The Outlook for the Global Economy and World Trade Capital Link Invest in International Shipping Forum 2014 Nick Kounis Head Macro Research New York, 20 March
Evaluating the risks from Crimea tensions Percentage of European gas demand met from RussiaRussia 25% Percentage of Russia s tax revenues that come from energy Russia 50% Percentage of Russia s export earnings that come from energy Russia 70% Source: ABN AMRO Group Economics 2
A string of disappointing US data recently ABN AMRO US Economic Surprise Index 1.0 0.5 0.0-0.5-1.0 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Source: Bloomberg, ABN AMRO Group Economics 3
Extreme weather most likely to blame 4
Impact of weather usually temporary Average during hurricanes (Andrew, Katrina & Sandy), 0 = month of impact 54.5 54.0 53.5 53.0 52.5 52.0 51.5-2 -1 0 1 2 3 4 85 80 75 70 65 ISM manufacturing Consumer Confidence (rhs) Source: ABN AMRO Group Economics, Thomson Reuters Datastream 5
DM private sector balance sheets back in health US assets minus liabilities % GDP, 100 = long-term average 125 120 115 110 105 100 95 90 85 80 99 01 03 05 07 09 11 13 Companies Households Source: Thomson Reuters Datastream 6
DM fiscal consolidation is fading fast Budget cuts, % GDP 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0-0.2-0.4 H1 10 H2 H1 11 H2 H1 12 H2 H1 13 H2 H1 14 H2 Eurozone US Source: ABN AMRO Group Economics 7
Advanced economy capex lift - US US profits, % GDP 13 12 11 10 9 8 7 6 1971 1977 1983 1989 1995 2001 2007 2013 Source: Thomson Reuters Datastream 8
Eurozone bank deleveraging Financial institution assets, % yoy 20 15 10 5 0-5 -10 99 01 03 05 07 09 11 13 Source: Thomson Reuters Datastream 9
Vicious circle in Europe has been broken Indebted governments Banks Markets Weakening economy Tighter financing conditions Budget cuts Rising bond yields Source: ABN AMRO Group Economics 10
Competitiveness adjustment in the eurozone Unit labour cost index, 2006 = 100 120 115 110 105 100 95 06 07 08 09 10 11 12 13 GR SP PT EZ Source: Thomson Reuters Datastream 11
Advanced economy demand will boost EM % Asian exports to major destinations 50 40 30 20 10 0 US EZ LA E Europe Source: Thomson Reuters Datastream 12
EM exports starting to move higher Index 200 180 160 140 120 100 80 05 06 07 08 09 10 11 12 13 Emerging Asia CEE Latin America Emerging economies Source: Thomson Reuters Datastream 13
China s economy settling at a new growth trend GDP, % 16 14 12 10 8 6 4 Q1 2000 Q1 2003 Q1 2006 Q1 2009 Q1 2012 % qoq annualised % yoy Source: Thomson Reuters Datastream 14
China s great transformation from this 15
to this 16
Risks from excessive debt in China Total debt to GDP, % 250 200 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Consumer Central govt. Local govt. Companies Source: CICC, PBoC, ABN AMRO Group Economics
Corporate debt high compared to other large EMs Corporate debt to GDP, % Brazil Russia India China 0 30 60 90 120 150 180 Source: CICC, PBoC, ABN AMRO Group Economics
China attempting to manage orderly deleveraging Total aggregate financing, 3M mav. % yoy 250 200 150 100 50 0-50 -100-150 04 05 06 07 08 09 10 11 12 13 Source: Thomson Reuters Datastream
China: key indicators point to resilience Electricity production, % yoy 30 25 20 15 10 5 0-5 -10 07 09 11 13 Source: Thomson Reuters Datastream
Examining risks from the Fed s exit Interest rate surge EM capital flight 21
Inflation is low giving central banks flexibility Headline consumer prices, % yoy 4 3 2 1 0 10 11 12 13 14 US Eurozone Source: Thomson Reuters Datastream
Risk: large capital inflows to EM last few years $ bn 1400 1200 1000 800 600 400 200 0 1995 2000 2005 2010 2015 FDI Equity portfolio inv Commercial banks Nonbank creditors Official flows Source: Thomson Reuters Datastream 23
EM currency weakness concentrated 5 Spot performance since December FOMC, % 0-5 -10 IDR CZK INR PLN THB SGD EM index BRL MXN KRW CNY TWD HUF ZAR CLP TRY RUB Source: Bloomberg, ABN AMRO Group Economics 24
Positive EM fundamentals: external balance % GDP 5 4 3 2 1 0-1 -2 95 97 99 01 03 05 07 09 11 13 Current account balance External indebtedness 45 40 35 30 25 20 Source: IIF, ABN AMRO Group Economics 25
Positive EM fundamentals: FX reserves FX reserves to short-term external debt 6 5 4 3 2 1 0 1980 1985 1990 1995 2000 2005 2010 Emerging Asia CEE Latin America Source: IIF, ABN AMRO Group Economics 26
Our views in numbers economy and markets Economic outlook 2013 2014 2015 Global GDP 2.8 3.6 3.9 US 1.9 3.3 3.9 Eurozone -0.4 1.3 1.8 China 7.7 7.5 7.0 World trade 2.5 6.0 6.0 Rates and FX Spot 2014 2015 USD 3-M Libor rate 0.24 0.30 1.70 US 10-Y Treasury yield 2.70 3.50 4.10 EUR/USD 1.39 1.30 1.20 27 Source: ABN AMRO Group Economics
Oil: rise in demand this year, but also supply Million barrels of oil per day 94 93 92 91 90 89 88 87 86 2011 2012 2013 2014 Demand Supply Source: IEA, ABN AMRO Group Economics 28
Iron ore: structurally slower demand growth % yoy 60 50 40 30 20 10 0 04 05 06 07 08 09 10 11 12 13 14 250 200 150 100 50 0-50 -100 China real estate investment (lhs) Imports of iron ore (rhs) Source: Thomson Reuters Datastream 29
Our views in numbers - commodities Metals (USD/tonne) Spot 3M 2014 2015 Steel (HRC) 568 570 560 540 Iron Ore 112 130 128 115 Coking Coal 115 133 135 130 Energy ($) Spot 3M 2014 2015 Brent oil 107 100 100 95 WTI 98 95 95 90 Natural Gas 4.6 4.00 4.25 4.75 30 Source: ABN AMRO Group Economics
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