Transcript CCBLR NY Reception 2011 Presentation BNP Paribas Fortis

Economic outlook.
Are we getting out of the mess?
Brussels, February 03 2011.
Freddy Van den Spiegel
Chief Economist
History of the crisis
•
2007: starting problems in US housing market and “toxic” financial
products.
•
2008: major banks fail in US and EU, global economy into recession.
•
2009: global recession.
•
2010: sovereign risks.
•
2011: currency and trade wars or gradual normalisation?
February 03, 2011 | 2
But surprising economic recovery
Changing forecasts:
2010 Forecasts
Date of forecast:
sep/09
jan/10
apr/10
jul/10
okt/01
World
3,1
3,9
4,2
4,6
4,8
US
1,5
2,7
3,1
3,3
2,6
EMU
0,3
1,0
1,0
1,0
1,7
China
9,0
10,0
10,0
10,5
10,5
Russia
1,5
3,6
4,0
4,3
4,0
Source: IMF
February 03, 2011 | 3
1. Economic outlook: focus on the consensus view.
US: Growth is back but quid sustainability?
• Corporate sector healthy.
• Consumer sector fragile.
• Government sector supportive beyond reasonable levels.
• External balance deteriorating again.
• Banking sector: deleveraging going on but still a long way to go.
CONTINUOUS RECOVERY GOING ON BUT REMAINS VULNERABLE
SUSTAINABLE FOR HOW LONG?
February 03, 2011 | 4
1. Economic outlook: focus on the consensus view.
EMU: Growth is back but slower than US.
•
Corporate sector healthy.
•
Consumer sector hesitant.
•
External sector pulling economy.
•
Government debt levels increasing but still under control.
•
Banking sector stabilised, but vulnerable.
•
Monetary and Economic Cohesion at risk.
SUSTAINABLE GROWTH BUT FINANCIAL AND POLITICAL UNCERTAINTY
February 03, 2011 | 5
1. Economic outlook: focus on the consensus view.
Belgium: strong performance within EMU
•
Corporate sector healthy.
•
Consumer sector strong.
•
Government sector the Achilles’ heel.
•
External sector pulling economy.
•
Banking sector oversized and vulnerable: ongoing need to deleverage.
Nice profile with political and financial weak spots.
February 03, 2011 | 6
1. Economic outlook: focus on the consensus view.
Russia: sustained growth.
•
Activity supported by oil prices.
•
Consumer sector benefitting from lower unemployment.
•
Government sector: room for expansion.
•
External sector: comfortable balance.
•
Tighter monetary policy due to inflation.
•
Long term potential.
February 03, 2011 | 7
1. Economic outlook: focus on the consensus view.
Asia: Continued growth and apparent stability.
•
No fundamental problems with crisis (banks and government debt).
•
But based on massive government support.
•
But still focused on exports which is unsustainable.
•
But inflationary pressures building.
And not only a China story
February 03, 2011 | 8
MAJOR NEW ECONOMIES: REAL GDP GROWTH (%YoY)
IMF Figures
12
IMF Forecasts
10
8
6
4
2
0
00
01
02
03
04
05
06
07
08
09
10
11
12
-2
-4
-6
India
Brazil
Indonesia
Russia
-8
-10
February 03, 2011 | 9
1. Economic outlook: focus on the consensus view.
Asia: Continued growth and apparent stability.
•
No fundamental problems with crisis (banks and government debt).
•
But based on massive government support.
•
But still focused on exports which is unsustainable.
•
But inflationary pressures building.
And not only a China story
Growth can continue at high speed, but increasing dangers of conflicts with
major clients and internal bottle necks.
February 03, 2011 | 10
1. Economic outlook: focus on the consensus view.
Summary.
US
EMU
Belgium
Russia
China
GDP Growth
2010
2011
2012
2,8
2,1
2,8
1,7
1,6
1,7
2,1
2,2
2,0
4,1
4,2
4,5
10,0
9,0
9,4
2010
1,6
1,6
2,3
6,9
3,2
Inflation
2011
1,1
2,2
2,6
8,3
3,8
2010
1,6
1,5
2,1
6,6
3,1
Inflation
2011
1,1
1,3
1,6
7,5
3,3
2012
0,8
1,6
1,8
8,7
3,8
Budget Balance
2010
2011
2012
-8,9
-8,6
-7,0
-6,2
-4,7
-3,7
-4,6
-3,8
-3,1
-3,9
-3,5
-3,0
-2,7
-2,3
-2,5
2012
1,1
1,2
1,8
6,5
3,0
Budget Balance
2010
2011
2012
-10,5
-8,8
-6,8
-6,3
-4,6
-3,5
-4,9
-4,5
-3,6
-4,8
-3,6
-2,9
-1,9
-2,2
-2,1
Source: BNP Paribas
US
EMU
Belgium
Russia
China
GDP Growth
2010
2011
2012
2,7
2,2
3,1
1,7
1,7
2,0
2,1
1,8
1,8
4,0
4,3
4,4
10,5
9,7
9,7
Source: OECD/IMF
February 03, 2011 | 11
1. Economic outlook: the consensus view.
2. Are we getting out of the mess: overview of developments in
risk areas.
February 03, 2011 | 12
2. Are we getting out of the mess? Overview of risk areas.
•
Banking health.
•
Confidence stable.
•
Lending to private sector recovers.
•
Profitability back but still vulnerable
•
Stress tests reassuring but controversial.
•
But exposure to risky assets remains significant.
•
But funding gap remains wide.
•
But new regulations create uncertainty.
•
But many weaker banks remain dependent on ECB in some countries.
BANKS ARE RECOVERING BUT STILL VERY VULNERABLE, A LONG
WAY TO GO
February 03, 2011 | 13
2. Are we getting out of the mess? Overview of risk areas.
Central Banks balance sheets.
•
Massive support during the crisis and no serious exit yet.
•
Leading to inflation?
Conclusion: no hurry to exit, but what when M3 wakes up?
February 03, 2011 | 14
2. Are we getting out of the mess? Overview of risk areas.
Government finances.
•
Deficits and unsustainable debt levels.
•
Deficits are structural: no easy way out.
Conclusion:
Governments cannot continue to support the economy but have no other
option in case of (unexpected) further slowdown. A dangerous potential
dilemma.
February 03, 2011 | 15
2. Are we getting out of the mess? Overview of risk areas.
Economic divergence within EURO zone.
•
Diverging performance.
• GDP growth: from top performers to PIGS.
• Unemployment.
• Government deficit.
• Government debt.
• Current account.
• Competitiveness.
February 03, 2011 | 16
2. Are we getting out of the mess? Overview of risk areas.
Performance 1999-2009
EMU
Netherlands Germany Belgium
France
Ireland
Spain
Portugal
Italy
Greece
GDP
1,5
1,9
1,0
1,7
1,6
4,4
2,8
1,2
0,6
3,4
Government debt (end 2009)
78,9
60,9
73,2
96,7
77,6
64,0
53,2
76,8
115,8
115,1
Unemployment (end 2009)
9,4
3,4
7,5
7,9
9,4
11,9
18,0
9,6
7,8
9,5
Government deficit
-1,8
-0,8
-2,0
-1,0
-3,1
-0,6
-1,3
-4,0
-3,0
-5,9
Inflation
2,0
2,3
1,6
2,0
1,8
2,9
2,9
2,6
2,3
3,1
Current account
0,2
5,4
3,3
2,6
0,3
-2,1
-5,8
-9,2
-1,5
-9,0
120,2
124,6
106,9
123,1
121,1
134,0
131,4
127,0
132,2
137,6
ULC (2000 = 100)
February 03, 2011 | 17
2. Are we getting out of the mess? Overview of risk areas.
YIELD ON EMU GOVERNMENT BONDS 10Y
Spread with German Bund 10y in bp
17/01/2011
1000
1000
950
950
900
900
Belgium
850
850
800
Spain
800
750
750
Italy
700
650
700
650
Portugal
600
550
600
550
Ireland
500
500
450
450
Greece
400
400
350
350
300
300
250
250
200
200
150
150
100
100
50
50
0
jan/07
0
apr/07
jul/07
okt/07
jan/08
apr/08
jul/08
okt/08
jan/09
apr/09
jul/09
okt/09
jan/10
apr/10
jul/10
okt/10
jan/11
February 03, 2011 | 18
2. Are we getting out of the mess? Overview of risk areas.
Government Finances / Sovereign Debt crisis in Europe
• Divergence within EU: the EURO crisis.
• Crisis as a consequence.
• Political reaction
• Rescue package
• National Austerity Programs.
• Reform of Economic Governance.
February 03, 2011 | 19
2. Are we getting out of the mess? Overview of risk areas.
Government Finances / Sovereign Debt crisis in Europe
• Divergence within EU: the EURO crisis
• Crisis as a consequence
• Political reaction.
CONCLUSION:
• PROBLEMS ARE UNDER CONTROL FOR THE TIME BEING BUT
THE FUNDAMENTAL ISSUE OF COMPETITIVENESS IS FAR FROM
RESOLVED;
• MARKETS DO NOT BELIEVE THIS IS A SOLUTION, ESPECIALLY
FOR GREECE
• THIS ISSUE WILL CONTINUE TO WEIGHT ON EU ECONOMIES
• POLITICAL REACTIONS UNCREDIBLE SO FAR
February 03, 2011 | 20
2. Are we getting out of the mess? Overview of risk areas.
Inflation/deflation
-
Inflation on the rise worldwide.
-
Pressures from commodities and monetary expansion.
-
Core inflation remains low for the moment.
-
Inflation expectations remain in check for the moment.
A REMAKE OF THE 2007-08 SCENARIO WITH INFLATION SURPRISE AS A
TRIGGER FOR CRISIS?
February 03, 2011 | 21
2. Are we getting out of the mess? Overview of risk areas.
Global imbalances and geopolitical tensions/ protectionism.
•
Imbalances in trade flows.
February 03, 2011 | 22
Current Account Balances
February 03, 2011 | 23
Current Account Balances
February 03, 2011 | 24
2. Are we getting out of the mess? Overview of risk areas.
Global imbalances and geopolitical tensions/ protectionism.
•
Imbalances in trade flows.
•
Financial imbalances.
February 03, 2011 | 25
Q
1
Q 19
1 7
Q 19 0
1 7
Q 19 1
1 7
Q 19 2
1 7
Q 19 3
1 7
Q 19 4
1 7
Q 19 5
1 7
Q 19 6
1 7
Q 19 7
1 7
Q 19 8
1 7
Q 19 9
1 8
Q 19 0
1 8
Q 19 1
1 8
Q 19 2
1 8
Q 19 3
1 8
Q 19 4
1 8
Q 19 5
1 8
Q 19 6
1 8
Q 19 7
1 8
Q 19 8
1 8
Q 19 9
1 9
Q 19 0
1 9
Q 19 1
1 9
Q 19 2
1 9
Q 19 3
1 9
Q 19 4
1 9
Q 19 5
1 9
Q 19 6
1 9
Q 19 7
1 9
Q 19 8
1 9
Q 20 9
1 0
Q 20 0
1 0
Q 20 1
1 0
Q 20 2
1 0
Q 20 3
1 0
Q 20 4
1 0
Q 20 5
1 0
Q 20 6
1 0
Q 20 7
1 0
Q 20 8
1 09
20
10
2. Are we getting out of the mess? Overview of risk areas.
US: NET FOREIGN ASSET POSITION OF THE US
(in mio USD)
"-" indicates net debtor position of US w.r.t. rest of the World
(stock)
1.000.000
0
-1.000.000
-2.000.000
-3.000.000
-4.000.000
-5.000.000
-6.000.000
-7.000.000
-8.000.000
-9.000.000
Source: Federal Reserve
February 03, 2011 | 26
2. Are we getting out of the mess? Overview of risk areas.
CHINA: GOLD AND FOREIGN RESERVES
Billion USD
3000
2800
2600
2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
jan/80
jan/82 jan/84
jan/86 jan/88
jan/90 jan/92
jan/94 jan/96
jan/98
jan/00 jan/02
jan/04 jan/06
jan/08 jan/10
Source: Thomson Financial Datastream
February 03, 2011 | 27
2. Are we getting out of the mess? Overview of risk areas.
Global imbalances and geopolitical tensions/ protectionism.
•
Imbalances in trade flows.
•
Financial imbalances.
AS A CONSEQUENCE TENDENCY TO NATIONALISM AND
PROTECTIONISM: THE END OF GLOBALISATION?
February 03, 2011 | 28
2. Are we getting out of the mess? Overview of risk areas.
•
Banking health.
•
Central Banks balance sheets.
•
Government finances.
•
Divergence within EMU – future of EURO.
•
Inflation / deflation.
•
Global imbalances and geopolitical stress / protectionism.
THE BIGGEST RISK: INTERCONNECTEDNESS AND POTENTIAL
CHAIN REACTIONS.
February 03, 2011 | 29
2. Are we getting out of the mess? Overview of risk areas.
DRAMA
Example of chain reactions.
Double dip
Government finance
(Sovereign risk)
Deflation
Banking
trouble
Euro crisis
February 03, 2011 | 30
3. Globalisation and EU – Russia relationship
Conditions to support economic integration
• Common culture
• Neighbourhood
• Complementarity
• Political willingness
EU – RUSSIA ECONOMIC INTEGRATION HAS A HUGE POTENTIAL
February 03, 2011 | 31
Thank you.