ECONOMIC AND FINANCIAL OUTLOOK

Transcription

1 ECONOMIC AND FINANCIAL OUTLOOK Anton Brender & Florence Pisani Marketing document intended exclusively for Professional Investors Past performance is no guarantee of future results and is not constant over time November 8

2 . EMERGING ECONOMIES Tensions should remain limited to a few middle-sized economies November 8

3 Emerging economies The IMF has stopped revising upwards world growth forecasts.. World Apr. 8 Oct. 8 Oct. 7.. IMF GDP growth forecasts (%, annual average) Advanced Oct. 7 Oct. 8 Apr. 8.. Emerging Oct. 8 Apr. 8 Oct. 7 Oct. 6 Oct. 6 Oct Contributions to world GDP growth (%, annual average) World Advanced Emerging November 8 Sources: IMF, Candriam

4 Venezuela Iran Argentina Turkey Sri Lanka Egypt South Africa India Myanmar Morocco Ukraine Algeria Romania Bangladesh Chile Pakistan Colombia Indonesia Kazakhstan Vietnam Philippines Nigeria Mexico Brazil China Cumulated share in world GDP or in world imports Emerging economies Still, the weight of the most vulnerable economies is relatively small Weight of the vulnerable economies in the global economy (%, 8) Cumulated share in word GDP (measured in PPP dollars) Cumulated share in world imports Countries already hit or being the most vulnerable (high current account deficit, high inflation and weak public finances) Countries with a current account deficit and possibly high inflation or weak public finances Countries in surplus but with either high inflation or weak public finances November 8 Sources: IMF, Candriam 9

5 . TRADE DISPUTES A war on trade and on global supply chains! November 8

6 Trade disputes China has displaced many countries as a supplier of intermediate goods to the US Share of Chinese goods in US imported intermediate consumption, by importing sector (%) Computer & electronic products Telecommunications Machinery and equipment Importing sectors November 8 Sources: World Input-Output Database

7 Trade disputes China has also stepped up its role in the supply of capital goods to the US, while becoming less dependent on the rest of the world Share of foreign value added in US and Chinese final demand by country of origin (% of country s final demand components) United States Consumption Investment Exports China Japan Euro area Euro area Canada Canada China Mexico Japan Mexico Consumption November 8 Sources: OECD, Candriam China Investment Japan Euro area Japan United States Euro area Korea United States Korea Taiwan Taiwan Japan Euro area China Mexico Canada Exports Japan Euro area Korea United States Taiwan

8 Trade disputes The trade war that has started is a threat to the existing supply chains Average US tariff rate since 99 (%, import weighted ) 6 8 % tariffs on autos ex USMCA countries % tariffs on all China s imports 9Q (already decided) Current Product composition of US tariffs on imports from China Phase : $ billion Intermediate goods (%) Capital goods (%) Transport equipment Phase : $ billion Intermediate goods (%) Capital goods (%) Consumer goods (%) Potential phase : $67 billion Intermediate goods (%) Capital goods (%) Consumer goods (%) November 8 Sources: PIIE, BEA, Candriam 6

9 Exports Imports Imports Exports Trade disputes The direct impact of this war on the US economy is modest, but the indirect effects could be far from negligible! China / United States bilateral trade (% of country s GDP, 7) Real GDP in two trade tensions scenarios (% deviation from control) United States China Trade war phase * Trade war phase ** Trade war phase * China United States Trade war phase ** Goods Services (*) Impact of the United States imposing a % tariff on all aluminum imports, a % tariff on all steel imports, a % tariff on $ billion of imports from China, and a % tariff on an additional $ billion of imports from China that subsequently increases to %. (**) additional % tariff on $67 billion of imports from China (with retaliation). November 8 Sources: US International Trade Administration, IMF, Candriam 7

10 . UNITED STATES Towards the longest post-war expansion! November 8

11 United States Since 7, GDP growth has continuously gained momentum mainly thanks to consumption Contributions to GDP growth (% year on year) GDP Residential investment - - Government expenditures Consumption GDP growth (% year on year) Year on year - - Equipment investment Invest. in structures GDP Change in inventories GDP Exports Imports Net exports Quarter on quarter, annual rate November 8 Sources: Thomson Datastream, Candriam

12 United States The impact of higher mortgage rates on residential investment is now visible Existing and new home sales (thousands of units, annual rate) 6 - Long term rates and residential investment -year interest rate (change over years) [R.H.S.] - Residential investment (% year on year, -Q) ? Interest rates and mortgage applications Mortgage interest rate (%) Mortgage applications (purchase index) [R.H.S.] New home sales Existing home sales [R.H.S.] Single and multi-family housing starts (thousands of units, mma, at annual rate) Single-family units 6 Multi-family units November 8 Sources: Thomson Datastream, Candriam 9

13 United States There should be more to come provided major fiscal issues are fixed! Fiscal policy in 9- Three pending fiscal issues By December 7 8, spending authority for roughly % of the FY9 federal government will have to be extended to avoid a partial government shutdown. Congress must act to increase or suspend the debt ceiling by March 9 (the drop-dead date will be later, likely during summer 9). Caps, budget authority and outlays ($ billion, fiscal years) Budget authority Outlays -$ bln Before October 9, caps on discretionary spending will have to be lifted Budget caps Increase in federal spending* (% of GDP, calendar years) (*) Calculated using CBO NIPA/budget reconciliation tables U.S. States total balances ($ billion, fiscal years) 8 6 Rainy Day Funds Other Most States continue to strengthen their rainy day funds. Governors proposed spending increases totaling $7 bln (.% of GDP) for FY9 compared to just $8 bln in FY8. NASBO November 8 Sources: Thomson Datastream, CBO, Candriam 6

14 United States Barring a major confidence shock, growth should be close to % in 8 and decelerate moderately in 9 GDP growth in the United States (% annual rate) Q 7 Q 8 Q 8 Q Consumption Investment - Residential - Equipment & property rights - Structures Change in inventories (contribution) Government External balance (contribution) GDP (% year on year) Exports Imports GDP November 8 Sources: Thomson Datastream, Candriam 7

15 ECI wages (% year on year) ECI wages (% year on year) United States This will be associated with an acceleration in wage growth ECI wages private sector (% year on year) Ex incentive Wages 8 Q Wages and unemployment rate (99-8) 99- R² = ECI compensation private sector (% year on year) Benefits Wages Compensations 7 Unemployment rate 9 (%) Wages and non-employment rate (99-8) 9Q? 8 Q R² = Non-employment rate for persons aged between and (%) November 8 Sources: Thomson Datastream, Candriam 9

16 United States This implies in particular further rise in prime age participation rates Participation rates of prime-age population (%) 9 9 Women [R.H.S.] Men November 8 Sources: Thomson Datastream, BLS, Candriam

17 United States All in all, long term interest rates should not increase much further year Treasury rate and short term rate expectations (%) Short term rate expected in years -year Treasury rate 8 6 -year in years rate and nominal growth (%) -year in years Treasury rate Average nominal GDP growth over the last years US -year interest rate forecasts (Treasuries) (I) (II) (III) -year interest rate -year interest rate in years -year interest rate in years November 6, 8.8%.9%.% End of 9.9%.%.% -year interest rate.%.% November 8 Sources: Thomson Datastream, Candriam 7

18 6. EURO AREA Growth choked by trade tensions and political uncertainties? November 8 9

19 Euro area Growth has clearly slowed over the last quarters - - Euro area GDP growth (%) Year on year Quarter on quarter at annual rate Q 8 GDP growth & EC economic sentiment index Economic sentiment index [R.H.S.] GDP (% year on year) GDP growth by country (% year on year, 7 Q - 8 Q) EC economic sentiment index by country DE FR IT ES NL BE PT November 8 Sources: Thomson Datastream, Candriam 6

20 Euro area The auto industry has been hit particularly hard by some exceptional factors 8 Car sales Car sales and motor vehicle production in the euro area August Oct. 8 (6 = ) 8 Motor vehicle production Manufacturing orders and motor vehicle production in Manufacturing orders (January = ) Manufacturing Motor vehicles Production Sept. 8 (January = ) IFO motor production expectations Motor vehicle production (% year on year) Motor vehicle production by country (% year on year, Q 8) Euro area Since the st of September 8 all newly built cars must be certified according to the WLTP* test procedure. Some carmakers were not able to meet the deadline on WLTP certification and had to suspend the sale of some car types and thereby slowed car production. (*) Worldwide Harmonised Light Vehicle Test Procedure November 8 Sources: Thomson Datastream, Candriam 6

21 Euro area our exports to Turkey have fallen sharply! Turkey GDP growth (% year on year) GDP (% year on year) Euro area exports to Turkey (=, volume) Euro area exports to Turkey Euro area trade with the UK (=, volume) Exports to the UK Brexit vote Economic sentiment index [R.H.S.] Memo: extra euro area exports Imports from the UK Turkey domestic demand and imports growth (% year on year) Domestic demand Exports to Turkey (% of euro area GDP, 7) Exports to the UK (% of euro area GDP, 7) Exports of services - Imports [R.H.S.] A sustained % fall of Turkey s imports would subtract. GDP point from euro area growth! Exports of goods A % fall of exports to the UK would subtract. GDP point from euro area growth. November 8 Sources: Thomson Datastream, Candriam 6

22 Euro area At the same time, higher energy prices have curbed household purchasing power growth 8 6 Oil and gasoline prices (indexed on Brent price in ) Brent (in euros) Gasoline incl. taxes () Gasoline ex taxes () Contribution of CPI energy to inflation (Sept 8, %) Memo: annual change in CPI energy [R.H.S.] LX ES BE FR Euro NL DE IT AT PT GR FI 8 6 Energy prices and consumption (% year on year) Consumption (-Q)? 9 Gasoline prices including taxes (=) CPI energy and oil prices (%) Oil price (year on year change) CPI energy (% year on year) [R.H.S.] CPI energy prices November 8 Sources: Thomson Datastream, Candriam 66

23 Euro area If political uncertainties and trade tensions do not further erode confidence, GDP growth, while weaker than expected, should be around.% (% annual rate) Consumption Investment - Residential - Equipment -& property rights - Structures Change in inventories (contribution) Government External balance (contribution) - Exports - Imports GDP GDP growth in the Euro area 7Q 7Q 8Q 8Q GDP (% year on year) Unemployment rate (%) November 8 Sources: Thomson Datastream, Candriam 7

24 Euro area Except in, employment rates are still well below their 6 levels Employment rate by age (%) to -year old Euro area ex Men to -year old Euro area ex Women to -year old Euro area ex to 6-year old Euro area ex Netherlands Belgium Netherlands 9 8 Belgium Netherlands 7 Belgium Netherlands Belgium November 8 Sources: Eurostat, Candriam 7

25 Change in structural primary balance (9 versus 8) Easing Tightening Euro area The Budget of the Italian government has led to a showdown with the European Commission Government debt and fiscal stance (% of GDP) FI AT -.6 new budget Netherlands proposal Government debt (8 Q) BE IE PT Government balance targets in Stability and Convergence Programs draft (% of GDP) draft new budget proposal November 8 Sources: European Commission, Candriam 77

26 Euro area Optimistic growth assumptions and the decision to reduce the primary surplus put the Italian government s debt on a dangerous path Italian government GDP growth forecasts (% year on year) 9 IMF Consensus Oxford Economics Primary balance (% of GDP) 8 Stability and Convergence Program Government debt Higher interest rates and/or weaker growth 8 Stability and Convergence Program 9 9 Government forecast AA AA- A+ A A- BBB+ BBB BBB- BB+ BB Italian sovereign ratings DBRS 6 8 Fitch S&P Moody s Draft proposal of the 9 Stability and Convergence Program - 9 November 8 Sources: European Commission, Thomson Datastream, Candriam 79

27 Euro area the more so since over the last decade s growth has been very weak GDP per capita In PPP dollars Gap to (%) Industry (ex construction) Productivity (real VA / employment, 999 = ) Total economy Services (ex real estate & public administration) November 8 Sources: European Commission, Thomson Datastream, Candriam 8

28 Euro area and for the next decade, without an upturn in productivity, growth perspectives look even bleaker 6 GDP Long term real GDP growth (change over years in %, annual rate) GDP General government debt (% of GDP).% nominal GDP growth.% nominal GDP growth 6 GDP Average over the next years Population aged to 69-year old 6 GDP Productivity (GDP per employment) 9 9 D t D t = PB t + Y t Y t Y t r g + g D t Y t D t : government debt Y t : nominal GDP PB t : primary balance r : average interest rate on government debt g : nominal GDP growth November 8 Sources: European Commission, Thomson Datastream, Candriam 8.

29 Euro area If Italian residents keep diversifying their holdings, s negative Target balance could at some point become an issue Target balances (billions of euros) Luxembourg Netherlands Belgium Current account balance Balance of payments flows (cumulated since, billions of euros) Purchases of foreign securities (-) by residents - Target balance Italian banks reimbursement (-) Other to non resident lenders Purchases of Italian private securities (+) by non residents Selling of Italian public securities (-) by non residents Target balance Spanish banks reimbursement (-) to non resident lenders Other Current account balance Purchases of Spanish public securities (+) by non residents Selling of Spanish private securities (-) by non residents Purchases of foreign securities (-) by residents November 8 Sources: Thomson Datastream, Candriam 8

30 Euro area If destabilizing pressures were to build in, the ECB may not have much choice but to again use its most flexible tool: LTROs Finland Netherlands Portugal Austria Ireland Belgium ECB balance sheet (assets, euro billions) Assets Other assets Securities held for monetary purposes Open market operations Other claims (o.w. ELA) Country breakdown of debt securities under the PSPP (% of each country long term public debt securities, as of end of October 8) % limit For, / of TLTROs will mature in June! 8 6 Outstanding by country billion TLTROs Maturity June Funding cliff! March Nov-8 Nov-9 Nov- Nov- % of country s MFIs liabilities [R.H.S.] IT ES FR DE NL BE AT PT FI GR LX IE 7 6 November 8 Sources: Thomson Datastream, ECB, Bloomberg, Candriam 86

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