Global Sovereign Conference Singapore September 1 --- ---
Politics, Populism and the Global Economy Brian Coulton Chief Economist --- ---
Key Messages World economy muddling along but global macro risks shifting from emerging markets (EM) to advanced country politics Direct Brexit fallout beyond UK modest, but elevates political risk in Eurozone where economic recovery remains fragile US recovery has weakened and is unbalanced between consumers and producers Income distribution inequalities may be fuelling rise in populism and may have adverse macro impacts Capacity of central banks to restore strong growth limited and focus on fiscal support is increasing EM macro risk easing as Brazil, Russia and commodities stabilise and China remains committed to near term growth target But market concern over renminbi could resurface when Fed hikes
Index Real GDP Growth Forecasts for 17, % Brexit Will Take Heavy Toll on UK Investment Index of Policy Uncertainty UK Revisions to UK GDP Forecasts 11 3. 9 7.. 5 1..9 3 1. -1 1/1/97 1/1/1 1/1/5 1/1/9 1/1/13 Post-Referendum (latest) Pre-Referendum Source: Economic Policy Uncertainty Source: NIESR, IMF, Bloomberg, BOE, Fitch 3
Germany Spain Turkey Eurozone France Poland Italy Switzerland S. Africa US India Canada China Russia Japan Brazil Korea Australia Indonesia Mexico % Source Country Total Exports Rolling 1 Month Sum, EUR bn Direct Global Brexit Impact Limited to Eurozone Trade 8 7 5 3 1 Exports of Goods to UK 3 5 15 1 5-5 -1 Eurozone Trade Balance (Goods) With UK Overall Source: IMF DOTS, Fitch Source: EIA, Datastream
% YOY YOY, % Jobs Growth, Low Oil Prices Help Eurozone Consumers Eurozone Household Income 7 5 3 1-1 - -3 1//1 1// 1//11 1//1 Nominal Disposable Income Employment Real Disposable Income Eurozone Household Spending 1 9 8 7 5 3 1-1 - -3 - -5 8 1 1 Bank Loans to Households Consumer Spending (Real) 1 Consumer Spending (Nominal) 1 Source: National Sources, Datastream, Fitch Source: National Sources, Datastream, Fitch 5
7=1 7=1 (Public and Private) But Eurozone Growth Vulnerability Seen in Investment 115 11 15 1 95 Level of Real GDP 115 11 15 1 95 9 85 8 Level of Real Investment 9 7 9 11 13 15 Eurozone US UK Japan 75 15//7 15//1 15//13 15//1 US Eurozone Japan UK Source: National Sources, Datastream, Fitch Source: National Sources, Datastream, Fitch
Bonds as % of non-financial firms debt Rolling q sum, EUR bn Banks Still Crucial For Eurozone Firms Debt Financing Share of Bonds in Corporate Debt* 7% 1, Eurozone Firms Debt Issuance % 5% % 3% 75 5 5 % 1% % 1/3/1 1/3/ 1/3/11 1/3/1 US UK Eurozone *Debt excludes trade credit & pension schemes -5 1 3 5 Debt Securities 7 Total Net Issuance 9 11 Loans 13 15 Source: ECB, Fed, ONS, Datastream, Fitch Source: ECB, Datastream, Fitch 7
3m/3m annualised, % Real Terms YOY, %, 3mma % Disposable Income, 3mma US Consumers Still in Good Health Overall US Household Income and Jobs 5 3 1 1/1/1 1/1/15 1/1/1 Real Disposable Income Jobs (Payrolls) US Consumption and Saving Ratio 5 3 1-1 - -3 - -5 1 11 1 Consumer Spending Growth Saving Ratio (RHS) 1 9 8 7 5 3 1 Source: BEA, Datastream, Fitch Source: ECB, Datastream, Fitch 8
Real Terms, Jan 11 = 1 Chained 9 US Dollars, Bn Chained 9 US Dollars, Bn But US Producers Hit by External Shocks Including Oil US Industrial Production & Exports 115,5 US Business Investment 18 1 11 15 1 95, 1,75 1,5 11 13 15 1 1 1 8 Industrial Production Export Volumes Business Investment Business Investment exc. Oil Oil Related Capex (RHS) Source: BEA, Datastream, Fitch Source: BEA, Datastream, Fitch 9
Broad Real Effective Exchange Rate Real Growth (Good & Services (%) Strong $ and Weakness in US Trade Partners in 15 US Dollar Real Exchange Rate 13 1 US Exports and Export Markets 1 11 8 1 9 8 - US Export Markets (Imports Weighted by Share in US Exports) Growth in US Exports Source: Fed, Datastream, Fitch Source: OECD, Datastream, Fitch 1
19 195 197 1975 198 1985 199 1995 5 1 15 Wage Compensation as % GDP Wage Compensation as % GDP 5=1, Real Terms Labour Share Fall, Inequality Maybe Fuelling Populism Share of Labour Income in GDP US Household Median Income 75 85 18 7 5 8 75 7 5 1 1 1 1 98 9 9 9 Eurozone 1 United Kingdom United States Japan (RHS) 9 5 1 15 US Median Household Disposable Income US GDP Per Capita Source: EC AMECO Database Source: US Census Bureau, Nat. Assoc. Realtors, Datastream, Fitch 11
Average Income, Spending $, 1 % Total Household Income Inequality May Have Dampened US Growth 1 1 1 8 US Household Spending and Income by Income Quintile 5 3 1 US Income Inequality Average Income Average Consumer Expenditure 198 1989 199 1999 9 1 Bottom % Top % Source: BLS Consumer Expenditure Survey, Fitch Source: US Census Bureau (Income and Poverty Survey), Fitch 1
19 195 197 1975 198 1985 199 1995 5 1 15 % US GDP % US GDP Capex as % Profits (Non-Financial Business) Rise in US Profit Share Not Recycled Into More Capex US Firms Saving and Investment US Firms Investment/Profit Ratio 5 3 1-1 - 1 13 1 11 1 9 8 7 13 1 11 1 9 8 7-3 Net Lending Saving Investment Profits (Post Tax) Gross Fixed Capital Formation Ratio Investment to Profits (RHS) Source: BEA, Fitch Source: BEA, Fitch 13
199=1 CPI Level, Jan 7=1 Central Bank Activism Has Averted Outright Deflation US Money, Prices and GDP - 193s Price Level in Advanced Countries 11 15 1 1 9 115 8 11 7 15 1 5 199 1931 1933 1935 1937 1939 Price Deflator Nominal GDP Money Stock (M) 95 US Eurozone Japan UK Source: BEA, Bureau of Census - Historical Statistics of the US, Fitch Source: BEA, Fitch 1
BOJ Holdings, % Stock Outstanding JGB s Percentage Points But Fine Tuning With QE is Tricky and Hazardous Bank of Japan Holdings of JGB s 3 German Bank Net Interest Margins and the Yield Curve 3 1 1-1 - 1/3/9 1/3/11 1/3/13 1/3/15 Germany Yield Gap (1 Year - 1 Year Yield) German Banks Net Interest Margin on New Household Loans Source: BOJ, Fitch Source: ECB, Fitch 15
% GDP (Positive Value = Fiscal Easing) Increasing Focus on Fiscal Policy to Support Growth 1.5 1..5. -.5-1. -1.5 -. Fiscal Impulse - Change in Cyclically Adjusted Primary Fiscal Deficit -.5 Germany Spain France Italy United Kingdom United States 13 1 15 1 FC Japan Source: EC AMECO, IMF Fiscal Monitor, Fitch 1
Real GDP YOY, % Real Imports Goods & Services, % YoY Contribution to GDP Growth, pps Brazil, Russia Signs of Stabilisation After Import Crush Brazil and Russia - GDP Growth Brazil and Russia Net Trade 5 3 1-1 - -3-3 1-1 - 8 - - - -5-1 13 1 15 1 Brazil Russia -3 1 13 1 15 Brazil Net Trade (RHS) Russia Net Trade (RHS) Brazil Imports Russia Imports -8 Source: Rosstat, IBGE, Datastream, Fitch Source: IBGE, Rosstat, Datastream, Fitch 17
Number of Rigs barrels per day Million Barrels Per Day Million Barrels Per Day Commodities Find Floor as Supply Starts to Adjust US Oil Production and Rig Count 18 1 1 9 1 8 1 1 7 8 5 3 1/1/89 1/1/95 1/1/1 1/1/7 1/1/13 US Oil Rig Count Lagged 18 Months US Oil Production (RHS) Global Oil Balance 98 97 9 95 9 93 9 91 9 89 88 15/1/13 15/1/1 15/1/15 15/1/1 Inventory Build (RHS) Global Oil Supply Global Oil Demand - - Source: Baker Hughes, EIA, Datastream Source: EIA, Datastream 18
Nominal, YOY %, 3 m.m.a. YOY, %, 3 mma % YOY China Stimulus Fades But Growth Target Still In Range 18 1 1 1 1 8 - China : Fixed Asset Investment 5 3 1-1 - -3 - -5 China: Housing Activity and Prices 1 1 1 8 - - - -8-1 -1-1 Manufacturing Infrastructure Source: NBS Datastream, Fitch Real Estate Total (Urban) Source: NBS, Datastream, Fitch House Prices (SOUFUN, RHS) Sales Volume Starts Volume 19
CFETS Basket, Dec 1=1 USDCNY (inverted scale) Volumes, % YOY (Goods & Services) Exports/Export Markets, 1=1 China Seeking to Weaken CNY Opportunistically China: Exchange Rate Basket China Export Performance 1. 3. 1 1 1 1 98 9 9 9 9 88.1..3..5..7.8 5. 1. 15. 1 1. 8 5.. -5. -1. -15. -. 5 1 15 Exports CFETS Index (Dec 1=1) USDCNY (RHS, inverted scale) Export Markets Export Performance Index (RHS) Source: PBOC, Datastream, Fitch Source: OECD, Datastream, Fitch
% Labour Force, % YOY Import Prices/CPI (197=1) % US Wage Growth Could Surprise Fed and Bond Market 1 1 8 US Wages and Import Prices 1/1/7 1/1/8 1/1/9 1/1/ 1/1/1 Relative Import Prices (RHS) Wages Unemployment Source: BLS, BEA, Datastream, Fitch 18 1 1 1 1 8 US Real Bond Yields and Growth 1 9 8 7 5 3 1-1 - -3 - -5 198 199 1 GDP YOY Real Bond Yield (1 Year, Deflated by Core CPI) ) Source: BEA, Datastream, Fitch 1
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