Transcript Philippe d`Arvisenet Global Chief Economist ECONOMIC

Philippe d’Arvisenet
Global Chief Economist
ECONOMIC RESEARCH DEPARTMENT
THE WORLD ECONOMIC OUTLOOK
AMSTERDAM, March 2007
1
Chart 1
Foreign exchange reserves, billion $
1200
China
1000
Japan
2000
800
2006
600
MiddleEast
Asia excl.
China
& India
400
200
Russia
Eastern
Europe
Western
hemisp.
India
0
source: IMF (WEO, September 2006)
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
2
Chart 2
World reserves & US current-account balance
5500
0
5000
-1
4500
-2
4000
US current-account balance,
annual rate, % of GDP
3500
-3
3000
-4
2500
-5
2000
1500
-6
World reserves, billion $
1000
-7
500
0
-8
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
sources: BEA, IMF
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
3
I - UNITED STATES
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
4
BELOW POTENTIAL GROWTH IN 2007
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department

The housing market correction is not over yet


Slowdown mitigated by temporary phenomenon: oil prices down,
unexpected warm weather...
Consumption is expected to weaken

GDP growth close to 2% in 2007

But the economy will rebound later : once inventory correction (housing and
industry) is over
5
LOWER INFLATIONARY PRESSURES

Upward pressures from energy prices have receded
 Gradual decline in core inflation

Slower growth in activity alleviate tensions
Increases in shelter costs to moderate

Fed

Fed’s view to change
Ease expected for the end of Q2


EXTERNAL IMBALANCES


Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
The current account deficit is expected to remain close to 6.5% GDP
Slower domestic demand and a weaker dollar should limit the slippage
6
Chart 3
USA: real GDP & investment growth
20
(y/y %)
15
10
5
0
-5
GDP
Non residential private investment
Residential private investment
-10
-15
-20
90
92
94
96
98
00
02
04
06
source: BEA
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
7
Chart 4
USA: exports & imports growth, & external contribution
20
Exports of G&S, volume, y/y %
2,0
15
1,5
10
1,0
5
0,5
0
0,0
-5
-10
Imports of G&S,
volume, y/y %
External contribution to
real GDP growth
(q/q annualized growth, %)
-15
-20
-0,5
-1,0
-1,5
-2,0
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
source: BEA
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
8
Chart 5
USA : industrial production & ISM
10
65
ISM
8
60
6
55
4
2
50
0
45
-2
Industrial production,
y/y %
-4
-6
40
35
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
sources: Federal Reserve, ISM
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
9
Chart 6
United States: ISM indices
70
65
60
55
50
Manufacturing
Non manufacturing
45
40
97
98
99
00
01
02
03
04
05
06
07
source: ISM
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
10
Chart 7
United States: existing home sales & existing homes for sale
50
(y/y %)
40
30
Available existing
homes for sale
Existing home sales
20
10
0
-10
-20
-30
83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
source: Bureau of Census
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
11
Chart 8
USA : housing starts, permits, investment & NAHB
y/y %
40
Housing starts
30
80
NAHB index
Residential
investment
20
70
10
60
0
50
-10
-20
40
Housing
permits
-30
30
-40
-50
20
85
87
89
91
93
95
97
99
01
03
05
07
source: BEA, Bureau of Census, NAHB
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
12
Chart 9
USA : employment, thousands
140000
8000
130000
7000
120000
Total
6000
110000
Construction
100000
5000
90000
4000
80000
70000
3000
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06
source: BLS
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
13
Chart 10
USA : employment & residential investment, y/y %
15
60
Residential private investment, volume
10
40
5
20
0
0
-5
-20
-10
-40
Employment :
construction
-15
-60
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
sources: BEA, BLS
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
14
Chart 11
USA: flows of household debt and investment
1400
Mortgage debt,
billion $
1200
1000
Residential
investment,
billion $
800
600
400
200
0
80
82
84
86
88
90
92
94
96
98
00
02
04
06
source: Federal Reserve (Flow of Funds)
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
15
Chart 12
USA: household income and consumption
7
6
Consumption
(volume, y/y % change)
5
4
3
2
Disposable income
1
0
-1
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
source: BEA
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
16
Chart 13
USA: Conference Board surveys & unemployment
60
11
Jobs hard to get - Jobs plentiful
(consumer surveys on the present employment)
50
40
30
10
9
20
8
10
0
7
-10
6
-20
-30
5
Unemployment rate, %
-40
4
-50
-60
3
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
sources: Conference Board, BLS
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
17
Chart 14
USA: the employment insecurity indicator & the unemployment rate
18
Job leavers as % of total unemployed
16
14
12
10
8
6
4
Unemployment rate, %
2
0
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
source: BLS
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
18
Chart 15
United States: employment & real GDP growth, y/y %
10
8
6
Real GDP
4
2
0
Total employment
-2
-4
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
sources: BEA, BLS
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
19
Chart 16
United States: household savings and net financial wealth
14
12
650
Personal savings as % of
disposable income
Net financial wealth as % of
disposable income
600
10
8
550
6
Unemployment rate, %
4
500
2
450
0
-2
400
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06
sources: BEA, BLS, Federal Reserve
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
20
Chart 17
USA: household acquisitions of corporate equities
200
3
in billion $,
annual rate
0
0
-200
-3
-400
-6
as % of disposable income
-600
-9
-800
-1000
-12
80
82
84
86
88
90
92
94
96
98
00
02
04
06
source: Federal Reserve (FoF)
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
21
Chart 18
USA: breakdown of the nonresidential private fixed investment
25
(volume, y/y %)
20
15
10
5
0
-5
-10
Total
-15
Structures
-20
Equipment & software
-25
80
82
84
86
88
90
92
94
96
98
00
02
04
06
source: BEA
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
22
Chart 19
USA: corporate investment & financing gap
25
4,00
Financing gap
as % of GDP
Non residential investment, equipment
& software, volume, y/y %
20
3,00
15
2,00
10
5
1,00
0
0,00
-5
-10
-1,00
-15
Non residential investment,
structures, volume, y/y %
-20
-2,00
-25
-3,00
80
82
84
86
88
90
92
94
96
98
00
02
04
06
sources: BEA, Federal Reserve
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
23
Chart 20
USA: investment and orders
20
(y/y % change)
15
10
5
0
-5
Nonresidential
private investment :
equipment & software
-10
-15
New orders of nondefense
capital goods excl. Aircraft
-20
(3-month-moving average)
-25
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
sources: BEA, Bureau of Census
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
24
Chart 21
USA: dividends, new equity issues & profits of corporate business*
600
100
(* nonfarm nonfinancial corporate business)
400
80
Net dividends,
billion $, annual rate
60
200
40
0
20
-200
0
-400
-20
Profits before tax,
y/y %
-600
-40
Net new equity issues,
billion $, annual rate
-800
-60
95
96
97
98
99
00
01
02
03
04
05
06
07
source: Federal Reserve (FoF)
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
25
Chart 22
USA: unit labour cost, GDP deflator & corporate profits, y/y %
12
40
GDP
deflator
9
30
Unit labor cost
6
20
3
10
0
0
-3
-10
Corporate profits
-6
-20
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
sources: BEA, BLS
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
26
Chart 23
USA: inflation & hourly earnings, y/y %
8
6
Core inflation
Total inflation
4
2
0
Hourly earnings
-2
-4
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
source: BLS
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
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Chart 24
USA: unit labour cost, core inflation & capacity utilisation rate
6
86
Capacity utilisation rate, %
84
4
82
80
2
78
Core inflation, y/y %
76
0
Unit labour cost, y/y % (total business sector)
74
-2
72
85
87
89
91
93
95
97
99
01
03
05
07
sources:BLS, Federal Reserve
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
28
Chart 25
United States: inflation, y/y %
7
6
Core CPI
Shelter
Core CPI less shelter
Total CPI
5
4
3
2
1
0
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
sources: BEA, BNPParibas
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
29
Chart 26
USA: GDP growth & Fed Funds rate
20
Fed Funds rate
15
Current GDP, y/y %
10
5
0
80
82
84
86
88
90
92
94
96
98
00
02
04
06
sources: BEA, Federal Reserve
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
30
Chart 27
USA: Fed Funds, output gap & unemployment rate
10
11
Real Fed Funds rate, %
5
9
0
7
-5
5
Output gap, %
Unemployment rate, %
-10
3
80
82
84
86
88
90
92
94
96
98
00
02
04
06
sources: Federal Reserve, BLS
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
31
II - EUROZONE
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
32
ECONOMIC ACTIVITY

Growth above potential in 2006



Deceleration in 2007




Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
Solid domestic demand.
Weak external sector (with the exception of Germany)
Impact of VAT hike in H1 2007 (however, lower-than-expected)
External demand: the impact of US slowdown
Impact of the Euro appreciation
Lagging impact of monetary tightening
33


Inflation : what ECB looks at
Pressure on core inflation



Headline inflation impacted by favourable base effects until summer

Monetary stance




Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
Wage negotiations (Germany and Italy)
Higher capacity use rebuilds pricing power
M3 growth reached a record high since the launch of the Euro
Lending to household is slowing, lending to corporate is accelerating
Interest rates are entering in neutral territory
Refi rate at 4% in mid-2007. A pause is to follow
34
STRUCTURAL ISSUES

Challenges :


low potential growth
the cost of aging

A lot remains to be done :

fiscal consolidation
goods market reform (privatization, competition, barriers to entry etc…)
labour market reform (disincentives to work, disincentives to create jobs
have to be addressed…)



Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
The political impediments
35
Chart 28
Euro zone : real growth, y/y %
8
6
Private consumption
4
2
0
GDP
-2
-4
Investment
-6
-8
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
sources: OECD, Eurostat
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
36
Chart 29
Euro zone : PMI and real GDP growth
65
1,5
60
1
Real GDP,
q/q , %
55
0,5
50
0
Composite PMI
45
-0,5
98
99
00
01
02
03
04
05
06
07
sources: Reuters, Eurostat
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
37
Chart 30
Real GDP growth, y/y %
8
Germany
France
Italy
Spain
6
4
2
0
-2
-4
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
source: Eurostat
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
38
Chart 31
Exports of G&S, volume, y/y %
20
15
10
5
0
-5
Germany
Italy
-10
92
93
94
95
96
France
Spain
97
98
99
00
01
02
03
04
05
06
07
source: Eurostat
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
39
Chart 32
Unit labour cost, manufacturing, indice Q1/92=100
150
140
Spain
130
Italy
120
110
Germany
100
90
France
80
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
source: OECD
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
40
Chart 33
Household consumption, volume, y/y %
8
6
4
2
0
Germany
-2
France
Italy
-4
Spain
-6
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
source: Eurostat
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
41
Chart 34
Euro zone : wages and inflation
6
40
35
Expected inflation
over next 12 months*
30
4
25
20
15
2
Negotiated wages,
y/y %
10
5
Observed inflation, y/y %
0
0
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
sources: Eurostat, * European commission surveys
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
42
Chart 35
Euro zone: utilisation rate, labour costs and inflation
4
86
Core inflation,
y/y %
84
2
82
0
Industrial
capacity utilisation
rate, %
Unit labour
cost, y/y %
80
-2
78
96
97
98
99
00
01
02
03
04
05
06
07
sources: European Commission, Eurostat
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
43
Chart 36
Euro zone: ECB repo rate and inflation
5,0
ECB short-term
repo rate
4,5
4,0
3,5
3,0
Total
inflation
2,5
2,0
1,5
Core
inflation
1,0
0,5
1999
2000
2001
2002
2003
2004
2005
2006
2007
sources: Eurostat, ECB
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
44
Chart 37
Euro zone: interest rates
5
ECB short-term
repo rate
4
3
2
Real 10-year rate
1
0
Real 3-month rate
-1
1999
2000
2001
2002
2003
2004
2005
2006
2007
sources: ECB, Eurostat
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
45
Chart 38
USA/Euro zone: interest rate & exchange rate
2
1,5
(monthly averages)
1,5
1,4
1
1,3
0,5
1,2
0
1,1
-0,5
1
-1
USA-Germany :
EUR/USD
10-year interest spread, %
exchange rate
0,9
-1,5
0,8
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
sources: Bundesbank, Federal Reserve, Reuters
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
46
III - JAPAN
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
47
ECONOMIC GROWTH HEADING TOWARDS A SOFT PATCH

GDP growth, 2.2% in 2006, likely to decelerate below potential in
H1 07, before accelerating again, up 2% at most in 2007

Final domestic demand is supportive

Inventories correction will substact to growth early in 2007

Slowdown in exports but also in investment
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
48

BoJ hiked last month

Credibility issue, risks seen with asset prices

BoJ will remain cautious (long pause expected)

The yen should gradually strengthen versus the dollar
(unwinding of carry trade...)

Japan core inflation at zero and below zero with international
standards
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
49
Chart 39
Japan : real GDP and domestic demand growth, y/y %
5
4
Real GDP
3
2
1
0
-1
-2
-3
Real
Domestic demand
-4
95
96
97
98
99
00
01
02
03
04
05
06
07
source: Cabinet Office
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
50
Chart 40
Japan : industrial production and inventories
120
(indices, 1995=100)
115
Industrial production
110
Inventory ratio
105
100
95
90
85
80
75
70
65
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
source: MoF
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
51
Chart 41
Japan: profits and business climate
50
Current profits, all industries,
y/y % change
40
30
20
10
0
-10
-20
-30
Tankan surveys: business condition,
forecasts, all enterprises, %
-40
-50
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
sources: MoF, Tankan (Bank of Japan)
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
52
Chart 42
Japan : employment growth and job offers to applicants ratio
2
1,1
Full-time
employees, y/y %
1
0,9
0
0,8
0,7
-2
0,6
Job offers to
applicants ratio
0,5
-4
0,4
94
95
96
97
98
99
00
01
02
03
04
05
06
07
source: Ministry of Labour
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
53
Chart 43
Japan : wages & inflation, y/y %
6
4
2
0
Inflation
-2
Average earnings
(6-month moving average)
-4
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
sources: Ministry of Labour, Ministry of Public Management
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
54
Chart 44
21
Japan: inflation & unemployment
74
18
Core inflation, %
15
75
12
73
76
77
80
9
71
72
6
78
79 81
82
91
85 84
90 92 89
93 83 86
94
88
87
3
0
97
95
96
98
06
99
05
04
00
01
03
02
-3
1
2
source: Statistics Bureau of MIC
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
3
4
Unemployment rate, %
5
6
55
Chart 45
Japan : exports growth, %
50
Goods exports* to China
40
Exports of G&S,
volume, y/y %
30
20
10
0
-10
-20
Goods exports* to the USA
(* 3-month moving average of the y/y %)
95
96
97
98
99
00
01
02
03
04
05
06
07
sources: MoF, Cabinet Office
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
56
Chart 46
Japan: nonresidential investment & excess capacity
20
Tankan surveys: excess capacity,
actual, all enterprises, %
15
10
5
0
-5
-10
Nonresidential investment,
volume, y/y %
-15
-20
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
sources: Cabinet Office, Tankan (Bank of Japan)
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
57
Chart 47
Japan : core inflation & target rate
1
Call overnight, target rate, %
0
Total inflation,
y/y %
-1
Core inflation (excl. Fresh food),
y/y %
-2
00
01
02
03
04
05
06
07
sources: Ministry of Public Management, BoJ
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
58
Chart 48
Japan : land prices and Nikkei
300
40000
35000
250
30000
200
25000
150
20000
Nikkei
100
15000
Land prices index:
6 big cities
50
10000
5000
0
0
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06
sources: Japan Real Estate Institute,Tokyo Stock Exchange
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
59
Chart 49
USA/Japan: interest spread & exchange rate
7
150
6
140
USD/JPY
exchange rate
5
130
4
120
3
110
2
100
1
90
LIBOR 3-month
interest spread: USA - Japan, %
0
80
94
95
96
97
98
99
00
01
02
03
04
05
06
07
sources: BBA, Reuters
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
60
Chart 50
Euro zone/Japan: interest spread & exchange rate
5
160
LIBOR 3-month
interest spread: Euro zone - Japan, %
4
150
EUR/JPY
exchange rate
140
3
130
120
2
110
1
100
0
90
99
00
01
02
03
04
05
06
07
sources: BBA, Reuters
Philippe d’Arvisenet
Global Chief Economist
Economic Research Department
61
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Global Chief Economist
Economic Research Department
64