Transcript presentation slides

The Global Economic Outlook
Jay H. Bryson, Managing Director and Global Economist
November 17, 2015
Real GDP Forecast
U.S. Real GDP
Bars = CAGR
Line = Yr/Yr Percent Change
10%
10%
GDP - CAGR: Q3 @ 1.5%
8%
GDP - Yr/Yr Percent Change: Q3 @ 2.0%
6%
6%
Forecast
4%
Our forecast looks for real GDP
growth to remain generally solid
in coming quarters
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
-8%
-8%
-10%
2000
-10%
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
8%
2
2012
2014
2016
Real Final Sales
Real Final Sales to Domestic Purchasers
Bars = CAGR
8%
Line = Yr/Yr Percent Change
8%
6%
6%
Forecast
4%
Growth in domestic spending
clearly has strengthened
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
-8%
Real Fin Sales to Dom. Purch. - CAGR: Q3 @ 2.9%
-8%
Real Fin Sales to Dom. Purch. - Yr/Yr Pct Chg: Q3 @ 2.8%
-10%
2000
-10%
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
3
2012
2014
2016
Government Purchases Forecast
Real Government Purchases
Bars = CAGR
Line = Yr/Yr Percent Change
12%
12%
9%
9%
6%
6%
Forecast
The headwinds on growth from
government spending have
largely dissipated
3%
3%
0%
0%
-3%
-3%
-6%
-6%
-9%
-9%
Government Purchases-CAGR: Q3 @ 1.7%
Government Purchases-Yr/Yr: Q3 @ 0.7%
-12%
2000
-12%
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
4
2012
2014
2016
Business Fixed Investment Forecast
Real Business Fixed Investment
Bars = CAGR
Line = Yr/Yr Percent Change
30%
30%
20%
20%
10%
Business fixed investment
spending should continue to
grow at a solid pace, as it usually
does at this point in the cycle
Forecast
0%
10%
0%
-10%
-10%
-20%
-20%
-30%
-30%
Non-Res Fixed Invest - CAGR: Q3 @ 2.1%
Non-Res Fixed Invest - Yr/Yr Percent Change: Q3 @ 2.1%
-40%
2000
-40%
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
5
2012
2014
2016
Real PCE Forecast
Real Personal Consumption Expenditures
Bars = CAGR
8%
Line = Yr/Yr Percent Change
8%
6%
6%
Forecast
4%
Growth in consumer spending
has ramped up in recent
quarters
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-8%
2000
-6%
PCE - CAGR: Q3 @ 3.2%
PCE - Yr/Yr Percent Change: Q3 @ 3.2%
-8%
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
4%
6
2012
2014
2016
Real Net Exports
Net Exports
Percentage Point Contibution to Real GDP
3.0
3.0
Net Exports: Q3 @ 0.0 Pct. Points
Net exports likely will exert a
modest drag on growth going
forward
2.0
2.0
1.0
1.0
Forecast
0.0
0.0
-1.0
-1.0
-2.0
2000
-2.0
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
7
2012
2014
2016
Eurozone GDP
Eurozone Real GDP
Bars = Compound Annual Rate
Line = Yr/Yr % Change
8%
8%
Compound Annual Growth: Q2 @ 1.4%
Year-over-Year Percent Change: Q2 @ 1.5%
4%
The economic recovery in the
Eurozone should continue
Forecast
0%
0%
-4%
-4%
-8%
-8%
-12%
2002
-12%
2004
2006
2008
2010
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
4%
8
2012
2014
2016
Eurozone CPI
Eurozone Consumer Price Inflation
Year-over-Year Percent Change
5%
5%
Core CPI: Oct @ 1.0%
CPI: Oct @ 0.0%
The rate of CPI inflation in the
euro area is well below the
ECB’s target
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
1997
-1%
1999
2001
2003
2005
2007
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
9
2009
2011
2013
2015
ECB Balance Sheet
ECB Balance Sheet
€3.5
€3.5
ECB Balance Sheet: Oct @ €2.63T
The ECB likely will bolster its
QE program in the near future
€3.0
€3.0
€2.5
€2.5
€2.0
€2.0
€1.5
€1.5
€1.0
€1.0
€0.5
€0.5
€0.0
€0.0
99
00
01
02
03
04
05
06
Source: Bloomberg LP and Wells Fargo Securities, LLC
Economics
10
07
08
09
10
11
12
13
14
15
Thousands
Trillions of Euros
China Real GDP
Chinese Real GDP Forecast
Year-over-Year Percent Change
14%
We forecast that growth in
China will slow further, but that
the economy will not completely
implode
14%
12%
12%
10%
10%
Forecast
8%
8%
6%
6%
4%
4%
2%
2%
Year-over-Year Percent Change: Q3 @ 6.9%
0%
2000
0%
2002
2004
2006
2008
Source: Bloomberg LP and Wells Fargo Securities, LLC
Economics
11
2010
2012
2014
2016
Contributions to Chinese Growth
Contributions to Chinese Real GDP Growth
Chinese authorities hope to
rebalance growth toward more
consumer spending
16%
16%
12%
12%
8%
8%
4%
4%
0%
0%
-4%
-4%
Net Exports: 2014 @ 0.1%
Gross Capital Investment: 2014 @ 3.4%
Final Consumption Expenditures: 2014 @ 3.8%
GDP Growth: 2014 @ 7.3%
-8%
-8%
-12%
-12%
00
01
02
03
04
05
Source: CEIC and Wells Fargo Securities, LLC
Economics
12
06
07
08
09
10
11
12
13
14
China Household Assets
Financial Assets of Chinese Households
Trillions of Yuan
80
70
60
Equities play a limited role in
the allocation of Chinese
financial wealth
80
Other: 2013 @ 6.6T Yuan
Currency: 2013 @ 4.9T Yuan
Bonds: 2013 @ 0.9T Yuan
Stocks: 2013 @ 6.4T Yuan
Insurance: 2013 @ 9.0T Yuan
Bank Deposits: 2013 @ 47.8T Yuan
70
60
50
50
40
40
30
30
20
20
10
10
0
0
04
05
06
07
Source: CEIC and Wells Fargo Securities, LLC
Economics
13
08
09
10
11
12
13
Financial Markets
Size of Financial Markets
Trillions of USD, 2013
$80
$80
Bank Assets
$70
Debt Securities
$70
Equity Securities
The Chinese economy is largely
bank financed
$60
$60
$50
$50
$40
$40
$30
$30
$20
$20
$10
$10
$0
$0
United
States
Euro Area
United
Kingdom
Source: CEIC, IMF and Wells Fargo Securities, LLC
Economics
14
Emerging
Asia
Japan
China
China Exchange Rate
Chinese Exchange Rate
CNY per USD (Inverted Axis)
Chinese authorities are allowing
the renminbi to depreciate
slowly
6.00
6.00
6.50
6.50
7.00
7.00
7.50
7.50
8.00
8.00
CNY per USD: Oct @ 6.32
8.50
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
15
8.50
China FX Reserves
Chinese Foreign Exchange Reserves
Trillions of USD
$4.5
$4.5
Foreign Exchange Reserves: Oct @ $3.5 Trillion
China has a huge warchest of
foreign exchange reserves
$4.0
$4.0
$3.5
$3.5
$3.0
$3.0
$2.5
$2.5
$2.0
$2.0
$1.5
$1.5
$1.0
$1.0
$0.5
$0.5
$0.0
1996
$0.0
1998
2000
2002
2004
Source: Bloomberg LP and Wells Fargo Securities, LLC
Economics
16
2006
2008
2010
2012
2014
Debt Outstanding
U.S. vs. China Debt Outstanding by Sector
Percent of GDP
250%
If there is a leverage issue in the
Chinese economy it resides in
the non-financial corporate
sector
Central Government
Non-Financial Corporate
Household
200%
200%
150%
150%
100%
100%
50%
50%
0%
0%
09
10
11
12
13
United States
Source: CEIC, BIS and Wells Fargo Securities, LLC
Economics
250%
17
14
09
10
11
12
China
13
14
Trade with China
Asian Exports to China
Percent of Total Asian Exports
16%
16%
Exports to China: 2014 @ 13.2%
China has become a more
important trading partner for
many Asian economies over the
past few decades
14%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
90
92
94
96
98
00
02
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
18
04
06
08
10
12
14
Value Added
Value Added Attributable to Foreign FDD
Percent of Total Value Added, 2011
15%
15%
China
United States
12%
Some, but not all, Asian
economies have limited
economic exposure to China
12%
9%
9%
6%
6%
3%
3%
0%
Hong Kong
Taiwan
Malaysia
Korea
Singapore
Australia
Japan
Source: Organisation for Economic Cooperation and Development and Wells Fargo Securities, LLC
Economics
19
India
0%
Global Value-Added
Global Value-Added Embodied in FDD
Percent of Global GDP
4%
4%
United States
China
The United States has about
twice as much “pull” on the
global economy than China
3%
3%
2%
2%
1%
1%
0%
0%
1995
2000
2005
2011
Source: Organisation for Economic Cooperation and Development and Wells Fargo Securities, LLC
Economics
20
Brazil GDP
Brazilian Real GDP
Year-over-Year Percent Change, NSA
10%
10%
8%
8%
6%
6%
Forecast
The Brazilian economy is in the
middle of a deep recession
4%
4%
2%
2%
0%
0%
-2%
-2%
Real GDP: Q2 @ -2.6%
-4%
2000
-4%
2002
2004
2006
2008
2010
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
21
2012
2014
2016
Brazil Exchange Rate
Brazilian Exchange Rate
BRL per USD (Inverted Axis)
1.0
1.0
BRL per USD: Oct @ 3.86
The Brazilian currency has
weakened sharply over the past
year or two
1.5
1.5
2.0
2.0
2.5
2.5
3.0
3.0
3.5
3.5
4.0
4.0
4.5
4.5
99
01
03
05
07
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
22
09
11
13
15
Brazil CPI
Brazilian Consumer Price Index
Year-over-Year Percent Change
18%
18%
CPI: Oct @ 9.9%
Exchange rate depreciation is
helping to push up the inflation
rate
15%
15%
12%
12%
9%
9%
6%
6%
3%
3%
0%
1998
0%
2000
2002
2004
2006
2008
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
23
2010
2012
2014
Brazil Policy Rate
Brazilian Policy Rate
Percent
The Brazilian central bank has
tightened monetary policy to
keep inflation expectations in
check
21%
21%
18%
18%
15%
15%
12%
12%
9%
9%
Selic Rate: Oct @ 14.25%
6%
6%
05
06
07
08
09
10
Source: Bloomberg LP and Wells Fargo Securities, LLC
Economics
24
11
12
13
14
15
Mexico GDP
Real GDP Growth
Year-over-Year Percent Change
9%
9%
Forecast
Solid real GDP growth in the
United States is helping to
support economic growth in
Mexico
6%
6%
3%
3%
0%
0%
-3%
-3%
-6%
-6%
Mexico: Q2 @ 2.2%
United States: Q3 @ 2.0%
-9%
-9%
00
02
04
06
08
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
25
10
12
14
16
Global Industrial Production
Global Economic Indicators
Year-over-Year Percent Change
It would take a sharp downturn
in the rest of the world to have a
meaningful effect on U.S.
economic growth
15%
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
-10%
-10%
Global Industrial Production: Q3 @ 1.7%
U.S. GDP: Q3 @ 2.0%
-15%
-15%
92
94
96
98
00
02
04
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
26
06
08
10
12
14
Value Added
Value-Added Embodied in Foreign FDD
Percent of Total Value-Added
30%
30%
2011
27.3%
25%
25%
21.5%
21.9%
20%
20%
17.6%
The United States derives only
10 percent of its value added
from final spending in the rest
of the world
15%
15%
12.6%
10%
9.7%
10%
5%
5%
0%
0%
U.S.
Japan
China
United
Kingdom
Canada
Germany
Source: Organisation for Economic Cooperation and Development and Wells Fargo Securities, LLC
Economics
27
U.S. Unemployment Rate
Unemployment Rates
Seasonally Adjusted
18%
18%
Unemployment Rate: Oct @ 5.0%
U-6 Unemployment Rate: Oct @ 9.8%
16%
There is less slack in the labor
market today
16%
14%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
94
96
98
00
02
04
06
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
28
08
10
12
14
PCE Inflation
PCE Deflator vs. Core PCE Deflator
Year-over-Year Percent Change
5%
The drop in oil prices should
cause the overall rate of inflation
to recede, but “core” inflation
likely will remain steady
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-1%
PCE Deflator: Sep @ 0.2%
"Core" PCE Deflator: Sep @ 1.3%
-2%
-2%
92
94
96
98
00
02
04
06
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
29
08
10
12
14
Import Prices
U.S. Inflation Indicators
Year-over-Year Percent Change
CPI inflation is not highly
correlated with changes in
prices of imports from China
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
Nonfuel Import Prices: Sep @ -3.1%
Import Prices from China: Sep @ -1.3%
Core CPI: Sep @ 1.9%
-6%
-8%
03
05
07
09
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
30
11
-6%
-8%
13
15
U.S. Interest Rates
10-Yr Treasury and Federal Funds Target Rate
Percent
10%
10%
10-Year Treasury Yield: Oct @ 2.07%
9%
The Fed likely will begin to raise
the fed funds rate later this year
9%
Fed Funds Target: Oct @ 0.25%
8%
8%
7%
7%
6%
6%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
90
92
94
96
98
00
02
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
31
04
06
08
10
12
14
World GDP Growth
Real GDP Growth by Region
Year-over-Year Percent Change
10%
10%
IMF
Projections
8%
The IMF does not believe that
the developing world will return
to pre-crisis growth rates
8%
6%
6%
4%
4%
2%
2%
0%
0%
World: 2014 @ 3.4%
-2%
-2%
Advanced Economies: 2014 @ 1.8%
Developing Economies: 2014 @ 4.6%
-4%
-4%
80
84
88
92
Source: IMF and Wells Fargo Securities, LLC
Economics
32
96
00
04
08
12
16
20
International Economic Forecast
Wells Fargo International Economic Forecast
(Year-over-Year Percent C hange)
GDP
We project that global GDP
growth will strengthen a bit
during the next two years
CPI
2015
2016
2017
2015
2016
2017
Global (PPP Weights)
Global (Market Exchange Rates)
3.0%
2.9%
3.2%
3.1%
3.4%
3.3%
3.3%
n/a
3.4%
n/a
3.6%
n/a
Advanced Economies 1
United States
Eurozone
United Kingdom
Japan
Korea
Canada
2.1%
2.4%
1.5%
2.4%
0.6%
2.5%
1.2%
2.3%
2.5%
2.0%
2.2%
0.9%
3.0%
2.0%
2.4%
2.4%
2.2%
2.1%
1.4%
3.3%
2.3%
0.2%
0.1%
0.0%
0.1%
0.8%
0.7%
1.2%
1.5%
1.8%
1.1%
1.3%
0.8%
1.8%
1.8%
1.9%
2.2%
1.6%
1.9%
1.1%
2.0%
1.9%
Developing Economies 1
China
India2
Mexico
Brazil
Russia
3.9%
6.9%
7.3%
2.3%
-2.3%
-3.7%
4.0%
6.3%
7.3%
2.3%
-1.0%
0.0%
4.4%
6.1%
7.8%
2.8%
1.6%
2.3%
6.1%
1.5%
5.3%
2.7%
8.9%
15.5%
5.3%
1.4%
5.1%
3.1%
8.0%
7.3%
5.3%
1.8%
5.5%
3.0%
7.2%
6.0%
Forecast as of: November 11, 2015
1
Aggregated Using PPP Weights
2
Forecasts Refer to Fiscal Year
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
33
Wells Fargo Securities, LLC Economics Group
Global Head of Research and Economics
Economists
Diane Schumaker-Krieg
………………… …[email protected]
Global Head of Research & Economics
Azhar Iqbal, Econometrician………………… ……………[email protected]
……
Tim Quinlan, Economist …………………… ……………. [email protected]
Eric J. Viloria, Currency Strategist
Chief Economist
Sarah House, Economist
John E. Silvia …
...................... …
[email protected]
.
…………… …………
Michael A. Brown, Economist ……………… …
Michael T. Wolf, Economist
Senior Economists
[email protected]
………………… …
[email protected]
[email protected]
.
[email protected]
Economic Analysts
Mark Vitner, Senior Economist……………....………. .
[email protected]
Erik Nelson, Economic Analyst
Jay H. Bryson, Global Economist …………………....…… …[email protected]
Sam Bullard, Senior Economist
[email protected]
Nick Bennenbroek, Currency Strategist ……[email protected]
Alex Moehring, Economic Analyst
[email protected]
Misa Batcheller, Economic Analyst
[email protected]
Michael Pugliese, Economic Analyst
[email protected]
Administrative Assistants
Eugenio J. Alemán, Senior Economist… …………[email protected]
Anika R. Khan, Senior Economist …
[email protected]
Donna LaFleur, Executive Assistant.
. [email protected]
Cyndi Burris, Senior Administrative Assistant
[email protected]
[email protected]
Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the
Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but
not limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Advisors, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Asia Limited and Wells Fargo
Securities (Japan) Co. Limited. Wells Fargo Securities, LLC. ("WFS") is registered with the Commodities Futures Trading Commission as a futures commission merchant and is a member in
good standing of the National Futures Association. Wells Fargo Bank, N.A. ("WFBNA") is registered with the Commodities Futures Trading Commission as a swap dealer and is a member in
good standing of the National Futures Association. WFS and WFBNA are generally engaged in the trading of futures and derivative products, any of which may be discussed within this
publication. Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities, LLC’s research analysts receive
compensation that is based upon and impacted by the overall profitability and revenue of the firm which includes, but is not limited to investment banking revenue. The information and
opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability
for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general
information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a
separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2015 Wells Fargo Securities, LLC.
SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE
Important Information for Non-U.S. Recipients
For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited ("WFSIL"). WFSIL is a U.K. incorporated investment firm authorized and regulated by the
Financial Conduct Authority. The content of this report has been approved by WFSIL a regulated person under the Act. For purposes of the U.K. Financial Conduct Authority’s rules, this report
constitutes impartial investment research. WFSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive 2007. The FCA rules made under the Financial
Services and Markets Act 2000 for the protection of retail clients will therefore not apply, nor will the Financial Services Compensation Scheme be available. This report is not intended for, and
should not be relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the "Materials") are provided for general informational purposes
only.
Economics
34