2018 Q1 Macro Quarterly update: Don t stop me now

Transcription

1 Macro Quarterly update: Don t stop me now 1 Please see important disclosures and disclaimers on page 25

2 Index 1. Executive summary 2. Current economic topics 3. Global macro GDP, unemployment & inflation Leading indicators Commodities 4. Nordic region GDP, unemployment, consumer confidence & inflation Car registrations & employment Construction & business confidence Bankruptcies & construction costs Currencies & interest rates 5. Appendix Please contact content providers for inquiries: Søren Steenstrup, Kenneth Winther, 2

3 Executive summary Don t stop me now The growth momentum currently indicates global economic expansion. The US is expected to continue growing healthily and inflation pressure is slowly building. The EU economy is growing despite the hightened political uncertainty. Emerging markets and especially Chinese growth are stabilizing after years of deceleration, but is still high compared to the US and EU President Trump and the Republicans have made the biggest tax reform in the US in many years. The corporate tax rate will fall from 35% to 21% and with the current list of deduction changes the effective tax rate will be even lower for companies. Most of the deductions will have a massive effect in 2018 and become slowly smaller until The tax reform is overall expansionary, which can seem odd as the US economy is doing well and does not need stimulus. Furthermore, the reform is also expected to increase US government debt burden in the future The Global economic expansion is now reaching a point, where the output gap is disappearing fast in most advanced economies and may turn negative in the coming years if growth continues at the current pace. A negative output gap is usually associated with higher inflation. While inflation remains low, the central banks around the world have begun to change their policies from monetary easing to tightening China has recently held the 5 year Communist Party Congress and cemented the position for president Xi and news around the future economic policy is beginning to emerge. Firstly, the previous strong emphasis on growth is being toned down and the magic level of 6,5% seems to carry less weight. Secondly, the wish to contain the credit growth was also toned down and managing financial risks was more important, which is being interpreted as less restrictive Economics for electric vehicles (EV) is becoming much more viable as especially the cost of batteries is falling fast and government policies with subsidies for EVs and taxes on fossil fuels broadens the appeal for more people. While EV sales are expected to explode in the coming years, it will still take a long time before they will overtake sales of traditional gas-guzzlers Nordic countries have shown positive growth and low inflation, and unemployment rates have been constant, except for the fall in Norway. Employment growth has accelerated, except in Denmark, and new car registrations have waned. Construction confidence remains high in Denmark and has waned slightly in Sweden, while business confidence remains high. Building costs in Norway have waned slightly in recent months 3

4 Current Economic Topics 4

5 Current topics Trump solves Gordian tax knot President Trump and the Republican party have succeeded in reaching a deal to reform the American tax system just before Christmas. The reform is expected to provide a significant economic boost in 2018 The main part of the reform revolves around lowering the corporate tax rate, which will fall from 35% to 21%, bringing it close to international levels. Another part of changes is with regards to tax deductions, which will make the effective tax rate even lower. Many of the deductions are temporary and the largest effect is in 2018, while the net tax effect will be unchanged for many after 2028 (left figure) For private individuals the reform will lower taxes short term, while the benefits will slowly fade when it is fully implemented in 2028 for most individuals. Most important change is lower interest cost deductions, which makes it less beneficial to have debt The timing of this expansionary reform seems odd, as the economy is doing great and even seems to be growing faster than its potential already and can be the first catalyst for inflation (see next slide). Furthermore, the US debt problem only seems to be worse after the reform (right figure) Sources: Penn Wharton Budget Model & Financial Times (left), Danske Markets (right) and Tryg Estimated effective US tax rate for corporate sector US net public debt 25% 20% 15% 10% 5% 0% No reform Note: CBO = Congressional Budget Office, CRFB = Committee for a Responsible Federal Budget

6 Current topics From monetary easing to tightening The output gap, measured as the broader economy size relative to its potential, was massive in the wake of the financial crisis of 2008 and European debt crisis in 2011 for most advanced economies. But thanks to healthy and consistent growth the output gap is expected to close in 2018 for the most advanced economies (left figure) Economy is slowly heating up While inflation has been elusive so far (see s. 10), a positive output gap is usually the foundation for higher prices as its harder to find new employees and bargain for goods Central banks are already aware of this and all are in the gradual process of changing their monetary policy from easing to tightening (right figure) Sources: OECD (lower left), Deutsche Bank (lower right), Bloomberg L.P. and Tryg Output gap for advanced economies (% of potential GDP) Central bank s monthly asset purchases (busd) OECD US Euro Area Japan 3 No slack in the economy Excess slack in the economy E 2018E 2019E 6

7 Current topics China s debt addiction Chinese Shadow debt growth (YoY, %) China has concluded its 5 year Congress in Q and bits of details 80 are beginning to emerge of what to expect from what will soon be the 70 world s largest economy 60 Firstly, the focus on GDP-growth has been toned down and especially 50 the important growth target (annual growth of 6,5%) has not been mentioned in economic working papers. This could suggest a wish 40 for slightly lower, but more sustainable growth (lower left figure) 30 Furthermore, the urgency for reining in credit growth has also been toned down, despite the massive debt build-up by especially companies in recent years (see right figures) Sources: Bloomberg L.P. and Tryg dec-10 jan-12 feb-13 mar-14 apr-15 maj-16 jun-17 China GDP-growth (YoY, %) China GDP growth YoY Estimate Debt (% of GDP) Corporate debt Household debt 300 Government debt Bank debt

8 Current topics Electric cars to take off? Despite a lot of talk the last years around electric vehicles (EV), a combination of high costs and convenience, have hindered EVs sales from taking off. This may be about to change Electric vehicle market share of new car sales The most costly part of EV production is the battery, which cost is coming down fast (lower left). Combining this with cheaper EV refueling costs due to higher oil prices and taxes on petrol is also helping (lower right). Lastly, generous subsidies in many countries (especially in China) is making EVs much more affordable With this backdrop, EVs is expected to become much more mainstream in the coming years, although it will take years before they outsell traditional petrol cars (upper right) Sources: Bloomberg New Energy Finance (lower left, upper right), US Department of Energy (lower right) and Tryg Cost for lithium-ion battery packs Est. US average cost of refueling regular petrol car vs. EV (USD/Gallon) 3,0 2,5 Ca. 50% lower cost refueling electric car 2,0 1,5 1,0 0,5 0,0 Regular gasoline Electric egallon 8 Note: Based on US average petrol retail prices on December 23rd 2017.

9 Global Macro 9

10 Global macro Economic indicators GDP, QoQ, % Unemployment rate, % USA EU Japan 15% 14% USA EU Japan 10% 12% 5% 0% -5% 10% 8% 6% 4% -10% Last Observation: 2017Q4-15% 2% 0% Inflation rate, % Interest rate, 10yr, % 6% USA EU Japan 5% USA Germany Japan 5% 4% 4% 3% 3% 2% 1% 2% 0% 1% -1% -2% -3% 0% -1% 10 Figure sources: Bloomberg Finance L.P. and Tryg

11 Global macro - Leading indicators PMI/ISM Consumer Confidence, US 65 ISM, Manufacturing, US PMI Manufacturing, EU ISM, Non-manufacturing, US PMI Services, EU 140 Conference Board UoM, Consumer Confidence UoM, Consumer Expectation IFO, Germany IFO Business Climate IFO Expectations IFO Current Assessment Index description PMI measures companies expectations for the Eurozone, where values above 50 indicates economic expansion and vice versa. ISM measures companies expectations for the US, where values above 50 indicates economic expansion and vice versa. IFO measures business current assessment and expectations for the next 6 month for Germany, where a rising index-value indicates economic expansion and vice versa. 11 Figure sources: Bloomberg Finance L.P. and Tryg

12 Global macro Business Cycle Clock OECD Global Composite Leading Indicator* Indicating Global expansion 1,0 0, Upturn Expansion 0,6 Change in CLI 0,4 0,2 0,0-0,2-0,4-0,6 Downturn Slowdown -1, CLI Last observation: October-2017 *OECD CLI measures the global growth momentum 6 month forward. A value above 100 indicates positive economic momentum. 12-0,8 Figure sources: Bloomberg Finance L.P. and Tryg

13 Global macro Business Cycle Clock IFO German Business Climate* Indicating German expansion Upturn Expansion 120 IFO Expectations Downturn Slowdown Last observation: December-2017 IFO Current Assessment *The IFO-indicators measures German companies assessment of their business situation currently and expectations 6 month forward. A value above 100 indicates positive economic momentum. Figure sources: Bloomberg Finance L.P. and Tryg

14 Global macro - Commodities Broad Commodity Index and Food Index* Agriculture 550 Broad Commodity Index Food Index $/bushel Corn Wheat Soybeans Metals* Oil $/tonne Aluminum (left) Copper (left) Metal Index (right) $/barrel 140 Brent Nymex *Broad Commodity Index consists of following futures: Cotton, Orange Juice, RBOB Gasoline, Heating Oil, Wheat, Corn, Soybeans, Coffee, Live Cattle, Crude Oil, Cocoa, Gold, Aluminum, Silver, Nickel, Lean Hogs, Sugar, Copper and Natural Gas. Food Index: Hogs, Steers, Lard, Butter, Soybean oil, Cocoa, Corn, Wheat and Sugar. Metal Index: Copper, Lead, Steel, Tin and Zinc. 14 Figure sources: Bloomberg Finance L.P. and Tryg

15 Nordic Region 15

16 Nordic region Economic indicators GDP, YoY, % Consumer Confidence (higher value indicates more optimism) 10% Denmark Norway Sweden 35 Denmark Norway Sweden (right) 160 8% 6% 4% 2% 0% -2% -4% -6% Last Observation: 2017Q4-8% Inflation rate, % Unemployment rate, % 5% 4% 3% 2% 1% 0% Denmark Norway Sweden 10% 9% 8% 7% 6% 5% 4% Denmark Norway Sweden -1% -2% -3% 3% 2% 1% 0% 16 Figure sources: Bloomberg Finance L.P. and Tryg

17 Nordic region Car registrations and employment New car registrations (YoY), % New car registrations, # of vehicles Q Q Q Q Denmark Norway Sweden 25% % % % % % -5% % % % -25% Denmark Norway Sweden Last Observation: 2017M9 0 Total employment (YoY), % Total employment (YoY), % 3,5% Q Q Q Q % Denmark Norway Sweden 3,0% 3% 2,5% 2% 2,0% 1% 1,5% 0% 1,0% -1% 0,5% -2% 0,0% -3% -0,5% -4% -1,0% -1,5% Denmark Norway Sweden -5% Last Observation: 2017M9-6% 17 Figure sources: Bloomberg Finance L.P. and Tryg

18 Nordic region Construction and Business Confidence Denmark construction confidence survey Sweden construction confidence survey DK Construction Confidence DK Order Book Assessment SE Construction Confidence SE Order Book Assessment Nordic confidence surveys DK Economic Sentiment Indicator (left) SE PMI (right) NO PMI (right) Index description Construction confidence and order book assessment measures construction companies current expectations for the activity compared to a normal level, where values above 0 indicates optimism and vice versa PMI measures companies expectations for the local economy, where values above 50 indicates economic expansion and vice versa Economic Sentiment Indicator measures companies and consumers expectations to the Danish economy, where values above 100 indicates economic expansion and vice versa 18 Figure sources: Bloomberg Finance L.P. and Tryg

19 Nordic region Bankruptcies and Construction Costs Bankruptcies (#) Building costs (YoY, %) DK Bankruptcies NO Bankruptcies NO Residential Building Costs % % % Last Observation: 2017M11-5% Norwegian types of residential building costs (YoY, %) Norwegian construction wage cost (YoY, %) 10% NO Multi-Dwelling Building Costs NO Detatched House Building Costs 8% NO Construction Wage Index 9% 7% 8% 6% 7% 5% 6% 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 0% Figure sources: Bloomberg Finance L.P. and Tryg

20 Nordic currencies and interest rates Nordic Currencies Interest rates (swaps), %, Denmark 1,10 NOK/DKK SEK/DKK 4,5% 1yr 3yr 5yr 7yr 10yr 4,0% 1,00 3,5% 3,0% 0,90 2,5% 2,0% 0,80 1,5% 1,0% 0,5% 0,70 0,0% -0,5% 0,60-1,0% Interest rates (swaps), %, Norway Interest rates (swaps), %, Sweden 1yr 3yr 5yr 7yr 10yr 1yr 3yr 5yr 7yr 10yr 6,0% 4,5% 4,0% 5,0% 3,5% 3,0% 4,0% 2,5% 3,0% 2,0% 1,5% 2,0% 1,0% 0,5% 1,0% 0,0% -0,5% 0,0% -1,0% 20 Figure sources: Bloomberg Finance L.P. and Tryg

21 Appendix 21

22 Bloomberg consensus table GDP Growth Consensus expectations GDP growth US 2,30% 2,57% 2,18% EU 2,30% 2,10% 1,80% Japan 1,60% 1,30% 1,00% France 1,80% 1,80% 1,70% Germany 2,50% 2,20% 1,80% United Kingdom 1,50% 1,40% 1,45% Spain 3,10% 2,50% 2,20% Italy 1,60% 1,40% 1,20% China 6,80% 6,45% 6,20% Brazil 0,80% 2,50% 2,50% Russia 1,80% 1,80% 1,70% India 7,10% 6,70% 7,40% Denmark 2,20% 1,80% 1,85% Norway 1,90% 2,10% 2,00% Sweden 3,00% 2,55% 2,15% Finland 2,80% 2,00% 1,40% 22 Table sources: Bloomberg Finance L.P. and Tryg

23 Bloomberg consensus table Unemployment Consensus expectations Unemployment rate US 4,40% 3,99% 3,80% EU 9,10% 8,50% 8,10% Japan 2,80% 2,70% 2,65% France 9,60% 9,10% 8,60% Germany 5,70% 5,50% 5,40% United Kingdom 4,40% 4,50% 4,60% Spain 17,20% 15,50% 14,50% Italy 11,20% 10,70% 10,20% China 4,00% 4,10% 4,08% Brazil 12,80% 12,05% 10,50% Russia 5,20% 5,20% 4,95% India Denmark 4,40% 4,20%... Norway 4,20% 4,00% 3,80% Sweden 6,70% 6,50% 6,40% Finland 8,60% 8,20% 7,90% 23 Table sources: Bloomberg Finance L.P. and Tryg

24 Bloomberg consensus table - Inflation Consensus expectations Inflation (CPI) US 2,10% 2,14% 2,20% EU 1,50% 1,45% 1,60% Japan 0,45% 0,80% 1,00% France 1,20% 1,30% 1,50% Germany 1,70% 1,70% 1,80% United Kingdom 2,70% 2,50% 2,10% Spain 2,00% 1,50% 1,70% Italy 1,30% 1,20% 1,30% China 1,60% 2,30% 2,20% Brazil 3,50% 3,88% 4,25% Russia 3,70% 3,75% 4,00% India 4,50% 3,50% 4,50% Denmark 1,10% 1,50% 1,55% Norway 1,90% 1,70% 1,90% Sweden 1,80% 1,85% 2,05% Finland 0,90% 1,10% 1,25% 24 Table sources: Bloomberg Finance L.P. and Tryg

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