2003 ECONOMIC OUTLOOK

Transcription

1 Philippe d Arvisenet Group Chief Economist 3 ECONOMIC OUTLOOK January th 3 1

2 BNP PARIBAS RESEARCH DEPARTMENT Visit our website : Contact our team : Philippe d'arvisenet Chief Economist E. VERGNAUD Head of OECD countries V. NGUYEN THE Head of Banking economy G. LONGUEVILLE Head of country risk Mlle A. ESTIOT USA, Canada Mme. NEWHOUSE COHEN United Kingdom, Ireland, Nordic countries Mlle. AV. HERMEZ Japan, Australia New Zealand R. VAN DER PUTTEN EuroZone, Benelux 5399 J.M. LUCAS France Mlle. F. BARJOU Italy, Spain, Portugal, Greece J.L. GUIEZE Germany, Austria, Switzerland M. L QUIGNON Banking economy Delphine CAVALIER Asia R. GALLARDO Latin America Mme. C. PELTIER Latin America Mlle. N. NGO Asia Mlle. E. VULLIEZ Africa Mlle. A. KONATE Africa P. DEVAUX Middle East - Scoring and warning signals for country risk Mlle. T. ESANU Russia, Former Soviet Republics F. FAURE Eastern Europe, Turkey Capital flows to emerging markets

3 Graph 1 Cumulative GDP growth (q/q, %) since September 11th United States Euro zone Japan UK T 1 T1 T T3 T Q : BNPParibas forecasts 3

4 UNITED STATES

5 United States Growth seems on the verge of reacceleration Manufacturing ISM jumped to 5.7 in December after 3 months below the 5 threshold Leading indicators pointed to their second consecutive rise in November After a % growth at the turn of the year, activity should accelerate, reaching potential by year end Consumption : Household confidence has stabilized The new Congress is to adopt a fiscal program aimed at supporting growth : disposable income is to be supported until the job recovery takes place in H 5

6 United States Capex is set to accelerate The new tax cut plan is investment friendly Corporate profits are to improve with GDP growth and productivity gains A lower dollar is favourable to pricing power The Fed will remain on hold, since risks are still a source of concern Profits increase could still be impacted by goodwill write offs and the defined benefits pensions issue The war with Iraq could hurt investment and big ticket purchases as it impacts confidence, incomes and costs (increase in oil prices) All in all, growth should accelerate to.5% in 3 and 3.5% in

7 United States Graph list (page 9) : GDP, consumption and investment 3 (page 9) : GDP growth and ISM indices (page 1) : Inventories/shipments ratio 5 (page 1) : Industrial production and capacity utilization (page 11) : Nonresidential private investment 7 (page 11) : Productivity and GDP growth (page 1) : GDP deflator and unit labor costs 9 (page 13) : Corporate profits 1 (page 13) : Investment & financing of corporate business 11 (page 1) : Orders and profits 1 (page 1) : 1-year interest rate spread 13 (page 15) : Survey on bank lending practices 1 (page 15) : Retail sales 7

8 United States 15 (page 1) : Unemployment and jobs creation 1 (page 1) : Unemployment and initial claims 17 (page 17) : The insecurity indicator 1 (page 17) : Unemployment and Conference Board index 19 (page 1) : Wages, prices and employment (page 19) : Real personal income 1 (page 19) : Household investment and debt -3 (page ) : Household savings, debt and wealth (page 1) : Public budget and debt as % of GDP 5 (page 1) : Current-account and foreign investments (page ) : Interest rates and inflation 7 (page ) : Unemployment and Fed Funds rate

9 Graphs and G D P, consum ption and investm ent (y/y % change) R e a l G D P Private consum ption N onresidential private fixed investm ent U nited States : econom ic growth and ISM index 75 ISM N ew -orders index IS M T o ta l in d ex R eal G D P, y/y % change

10 Graphs and U nited States: inventories/shipm ents ratio, m anufacturing U nited States: industrial production and capacity utilization rate (3-m onth m oving averages) 9 1 Industrial production, y/y % change C a p a c ity u tiliza tio n r a te in in d u str y, %

11 Graphs and 7 1 U n ite d S ta te s: n o n -r esid e n tia l p r iv a te in v e stm e n t a s % o f G D P R e a l G D P United States : G D P and productivity (q/q change, annualized, % ) - - Productivity, nonfarm busin ess sector

12 Graph 1 1 United States : price deflator and unit labor costs (y/y % change) 1 GDP price deflator Unit labor costs in manufacturing

13 Graphs 9 and U nited States : corporate profits* as % of G D P (* with IVA & CCADJ) 9 B efore tax 7 5 A fter tax U SA : investm ent and financing of nonfarm nonfinancial corporate business (a s % o f G D P ) 1 G ross investm ent Financing gap

14 Graphs 11 and 1 1 C orporate profits b e f o r e ta x w it h I V A & C C A D J * U nited States : orders and profits (* quarterly change, annualized, % ) N ew orders of nondefense capital goods exc. A ircraft * C orporate profits before tax w ith I V A & C C A D J, y /y % c h a n g e U nited States: 1-year interest spread, % * spread corporate bonds - T.Bond (LH scale) A A A * B B B * B B * T.Bond rate s o u r c e s : D R I, D a ta s tr e a m

15 Graphs 13 and 1 % Net % of bank respondents tightening standards for com m ercial & industrial loans (Fed- Senior L oan O fficer O pinion survey on bank lending practices) large & m edium com panies sm all b usinesses C redit m arket debt of nonfinancial corporate business, y/y % change source: Federal R eserve (Senior L oan O fficer O pinion Survey) Total U nited States : retail sales (quarterly change, annualized, % ) - T otal excl m otor vehicle & parts

16 Graphs 15 and U nited States : unem ploym ent and jobs creation M onthly change in em ploym ent, 3-m onth m oving average Unem ploym ent rate, % th o u sa n d thousands U n ite d S ta te s: u n e m p lo y m e n t a n d in itia l c la im s % 55 (m o n th ly d ata) 5 5 Total unem ploym ent rate 7 In itia l c la im s fo r unem ploym ent insurance Insured unem ploym ent rate

17 Graphs 17 and 1 1 U nited States : the insecurity indicator Job leavers as % of total unem ployed % U nem ploym ent and C onference Board Unem ploym ent rate C onference B oard index: expectations C onference B oard index: p resen t situ ation

18 Graph 19 1 United States : earnings, inflation and employment Monthly change in employment, 3-month moving average, thousand * y/y, % Average hourly earnings, private sector * Inflation *

19 Graphs and 1 U nited States : real personal incom e deflated by C PI, y/y % Personal tax & nontax paym ents D isposable personal incom e y ear fixed m ortg a g e interest rate, % U nited States : household investm ent and debt (* billion U SD in annual rate) H om e m ortgages debt: quarterly change of outstanding * Q uarterly flow of residential investm ent * Q

20 Graphs and U nited States : household savings rate and w ealth Savings rate (as % of personal disposable incom e) R ea l esta te a ssets N et fin a n cia l assets United States: household savings and debt C redit m arket debt, y/y % change Personal savings rate, %

21 Graphs and U nited States : budget balance and debt as % of G D P Budget balance Debt sources OECD, BNP Paribas e 3p 5 3 U nited States: current-account balance and foreig n in vestm en ts (one-year m oving average of flow s, annualized datas in billion U SD ) C urrent-account balance D irect investm ent E q u it ie s B o n d s G ovt securities

22 Graphs and 7 % U n ited S ta tes : in terest ra tes a n d in fla tio n (m onthly averages) 3-m onth 1-year 3-year Inflation y/y United States : unem ploym ent and Fed Funds rate 1 1 R ecession periods U nem ploym ent rate Fed Funds

23 EURO ZONE 3

24 Euro zone Economic activity Euroland avoided recession last year but growth has been mediocre in : 1.% annualized in Q1 and Q, it has disappointed even more in Q3 (1.3%) Leading indicators point to more weakness in the coming months All in all, growth is not expected to be higher than.% in and 1.5% in 3 Monetary policy Unchanged from November 1 to November Last summer, ECB considered the inflationary risks as dominant. Economic activity was disappointing but unit labor costs were accelerating and core inflation was creeping up. That was an invitation to keep a restrictive stance Financial turbulence and the deterioration in the economic outlook have changed the landscape

25 Euro zone Sentiment indicators went back to their early 1999 level when ECB cut rates down to.5% ECB has to takes the growth outlook into consideration (second pillar) Monetary policy is set to become more accommodative years in a row (a 3rd coming) with growth below potential will bring a moderation in core inflation specific supply shocks (energy, food, introduction of notes and coins in euros) will stop impacting headline inflation in 3 H1 the appreciation of the euro has tightened monetary conditions the rhetoric has changed : last spring, the inflationary risk was considered as dominant, during the summer risks were balanced, since September, growth outlook has become a source of concern. ECB finally delivered we see more to come Revision of monetary policy during 3 H1 (M3, inflation target ceiling) Coordination with fiscal policy. When EcoFin declared it launched a procedure vis a vis Portugal and EC announced the possibility of early warnings (France close to a 3% deficit) and an excessive deficit procedure for Germany, the path towards lower rates opened 5

26 Euro zone Graph list (page ) : Euro zone / USA, GDP growth 9 (page ) : Euro zone / USA, industrial production 3-31 (page 9): Euro zone / USA, industrial & consumer confidences 3-33 (page 3) : PMI 3 (page 31) : Euro zone / USA, total employment 35 (page 31) : Euro zone / USA, unemployment rate 3-37 (page 3) : ECB repo rate, confidence and inflation 3 (page 33) : Interest rates 39 (page 33) : Inflation and PMI (page 3) : Euro zone / USA, capacity utilization rate 1 (page 3) : Labor costs

27 Euro zone -3 (page 35) : Budget balance / country (page 3) : USA / Euro zone, interest and exchange rates 5 (page 3) : USA, direct investments 7

28 Graphs and (q/q change annualized, % ) U nited States/Euro zone : G D P grow th E u r o Z o n e U S A U nited States/E uro zone : industrial production (y/y % change) - - U S A E u r o Z o n e

29 Graphs 3 and United States/Euro zone: industrial confidence U nited States (ISM index) Euro zone (balance of opinions, %, European C om m ission) U nited States/E uro zone: consum er confidence U nited States (C onference Board index) E u r o z o n e (balance of opinions, %, European C om m ission)

30 Graphs 3 and 33 5 Euro zone : Purchasing M anagers' indices T o ta l in d ex N ew orders O utput source R euters 5 Purchasing M anagers' indices E u r o z o n e France G e r m a n y Italy source R euters

31 Graphs 3 and 35 3 Total employ m e n t (y/y % change, quarterly figures) 1-1 U nited States - -3 E u r o z o n e U nem ploym ent rate, % E u r o z o n e 7 U n it e d S t a t e s

32 Graphs 3 and E C B sh o rt-term rep o ra te Euro zone: EC B repo rate and inflation T o ta l in fla tio n C o r e in fla tio n E uro zone: E C B repo rate and confidence C onsum er confidence * E C B sh o rt-term rep o ra te Industrial confidence * * balance of opinions (European C om m ission)

33 Graphs 3 and E uro zone: interest rates.5. E C B s h o r t-te r m repo rate R eal 1-year rate R eal 3-m onth rate E uro zone: inflation and P M I m a i- 1 3 Inflation, y/y % oct-1 sep t- 1 oct- ju il-97 avr- 1.5 m a r s -9 déc-9 févr P M I In dice 33

34 Graphs and 1 E u r o z o n e /U n ite d S ta te s : c a p a c ity u tiliz a tio n r a te, % (m anufacturing sector) 7 7 U nited States E uro zone E uro zone: labour costs (y/y % change) U n it la b o u r co st Labour productivity E C B s o u r c e

35 Graphs and Déficit Public budget public en as % du of GDP PIB Current-account balance Euro zone Zone euro G erm any A llem agne France France Italy Italie source Eurostat, BN P Paribas forecasts oct-1 e oct- 3p E t t é i i BN P P ib Structural Déficit structurel budget as en % of du GDP PIB Germany France Italy A llem agne Direct France investment Equity Italie investment OECD source OCDE & forecastsdebt instruments inv oct e oct- 3p 1 35

36 Graphs and U nited States/E uro zone: interest rate & exchange rate (m onthly averages) U S A - G e r m a n y : 1-year interest spread, % E U R /U S D exchange rate U nited States : portfolio and direct investm ents ( net as % of nom inal G D P, -quarter m oving average) Current-account balance D irect investm ent C orporate-equities purchases U S corporate bonds

37 JAPAN 37

38 Japan A rebound in exports in Q has been followed by an acceleration in consumption and government expenditure in Q3 The favourable momentum is eroding (confidence and leading indicators are disappointing) Deflationary pressures are an impediment to self-sustained growth The deterioration in the labor market is weighting on incomes and confidence Monetary policy has no impact on the real economy. The economic situation of Japan is adversely impacted by the burden of banks NPLs and its consequences on credit 3

39 Japan The latest anti-deflation and stimulus plans are not ambitious enough to push prices upwards nor revive growth The health of the financial sector is the key question. Banks recap by the government seems unavoidable as well as unorthodox monetary measures 39

40 Japan Graph list (page 1) : GDP and industrial production 7 (page 1) : Foreign and domestic demands (page ) : Profits and business climate 9 (page 3) : Industrial production and inventories 5 (page 3) : Orders and leading indicator 51 (page ) : Labor market 5 (page ) : Wages and prices 53 (page 5) : Public budget and debt 5 (page 5) : Interest and exchange rates 55 (page ) : Monetary sector 5 (page ) : Bank reserves

41 Graphs and 7 Japan: G D P and industrial production (quarterly change, % ) G D P volum e Industrial production (volum e, quarterly change % ) Japan: foreign and dom estic dem ands Exports of G oods & Services Im p orts of G oods & S ervices D o m e s t ic d e m a n d

42 Graph 5 3 Japan: profits and business climate Current profits, all industries, y/y % change Tankan surveys: business condition, actual situation, all industries, %

43 Graphs 9 and Japan : industrial production and inventories Industrial production Inventory ratio (indices, 1995=1) Japan : orders and leading indicator (3-m onth m oving averages) E P A lea d in g in d ica to r source: Cabinet O ffice of Japan O r d e r s f o r m achines, y/y % change

44 Graphs 51 and T he labour m arket in Japan Total em ploym ent, y/y % change Unem ploym ent rate, % Japan : w ages and inflation (y/y % change) A verage earnings (-m onth m oving average) - C onsum er price index

45 Graphs 53 and 5 Japan : fiscal balance and public debt as % of G DP Fiscal balance Public debt -3: B N P Paribas forecasts e 3p 7 5 % Japan : interest & exchange rates 9 3-m onth interest rate (m onthly average) U S D /J P Y e x c h a n g e r a t e year interest rate

46 Graphs 55 and 5 5 Japan: m onetary sector, y/y % change 3 M o n e ta r y b a s e 1 M + C D Japan: bank reserves, trillion JPY T otal reserves 1 R equired reserves Bank of Japan source

47 UNITED KINGDOM 7

48 United Kingdom UK Q3 GDP growth was revised upwards from.% to.9% q/q. Nonetheless without the technical impact of the Golden Jubilee extra holidays in June, GDP should have been lower, growing around.% over the period UK Q GDP is likely to have decelerated further : Household consumption has slowed down both in November and December ; the manufacturing sector is still in the doldrums ; its output perspectives are low and no early rebound in business investment can be expected in this context ; UK goods exports are hurt by the weakness in euro-zone activity Despite an all-time low unemployment rate (3.1%, according to the claimant count definition), the job market is not looking as bright as before: part time jobs are rising at the expense of full time jobs; manufacturing jobs have been steadily destroyed since 199

49 United Kingdom Public expenditure should continue to back growth in 3. Nonetheless, the government could be compelled to raise taxes before the end of this year in order to meet its deficit target. Indeed, its assumption on economic growth, around.5% for this year, looks very much too optimistic compared to our of 1.% Inflation is likely to overshoot the Bank of England s target (.5% on a -year horizon) during most of this year. Rising oil prices as well house prices impact on the house depreciation component are mainly to blame on The housing market evolution is no more sustainable. We assume that the rate of price increase should orderly slowdown during this year. However a U-turn in the market can t be totally excluded and could well be triggered by a further weakness in stocks coupled with renewed threat of terrorist attacks in the UK 9

50 United Kingdom The Bank of England s leeway is very tight in this context. The main risk to its central scenario is a larger or earlier than expected deceleration in households consumption. Therefore, monetary authorities are to remain very prudent at least during the first half of this year By June 3, the Treasury will issue its conclusions on the 5 tests whether the UK should join the euro or not. Given a favourable conclusion, a referendum is unlikely to be called this year. Indeed there is still a large public opposition to the Sterling entry into the euro. Nonetheless, a yes vote at the Swedish Referendum on September 1 could gradually begin changing British mentalities In this context, the Sterling should weaken further versus the euro, falling around.7 by the end of this year 5

51 United Kingdom Graph list 57 (page 5) : Real GDP growth 5 (page 5) : Industrial production and retail sales 59 (page 53) : CBI industrial survey (page 53) : Retail sales and confidence 1 (page 5) : House price index (page 5) : Average earnings 3- (page 55) : Labour costs 5 (page 5) : Inflation (page 5) : Public budget as % of GDP 7 (page 57) : Interest rates (page 57) : Exchange and interest rates 51

52 Graphs 57 and 5 U K : real G D P grow th (y /y % ch a n ge) - Real GDP Services Industry UK : industrial production and retail sales (y /y % ch a n g e) R eta il sa les, v o lu m e Industrial production

53 Graphs 59 and 3 U K : CBI industrial survey (balance of opinions, % ) Total order book E xport order book B usiness optim ism U K : retail sales and consum er confidence 1 5 R eta il sa les, v o lu m e: 3-m th m av, y-o-y % change C onsum er confidence: b a la n ce o f o p in io n s

54 Graphs 1 and 35 3 U K : house price index (all houses, y/y % change) H alifax source U nited K ingdom : average earnings (y/y % ch an g e) 1 P rivate sector Public sector s o u r c e O N S

55 Graphs 3 and 1 1 U K : labour costs (y/y % change) A verage earnings T arget :.5% - - U nit w age costs UK : labour costs (3-m onth m oving average of the y/y % change) A verage earnings T arget :.5% - - U n it w a g e c o s ts

56 Graphs 5 and 1 U n ite d K in g d o m : in fla tio n (y/y % ch a n ge) 1 A ll serv ices A ll goods U K : p u b lic a c c o u n ts a s % o f G D P Public debt P u b lic se c to r b a la n c e O E C D s o u r c e e 3p 5

57 Graphs 7 and Interbank 3-m onth rate U K : in terest ra tes (m on th ly a v era ge, % ) 1 1-year bond yield U K / E uro zone : exchange rate and interest rate spread (w eek ly d ata) G B P/E U R exchange rate m onth interest rate spread, % : U K - E uro zone ja n v -9 9 ju il-99 ja n v - ju il- ja n v - 1 ju il- 1 jan v - ju il- jan v

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