GLOBAL FORECAST. Adrian Cooper, Chief Executive Officer, Oxford Economics USA

Transcription

1 GLOBAL FORECAST Adrian Cooper, Chief Executive Officer, Oxford Economics USA Adrian Cooper will share what he sees as the most important factors that could improve or detract from global economic growth. After providing a look at the global trends in the financial and business sectors, Adrian will paint a forecast by region for the key consuming sectors of manufacturing technology. The conclusion of the presentation includes a specific two and one-half year forecast for machine tools by major countries and by regions within the United States. This forecast will be updated for AMT s winter webinar held in January as well as a spring and summer webinar for AMT members. Now based in New York, Adrian Cooper is the CEO of Oxford Economics, responsible for leading its global economic analysis, forecasting and consultancy business, and overseeing its team of economists and analysts based in Oxford, London, Belfast, Paris, Singapore, the UAE, Philadelphia and New York. He has led Oxford Economics work for a wide array of clients for over 17 years, ranging from policy advice to government departments in all regions of the world to detailed industry analysis and forecasting for Blue Chip companies. Adrian spent the first seven years of his career with HM Treasury, England. During this time, he worked on the analysis of tax and other economic policy changes as part of the preparations for the UK Budget. He was also the coordinator of the government's macroeconomic forecast for two years before joining Oxford Economics. Oxford Economics USA 5 Hanover Square, 19th Floor New York, NY 14 USA Telephone: Fax: acooper@oxfordeconomics.com

2 Global Market Outlook Adrian Cooper CEO, Oxford Economics October 213 DEVELOPED ECONOMIES RECOVERING WELL Manufacturing Purchasing Managers' Index Index Values above 5 indicate expansion in activity; values below 5 indicate contraction US Eurozone Japan UK Source : PMI/Markit 1

3 ONE MAJOR CLOUD OVER THE HORIZON THE US FISCAL MESS The 1st October Government Shutdown Oxford Economics expects this to be short-lived, with, therefore, only a minimal impact on the economy The 17th October Debt Ceiling Deadline 3 Failure to raise the statutory debt limit could, conceivably, lead to a massive fiscal contraction. Oxford Economics assumes in its forecast that any failure would also be short-lived, thus limiting the negative impact on the economy MAJOR FINANCIAL TRANSACTIONS, OCT 18 TO NOV 15 October 23 Social Security benefits $12 billion October 24 Rollover of outstanding federal debt * $57 billion October 31 Rollover of outstanding federal debt * $115 billion October 31 Interest on the debt $6 billion November 1 Medicare benefits $18 billion November 1 Social Security payment $25 billion November 1 Military active pay, retirement, and veterans benefits payments $12 billion November 1 Supplemental Security Income $3 billion November 14 Social Security benefits $12 billion November 15 Interest on the debt $29 billion 4 *No immediate net cost to government Source: Bipartisan Policy Center 2

4 SCENARIO: IMPACT ON GDP 5 A SECOND MAJOR CLOUD OVER THE HORIZON U.S. INTEREST RATES Assuming that the fiscal mess gets sorted out, US interest rates are bound to rise over coming months and years For the US this would reflect a strengthening economy Elsewhere, however, it may be less welcome Witness the unhappy response to some very mild US policy pronouncements earlier this year 6 The Oxford Economics forecast builds in a gradual rise in US bond yields (to 4 per cent by end-216), but assumes there will be no financial market shocks 3

5 12 U.S. INTEREST RATES Long rates 2 Short rates HOUSEHOLDS DEBT/GDP RATIOS HOUSE PRICES* (2 = 1) 1 U.K. 17 United States United States 155 U.K. 8 Eurozone Eurozone 4 11 ** * In real terms. ** July

6 HOUSE BUILDING TO CONTINUE TO STRENGTHEN 9 JOBS GROWTH HELPING CONSUMER PROSPECTS US : Employment and unemployment change, s 6 Employment (LHS) 4 % Unemployment rate (RHS) Source: BLS 4 5

7 LOW INFLATION ALLOWING REAL WAGE GROWTH 11 WHICH WILL BENEFIT CAR SECTOR US: Car registrations % year Units, thousands Levels Annual growth Aug-8 Aug-9 Aug-1 Aug-11 Aug-12 Aug-13 Source : Oxford Economics/LMC automotive 12 6

8 CORPORATE FINANCIAL BALANCES (in per cent of GDP; 3 years moving averages) U.K. GROWTH IN BANK LENDING TO BUSINESS (per cent changes; 3 mnths. mov.avrgs.) United States 4 United States 1 2 Eurozone 5-5 Euro zone U.K US MANUFACTURING DEMAND IS ROBUST 14 7

9 WITH INVESTMENT WELL ABOVE PRE-CRISIS HIGHS Manufacturing Investment Index: 27 = 1 12 Japan UK Germany US Source : Oxford Economics/Haver Analytics STRONG UTILIZATION BODES WELL FOR FUTURE INVESTMENT US: Capacity utilization and industrial production % % year 9 Industrial 1 production (RHS) Capacity utilization (LHS) Source: Federal Reserve 8

10 REFLECTED IN RISING CAPITAL GOODS ORDERS 17 US MANUFACTURING NOW VERY COMPETITIVE Unit labour costs in manufacturing in US$ 2 Q1 = China Brazil 18 India 14 Germany 1 US Mexico Source : Oxford Economics 9

11 125 TOTAL PRODUCTIVITY GROWTH (GDP per employee; 1999 Q1 = 1) United States PRODUCTIVITY GROWTH IN MANUFACTURING (value added per employee; 1999 Q1 = 1) 2 United States 12 U.K. Japan U.K. 11 Euro Zone 14 Japan Euro Zone AND IT IS NOT JUST ABOUT LABOR COSTS Average projected manufacturing cost structures of the major exporting nations relative to the US, 215 Manufacturing cost index (US = 1) Labor Electricity Natural gas Other 2 US Germany France Italy UK Japan China Source: US Economic Census/BLS/BEA/ILO/Oxford Economics Source:BCG 1

12 LOW Labor cost as share of product cost HIGH AND SOME SECTORS PRIMED TO CLAW MARKET BACK Likely to remain offshored Likely to remain offshored Apparel & footwear (69%) Misc mfg (31%) Textiles (22%) Elec and ind machinery (22%) Computers & electronics (43%) Fabricated Furniture (23%) metals (6%) Plastics & rubber (8%) Transportation goods (7%) Primary metals (8%) Chemicals (4%) Paper products (3%) At tipping point Glass, stone & minerals (8%) Wood products (4%) Likely to remain in US Food and Petroleum beverages (2%) Likely to and remain coal in (3%) US LOW Logistics cost as share of product price HIGH Numbers in parentheses show the proportion of consumption imported from low-cost countries Source: Adapted from US Economy Nears the Tipping Point Which Industries, How Much, and Why?, Boston Consulting Group, 213 AND FIRMS ARE ALREADY RESHORING PRODUCTION TO THE US Rising costs in China is prompting firms in a number of sectors to evaluate whether to reshore production back to the US. Some companies have already made, or are in the process of making, this decision: AmFor Electronics moved production from China and Mexico to Portland, Oregon All-Clad Metalcrafters is bringing production back to the US from China ET Water Systems relocated production to San Jose, California, from Dalian, China

13 US ALSO TO GAIN MARKET SHARE INTERNATIONALLY US: Export intensity in selected sectors, 211 % of gross output Food/bev Fabricated metals Chemicals Electrical equipment Electronic products Machinery Motor vehicles and parts Source : Oxford Economics/Haver Analytics ENERGY BOOM ALSO TRANSFORMING US OUTLOOK OECD Europe Mtoe % Mtoe % Source: BP Oil & gas production Oil & gas consumption US Oil & gas consumption Oil & gas production Net imports as % of consumption (rhs): Oil Gas China Oil & gas consumption Oil & gas production %

14 DRIVING GROWTH AND JOBS 25 MANUFACTURING TO DRIVE GDP GROWTH ABOVE 3% US: GDP growth % quarter annualised 8 6 Forecast Source: Oxford Economics 13

15 EMERGING MARKETS CONTINUE TO WEAKEN BRICs: Manufacturing Purchasing Managers' Index Index, breakeven level= China Russia India Brazil Source : PMI/Markit/China NBS/Haver Analytics RECESSION AND RECOVERY (GDP; per cent changes; 3 qtrs. mv. avrgs.) RECESSION AND RECOVERY (GDP; per cent changes; 3 qtrs. mv. avrgs.) China 8 India 8 Brazil Russia

16 THE BRICs - WHY SLOWDOWN? CHINA Short-run: Risks to financial stability due to rising lending, much of it from outside the formal banking system And house prices are sharply up again Yet, a serious financial crisis (cfr. South- East Asia in 1997, or Lehmann Brothers in 28) looks extremely unlikely in a country like China Medium-run: Some slowdown is inevitable High and rising capital-output ratios make a continuing investment-led strategy unviable An appreciating exchange rate squeezes industry Demographic trends are unfavourable 29 And the slowdown seems welcomed by the authorities CAPITAL-OUTPUT RATIOS China 8 6 India United States Note: Data may not be strictly comparable across countries and may, in addition, not be very reliable. 15

17 15 CHINA - POPULATION Thousands Total 3 THE AGEING POPULATION (share of people aged 65 and more in total population) Japan China ( ) 11 Aged Eurozone 5 1 United States Source: UNPD THE BRICs - WHY SLOWDOWN? INDIA No immediately obvious reason Monetary and fiscal policy are only mildly restrictive; the exchange rate is very weak Usually given explanation: policy paralysis over the last few years Clear need for further reform World Bank ease of doing business rankings, 212 United States 4 United Kingdom 7 Germany 2 Japan 24 China 91 India Congo

18 THE BRICs - WHY SLOWDOWN? BRAZIL Possibly fiscal policy, but not monetary policy or the exchange rate In addition, growth was boosted by high commodity prices and by a consumption boom fuelled by borrowing - neither of these two features is likely to continue But here too, there is a clear need for reform World Bank ease of doing business rankings, 212 United States 4 United Kingdom 7 Germany 2 Japan 24 China Brazil 13 India 132 Congo 181 THE BRICs - WHY SLOWDOWN? RUSSIA Certainly not policy or the exchange rate Clearly weaker commodity prices (commodities account for 85 per cent of exports) Plus very poor governance and massive levels of corruption. Reforms are needed but are highly unlikely World Bank ease of doing business rankings, 212 United States 4 United Kingdom 7 Germany 2 Japan China 91 Russia 112 Brazil 13 India 132 Congo

19 THE BRICs WHAT IS WRONG? China Not that much Russia Pretty much everything (business unfriendliness, oil prices, governance, absence of rule of law, corruption...) Brazil India Tight fiscal policy Needs more reform Most worrying Needs lots of reforms 35 MEXICO SET TO PROSPER AS US RECOVERS Unit labour costs in manufacturing in US$ 2 Q1 = China Brazil 18 India 14 Germany 1 US Mexico Source : Oxford Economics 18

20 JAPAN'S NEW ECONOMIC POLICY Main thrust: double the monetary base in two years : provide a large fiscal stimulus : enact significant reforms Main aims: raise equity prices : lower the exchange rate : raise inflationary expectations : and, ultimately, of course, restore economic growth Main risks: higher government bond yields (though the BoJ will buy massive amounts of longterm bonds) : raising the consumption tax in SOME ENCOURAGING SIGNS 38 19

21 MANUFACTURING PMI INDICES (3 months moving averages) MANUFACTURING PMI INDICES (3 months moving averages) 56 U.K United States Germany Eurozone 46 Italy Spain France 42 Jan-12 April July Oct. Jan-13 April July 42 Jan-12 April July Oct. Jan-13 April July ORDER INTAKE ALSO SUGGESTS A TURNING POINT Eurozone: New orders for capital goods % year-on-year Source: Haver Analytics 2

22 UNEMPLOYMENT (in percent of the labour force) UNEMPLOYMENT (in percent of the labour force) 2 Eurozone South** USA South East** 8 Eurozone North* 8 USA North East * * Germany, Benelux, Austria, Finland. ** Italy, Spain, Greece Portugal * ME, NH, VT, MA, CT, RI, NY, NJ, PA, DE. ** SC, AR, AL, TN, GA, MS, LA, FL. OXFORD ECONOMICS FORECAST 42 World GDP Growth % Change on Previous Year US Japan Eurozone of which: Germany France Italy UK China India Other Asia Mexico Brazil Other Latin America Eastern Europe MENA World World (PPP)

23 GLOBAL MT DEMAND IMPROVING WITH SECTOR VARIATION 43 SO GLOBAL CONSUMPTION WILL RESUME GROWTH 44 22

24 MT RECOVERY SPREAD EVENLY ACROSS REGIONS IN US MT ORDERS HAVE WEAKENED RECENTLY Total U.S. Machine Tool Orders $ thousands 8, 7, Total order value 6, 5, 3MMA 4, 3, 2, 1, 12MMA Source : AMT 23

25 BUT DEMAND WILL IMPROVE NEXT YEAR 47 INVESTMENT BY KEY MT CONSUMING SECTORS US: Investment by key sectors (Annual percentage changes unless specified) Basic metals Fabricated metal products Other means of transport Motor vehicles General purpose machinery Precision and optical instruments Special purpose machinery Electrical engineering Total

26 US ENGINEERING OUTPUT RISING AGAIN Engineering and metal goods: Output 2= Big 4 Europe US Japan month moving average 6 Jun-7 Jun-8 Jun-9 Jun-1 Jun-11 Jun-12 Source: Oxford Economics 49 BUT NEW ORDERS HAVE FLATTENED US: New orders in mechanical engineering US $ bn month moving average 5 2 Aug-8 Aug-9 Aug-1 Aug-11 Aug-12 Aug-13 Source: Oxford Economics / Haver Analytics 25

27 US MOTOR VEHICLES OUTPUT CONTINUING TO RISE US: Motor vehicles output and orders 25=1 US$ bn 11 5 Output (LHS) Orders (RHS) month moving average 4 2 Jul-8 Jul-9 Jul-1 Jul-11 Jul-12 Jul-13 Source: Oxford Economics / Haver Analytics BUT GROWTH IS LIKELY TO MODERATE 52 US: Light weight vehicle sales SAAR Mil.Units Source : Oxford Economics/Haver Analytics US: Automobile loan rates % yr used car loan. Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Source : New York Times/Haver Analytics 5yr new car loan Despite financing rates remaining relatively low, the upside surprises experienced in the first half of the year are likely to prove difficult to match in the next few quarters. Auto purchases have been running ahead of the recovery, led by replacement of older vehicles whose high fuel and maintenance costs were no longer sustainable, but there is now likely to be a pause as households anticipate the Fed first tapering, then withdrawing, its monetary support and they enjoy the new light trucks already bought. 26

28 HEALTHY ORDER BACKLOGS TO DRIVE ROBUST AEROSPACE OUTPUT AHEAD Airbus & Boeing: Orders & deliveries Number of aircraft Number of aircraft 3, 3, 2,6 2,2 1,8 1,4 1, Orders (LHS) 6 Deliveries (RHS) Source: Company reports and forecasts 2,6 2,2 1,8 1,4 1, 6 2 US aerospace production bounced back sharply in August but only from a July level which was revised markedly lower. And production was still well below year-ago levels Thus, the US drag on the global aerospace industry is persisting. Furthermore, Airbus has recently managed to crack the traditionally US dominated Japanese market. 53 Nonetheless, we continue to forecast robust growth in US aerospace production over subsequent years as production is ramped up to meet order backlogs. US MACHINE TOOL ORDER FORECAST COMPARISON US Machine Tool Order Forecasts (Annual percent changes) July 213 October f 214f 215f 213f 214f 215f Cutting tools Forming tools All machine tools Source: AMT/Oxford Economics 54 27

29 US MACHINE TOOL ORDER FORECAST 55 28

30 US MACHINE TOOL ORDER FORECAST US Machine Tool Order Forecasts (Annual percent changes) f 214f 215f Cutting tools Forming tools All machine tools Source: AMT/Oxford Economics 57 US MT INVESTMENT FOCUSED IN CARS AND ENGINEERING 58 29

31 GLOBAL MECHANICAL ENGINEERING OUTLOOK Engineering and metal goods Annual percentage changes Germany France Italy UK Spain EU United States Japan Developed countries Eastern Europe (EU12) Brazil Russia India China BRICs Emerging Markets World GLOBAL MOTOR VEHICLE OUTLOOK Motor vehicles and their engines Annual percentage changes Germany France Italy UK Spain EU United States Japan Developed countries Eastern Europe (EU12) Brazil Russia India China BRICs Emerging Markets World

32 AEROSPACE IS GLOBAL GROWTH LEADER IN MANUFACTURING Aerospace Annual percentage changes Germany France Italy UK Spain EU United States Japan Developed countries Eastern Europe (EU12) Brazil Russia India China BRICs Emerging Markets World