BRICs: Over the Hump, towards Lower Trend

Transcription

1 The Goldman Sachs Group, Inc. Goldman Sachs Research BRICs: Over the Hump, towards Lower Trend Natacha Valla Florence - EUI - 26 April 2013 Goldman Sachs Global Economics, Commodities and Strategy Research 1

2 Overview 1. Global overview 2. The «markets» side 3. The macroeconomic outlook (BRICs) Goldman Sachs Global Economics, Commodities and Strategy Research 2

3 1. Global Overview Top EM Themes 1. Global growth: A hump to get over, then a clear road ahead 2. More unconventional easing in the G4 3. Housing stabilization and private-sector healing in the US 4. Euro area a smaller driver of global risk, but still a source of tails 5. Continued divergence between core and periphery in the Euro area 6. EM differentiation continues 7. Commodity constraint to loosen in the medium term 8. Stable China growth, but not like the old days Goldman Sachs Global Economics, Commodities and Strategy Research 3

4 Global GDP Growth Forecasts % yoy USA Japan Euro Area Germ any France Italy Spain UK China India Brazil Russia Developed Emerging Markets World Source: GS Global ECS Research Goldman Sachs Global Economics, Commodities and Strategy Research 4

5 Acceleration in EM Growth in 2013 and 2014, But Not to Old Levels Emerging Markets Real GDP Growth Forecasts % yoy Emerging Markets BRICS Asia ex Japan Latin America Ceemea World Source: GS Global ECS Research. Goldman Sachs Global Economics, Commodities and Strategy Research 5

6 Room to Grow in DM, Constraints in EM Estimated output gaps (forecasts after 2013) 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% % Output GDP gaps, EM % of GDP DM World GS forecast -6.0% Source: CBO; Haver Analytics; GS Global ECS Research. Goldman Sachs Global Economics, Commodities and Strategy Research 6

7 GLI in Slowdown Phase Positive but Decelerating Momentum Goldman Sachs Global Economics, Commodities and Strategy Research 7 7

8 Swirlogram Shows GLI Still in Expansion 0.15% 0.10% 0.05% Recovery Jul-12 Aug-12 Expansion Sep-12 Oct-12 Nov-12 Dec-12 GLI Acceleration 0.00% -0.05% Jun-12 May-12 Jan-13 Mar-13 Feb % Contraction Apr-12 Current Last Month Slowdown -0.15% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% GLI Growth Source: GS Global ECS Research. Goldman Sachs Global Economics, Commodities and Strategy Research 8

9 Japanese FCI Reversing the 2008 Tightening on Policy Anticipation Source: GS Global ECS Research. Goldman Sachs Global Economics, Commodities and Strategy Research 9

10 Shale Production Set to Flatten the Global Oil Supply Curve Global oil supply, pre-shale (SS 0 ) DD 1 Oil price Increased global demand Global oil demand (DD 0 ) A B Global oil supply, post-shale (SS 1 ) C D Oil demand, supply Source: GS Global ECS Research. Goldman Sachs Global Economics, Commodities and Strategy Research 10

11 Fiscal Drag Expected to Decline in EM 0.0 Average Asia Average CEEMEA Average LatAm Structural fiscal balance (% of potential GDP) Average(04-08) Average(09-10) Average(11,12) Average (2013/14) Source: GS Global ECS Research. Goldman Sachs Global Economics, Commodities and Strategy Research 11

12 2. The markets side (equity, FX, rates): EM Underperformance Resumes After a Brief Break Source: GS Global ECS Research. Goldman Sachs Global Economics, Commodities and Strategy Research 12

13 China Views Still the Weakest on a Longer Horizon Goldman Sachs Global Economics, Commodities and Strategy Research 13

14 Returns over Phases of the Cycle: Recent Patterns More Like Slowdown 26% 24% 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% -14% -16% -18% -20% Recent Slowdown (1-Mar-2013 to current) Recent Expansion (4-Sep-12 to 28-Feb-13) S&P 500 EM Equities Aussie Dollar GS WF US Growth basket Oil Copper Expansion Slowdown Contraction Recovery Source: GS Global ECS Research. Goldman Sachs Global Economics, Commodities and Strategy Research 14

15 EM FX Less Likely to Appreciate in a Strong US/Weak China Growth Mix Source: GS Global ECS Research. Goldman Sachs Global Economics, Commodities and Strategy Research 15

16 EM Local Rate Path Still Anchored by G EM 5y Swap Rate US, Eurozone 5-year swap rate (average) Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Source: GS Global ECS Research. Goldman Sachs Global Economics, Commodities and Strategy Research 16

17 3. The Economic Outlook A Better Global Backdrop - More oil supply (especially from shale) coming on line - US private sector recovering - Diminished (not eliminated) tail risk from Eurozone - Very easy monetary policy across DM and still getting easier Key Macro Themes in Emerging Asia - Spillovers from a radical shift at the Bank of Japan inflation targeting and yen depreciation - Leadership transitions (China, Japan ) - Booming credit, including expansion of shadow banking China Country/regional views - China: moderate growth as easy credit offsets tighter policy in key sectors - India: a few green shoots, but still looking for a clearer upturn (and bolder policy reform) - Brazil: sluggish cycle but sticky inflation, rate hike in sight - Russia: Moderate growth amidst uncertain micro policy agenda Goldman Sachs Global Economics, Commodities and Strategy Research 17

18 Most Asian economies benefit from better oil supply Share of GDP 20 Net oil imports (% of GDP, 2011) Share of GDP Singapore Korea Taiwan Thailand Philippines India Japan China Indonesia Malaysia -10 Source: CEIC, Haver, GS Global ECS Research. Goldman Sachs Global Economics, Commodities and Strategy Research 18

19 A radical shift in BOJ policy USD/JPY Index Mr. Abe becomes LDP Chairman Mr. Noda says ready to dissolve LH BOJ easing Election result First BOJ meeting under new governor Kuroda TOPIX (right) BOJ adopts a 2% Inflation Target Yen (left) 77 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr Source: Datastream, GS Global ECS Research. Goldman Sachs Global Economics, Commodities and Strategy Research 19

20 Booming credit across the region Percent change, year-over-year 40 Creditto private sector: Singapore Malaysia 30 Thailand India Indonesia China 20 Percent change, year-over-year Source: Haver, CEIC, Goldman Sachs Global ECS Goldman Sachs Global Economics, Commodities and Strategy Research 20

21 China Growth has shifted to a lower gear Percent change, annualized Percent change, annualized China Current Activity Indicator vs GDP: 12 CAI real GDP Source: CEIC, GS Global ECS Research. Goldman Sachs Global Economics, Commodities and Strategy Research 21

22 China The surge in credit is concentrated in the corporate sector (as % of GDP) 270 Credit outstanding in China: (as % of GDP) 270 Trillion RMB 2.5 Trillion RMB Other corporate (including "shadow banking") Corporate loans (excl. LGP loans) Consumer loans Government China total social financing E * Seasonally and Chinese New Year adjusted by Haver Analytics Source: CEIC, GS Global ECS Research estimates. Goldman Sachs Global Economics, Commodities and Strategy Research 22

23 China Impact of demographics modest in next few years % chg China's working age population by Million % change in five years Population aged (RHS) Forecasts Source: CEIC, United Nations World Population Prospects, GS Global ECS Research Goldman Sachs Global Economics, Commodities and Strategy Research 23

24 but demographic transition further ahead Percentage of population over 65 years old Percentage of population over 65 years old 35 Population over 65 years old: change change change Japan Germany Australia USA Korea China Thailand Indonesia India Malaysia Philippines 0 Source: United Nations World Population Prospects, GS Global ECS Research. Goldman Sachs Global Economics, Commodities and Strategy Research 24

25 India CAI pointing to slightly better nearterm growth Percent change, annualized 16 Percent change, annualized India Current Activity Indicator vs GDP: CAI real GDP Source: CEIC, GS Global ECS Research Goldman Sachs Global Economics, Commodities and Strategy Research 25

26 Percent GDP India Current account to improve as the oil deficit falls Oil trade balance Current account balance Non-oil trade balance Percent GDP FY11 FY12 FY13F FY14F FY15F FY16F FY17F F=Forecasts Source: CEIC, GS Global ECS Research estimates. Goldman Sachs Global Economics, Commodities and Strategy Research 26

27 India A number of crucial structural reforms have become more likely in recent months Goldman Sachs Global Economics, Commodities and Strategy Research 27

28 Brazil sluggish cycle, sticky inflation Real Business Cycle Remains Sluggish Economy Expected to Post Moderate Recovery During 2H2013 Driven by Policy Stimulus and Firmer External Demand Labor Market Remains Tight Sticky Inflation Dynamics (Inertia); IPCA Inflation Likely to Remain Above Target Until 2015 Central Bank About to Hike Rates (+100bp to +150bp) BRL/USD Floor at 1.90 Goldman Sachs Global Economics, Commodities and Strategy Research 28

29 Brazil Negative Output Gap, Growth Momentum Expected to Accelerate Output Gap Moved into Negative Territory (% of Pot. Output) Output Gap (HP filter) -6 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 Source: Goldman Sachs. Goldman Sachs Global Economics, Commodities and Strategy Research 29

30 Brazil Non-Tradable Sectors (Services) Doing Much Better Than Industry Retail Sales Responding to Policy Stimulus (2011=100; s.a.) Gradually Firming Industrial Sector Dynamics (Index; 2002=100) Broad Retail Sales s.a. Core/Control Retail Sales IP (s.a.) IP (s.a.; 3mma) 60 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Source: Haver Analytics; IBGE. Source: IBGE; Haver Analytics. Goldman Sachs Global Economics, Commodities and Strategy Research 30 30

31 Brazil Tight Labor Market (Below NAIRU) inflation above target but Capacity Utilization in Industry Off 2008 Peak Unemployment Rate at Historical Low Employment Creation in the Formal Sector (%) (%) s.a n.s.a Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 So urce: Haver A nalytics; IB GE. Output Gap Moved into Negative Territory (% of potential output) Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 Source: GS Global ECS Research. (Thous. units; s.a.) Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Source: Haver Analytics; MTE. Slack in Industrial Capacity Utilization (%; s.a.) Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Source: Haver Analytics; FGV. Goldman Sachs Global Economics, Commodities and Strategy Research 31 31

32 Brazil Deteriorating Current Account Still Supportive Terms of Trade (2000=100; n.s.a.) Jan-07 Dec-07 Nov-08 Oct-09 Sep-10 Aug-11 Jul-12 Source: Haver Analytics; FUNCEX. Deteriorating Current Account (US$bn; 12mo rolling sum) 80 FDI inflows 60 CA deficit (+) Jan-09 Oct-09 Jul-10 Apr-11 Jan-12 Oct-12 Source: Haver Analytics; BCB. Goldman Sachs Global Economics, Commodities and Strategy Research 32

33 Russia: Moderate growth amidst uncertain micro policy agenda - Structurally the economy is very well placed to see domestic demand to grow in excess of 5% yoy justifying its BRIC status - main domestic concern is the reluctance of domestic corporates to invest despite very healthy returns - Ruble should be well supported by the need to bring inflation to 4-5% in 2014 (and ultimately 3-4%) and current account surpluses. - main risk is lower oil prices. Net capital outflows should subside once domestic corporates have the confidence to invest and/or foreign debt markets open up. - Public finance position remains the most healthy in the G20. - budget was in surplus in 2012 and will remain in surplus going forward as long as oil prices don t sell off. Ultimately taxes will go up starting from gas/excise - Vulnerability to external shocks far smaller than in exchange rate is more flexible, being a shock absorber - no net external financing in the banking sector - inventories haven t been rebuild Goldman Sachs Global Economics, Commodities and Strategy Research 33

34 Russia s transition to inflation targeting - The CBR s new guidelines call for the transition to be complete by 2014 What has changed? - Comprehensive targets for inflation have been announced - 6-7% by end Dec.2011 (has been met) - 5-6% by end Dec % by Dec % by Dec 2014 and in % in the longer run - Policy interest rates are set monthly and the CBR has narrowed the interest rate corridor to have a tighter grab on short term rates. - The CBR is issuing policy statements after each interest rate decision, communicating its view on growth and inflation. - Policy initiatives under discussion - CBR is discussing introducing longer term repo s under floating rates (repo + xbps) to help the bank use the collateral more efficiently. - CBR is thinking about reducing the interest rate corridor even further by lowering the fx swap rate closer towards the repo rate. Goldman Sachs Global Economics, Commodities and Strategy Research 34

35 We have pared back Ruble forecast We believe that fundamentals support a stronger Ruble, although capital outflows have likely held back the Ruble year-to-date. - We now forecast the Ruble at 34.5/35.0/34.0 vs. the basket in 3/6/12 months Fundamentals support the Ruble: - Large interest rate differentials: RUB is now a high-yielding currency - Current account surplus (US$60bn in 2013), supported by oil price and seasonality - Domestic demand for funding and strong domestic issuance (corporates + govt) - CBR focus on reducing inflation (somewhat under question with new CBR chair) CA (NSA-SA, %GDP) USD/RUB (%qoq) RUB/basket (%qoq) Positive numbers indicate Ruble appreciation Q1 Q2 Q3 Q4 Goldman Sachs Global Economics, Commodities and Strategy Research 35

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