
Low debt levels gives plenty of fiscal scope…
Budget Deficits and government debt in 2010
debt as % GDP
200
Japan
180
160
Italy
140
Greece
120
US
100
Singapore
Germany
80
China
60
40
UK
India
Malaysia
Korea
20
France
Thailand
Spain
Taiwan
0
0
2
4
6
8
Source : Oxford Economics/Haver
Analytics
deficit as % of GDP
10
12
…and credit taps can turn on quickly if needed
China: Total RMB loans
12-month % change
36
32
28
24
20
16
12
8
4
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Haver Analytics
But pull from China’s imports is easing…
China: Exports and imports
% year
80
60
40
Imports (US$)
Exports
(US$)
20
0
-20
3 month moving average
-40
1995
1997
1999
Source: Haver Analytics
2001
2003
2005
2007
2009
…pressure coming from stronger currencies…
Emerging Asia: Exchange rates v US$
Emerging Asia: Exchange rates v US$
2002Q1=100
150
appreciation
140
2002Q1=100
150
appreciation
Korea
month average data except for
last observation (= Oct 14)
Thailand
140
130
130
120
120
110
110
Singapore
month average data except for
last observation (= Oct 14)
Malaysia
Taiwan
100
India
100
China
90
90
80
2002
80
2002
2003
2004
2005
Source: Haver Analytics
2006
2007
2008
2009
2010
Philippines
2003
2004
2005
Source: Haver Analytics
Indonesia
2006
2007
2008
2009
2010
…and dependence on OECD still significant
Outlook still highly uncertain
Corporate recovery
Oxford forecast
Renewed global boom
■ Gradual rise in business confidence
encourages corporates to invest
■ But weak banks combined with excess
capacity limit scale of investment
recovery
■ Consumer spending recovery limited
by pace of job growth and fiscal
retrenchment
■ But recovery strong enough that fiscal
crisis remains contained
■ Strong corporate liquidity feeds into new
investment boom
■ Faster growth boosts business and
consumer confidence, and trade
multiplier magnifies upturn
■ Bank balance sheets improve quickly and
credit growth resumes
■ Strong growth boosts tax revenues/cuts
social security payments, helping fiscal
consolidation
Sub-par recovery
Renewed crisis
■ Threat of double-dip means renewed
slump in asset prices as Eurozone
sovereign debt crisis re-emerges
■ Pressure to cut budget deficits rapidly in
all major economies
■ Rising unemployment and business
failures feed back into banking
■ Limited scope for monetary policy offset
■ Business optimism remains low and
corporates continue to hoard cash
■ Investment and job growth is modest as
capacity is underutilised
■ Monetary policy supports banking sector
but fiscal coffers are empty
■ Easier credit conditions mean benefits of
loose monetary policy feeds through to a
stronger housing and consumer recovery
Financial sector recovery
Oxford Economics’ forecast scenarios
Alternative GDP growth forecasts
2009
2010
2011
2012
Oxford Forecast (45%)
US
Eurozone
China
World
-2.6
-4.0
9.1
-0.7
2.6
1.5
9.7
4.5
2.5
1.3
9.0
4.2
3.5
1.7
9.2
4.9
Renewed boom (15%)
US
Eurozone
China
World
-2.6
-4.0
9.1
-0.7
2.8
1.7
10.4
4.8
3.7
2.4
10.7
5.5
4.2
2.8
10.4
5.9
Sub-par recovery (30%)
US
Eurozone
China
World
-2.6
-4.0
9.1
-0.7
2.4
1.2
8.8
4.1
1.8
0.8
7.2
3.3
2.2
0.9
7.5
3.7
Renewed crisis (10%)
US
Eurozone
China
World
-2.6
-4.0
9.1
-0.7
2.2
1.0
8.0
3.7
-0.6
-1.3
4.9
1.0
1.0
-0.2
5.5
2.3
Oxford Economics’ forecast
World GDP Growth
% Change on Previous Year
2008 2009 2010 2011 2012 2013
US
0.0
-2.6
2.6
2.5
3.5
3.8
-1.2
-5.2
2.6
1.1
2.1
2.0
0.3
-4.0
1.5
1.3
1.7
2.0
Germany
0.7
-4.7
3.1
1.8
1.7
2.0
France
0.1
-2.5
1.5
1.6
2.0
2.1
-1.3
-5.1
0.9
1.0
1.2
1.4
-0.1
-5.0
1.6
2.0
2.7
3.2
China
9.6
9.1
9.7
9.0
9.2
8.8
India
7.4
6.7
8.2
8.3
9.0
8.8
Other Asia
4.0
2.0
6.6
5.4
6.2
6.0
Mexico
1.5
-6.6
4.7
4.5
5.4
4.8
Brazil
5.2
-0.2
7.3
4.5
5.1
4.6
Other Latin America
4.8
-0.6
4.5
4.0
4.7
4.3
Eastern Europe
4.8
-5.6
3.1
3.7
5.3
5.5
MENA
4.7
1.8
7.0
7.4
7.0
6.6
World
1.4
-2.0
3.6
3.3
4.0
4.2
World (PPP)
2.8
-0.7
4.5
4.2
4.9
5.0
Japan
Eurozone
of which:
Italy
UK
Singapore: Overview
 Advance Q3 GDP showed a 19.8% drop, the worst on record and driven by
a sharp slowdown in manufacturing, in particular the biomedical sector.
Annual growth halved from 19.6% in Q2 to 10.3% in Q3 although the still
economy remains on track to meet the governments forecast of growth
between 13 and 15% this year.
 With Chinese imports now less buoyant and growth faltering in the EU and
the US, we expect export growth to slow markedly in the coming months.
 The Monetary Authority of Singapore tightened monetary policy this month.
 Property prices were 23% up on a year ago in Q3. The authorities recently
announced a series of measures aimed at cooling the property market.
 Tourist arrivals have been buoyant this year, boosting by hosting the Youth
Olympic games and by the opening of two new casino complexes. The
authorities are targeting 17m tourist arrivals by 2015, up from 9.7m last year.
Singapore: GDP growth slowing after H1 surge
Singapore: GDP growth
% year
Forecast
20
16
12
8
4
0
-4
-8
-12
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: Oxford Economics
Singapore: H1 activity was strong across the board
Singapore: Contributions to GDP growth
% year
16
GDP
12
8
4
0
-4
-8
Domestic
demand
Net
exports
Forecast
-12
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: Oxford Economics
Singapore: Manufacturing now slowing sharply
Singapore: Industrial production
% year
80
3 month moving average
60
40
Total
20
0
-20
Electronics
-40
1995
1997
1999
Source: Haver Analytics
2001
2003
2005
2007
2009
Singapore: House prices soaring
Singapore: Property Prices
% year
50%
40%
Property Price Index: All residential
30%
20%
10%
0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
-10%
-20%
-30%
Source : Oxford Economics/Haver Analytics
Singapore: Tourist arrivals buoyant
Singapore: Tourist arrivals
Thousands
1000
900
800
700
600
500
400
seasonally adjusted
(3 month moving average)
300
200
1995
1997
1999
Source: Haver Analytics
2001
2003
2005
2007
2009
Malaysia: Overview
 National accounts data showed that GDP growth slowed to 8.9% in Q2, a
stronger performance than had been expected. GDP growth is expected to
moderate in the second half of the year but consumer spending should be
less affected than the more export-oriented sectors. Robust domestic
demand boosted the import recovery to such an extent that net exports
subtracted from growth throughout the recovery period
 Malaysia is very vulnerable to developments abroad, particularly in China,
the main destination for its exports behind Singapore. The uncertain outlook
for the global economy means quarterly growth is likely to be much more
modest in 2010H2 than in H1.
 Bank Negara have already raised rates three times this year. We expect one
more increase in Q4.
 The fiscal deficit hit a twenty year high of 7% of GDP last year and the
government is hoping to reduce it to 5.6% this year.
Malaysia: strong recovery starting to slow
Malaysia: GDP and industrial production
% year
25
20
GDP
15
Industrial
production
F'cast
10
5
0
-5
-10
-15
-20
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Source: Oxford Economics
Malaysia: Strong imports hindered net exports
Malaysia: Contributions to GDP
% year
20
GDP
15
F'cast
10
5
0
-5
Net exports
-10
-15
-20
-25
Domestic demand
-30
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
Source: Oxford Economics
Malaysia: Recovery lagged neighbours
Malaysia: Industrial output
2005=100
140
130
Weighted aggregate of
Korea, Thailand & Taiwan
120
110
100
90
Malaysia
80
70
60
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Haver Analytics / Oxford Economics
Malaysia: Exports now slowing sharply
Malaysia: Exports and imports
% year
50
3 month moving average
40
Exports
(US$)
30
20
10
0
-10
-20
-30
Imports (US$)
-40
1995
1997
1999
Source: Haver Analytics
2001
2003
2005
2007
2009
Malaysia: Government keen to reduce the deficit
Malaysia: Government budget balance & debt
% of GDP
6
% of GDP
100
Government balance
(LHS)
3
90
0
80
-3
70
-6
60
-9
50
-12
40
-15
Government debt
(RHS)
-18
F'cast
-21
30
20
1980
1984
1988
1992
Source: Oxford Economics
1996
2000
2004
2008
2012
Bank Lending: Strong recovery this year
Malaysia & Singapore: Bank lending
% year
30
Singapore
25
20
15
Malaysia
10
5
0
-5
-10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Haver Analytics
Exchange Rates: Rapid gains in recent months
Emerging Asia: Exchange rates v US$
2002Q1=100
150
appreciation
140
Singapore
month average data except for
last observation (= Oct 13)
130
120
110
Malaysia
100
90
2002
2003
2004
2005
Source: Haver Analytics
2006
2007
2008
2009
2010