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Rebuilding confidenceHan de JongGroup EconomicsMarch 2012
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Six months ago: pessimism
• Contagion in euro crisis
• Sharp drop in economic activity & business confidence
Fear for another sharp downturn like ‘Lehman’
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3
Why did the global economy not ‘collapse’?
• Financial system did not dry up
• European leaders took positive steps
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44
Business confidence: PMI and ISM
index
Source: Bloomberg
30
35
40
45
50
55
60
65
05 06 07 08 09 10 11 12
Eurozone PMI US ISM
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Business confidence: PMI
Source : Bloomberg
Index
35
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011 2012Brazil China India
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66
Divergence US and eurozone
Unemployment, %
Source: Bloomberg
4
5
6
7
8
9
10
11
12
06 07 08 09 10 11 12US Eurozone
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Money growth
-2
0
2
4
6
8
10
12
14
04 05 06 07 08 09 10 11 12Eurozone M3 US M2
% yoy
Source: Bloomberg
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88
Divergence Europe: car sales
Portugal -48.8
Greece -45.2
Ireland -8.6
France -20.2
Italy -18.9
Netherlands -10.0
UK -2.5
Germany 0.0
Estonia +29.7
Iceland +148.5
% yoy, February 2012
Source: Bloomberg
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99
US: self sustaining growth
Source: Bloomberg Small businesses' confidence Source: Bloomberg Home builders' confidence
Source: Bloomberg Source: Bloomberg Univ.of Michigan
NFIB index NAHB index
Car sales, millions Consumer confidence, index
80
85
90
95
100
07 08 09 10 11 12
0
10
20
30
40
07 08 09 10 11 12
8
10
12
14
16
18
07 08 09 10 11 12
50
60
70
80
90
100
07 08 09 10 11 12
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China hard landing or soft landing: Car sales
0
5
10
15
20
25
05 06 07 08 09 10 11 12
millions
Source: Bloomberg
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1111
Economic situation
• US moving to self-reinforcing recovery
• Europe improving gradually
• Emerging economies taking advantage of industrial recovery – and room to stimulate
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Euro crisis
• LTROs have eased pressure
• Greek tragedy no longer problem for financial markets – now purely political
• New Compact
• Likely increase bail-out funds
• Calm has returned to markets
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1313
2yr government bond yields
Source: Bloomberg
%
1
2
3
4
5
6
7
8
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
Italy Spain
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1414
European banks tightening lending criteria until Q4
Net-tightening (%)
Source: Thomson Reuters Datastream
-20
0
20
40
60
80
03 04 05 06 07 08 09 10 11 12
Corporates Consumers Housing
tightening
easing
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Risks to the ECB’s approach
• ECB balance sheet riskier
• Inflation
• Phenomenal distortion in markets, will lead to misallocation
• Reduced urgency other policymakers
- Public finances
- Structural reform
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Structural improvements?
• Deleverging continues
• Eurozone public finances much improved
• Structural reform
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Spain
Source: Thomson Reuters Datastream EUR bn, 3mma, index Jan08=100 Source: Thomson Reuters Datastream GBP/EUR bn, 12mma, index Jan07=100
Source: Thomson Reuters Datastream EUR bn, 12 mm total Source: OECD, estimates 2011 en 2012 OECD % GDP
General government net borrowing
Exports Exports to emerging Asia
Current account
70
80
90
100
110
120
08 09 10 11 12Germany Spain
-140
-120
-100
-80
-60
-40
-20
0
20
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
100
120
140
160
180
200
07 08 09 10 11 12UK Spain
-12
-10
-8
-6
-4
-2
0
2
4
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
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Italy
Source: Thomson Reuters Datastream EUR bn, 3mma, index Jan08=100 Source: Thomson Reuters Datastream EUR bn, 3mma, index Jan08=100
Source: OECD, estimates 2011 en 2012 OECD % GDP Source: OECD, estimates 2011 en 2012 OECD % GDP
General government net borrowing
Exports Imports
Primary budget balance
70
80
90
100
110
120
08 09 10 11 12Germany Italy
60
70
80
90
100
110
120
08 09 10 11 12Germany Italy
-1
0
1
2
3
4
5
6
7
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
-10-9-8-7-6-5-4-3-2-10
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
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Unemployment
Source: Bloomberg
Source: Bloomberg Source: Bloomberg
Unemployment, % Unemployment, %
0
5
10
15
20
25
05 06 07 08 09 10 11 12Greece Spain Portugal
0
2
4
6
8
10
12
14
16
05 06 07 08 09 10 11 12Ireland Italy Germany
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2020
US: Debt deleveraging households
Source: Thomson Reuters Datastream
% GDP
0
20
40
60
80
100
120
55 60 65 70 75 80 85 90 95 00 05 10Households Business Government
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Risks
• Escalation euro crisis
- Austerity fatigue
- Loss of patience
• Oil prices
• Rising interest rates
• China hard landing
• Too much austerity
• Too little austerity
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Price earning ratio S&P 500
Source: Bloomberg
0
5
10
15
20
25
30
35
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
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232323
Investment portfolios – adding risk
• Equities: raised to neutral
• Equities: - more cyclical exposure
- overweight Emerging Markets
• Bond: High yields, corporates, Emerging Markets
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2424
Equities
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2525
Bonds
30
3010
1010
10
Government bonds Corporate bonds High yield (funds)
Inflation-linked bonds Covered bonds EM bonds (funds)
%
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Important information
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