Transcript presentation title - Sovereign Wealth Focus

STATE OF THE GLOBAL ECONOMY
THE OUTLOOK FOR 2011 AND BEYOND
Edinburgh
14 June 2011
Trevor Williams
Chief Economist
Lloyds Bank Corporate Markets
Summary of global growth forecasts
GDP % Yr
2009
2010
2011
2012
World
-0.8
4.6
4.2
4.5
Developed Economies
-3.4
2.6
2.2
2.7
US
-2.6
2.7
2.7
3.2
UK
-4.9
1.4
1.5
2.3
Japan
-6.3
4.2
-0.3
2.3
Eurozone
-4.0
1.7
2.1
1.8
Emerging economies (E10)
3.1
6.5
6.9
7.3
China
9.2
10.3
9.4
9.1
Brazil
-0.7
7.6
5.1
5.4
India
6.8
8.8
8.0
9.0
-7.9
3.5
4.7
5.2
Russia
Source: Lloyds Bank Corporate Markets
2
GLOBAL WORST CASE SCENARIO
…World GDP growth slows markedly
Brent crude oil prices surge to US $250 per barrel
as Saudi Arabia is impacted…
US$ per barrel
%, YoY
300
7
forecast
forecast
6
Saudi Arabia oil
supply disruption
250
5
4
200
3
150
2
Base case
Saudi oil
disruption
1
100
0
-1
50
-2
0
2007
Source: LBCM
2009
2011
2013
-3
2006
Base
Forecast
2008
2010
2012
2014
3
OTHER RISKS TO THE GLOBAL OUTLOOK
Just when you thought it was safe to get back in the water
• Global imbalances projected to widen
• US housing market deteriorates
• Commodity price shock
• Policy mistake – tighten too fast
• China inflation takes off
4
…BUT OUTLOOK STILL LOOKS GOOD…
Russia 4.7%
4.3%
Poland 4.0%
Turkey 6.4%
China 9.4%
9.1%
Mexico 4.6%
Korea 4.5
India 8.0%
8.3%
Indonesia
6.1%
Brazil 5.1%
Australia 3.3%
South Africa 4.0%
Regions
2005-10 2010-15
BRICS
8.6
7.7
Middle East
5.6
4.7
2
Emerging Asia
4.6
5.7
3
Africa
4.5
5.0
Eastern Europe
3.7
Latin America
4.0
G7
1.0
Source: LBCM
Top 10 Countries 2010 - 2015
Top 10 Countries 2005 - 2010
Top 10 Countries 2010 - 2020
15.7
1
China
9.1
1
Qatar
9.5
Angola
13.1
2
Qatar
9.5
2
China
8.7
China
11.2
3
India
8.3
3
India
8.0
4
India
8.6
4
Uganda
7.0
4
Vietnam
6.6
4.1
5
Mynamar
8.5
5
Singapore
6.2
5
Uganda
6.1
4.5
6
Sudan
8.0
6
Vietnam
6.7
6
Turkey
6.0
2.7
7
UAE
7.2
7
Sudan
6.4
8
UAE
6.0
8
Vietnam
7.2
8
Nigeria
6.5
9
Indonesia
5.7
9
Singapore
6.5
9
UAE
6.4
10
Singapore
10
Nigeria
6.4
10
Turkey
6.4
10
Thailand
1
Qatar
5.4
5
5.2
ADVANCED ECONOMIES RECOVERING
BUT SLOWLY…
104
Rebased, 2007 = 100
US
102
100
Euro zone
98
96
UK
94
Japan
92
90
2007
Source: OECD, LBCM
2008
2009
2010
6
CRISIS IN THE EURO AREA PERIPHERY NOT OVER
Spread over 10yr Bunds
14
Greece
12
Ireland
Portugal
10
Spain
8
6
4
2
0
-2
2006
Source: DataStream
2007
2008
2009
2010
7
GLOBAL CONSEQUENCES OF EURO AREA CRISIS
Risks – Euro crisis could have global consequences
World: Bank exposures to peripherals
US$ billion
Government debt
ROW
Banks
Private & Other
US
Japan
Italy
UK
France
Germany
0
Source: Oxford Economics & BIS
100
200
300
400
500
600
8
WORLD WOULD BE IMPACTED BY SUCH AN EVENT
Economic growth
% year
6
forecast
5
4
3
2
• International channels of
impact of a default:
1
−
0
−
−
−
−
−
Eurozone debt crisis
-1
Greek default
-2
Eurozone muddles through
Contagion & Confidence –
risk appetite, capital flows
Bondholder losses
Bond yields
Wider interbank spreads
Wider lending spreads
Induced fiscal tightening
-3
2005
2006
Source: OECD, LBCM
2007
2008
2009
2010
2011
2012
2013
2014
2015
9
EUROPE: GOOD RECOVERY IN ‘CORE’
% increase in year, economic growth
6
forecast
Germany
4
2
France
Euro zone
0
-2
-4
-6
-8
2005
Source: LBCM
2006
2007
2008
2009
2010
2011
2012
10
EUROPE: WEAK RECOVERY IN ‘PERIPHERAL’
% increase in year, economic growth
6
forecast
4
Portugal
2
Spain
0
-2
-4
Greece
-6
Italy
-8
2005
Source: LBCM
2006
2007
2008
2009
2010
2011
2012
11
RISING INFLATION IN CORE
% increase in year, CPI inflation
4.5
forecast
Euro zone
4.0
3.5
3.0
2.5
Germany
2.0
1.5
1.0
France
0.5
0.0
-0.5
-1.0
2005
Source: LBCM
2006
2007
2008
2009
2010
2011
2012
12
FALLING INFLATION IN ‘PERIPHERY’
% increase in year, CPI inflation
6
forecast
Greece
5
4
3
2
Spain
Italy
1
0
-1
Portugal
-2
2005
Source: LBCM
2006
2007
2008
2009
2010
2011
2012
13
The UK economic outlook
GDP % Yr
2009
2010
2011
2012
-4.9
1.4
1.5
2.3
Bank Rate
0.50
0.50
0.75
2.00
3m (offer)
0.61
0.76
1.40
3.20
5yr swap rate (mid)
3.39
2.63
2.9
4.1
£:$
1.61
1.55
1.50
1.47
£:€
1.13
1.17
1.18
1.18
€:$
1.43
1.34
1.20
1.25
GDP
Interest rates (%, end yr)
FX rates (end year)
Source: LBCM
14
UK ECONOMY HAS BEEN FLAT IN THE
LAST SIX MONTHS
% change in quarter
Q4 2010
Q1 2011
3
1.7
2
1.0
1
0.5
0.9
0.4
0.4
0
-1
-0.5
-0.3
-0.5
-0.6
-2
-1.8
-3
-4
-4.4
-5
GDP
Source: LBCM
Consumer
spending
Government
spending
Business
investment
Net trade
Stocks
15
HOUSEHOLDS ARE UNDER PRESSURE
Household debt remains uncomfortably high
%yr
% disp income
180
16
160
14
140
12
120
10
100
8
80
60
Household debt %
disposable income (LHS)
40
Household borrowing
%yr (RHS)
6
4
2
20
0
1997
Source: ONS/LBCM
0
1999
2001
2003
2005
2007
2009
16
THE LLOYDS BUSINESS BAROMETER IS GLOOMY
Lloyds Barometer suggests that economic recovery to be modest in Q2
% bal.
% q/q
80
2.0
Lloyds Business Barometer
(econ. Prospects)
(LHS 3m lead)
60
1.5
GDP (RHS)
1.0
40
0.5
20
0.0
0
-0.5
-20
-1.0
-40
-1.5
-60
-2.0
GDP (RHS)
-2.5
Source: Lloyds Bank Corporate Markets
Jan 11
Jul 10
Jan 10
Jul 09
Jan 09
Jul 08
Jan 08
Jul 07
Jan 07
Jul 06
Jan 06
-80
17
AND BROAD MONEY SUPPLY GROWTH
IS STILL WEAK
…so bank rate may remain on hold for some months yet
% increase in year
%
6
20
5
UK Bank Rate (RHS)
15
4
10
3
5
M4 growth (LHS)
2
0
1
0
-5
2001
2002
2003
Source: Lloyds Bank Corporate Markets
2004
2005
2006
2007
2008
2009
2010
2011
18
WHERE IS GROWTH COMING FROM?
Exporters and supporting services lead the way
Top 10 growth sectors
2011F
Technology Hardware & equipment
7.4%
Materials
6.2%
Capital Goods
6.1%
Pharmaceuticals & biotechnology
5.2%
Software & services
4.3%
Business Services
3.8%
Telecommunication services
3.2%
Media
3.1%
Semi-conductor and semiconductor equipment
2.7%
Banks & diversified financials
1.7%
2012F
4.1%
3.9%
3.0%
5.0%
4.6%
4.2%
3.5%
1.9%
6.7%
4.2%
Consumer or government servicing lag
Bottom 10 growth sectors
Source: Lloyds Bank Corporate Markets
Energy
Construction
Commercial services
Food & drug retailing
Retailing
Household & personal products
Consumer durables & apparel
Utilities
Insurance
Hotels, restaurants & leisure
2011F
-1.6%
0.2%
0.4%
0.4%
0.4%
0.5%
1.0%
1.7%
1.6%
1.7%
2012F
-1.4%
1.0%
1.9%
2.1%
2.1%
3.3%
0.3%
1.8%
3.3%
2.3%
19
INTEREST RATE RESPONSES DIFFERENT
ECB raising rates
Emergers raising rates
Official interest rate, %
%
16
6
forecast
Brazil
UK
14
5
12
4
10
India
Russia
8
3
6
2
ECB
China
4
1
US
0
2
0
2004 2005 2006 2007 2008 2009 2010 2011
Source: DataStream/LBCM
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
20
CURRENCIES STILL VOLATILE
2.2
£:€ (inflation adjusted 2006)
£:€ (nominal)
£:$ (inflation adjusted 2006)
£:$ (nominal)
2
1.8
1.6
1.4
1.2
1
2006
Source: LBCM
2007
2008
2009
2010
2011
21
ARE MARKETS SETTLED?
Credit conditions improved but suggest risks
90
Equities have recovered but are volatile
250
150
2006=100
DAX 30
140
80
200
70
130
DOW JONES
120
60
Itraxx (RHS)
150
110
50
100
40
100
30
90
FTSE 100
80
20
50
10
VIX (LHS)
60
0
Jan 06
May 06
Sept 06
Jan 07
May 07
Sept07
Jan 08
May 08
Sept 08
Jan 09
May 09
Sept 09
Jan 10
May 10
Sept 10
Jan 11
May 11
0
Source: Lloyds Corporate Markets
70
NIKKEI 225
50
40
2006
2007
2008
2009
2010
2011
22
WHAT ABOUT
THE PROSPECTS FOR
GLOBAL WEALTH?
23
SHIFT IN POWER BACK TO THE EAST
Share of world GDP in constant prices
%
80
70
India
60
50
40
China
US
30
20
Western Europe
10
0
1500
Source: Oxford Economics/Maddison
1870
1980
2000
24
STILL HUGE SCOPE FOR CATCH UP
Per capita GDP, as a indicator of personal wealth, is expected to continue to grow...
Real Per Capita GDP
2001 - 2006
Per Capita $PPP
$
Forecasted Per Capita GDP
2005 - 2030
80,000
50,000
45,000
70,000
40,000
60,000
35,000
50,000
30,000
25,000
40,000
20,000
30,000
15,000
20,000
10,000
10,000
5,000
0
0
2001
2002
2003
2004
2005
Brazil
China
2005
2006
Russia
USA
2010
2020
2030
UK
India
…and as people become richer, the demand for retail banking services will increase
Source: LBCM
25
WHAT DOES THIS MEAN FOR RETAIL BANKING?
As shown in this slide for the emerging markets giants relative to some
developed economies
Domestic credit ($2004bn)
50000
40000
30000
20000
10000
0
2004
2009
Source: Pricewaterhouse Coopers
2014
2019
2024
2029
2034
2039
US
China
India
Japan
Germany
UK
2044
2049
26
DEPENDENCY RATIOS RELATIVELY LOW
Dependency ratio
%
60
50
Japan
40
EU
30
Russia
20
China
Brazil
India
10
0
2005
Source: United Nations
2008
2011
2014
2017
2020
27
‘BUBBLE’ IN ASSET PRICES IN ASIA
Emerging Asia: Residential property prices
Index (2006=100, quarterly averages)
180
Hong Kong
160
Singapore
140
China
(Luxury residential)
120
100
80
60
2000
2001
Source: Oxford Economics
2002
2003
2004
2005
2006
2007
2008
2009
2010
28
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