Three Big Global Questions Nick Kounis Head Macro & Financial Markets Research Marine Money Athens 14 October 2015
Will developed economies continue to recover? 2
US consumer making a comeback Job gains, 3m mav. 000s Unemployment rate, % 400 200 0-200 -400-600 -800-1,000 04 05 06 07 08 09 10 11 12 13 14 15 11 10 9 8 7 6 5 4 Nonfarm payrolls (lhs) Unemployment rate (rhs) Source: Thomson Reuters Datastream 3
Eurozone bank loans more available Net tightening of conditions, balance 70 60 50 40 30 20 10 0-10 -20 Tighter Easier 03 04 05 06 07 08 09 10 11 12 13 14 15 Large firms SMEs Source: Thomson Reuters Datastream, ECB Bank Lending Survey 4
The fall in oil prices is a positive for DMs Gain from USD 50 drop in oil prices, % GDP 2.0 1.5 1.0 0.5 0.0 JP EZ US UK Source: ABN AMRO Group Economics, BP 5
ECB and BoJ to step up monetary stimulus Mario and Haruhiko taking over from Janet. 6
Falling like a brick DM exports to BRICS Exports to the BRIC countries from the US and eurozone, % yoy 40 30 20 10 0-10 2010 2011 2012 2013 2014 2015 US Eurozone Source: Thomson Reuters Datastream, ABN AMRO Group Economics 7
Are emerging markets set for a new crisis? EM 8
Turn in sentiment triggers net capital outflows Net portfolio inflows into EMs, USD bn 60 40 20 0-20 -40 10 11 12 13 14 15 Equity flows Debt flows Source: Institute of International Finance 9
Commodities and EM assets fall in unison Index, 1 Jan 2000 = 100 Index (reversed scale) 300 250 200 150 100 50 0 150 160 170 180 190 200 210 220 00 05 10 15 Commodity index (lhs) MSCI-EM (lhs) EM FX index Source: Thomson Reuters Datastream, ABN AMRO Group Economics 10
EM fundamentals better than in 1990s crisis FX reserves / short-term external debt 6 5 4 3 2 1 0 90 92 94 96 98 00 02 04 06 08 10 12 14 Emerging Asia Emerging Europe Latin America Source: EIU 11
Fed signalling rate hike cycle will be modest Cumulative rate hikes in first year after first increase, % 3.5 3.0 2.5 and Fed delay to 2016 now likely 2.0 1.5 1.0 0.5 0.0 1988 1994 2004 2015 e Source: Thomson Reuters Datastream, FOMC projections 12
Tighter financial conditions holding back EM growth Real M1 money supply growth, % yoy 30 25 20 15 10 5 0-5 03 04 05 06 07 08 09 10 11 12 13 14 15 Global Developed Emerging EM real money supply stagnating Source: Thomson Reuters Datastream, ABN AMRO Group Economics 13
Is China heading for a hard landing? 14
China needs to deal with a debt mountain Total debt to GDP, % 300 250 200 150 100 50 0 2000 2007 2014 Consumer Government FIs Companies Source: McKinsey Global Institute
China s great transformation 16
China s demand for commodities is slowing Commodity import volumes, 12m rolling, % yoy 50 40 30 20 10 0-10 08 09 10 11 12 13 14 15 Copper ore (lhs) Iron ore (lhs) Crude oil (lhs) Bron: Thomson Reuters Datastream 17
China trying to engineer a soft landing 2014 7.5 % Chinese government s GDP growth target 2015 7.0 % 2016? 6.5 % 18
Official data point to ongoing China slowdown % yoy % yoy 25 30 20 25 15 20 10 15 5 11 12 13 14 15 10 Industrial production (lhs) Fixed investment (rhs) Retail sales (lhs) Source: Thomson Reuters Datastream 19
Can we trust the official GDP numbers? % yoy 14 12 10 GDP indicator points to 6.6% rather than 7% 8 6 4 07 08 09 10 11 12 13 14 15 Real GDP growth (official) Monthly GDP indicator Source: Thomson Reuters Datastream, Bloomberg 20
China monetary conditions have turned Index 140 130 120 110 100 90 80 70 60 50 Tighter Easier 10 11 12 13 14 15 % yoy 12 11 10 9 8 7 6 Monetary Conditions Index (lhs) Monthly GDP ind. (rhs) Source: Thomson Reuters Datastream 21
China: property prices stabilising Newly-built residential building 70 big/medium cities, % yoy 10 5 0-5 -10 11 12 13 14 15 Source: Thomson Reuters Datastream 22
Implications for the outlook 23
Moderate global growth with EM-DM divergence Manufacturing PMI surveys 58 56 54 52 50 48 46 2011 2012 2013 2014 2015 Developed Emerging World Source: Thomson Reuters Datastream 24
Trade normally outstrips production not recently 20 15 10 5 0-5 -10-15 -20 % yoy 93 95 97 99 01 03 05 07 09 11 13 15 World trade Global industrial production Source: Thomson Reuters Datastream 25
Oil markets facing supply glut Barrels per day, millions 98 96 94 92 90 88 86 84 2008 2009 2010 2011 2012 2013 2014 2015 Demand Supply Source: International Energy Administration, ABN AMRO Group Economics 26
Modest global growth Economic outlook 2014 2015 2016 Global GDP 3.2 3.1 3.5 US 2.4 2.7 2.9 Eurozone 0.9 1.6 2.0 Emerging Asia 6.3 6.2 6.0 China 7.3 7.0 6.5 World trade 3.3 2.0 4.0 Rates and FX Spot 2015 2016 US 3-M Libor rate 0.32 0.40 1.00 US 10Y Treasury 2.10 1.90 2.60 EUR/USD 1.14 1.12 1.00 Source: ABN AMRO Group Economics 27
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