Transcript Presentation

WORLD ECONOMIC OUTLOOK
is FOR
thisHOW
the LONG?
LOW Economic
GROWTH ANDoutlook:
HIGH RISK:
new normal?
ICTF, Berlin, October 2015
Freddy Van den Spiegel
Economic advisor
Professor VUB and Vlerick Business School
Freddy Van den Spiegel
Economic Advisor.
The view of IMF
2
1. The crisis, started in 2007

2007: complex financial (mortgage) products start to collapse
as the US housing market cools down. Investors get worried about
the banking sector
3
US: HOUSES PRICES ( in USD)
Department of Commerce and National Association of Retailors figures
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New houses
Existing houses
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Groupe BNP ParibasBNP Paribas Group
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EUROSTOXX FINANCIALS
5
1. The crisis, starting in 2007
 2007: complex financial (mortgage) products start to collapse as
the US housing market cools down. Investors get worried about
the banking sector
 2008: The banking crisis starts in October with the bankruptcy of
Lehman Brothers
6
EUROSTOXX FINANCIALS
7
Bank
How fared the most solid banks in Western Europe?
Intervention
HSBC Holdings
12,5bn GBP private capital injection
Crédit Agricole Group
3bn EUR capital injection (subordinate debt)
Royal Bank of Scotland
58% nationalised
Santander
2bn EUR capital raised from private investors
BNP Paribas
5,1bn capital injection (preferred shares)
Barclays Bank
£7bn private capital injection, use of credit guarantees
HBOS
taken over by Lloyds TSB, 44% nationalised
UniCredit
seeking 4bn EUR from Italian and Austrian governments
Rabobank Group
no capital injection
ING Bank
10bn EUR capital Injection, 80% government guarantee on 27,7bn Alt-A
UBS
5,3bn USD capital injection, 60bn USD bad assets removed
Deutsche Bank
no capital injection
ABN AMRO Bank
nationalised
Crédit Mutuel
1,2bn EUR capital injection (subordinate debt)
Société Générale
3,4bn EUR capital injection (subordinate debt + preferred shares)
Credit Suisse group
private capital injection of 10bn CHF
BBVA
no capital injection
Lloyds TSB
50% nationalised
Groupe Caisse d'Epargne
1,1bn EUR capital injection (subordinate debt)
Groupe Banques Populaires
0,95bn EUR capital injection (subordinate debt)
Groupe BNP ParibasBNP Paribas Group
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Bank
How fared the most solid banks in the USA?
Intervention
Bank of America
expanding (Merrill Lynch, Countrywide), 45bn USD capital injection
Citigroup
50bn USD capital injection + 306bn USD bad asset guarantee, breaking up
JP Morgan Chase
expanding (Bear Stearns, WaMu), 25bn USD capital injection
Wachovia Corporation
failure
Wells Fargo
expanding (Wachovia), 25bn USD capital injection
Washington Mutual
failure
U.S. Bancorp
6,6bn USD capital injection
Countrywide Financial Corp.
sold
SunTrust Banks
4,9bn USD capital injection (preference shares)
Capital One Fin. Corp.
3,6bn USD capital injection
National City Corp.
sold
Regions Financials Group
3,5bn USD capital injection
PNC Financial Services Group
expanding (National City), 7,6bn capital injection (preference shares)
Fifth Third bancorp
3,4bn USD capital injection
KeyCorp
2,5bn USD capital injection
BB & T Corp
3,1bn USD capital injection
State Street Corp
2bn USD capital injection
Bank of New York
3bn USD capital injection
Comerica
2,3bn USD capital injection
Merril Lynch Bank USA
sold
Groupe BNP ParibasBNP Paribas Group
9
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9
1. The crisis, starting in 2007
 2007: complex financial (mortgage) products start to collapse as
the US housing market cools down. Investors get worried about
the banking sector
 2008: The banking crisis starts in October with the bankruptcy of
Lehman Brothers
 2009: Worldwide recession and housing crashes in Europe
10
WORLD GDP GROWTH
11
12
1. The crisis, starting in 2007
 2007: complex financial (mortgage) products start to collapse as
the US housing market cools down. Investors get worried about
the banking sector
 2008: The banking crisis starts in October with the bankruptcy of
Lehman Brothers
 2009: Worldwide recession and housing crashes in Europe
 2010: Increasing government debt
13
14
1. The crisis, starting in 2007
 2007: complex financial (mortgage) products start to collapse as
the US housing market cools down. Investors get worried about
the banking sector
 2008: The banking crisis starts in October with the bankruptcy of
Lehman Brothers
 2009: Worldwide recession and housing crashes in Europe
 2010: Increasing government debt, collapse of European
economies
 2011: the EURO sovereign crisis starts
15
16
1. The crisis, starting in 2007
 2007: complex financial (mortgage) products start to collapse as
the US housing market cools down. Investors get worried about
the banking sector
 2008: The banking crisis starts in October with the bankruptcy of
Lehman Brothers
 2009: Worldwide recession and housing crashes in Europe
 2010: Increasing government debt, collapse of European
economies
 2011: the EURO sovereign crisis starts
 2012: EUROZONE back in recession
17
18
1. The crisis, starting in 2007
 2007: complex financial (mortgage) products start to collapse as
the US housing market cools down. Investors get worried about
the banking sector
 2008: The banking crisis starts in October with the bankruptcy of
Lehman Brothers
 2009: Worldwide recession and housing crashes in Europe
 2010: Increasing government debt, collapse of European
economies
 2011: the EURO sovereign crisis starts
 2012: EUROZONE back in recession
 2013: EUROZONE problems remain
 2014: EUROZONE towards QE, the ultimate weapon
 2015: collapse of the emerging economies
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20
21
22
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
23
WORLD ECONOMIC OUTLOOK
GDP GROWTH
2013 2014 2015
WORLD
3,4
3,4
3,5
US
2,2
2,4
3,1
EURO
-0,5
0,9
1,5
JAPAN
1,6
-0,1
1
EMERGING
5,0
4,6
4,3
IMF world economic outlook april 2015
2016
3,8
3,1
1,6
1,2
4,7
24
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
BUT DETERIORATING CONFIDENCE!
WHY?
25
26
McKinsey survey
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
 The US is back to solid growth
27
28
29
30
31
32
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
 The US is back to solid growth
 but the appreciation of the USD could become problematic
33
34
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
 The US is back to solid growth
 but the appreciation of the USD could become problematic
 And low oil prices kill shale oil
35
36
37
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
 The US is back to solid growth
 but the appreciation of the USD could become problematic
 And low oil prices kill shale oil
 End of QE soon?
38
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
 The US is back to solid growth
 Europe seems to be slowly recovering
39
40
41
42
43
EUROSTOXX 50
44
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
 The US is back to solid growth
 Europe seems to be slowly recovering
– Supported by a lower Euro
– And by a QE programme
– But internal political uncertainty remains with Grexit and
Brexit
– And external political uncertainty about the Middle East,
Northern Africa and Ukraine
45
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
 The US is back to solid growth
 Europe seems to be slowly recovering
 The emerging economies are no longer a club of winners
46
BRICS
GDP GROWTH (%)
2015
2014
2013
2016
6,8
-1,0
7,5
-3,8
6,3
1,0
7,5
-1,1
7,4
7,8
CHINA
0,1
2,7
BRAZIL
7,2
6,9
INDIA
0,6
1,3
RUSSIA
IMF World economic outlook april 2015
47
china
Investment and Consumption, % of GDP
55
50
45
Consumer Spending Share
40
Investment Share
35
30
25
20
48
1980
1985
1990
1995
2000
2005
2010
49
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
3. How did we arrive where we are?
50
The origin of the actual situation: an extra-ordinary environment since
1990
51
The extra ordinary environment since 1990.
Technological
Revolution
+
Worldwide
Deregulation
52
The extra ordinary environment since 1990.
Technological
Revolution
+
Economic
Globalisation
Worldwide
Deregulation
53
1. The extra ordinary environment since 1990.
Technological
Revolution
+
Asian
savings glut
Economic
Globalisation
Worldwide
Deregulation
Asian
deflationary
pressure
54
The extra ordinary environment since 1990.
Technological
Revolution
+
Asian
savings glut
Easy money to
finance global
imbalances
Economic
Globalisation
Worldwide
Deregulation
Asian
deflationary
pressure
Stable, low
interest rates
55
SAVINGS QUOTE CHINA
56
57
The extra ordinary environment since 1990.
Technological
Revolution
+
Asian
savings glut
Easy money to
finance global
imbalances
Economic
Globalisation
Worldwide
Deregulation
Asian
deflationary
pressure
+
Financial
Technology
Stable, low
interest rates
58
The extra ordinary environment since 1990.
Technological
Revolution
+
Asian
savings glut
Easy money to
finance global
imbalances
Economic
Globalisation
Worldwide
Deregulation
Asian
deflationary
pressure
+
Financial
Technology
Happy
days
Global
Economic
Growth
Stable, low
interest rates
59
The virtuous circle
GROWTH
RISK
PREMIUM
LEVERAGE &
BUBBLES
EASY LOANS
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The extra ordinary environment since 1990.
But underneath unsustainable bottle necks developed.
•
Imbalances of the US.
61
62
63
64
65
The extra ordinary environment since 1990.
But underneath unsustainable bottle necks developed.
• Imbalances of the US.
• Savings glut of Asia.
66
67
68
The extra ordinary environment since 1990.
But underneath unsustainable bottle necks developed.
• Imbalances of the US.
• Savings glut of Asia.
• Unsustainable financial leverage in US and Europe.
69
70
House Price Evolution (rebased Q1 2000 = 100)
260
240
220
Spain
UK
Ireland
200
180
160
140
120
100
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
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The extra ordinary environment since 1990.
The situation of the Western world
• Over indebted (governments and/or private households)
• Depending on foreign savings
• Loosing economic power
• Loosing geopolitical influence
The situation of the rest of the world
• Waking up after the dream
• Stuck in the middle
• Need to adapt , but to what?
•
THE GOLDEN YEARS OF EASY GLOBALIZATION SEEM TE BE OVER
“BACK TO NORMAL” SEEMS UNLIKELY
72
80.000
70.000
60.000
50.000
Advanced economies
40.000
Emerging market and
developing economies
30.000
20.000
10.000
2018
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
0
73
CLEARLY NOT A CRISIS
BUT A REGIME SWITCH
74
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
3. How did we arrive where we are?
4. What are the major risks and bottlenecks?

Low growth combined with a wall of debt: a dangerous combination
75
Source: ICMB
76
GLOBAL DEBT
77
78
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
3. How did we arrive where we are?
4. What are the major risks and bottlenecks?



Low growth combined with a wall of debt: a dangerous combination
Unsustainable and unresolvable worldwide imbalances
Political ambitions of emerging economies and opposition from West
79
80
81
82
83
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
3. How did we arrive where we are?
4. What are the major risks and bottlenecks?




Low growth combined with a wall of debt: a dangerous combination
Unsustainable and unresolvable worldwide imbalances
Political ambitions of emerging economies and opposition from West
Other geopolitical challenges
84
GLOBAL CONFLICT TRACKER
85
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
3. How did we arrive where we are?
4. What are the major risks and bottlenecks?





Low growth combined with a wall of debt: a dangerous combination
Unsustainable and unresolvable worldwide imbalances
Political ambitions of emerging economies and opposition from West
Other geopolitical challenges
QE
86
QE: impact and exit?
The US experience
Start in 2009
-LT yield down
-Funding government deficit
-Currency down
-Overheating in Latin America and Asia
-Supporting growth
Exit in 2014-2015
-Reaction of LT yield
-Capital outflows in overheated and imbalanced economies: problem
for the emerging world
-Dollar appreciation: potential problem for US growth
87
- RATHER REASSURING
88
THE ROAD TO QE FOR EUROPE
•Excessive debt, growing after the crisis
89
90
THE ROAD TO QE
•Excessive debt, growing after the crisis
•An almost fatal second political crisis: the eurocrisis
91
92
THE ROAD TO QE
•Excessive debt, growing after the crisis
•An almost fatal second political crisis: the eurocrisis
• Short term rescue operations but no solutions
• Normal monetary policy does not function anymore
•
•
•
The transmission mechanism through banks does not function
Lower interest rate is not effective
More liquidity does not help
93
94
Balace sheet total ECB
95
95
THE ROAD TO QE
•Excessive debt, growing after the crisis
•An almost fatal second political crisis: the eurocrisis
• Short term rescue operations but no solutions
• Normal monetary policy does not function anymore
•
•
•
•
The transmission mechanism through banks does not function
Lower interest rate is not effective
More liquidity does not help
All debt is potentially “bad” if no growth
•
BUT GROWTH NEEDS LOANS AND WE HAVE ALREADY TOO MUCH: A DILEMMA
96
THE ROAD TO QE
•Excessive debt, growing after the crisis
•An almost fatal second political crisis: the eurocrisis
• Short term rescue operations but no solutions
• Normal monetary policy does not function anymore
• The new paradigms:
•
•
Saving is irresponsible
Generalized austerity creates depression
97
THE ROAD TO QE
•Excessive debt, growing after the crisis
•An almost fatal second political crisis: the eurocrisis
• Short term rescue operations but no solutions
• Normal monetary policy does not function anymore
• The new paradigms
• QE and financial repression as the only way out
98
99
QE: impact until now
SO FAR SO GOOD
- fast depreciation euro on announcement
- recovery of stock market
- decline in spreads (except Greece)
100
101
QE: impact until now
SO FAR SO GOOD
- fast depreciation euro on announcement
- recovery of stock market
- decline in spreads (except Greece)
BUT ALSO UNKNOWN TERRITORY
- jump into negative yields
- and increasing volatility
102
103
104
QE: impact until now
SO FAR SO GOOD
- fast depreciation euro on announcement
- recovery of stock market
- decline in spreads (except Greece)
BUT ALSO UNKNOWN TERRITORY
- jump into negative yields
- and increasing volatility
- or is the effect already over? (stock market, forex,
interest rates,…)
105
QE: impact until now
And what after QE
-Scenario where QE is successful and ends: difficult for periphery
-Scenario where QE does not deliver: dangerous for periphery
UNLESS PERIPHERY GOES TO FAST AND SUCCESSFUL
STRUCTURAL REFORM
BUT NO REASON TO PANIC YET: THANKS TO QE?
106
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
3. How did we arrive where we are?
4. What are the major risks and bottlenecks?






Low growth combined with a wall of debt: a dangerous combination
Unsustainable and unresolvable worldwide imbalances
Political ambitions of emerging economies and opposition from West
Other geopolitical challenges
QE
The political future of Europe
107
1. The crisis, starting in 2007
2. The world economic outlook: the developed world recovers, the
emerging economies suffer, but nothing spectacular at first sight?
3. How did we arrive where we are?
4. What are the major risks and bottlenecks?







Low growth combined with a wall of debt: a dangerous combination
Unsustainable and unresolvable worldwide imbalances
Political ambitions of emerging economies and opposition from West
Other geopolitical challenges
QE
The political future of Europe
A recovery without jobs? The digital disruption of society
108
CONCLUSIONS.
•
In the short run, everything seems under control
•
But the worldwide system has not stabilised (yet)
•
Politics are back.
109
CONCLUSIONS.
Politics will dominate the agenda: a challenging balancing act.
•
Normalise banking system.
•
Deleverage the economy.
•
Normalise central bank policy and balance sheets.
•
Stabilise public debt levels.
•
Develop new regulatory framework for the financial industry.
•
Revive international trade (or switch to protectionism?)
•
Solve global environmental issues.
•
Towards a new financial, economic and political world order.
• WITHOUT KILLING THE RECOVERY.
110
CONCLUSIONS.
•
Living in an interconnected world economy
•
Politics are back.
•
From west to east: a story that will continue, but probably less
spectacular
111
CONCLUSIONS.
G7 vs Developing Asia: Real GDP Growth (%
YoY)
14
12
G7
Developing Asia
10
8
6
4
2
0
-2
1990
1995
2000
2005
2010
2015
-4
-6
112
113
80.000
70.000
60.000
50.000
Advanced economies
40.000
Emerging market and
developing economies
30.000
20.000
10.000
2018
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
0
114
CONCLUSIONS.
•
Living in an interconnected world economy
•
Politics are back.
•
From west to east: a story that will continue, but probably less
spectacular
•
Fortunately, the process of globalisation is not broken
115
CONCLUSIONS.
Challenges for everybody: adapt to the “new normal”.
•
The road to adapt to the new global economic reality will be
long and bumpy.
•
But this does not mean necessarily that the economy will be
weak all the time.
•
But it does mean that uncertainty has replaced risk; models
will not help and the recent past not relevant
•
Nobody can imagine how the world will look like in 10 years
but it will definitely be different. Frightening or challenging?
116
Return to Keynes
“If we consistently act on the optimistic hypothesis, this hypothesis will tend
to be realised; whilst by acting on the pessimistic hypothesis we can keep
ourselves for ever in the pit of want.”
8 November 1931
117117
Thank you
118