Global Economy & the Machine Tool Outlook. Jan 2010 Rhys Herbert

Transcription

1 Global Economy & the Machine Tool Outlook Jan 21 Rhys Herbert

2 Which scenario do you favour? Short-term outlook (a) W -shaped cycle Growth initially boosted by inventory rebuild But final demand remains weak as banks and households keep deleveraging Oil/commodity price spike Growth sluggish again in 21H2 and 211 after initial bounce back (c) Deflation Renewed asset price weakness holds back banking recovery Unemployment rises sharply further depressing consumption Monetary/fiscal policy not effective as deflation grips Economy flatlines in 21 and beyond (b) V-Shaped recovery Return to growth boosts business and consumer confidence Fiscal and monetary stimuli feed through quickly Financial market rally becomes firmly established Exchange rate movements aid global rebalancing (d) Muddle through Monetary easing blunted by weak banks but eventually works Gradual rise in business and consumer confidence Bumpy growth profile due waning of fiscal stimulus Weak recovery in 21, gaining traction in Medium-term outlook

3 What do you now think is the most likely scenario? 1. W -shaped 2. V -shaped 3. Deflation 4. Muddle Through % % % %

4 Recession giving way to recovery World: GDP growth % year PPP exchange rates Source: Oxford Economics Market exchange rates Recession giving way to recovery Forecast

5 Recession was particularly deep Peak to trough fall in manufacturing output % % 198s 199s Early 2s 2s Now -16% -33% -22% 5-4 Developed US Japan Germany Source: Oxford Economics Recession giving way to recovery

6 And perhaps surprising in terms of its focus % change in GDP Russia Ireland Hungary Japan Italy Germany UK Slovakia Czech Rep Netherland Austria Spain Belgium US Portugal Canada France Korea Brazil Greece Poland India China Source: Oxford Economics % change 28Q2-29Q2 Recession giving way to recovery

7 Different reactions in the labour market World: Unemployment rate % 12 Forecast 11 1 Eurozone UK US 4 3 Japan Source: Haver Analytics 7 Recession giving way to recovery

8 But some Emergers have coped quite well Change in manufacturing output during recession % China India Brazil Russia Emerging Developed Source: Oxford Economics Recession giving way to recovery

9 The cycle has turned US purchasing managers survey Index New orders Production Overall index Source: Haver Analytics PMI: Manufacturing 65 France Germany UK 45 Italy Source: Haver Analytics 9 Recession giving way to recovery

10 across all major blocs Japan: PMI Index Vs Exports % Balance 6 PMI index 55 PMI 65 China 6 India Russia Brazil 25 Export Orders Source : Oxford Economics/Markit Source: Haver Analytics 1 Recession giving way to recovery

11 But recovery is narrowly based Developed economies % change q-on-q Manufacturing Engineering & Metal Goods Basic Metals Motor Vehicles Electronic Engineering Q4 29 Q1 29 Q2 29 Q3 Source: Oxford Economics Recession giving way to recovery

12 Only a bit more diverse in emerging markets Emerging economies % change q-on-q 2 Manufacturing 15 Engineering & Metal Goods Basic Metals Motor Vehicles 1 Electronic Engineering Q4 29 Q1 29 Q2 29 Q3 12 Source: Oxford Economics Recession giving way to recovery

13 Outlook looks better for US car production Car sales % yr 1 Car Production less sales Western Europe Western Europe US US Source : Oxford Economics/Haver Analytics Source : Oxford Economics/Haver Analytics 13 How big a payback from cash for clunkers?

14 Inventories major contributors to the cycle US: Inventories % of GDP Forecast Source: Oxford Economics How big a bounce from inventories

15 Recession over but key questions remain How fast a recovery in final demand? Judging the normalisation of policy Can China and India remain so robust? How much will high levels of spare capacity hold back investment spending? 16

16 Monetary policy on full throttle Official interest rates % UK bank rate US Federal funds target rate ECB refi rate Source: Haver Analytics How strong will the recovery be?

17 Bank lending down, but corporate bond markets returning to normal US: C&I loans & CP outstanding % year US: Risk spreads % point spread over Treasuries High-yield corporates C&I = Banks' commercial Investment-grade corporates & industrial loans Source: Haver Analytics / Merrill Lynch Source: Haver Analytics How strong will the recovery be?

18 Fiscal policy supportive for now World: fiscal stimulus packages % of GDP Headline package Estimated new money 19 UK EZ US Japan China Source : Oxford Economics/Haver Analytics How strong will the recovery be?

19 Downside risks for those burdened by massive debt Fiscal costs of the recession % of GDP public debt increase Financial stabilisation cost France Germany Spain UK US Japan Ireland Source : Oxford Economics/IMF How strong will the recovery be?

20 Housing to be a big contributor to recovery 1999 Contribution to growth from residential investment million, ar Source: BEA, Census, Oxford Economics 21 Housing starts (LHS) Forecast How strong will the recovery be? Contribution (RHS) % points

21 Orders on the rebound from low levels 22 Orders 25=1 15 Japan Germany US Source: Haver Analytics How strong will the recovery be?

22 China - remarkable growth in output China: Industrial production % y/y Source: Haver Analytics Can China and India remain so robust?

23 Possible risks from expansionary policy China: Bank lending & nominal GDP % year 45 4 Bank lending Nominal GDP figures are estimates Source: Haver Analytics 24 Can China and India remain so robust?

24 And from global trade tensions World: Current account imbalances $ billion 8 OPEC 6 4 Asia 2 Japan -2 Eurozone -4-6 US 25-8 Forecast Source: Oxford Economics Can China and India remain so robust?

25 Scenarios for the economic outlook Short-term outlook W -shaped cycle (21%) Growth initially boosted by inventory rebuild But final demand remains weak as banks and households keep deleveraging Oil/commodity price spike Growth sluggish again in 21H2 and 211 after initial bounce back Deflation (7%) Renewed asset price weakness holds back banking recovery Unemployment rises sharply further depressing consumption Monetary/fiscal policy not effective as deflation grips Economy flatlines in 21 and beyond V-Shaped recovery (27%) Return to growth boosts business and consumer confidence Fiscal and monetary stimuli feed through quickly Financial market rally becomes firmly established Strong global rebound and weak pound boost exports Oxford forecast (45%) Monetary easing blunted by weak banks but eventually works Gradual rise in business and consumer confidence Bumpy growth profile due waning of fiscal stimulus Weak recovery in 21, gaining traction in Medium-term outlook

26 The Oxford Economics forecast 27 World GDP Growth % Change on Previous Year US Japan Eurozone of which: Germany France Italy South Korea China India Other Asia Mexico Brazil Other Latin America Eastern Europe World World (PPP)

27 Risks Global economic environment less uncertain than last winter but weighting on base forecast still lower than usual Risks no longer biased on downside, particularly in US, for both the overall economy and machine tools Downside scenarios of W cycle and deflation would both be negative for MT Still have to face the normalisation of policy with potential that moves will be made too early or too late Global imbalances still in place increasing the risk of sharp exchange rate movements and protectionism 28

28 All sectors in developed economies hit 29 Peak to trough fall in output % % -14% % -3-29% s 199s -4 Early 2s 2s -39% -45 Now -5-45% Motor vehicles Engineering Electronics Aerospace Basic metals Chemicals Source: Oxford Economics Industrial outlook

29 Performance in Emergers more mixed Change in output during current recession % % v s -45% % v s -14% % v s -29% -2.5% v s -21% -7% v s -39% -2 EngineeringElectronics Source: Oxford Economics Motor vehicles Other means of transport Basic metals Chemicals 3 Industrial outlook

30 Recovery in developed world similar to 199s Manufacturing output - rise in first 2 years of recovery % s 199s Early 2s 2s Now Developed US Japan Germany Source: Oxford Economics Industrial outlook

31 Motor vehicles sees strongest initial rise Developed - rise in first 2 years of manufacturing recovery % s 199s Early 2s 2s Now 32 Motor Basic ElectronicsEngineeringChemicals Aerospace Vehicles metals Source: Oxford Economics Industrial outlook

32 Much faster growth in emerging markets Manufacturing rise in first 2 years of recovery % China Russia India Brazil Emerging Developed Source: Oxford Economics Industrial outlook

33 and gains will be widespread Emerging markets - rise in first 2 years of manufacturing recovery % Motor vehicles Basic metals Electronics Engineering Chemicals Other means of transport Source: Oxford Economics Industrial outlook

34 No immediate need to boost investment US: Capacity utilization and real private nonresidential fixed investment % % year Capacity utilization (LHS) Real private non-residential fixed investment (RHS) Source: Federal Reserve Investment outlook

35 So investment share slow to recover US: Nominal investment, share of GDP % of GDP 22 F'cast Source: Oxford Economics 37 Investment outlook

36 Global investment patterns - 29 Other Transport, 6.9% Precision Instruments, 3.2% Basic metals, 14.9% Rest of Europe 17% US 14% Motor Vehicles, 17.6% Electricals, 26.9% Rest of Asia 13% Japan 21% Metal Products, 11.9% Specialised Machinery, 7.8% Source : Oxford Economics General Machinery, 1.9% Rest of Americas 4% Germany 6% Source : Oxford Economics China 25% 38 Investment outlook

37 Forecast for the US US $ bn Total capital spending by the top 8 customer sectors (RHS) Forecast $ bn Machine tools sales (LHS) Source: Oxford Economics Machine tools sales

38 Forecast for Japan Japan US$ bn Total capital spending by the top 8 customer sectors (RHS) US$ bn 25. Forecast Machine tools sales (LHS) Source: Oxford Economics Machine tools sales

39 Forecast for Germany Germany US$ bn Total capital spending by the top 8 customer sectors (RHS) US$ bn 6 Forecast Machine tools sales (LHS) Source: Oxford Economics Machine tools sales

40 Forecast for China China US$ bn 3 Forecast US$ bn Total capital spending by the top 8 customer sectors (RHS) Machine tools sales (LHS) Source: Oxford Economics Machine tools sales

41 Percentage of global sales - 29 % Americas Asia Europe Source : AMT\Oxford Economics Machine tool consumption

42 Plunge in orders in late US machine tools orders annual growth % yr Source : Oxford Economics US orders

43 Quarterly USMTC orders forecast US metalworking machine tools orders, USMTC Forming machine tools, $bn Forming machine tools (LHS) Cutting machine tools, $bn 1.2 Forecast Cutting machine tools (RHS) Source : Oxford Economics US orders.3

44 and on an annual basis US metalworking machine tools orders, USMTC Forming machine tools, $bn Cutting machine tools, $bn Forming machine tools (LHS) Cutting machine tools (RHS) Source : Oxford Economics US orders Forecast 2 1

45 General regional rebound in 21 Growth in value of orders for cutting machines by region 6% 4% 2% % -2% -4% -6% Total Northeast South Midwest Central West 52-8% Source: Oxford Economics US orders

46 Similar story in forming orders Growth in value of orders for forming machines by region 6% 4% 2% % 53-2% -4% -6% -8% Source: Oxford Economics US orders Total Northeast South Midwest Central West

47 Cutting: All regions stronger in 21 Cutting Machines, US orders levels and growth, by region Growth 21 (forecast) 42% Northeast 41% 4% Central 39% 38% West 37% 36% South Midwest 54 35% Source: Oxford Economics Value 21, $ millions US orders

48 Forming: Stronger growth in 21 Forming Machines, US orders levels and growth, by region Growth 21 (forecast) 45% 4% 35% West Northeast Central 3% 25% 2% 15% South Midwest 55 1% Source: Oxford Economics Value 21, $ millions US orders

49 57 Thank you