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© 2014 IHS
Global Economics & Country Risk Conference
ihs.com
IHS
The global economic outlook Back to the future? Lower oil prices and a US-centric global recovery … …But can a lost decade be avoided?
Nariman Behravesh, Chief Economist, +1 781 301 9101, nariman.behravesh@ihs.com
11 November 2014
ECONOMICS
© 2014 IHS
Back to the future?
• The US is a locomotive of global growth, after an eight-year hiatus.
• US oil production will exceed that of Saudi Arabia for the first time since 1991.
• Oil prices are at their lowest levels since the end of the recession.
• A strengthening dollar is helping many other economies, much like the 1980s, 1990s and 2000s.
• Is there a new “cold war”?
• Is the “peace dividend” eroding?
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Global Economics & Country Risk Conference / November 2014
© 2014 IHS
The world economy: Reasons for optimism
• Global growth has been remarkably stable at 2.5% - not great, but not bad either.
• Lower oil prices will likely boost 2015 growth by 0.2 to 0.4 percentage points.
• Monetary stimulus by the Bank of Japan (aggressive), People’s Bank of China (small so far), and the European Central Bank (promised, but not delivered yet) will support growth.
• US and UK economic growth remains solid (at around 2.5% to 3%).
• Japan’s growth will be sustained but weak.
• The Chinese government will do whatever it takes to prevent growth from collapsing.
• India is a bright spot.
• World trade growth is beginning to pick up (very) modestly. 3
Global Economics & Country Risk Conference / November 2014
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The world economy: Reasons to be concerned
• Europe’s growth has stalled, and Germany has not been immune. • Deflation is a growing menace in the Eurozone. • Some large emerging markets (notably Brazil and Russia) are in
recession, and the prospects do not look good. • Debt levels in many parts of the world (Europe, Japan, China, other
emerging markets) are dangerously high. • The risks of policy mistakes (too much austerity, botched central bank
“exit strategies”, and lack of structural reforms) are elevated. • In particular, apprehensions regarding the Chinese governments ability
to juggle its multiple challenges are rising. • Geopolitical troubles could reverse the recent drop in oil prices. • Longer-term, the probability of “secular stagnation” in may parts of the
world (especially the Eurozone and some large emerging markets) is higher now than before.
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(Index, over 50 indicates expansion)
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2006 2007 2008 2009 2010 2011 2012 2013 2014Inde
x, o
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Global Economics & Country Risk Conference / November 2014
Purchasing managers’ indexes for manufacturing show the US leading the expansion
Sources: Institute for Supply Management (US), Markit, National Bureau of Statistics (China)
Purchasing managers’ indexes
© 2014 IHS
(Index, over 50 indicates expansion)
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Global Economics & Country Risk Conference / November 2014
Purchasing managers’ indexes for services also point to a strong US
Sources: Institute for Supply Management (US), Markit, National Bureau of Statistics (China)
Purchasing managers’ indexes
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Global Economics & Country Risk Conference / November 2014
After a slow start to 2014, global real GDP is rising at a moderate pace
Real GDP
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1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Perc
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World Advanced countries Emerging markets
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Global Economics & Country Risk Conference / November 2014
The emerging markets growth premium is the lowest since the early 2000s
Real GDP
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6
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Perc
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Global Economics & Country Risk Conference / November 2014
Real GDP growth in the United States, Eurozone, and Japan
Real GDP
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5
10
15
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Perc
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Real GDP growth in key emerging markets
Real GDP
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NAFTA OtherAmericas
WesternEurope
EmergingEurope
Mideast-N. Africa
Sub-Saharan
Africa
Japan OtherAsia-
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Asia-Pacific (excluding Japan) and Sub-Saharan Africa will achieve the fastest growth in real GDP
Real GDP
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Growth in world trade volume is beginning to pick up
Real GDP and trade
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The pace of globalization has slowed after exceptional gains in the 1994-2008 period
World imports’ share of GDP
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Global Economics & Country Risk Conference / November 2014
Some current-account imbalances persist
Current-account balance
© 2014 IHS
Oil prices have retreated as strong supply growth eclipses geopolitical concerns • The continuing boom in US oil production is lowering prices and
stabilizing global oil markets.
• Weak global oil demand (especially from China), high Saudi Arabian production, and a surge in Libyan production have contributed to recent price declines.
• Downside risks: OPEC is slow to react, the Saudis fight for market share, and global demand remains lackluster.
• Upside risks: Stronger demand growth (thanks to lower prices), renewed disruptions in Libya, slower production growth in North America, and rising geopolitical tensions.
• Bottom line: prices will likely remain in the mid-$80s (for Brent, and mid-$70s for WTI), but there could be a lot of volatility.
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Global Economics & Country Risk Conference / November 2014
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Global Economics & Country Risk Conference / November 2014
Industrial materials prices are falling as new supplies are sufficient to meet demand growth
Industrial materials prices
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wee
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All industrial materials Chemicals Nonferrous metals
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Global Economics & Country Risk Conference / November 2014
US crude oil: A big drop – but for how long?
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Crude oil and natural gas prices
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Crude oil, WTI (Left scale) Natural gas, Henry Hub (Right scale)Source: IHS Energy
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Crude oil prices will rise in the long run
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Price of Dated Brent crude oil
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Winners and losers from low oil prices
• Winners: • US consumers are likely the biggest winners – with a “tax cut” worth at least $70 billion. • European consumers will benefit proportionally less because of high gasoline taxes. • Emerging market consumers will also benefit less because of large fuel subsidies. • Energy-intensive industries (e.g. agriculture and transportation). • Governments in oil-importing countries with large fuel subsidies.
• Losers: • US producers (although IHS estimates that current break-even point is well below
current prices). • Major oil exporters – especially those with difficult public finances, where the “fiscal
break-even point” is above $100, including Iran, Russia, and Venezuela.
• Net effect: • In the US, the net effect on consumers and producers of oil is still a small positive,
despite rising US production. • Similarly, the net effect on oil-importing and oil-exporting countries around the world will
be a small boost to growth.
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Consumer price inflation varies by region, but is not a threat
Consumer price inflation
© 2014 IHS
Fiscal and monetary policies
• Austerity remains in force in the Eurozone and will likely become more intense in Japan next year.
• The US, UK, and Japan have had tight fiscal policies but loose monetary policies – the Eurozone has had tight fiscal and monetary policies …
• … This helps to explain why the single currency area is doing so poorly. • Not only are the ECB’s policies tight, they have de facto become tighter. • Japan has once again provided big monetary stimulus because of weak growth
and anticipated fiscal tightening in 2015. • The Fed and the Bank of England have stopped expanding their balance
sheets, but any interest rate hikes are still a long way off (summer of 2015 at the earliest).
• In the final analysis the benefits of QE (lower interest rates, improved bank balance sheets, higher asset prices, and a boost in confidence) have outweighed the potential costs (inflation, financial instability, and increased inequality).
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Fiscal deficits are diminishing in North America, Western Europe, and Japan
Federal budget balance
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Eurozone fiscal deficits are shrinking – dramatically in some cases
Fiscal balance
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The Bank of England will likely lead the upturn in policy interest rates
Policy interest rates
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Global Economics & Country Risk Conference / November 2014
Policy interest rates in key emerging markets will hold steady or decline
* One-year loan rate
Policy interest rates
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Global Economics & Country Risk Conference / November 2014
Long-term government bond yields will rise from exceptionally low levels
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Global Economics & Country Risk Conference / November 2014
CPI inflation rate - monthly
Inflation
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CPI inflation rate - annual
Inflation
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Real short-term interest rates – a risk for the Eurozone and the UK
Short-term interest rate
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Federal Reserve Bank of Japan European Central Bank Bank of England
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Central bank balance sheets – shrinking in the Eurozone
Real GDP
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Global Economics & Country Risk Conference / November 2014
The dollar: Rising, but still competitive
Real trade-weighted dollar index
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Global Economics & Country Risk Conference / November 2014
Exchange rates per US dollar
Quarterly averages
Canadian dollar
Japanese yen
Euro
Chinese renminbi
0.60.81.01.21.41.61.8
1998 2001 2004 2007 2010 2013 20160.50.60.70.80.91.01.11.2
1998 2001 2004 2007 2010 2013 2016
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Global Economics & Country Risk Conference / November 2014
Many emerging-market currencies have depreciated and are vulnerable
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China India Brazil Russia South Africa
Weekly exchange rate index
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-10.0 -7.5 -5.0 -2.5 0.0 2.5
ChinaRussiaPolandMexico
IndiaIndonesia
BrazilSouth Africa
Turkey
Current-account balance Fiscal balance
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Global Economics & Country Risk Conference / November 2014
Vulnerable countries depend on external financing: Current-account and fiscal balances Percent of GDP, 2013 External financing
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The US economy is gaining momentum
• Accelerations in consumer spending and homebuilding, along with continued robust capital spending, will support growth.
• The oil price decline, if sustained, will add around 0.2 to 0.4 percentage point to growth.
• Consumers will cautiously boost spending in response to gains in employment and real disposable income, lower oil prices and improved finances.
• The recovery in homebuilding is proceeding slowly, as young adults delay household formation and homeownership.
• Global market growth, strong cash flow, replacement needs, and technological advances reinforce capital spending.
• Interest rates will rise over the next three years as monetary accommodation is withdrawn.
• The stronger dollar is still low by historical standards and not (yet) a big threat.
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Global Economics & Country Risk Conference / November 2014
US real GDP growth will be sufficient to bring further reductions in the unemployment rate
Real GDP and unemployment
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Global Economics & Country Risk Conference / November 2014
US household deleveraging continues on the mortgage side – lowest debt ratio since 2002
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US investment shares are recovering
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Source: People’s Bank of China
Real spending
* IHS forecast
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Global Economics & Country Risk Conference / November 2014
The secret isn’t out yet in Washington: The federal budget deficit is unproblematic
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Source: IHS
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Global Economics & Country Risk Conference / November 2014
US federal debt ratio to stabilize just under 75%–but the biggest problems come later, as the population ages
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Global Economics & Country Risk Conference / November 2014
Unconventional sources of oil and natural gas are boosting US energy supplies
US energy supply and demand
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Global Economics & Country Risk Conference / November 2014
The US current-account deficit: Thanks to falling oil imports going, going, gone?
Current-account balance
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-6.0
-4.5
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-1.5
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Global Economics & Country Risk Conference / November 2014
North American business cycles are synchronized
Real GDP
© 2014 IHS
Canada will achieve moderate, balanced growth
• Real GDP growth picked up in the second quarter, led by surging exports, auto sales, and homebuilding.
• The net impact of the oil price decline will be a small positive (around 0.1 percentage point).
• Gains in employment and income will support household spending, but rising debt burdens will restrain it.
• The Bank of Canada will begin to raise interest rates in late 2015.
• Continued development of the oil sands is raising energy production.
• The drop in oil prices has put downward pressure on the Canadian dollar, which will remain below parity with the US dollar.
• Western provinces, led by Alberta, will achieve the fastest growth, although weaker oil prices will knock a few points off growth.
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Global Economics & Country Risk Conference / November 2014
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Economic reforms shape Mexico’s outlook
• Mexico is benefiting from solid growth in the US economy through trade, capital inflows, and remittances.
• The construction cycle is bottoming out; exports and public investment (including transportation infrastructure) will support 4% growth.
• The oil price drop will likely shave off 0.2 percentage off 2015 growth.
• Global automakers are investing in substantial new capacity in Mexico.
• Consumer spending growth will pick up in response to income gains.
• Constitutional changes will open Mexico’s oil and gas industries to foreign investment and eventually reverse the decline in oil production.
• President Peña Nieto’s agenda also includes reforming education and labor markets, increasing competition in communications industries, and broadening the tax base.
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Western Europe has turned the corner, but risks of deflation are rising • After a protracted recession, the Eurozone economy is growing again – though
growth this year will only be around 0.8%.
• Rising consumer and business confidence, low interest rates, improving export markets, and pent-up demand for durables will support growth.
• Lower oil prices will add about 0.2 percentage point to growth
• Extended fiscal austerity, still-significant banking sector problems, and weak consumer finances will restrain growth in several countries.
• The United Kingdom, Ireland, Germany, and Sweden will lead the region’s growth, while Italy, Spain, Greece, and Portugal will lag.
• The ECB averted a meltdown, but has done little for growth—moreover falling inflation is becoming a bigger risk (there is already deflation in Italy, Spain, Greece, Portugal, Cyprus and Slovakia), pushing up real interest rates and the euro.
• Western Europe is vulnerable to a further escalation of the crisis in Ukraine.
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Perc
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Consumers Industrial sector Services sectorSource: European Commission
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Global Economics & Country Risk Conference / November 2014
Eurozone confidence indexes are rising
Positive replies minus negative replies
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1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Perc
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Global Economics & Country Risk Conference / November 2014
The Eurozone economy will slowly recover
Real GDP
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Global Economics & Country Risk Conference / November 2014
Real GDP growth in Europe’s major economies
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Global Economics & Country Risk Conference / November 2014
European unemployment rates have diverged
Unemployment rate
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Japan’s economy on a better but sluggish growth path
• The sales tax increase from 5% to 8% in April is creating economic volatility: After a surge in the first quarter, consumer spending fell in the second, but is expected to rise in the third quarter.
• IHS expects 1.1% growth this year and 1.2% in 2015, and a small boost from lower oil prices (0.1 to 0.2 percentage point)
• The Bank of Japan’s aggressive monetary stimulus and sales tax increases will spark consumer price inflation of 3% this year and 2% in 2015 – this spring the core CPI rose the fastest since 1991
• Future growth will depend on how effectively the new Abe administration implements reforms in labor and product markets – so far there is been very timid.
• The recent stimulus by the Bank of Japan make it more likely that the October 2015 (second round) sales tax hike will go through.
• The huge cash hoards of Japanese companies are both a source of concern and a potential basis of strength.
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1986 1990 1994 1998 2002 2006 2010 2014 2018
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Japan’s economy has limited growth potential
Real GDP
© 2014 IHS
0 10 20 30 40 50
United States
Germany
South Korea
Japan
Corporate cash holdings
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Global Economics & Country Risk Conference / November 2014
Percent of GDP, latest available Corporate cash holdings
Source: National Statistics
© 2014 IHS
Asia-Pacific will achieve solid, not spectacular, growth
• Asia’s performance will be shaped by political transitions and the pace of domestic macroeconomic reforms.
• India’s economy is reviving, but the new BJP government has been slow to use its mandate to launch essential economic reforms.
• Indonesia’s new government seems on track to enact reforms such as the reduction of fuel subsidies.
• Political turmoil and the military coup in Thailand are undermining economic performance and foreign investment in manufacturing.
• As the global economy improves, South Korea, Taiwan, and Vietnam will see faster growth, supported by rising high-tech exports.
• The region’s outlook for consumer spending is bright, thanks to robust income growth and deepening financial markets.
• Risks include a China hard landing, slow progress on economic reforms, and territorial disputes in the South China Sea.
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China India Australia South Korea Indonesia Taiwan
Annu
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2012 2013 2014 2015 2016-20
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Global Economics & Country Risk Conference / November 2014
Real GDP growth in Asia-Pacific
Real GDP
© 2014 IHS
China’s economic growth has slowed
• Real GDP increased 7.3% year on year in the third quarter, down from 7.5% in the second quarter and the slowest pace since early 2009.
• Lower oil prices will only add about 0.2 percentage points to growth next year.
• Persistent weakness in real estate and related heavy industry was offset by strength in exports and consumer spending.
• The recent easing of liquidity conditions will have little real impact on new financing due to tightening bank regulations.
• A hard landing triggered by a financial crisis is not the biggest threat facing China; a more serious concern is prolonged low growth.
• In the medium term, China will need to reform state-owned enterprises and the financial sector – otherwise a Japan-style scenario with lots of “zombie” companies is a big risk.
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Global Economics & Country Risk Conference / November 2014
China’s economic growth will downshift in the long run
Real GDP and industrial production
© 2014 IHS
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Trill
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Bank loans (LCU and FX) Other financing Entrusted loans
Bank acceptance bills Trust loans
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China’s lending has stabilized at a high level
Source: People’s Bank of China
Lending flows
* IHS forecast
© 2014 IHS
India’s growth recovery remains tentative
• Relapses in manufacturing production suggest continued weakness in consumer spending and private investment.
• Agricultural output is likely to suffer from poor monsoon rains.
• Wholesale price inflation subsided to a five-year low of 2.4% year on year in September, while consumer price inflation moderated to 6.5%.
• The Reserve Bank of India is likely to hold interest rates steady into 2015 because of potential price pressures from currency depreciation.
• The BJP’s initial policy steps have been cautious. Much needs to be done to open markets, upgrade infrastructure, reduce food and fuel subsidies, and raise productivity.
• The recovery in economic growth will be gradual, but long-term growth potential is high if reforms are implemented.
• Growth will be boosted (0.3-0.4 percentage point) by lower oil prices.
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Global Economics & Country Risk Conference / November 2014
© 2014 IHS
South America: Deteriorating investment climates
• The region’s economic growth has slowed in 2014, with Argentina, Venezuela, and Brazil in recession.
• Falling prices for oil and other commodities are hurting export income.
• Low oil prices will help Argentina, Brazil and Chile, but hurt Colombia, Ecuador and Venezuela.
• In Argentina, a sovereign debt default, high inflation, foreign-exchange controls, and import restrictions are obstacles to growth.
• Venezuela faces a long recession with soaring debt-servicing costs, high inflation, product shortages, and political unrest
• In Colombia and Peru policy stimulus and resource development are supporting robust growth.
• Tax increases are slowing Chile’s growth.
• The region’s long-term challenges include inadequate infrastructure, restrictive business environments, and income inequality.
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Brazil Argentina Colombia Venezuela Chile Peru
Annu
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2012 2013 2014 2015 2016-20
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Global Economics & Country Risk Conference / November 2014
Real GDP growth in South America
Real GDP
© 2014 IHS
Brazil’s economy faces competitive challenges
• High labor and capital costs, an overvalued currency, complex taxation, and inadequate infrastructure are hurting competitiveness.
• Fixed investment has been declining since mid-2013.
• High debt burdens and slow job growth are restraining consumer spending.
• Industrial production began to recover in July and August, suggesting that the economy is stabilizing after a mild two-quarter recession.
• The re-election of Dilma Rousseff means more of the same in terms of failed policies – which is not encouraging for growth prospects.
• As a net importer of oil, Brazil will see a small positive impact from the recent drop in oil prices.
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The Ukraine crisis influences Emerging Europe
• The Eurozone’s gradual recovery will help the economies of Central Europe and the Balkans by increasing trade and capital flows.
• The Russia-Ukraine conflict brings the risk of trade and energy-supply disruptions. Ukraine’s economy will contract 7% in 2014.
• Russia’s aggression in Ukraine and the resulting sanctions will do long-term damage by discouraging investment in Russia.
• Despite weak export markets, Poland’s economy is benefiting from monetary stimulus and a revival of domestic demand.
• In Turkey, policymakers’ efforts to reduce the large current-account deficit and stabilize the economy will dampen economic growth.
• Both these large Central European countries will see a boost (of up to 0.5 percentage point) in 2015 growth from lower oil prices.
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-2
-1
0
1
2
3
4
5
Russia Turkey Poland CzechRepublic
Romania Hungary
Annu
al p
erce
nt c
hang
e
2012 2013 2014 2015 2016-20
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Real GDP growth in Emerging Europe
Real GDP
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Russia’s outlook deteriorates as sanctions increase and oil prices fall • Russia’s incursions in Ukraine have led to new sanctions, capital flight,
reduced credit availability, and declining investment.
• The central bank has raised its policy rate from 5.5% to 9.5% in 2014 and has effectively stopped intervening in currency markets to support the fragile rouble.
• High inflation is eroding consumer purchasing power and confidence.
• Real GDP is projected to decline 0.3% in 2014, followed by a bigger drop of 1.7% in 2015 due to the cumulative impact of lower oil prices and sanctions.
• Sanctions will reduce access to oil field technology and Western capital, leading to a decline in oil production in 2016 and beyond.
• Unfavorable demographics, outmoded manufacturing capacity, and an overburdened infrastructure will limit medium- and long-term growth.
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The Middle East and North Africa
• Regional political instability and the war against the Islamic State and Khorasan cloud the economic outlook.
• Lower oil prices will hurt Saudi Arabia, Kuwait, Iran, UAE, and Libya, but help Jordan, Lebanon, Morocco, and Tunisia.
• After two years of contraction, Iran’s economy is stabilizing – sanctions on the energy and financial sectors will likely remain in place.
• Political and security risks limit Egypt’s economic growth.
• Addressing job creation, economic diversification, and competitiveness will be critical to regional stability over the medium term.
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-9
-6
-3
0
3
6
9
Saudi Arabia UAE Israel Iran Egypt Iraq
Annu
al p
erce
nt c
hang
e
2012 2013 2014 2015 2016-20
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Real GDP growth in the Middle East and North Africa
Real GDP
© 2014 IHS
Sub-Saharan Africa will sustain rapid growth
• Commodity export revenues remain a key driver of growth.
• Expanding domestic markets, income gains, and regional integration will support 5-6% economic growth in the decade ahead.
• Macroeconomic management is improving substantially, poverty is declining, and foreign direct investment is rising.
• Poor infrastructure (especially power generation), political instability, and corruption remain obstacles to economic development.
• An end to mining strikes in South Africa is bringing renewed growth, but producers face strong labor and electricity cost pressures.
• Lower oil prices will help South Africa and Zambia, but hurt Angola, Mozambique and Nigeria.
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0
2
4
6
8
10
Nigeria South Africa Angola Ghana Ethiopia Kenya
Annu
al p
erce
nt c
hang
e
2012 2013 2014 2015 2016-20
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Real GDP growth in Sub-Saharan Africa
Real GDP
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Global Economics & Country Risk Conference
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IHS
Long-term trends Can a lost decade be avoided?
ECONOMICS
© 2014 IHS
What could bring about much slower global growth?
• US – growth in the labor force, capital expenditures, and productivity remain anemic for an extended period.
• Secular stagnation and persistent deflation in Europe – especially in the crisis economies.
• Lack of structural reforms and further degradation of growth in the emerging world – including China and India.
• Further slowdown (reversal?) in globalization.
• Onerous regulatory and tax environments.
• Badly conceived (and implemented) energy and environmental policies that could thwart the development of unconventional energy.
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Not all the long-term risks are on the downside
• Inherent resilience of the US economy manifests itself.
• Unconventional energy revolution goes global.
• Progress on European structural reforms payoff.
• Success of Abenomics leads to a Japanese economic renaissance.
• Key emerging markets develop effective reform plans.
• Globalization becomes an engine of growth again.
• Tax and regulatory reforms are implemented in key economies.
• Existing and emerging technologies pay off in terms of higher productivity growth.
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0
2
4
6
8
NAFTA OtherAmericas
WesternEurope
EmergingEurope
Mideast &N. Africa
Sub-Saharan
Africa
Japan OtherAsia-
Pacific
Annu
al p
erce
nt c
hang
e
1993-2003 2003-13 2013-23 2023-33
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Long-term world economic growth by region
Real GDP
© 2014 IHS
-1
0
1
2
3
NAFTA OtherAmericas
WesternEurope
EmergingEurope
Mideast &N. Africa
Sub-Saharan
Africa
Japan OtherAsia-
Pacific
Annu
al p
erce
nt c
hang
e
1993-2003 2003-13 2013-23 2023-33
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Population growth is slowing across regions
Population
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-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
80s 90s 00s 10s 20s 30s
Dec
ade
aver
age
grow
th ra
te
United States Canada United Kingdom Germany* France Italy
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Labor force growth
Labor force
* German data starts in 1992 Source: IHS Global Link Model
© 2014 IHS
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
80s 90s 00s 10s 20s 30s
Dec
ade
aver
age
grow
th ra
te
Japan China Russia* India Brazil*
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Labor force growth (continued)
Labor force
* Russia data starts in 1995; Brazil starts in 1996 Source: IHS Global Link Model
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0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
80s 90s 00s 10s 20s 30s
Dec
ade
aver
age
grow
th ra
te
United States Canada United Kingdom* Germany* France* Italy*
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Capital stock growth
Capital stock
* German data starts in 1991; UK, France, and Italy in 1986 Source: IHS Global Link Model
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0
2
4
6
8
10
12
80s 90s 00s 10s 20s 30s
Dec
ade
aver
age
grow
th ra
te
Japan* China Russia* India Brazil
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Capital stock growth (continued)
Capital stock
* Japan data starts in 1986; Russia in 1996 Source: IHS Global Link Model
© 2014 IHS
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
80s 90s 00s 10s 20s 30s
Dec
ade
aver
age
grow
th ra
te
United States Canada United Kingdom* Germany France* Italy
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Total factor productivity growth
Total factor productivity
* United Kingdom data starts in 1989; France in 1986 Source: IHS Global Link Model
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-1
0
1
2
3
4
5
80s 90s 00s 10s 20s 30s
Dec
ade
aver
age
grow
th ra
te
Japan China Russia India Brazil
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Total factor productivity growth (continued)
Total factor productivity
Source: IHS Global Link Model
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0 5 10 15 20 25 30
AustraliaGermany
United StatesNetherlands
FranceSwedenCanada
JapanItaly
United…Portugal
SpainIrelandGreece
Loss of potential economic output
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Percent reduction, 2007-13 Potential output
Source: Laurence Ball, “Long-Term Damage from the Great Recession in OECD Countries”
© 2014 IHS
Implications of global economic trends
• Global growth will be more US-centric.
• Europe and Japan will do a little better, but not as well as the US.
• The sharp deceleration in emerging markets is worrisome, and a return to the boom years of the 2000s is unlikely—but another crisis is also unlikely.
• Emerging markets will not enjoy another resurgence without stronger productivity growth.
• China’s locomotive role is diminishing.
• Lower oil prices, more monetary stimulus, and more solid US growth will provide the foundations for a modest acceleration of global growth.
• Europe and some emerging markets have the highest risk of secular stagnation.
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Global Economics & Country Risk Conference
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