Global Economic Outlook Will growth continue and at what pace? International Containerboard Conference Chicago November 2018 Lasse Sinikallas Director, Macroeconomics Copyright 2018 RISI, Inc. Proprietary Information
Agenda 1. Global Snapshot Steady Growth 2. North America Growth and Stimulus 3. Latin America Improvement, Challenges Remain 4. China Transition Continues 5. Europe Growth, but Losing Momentum? 2
1 Steady Growth Global Snapshot Global economy maintains pace Oil prices move higher Copyright 2018 RISI, Inc. Proprietary Information 3
Global Economy Growing Moderately, with Heightened Risks Annual Real GDP Growth USA 1.6% 2.3% 1.6% 2.6% 2.2% 1.8% 2.9% 2.8% 16 17 18 19 16 17 18 19 Latin America 0.9% 1.1% 2.0% 2.6% Euro Area China 6.7% 6.9% 6.4% 5.9% 16 17 18 19 16 17 18 19 Source: IMF, RISI. 4
Both Developed and Developing Economies Doing Better Than in the Past Few Years Global Real GDP* Growth 10 8 6 4 2 0 2 4 Advanced Emerging World Source: IMF, RISI. *Measured at purchasing power parity exchange rates. 5
Annual GDP Growth in Emerging Markets Has Slowed 20 15 Brazil China India Russia South Africa 10 5 0 5 10 Source: IMF, RISI. 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 6
Inflation Remains Low Globally CPI Year over Year Percentage Change 10% 8% 6% 4% Canada Euro Area United States Advanced Economies Emerging and Developing Countries World 2% 0% 2% 4% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: IMF. 7
Oil Prices at Highest Levels in Four Years US Dollars per Barrel 160 140 120 WTI Brent 100 80 60 40 20 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Source: Energy Information Administration, RISI. 8
Economic Policy Uncertainty Is Elevated Economic Policy Uncertainty Index; US, Global 300 250 US Baseline Overall Index Global (current) US News Based Index 200 150 100 50 0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: Measuring Economic Policy Uncertainty by Scott Baker, Nicholas Bloom and Steven J. Davis at www.policyuncertainty.com. 9
2 Growth and Stimulus North America Continued uncertainty associated with Trump policies Domestic growth remains healthy Copyright 2018 RISI, Inc. Proprietary Information 10
US Economy: Growth and Stimulus Continued uncertainty associated with Trump policies Tax reform provides stimulus in growth market Trade policy a serious concern Ability to function? Positive: Deregulation stepped up Domestic growth remains healthy Employment and wage growth Housing market has potential Dollar gave support, now stronger Tightening labor supply promotes inflation 11
Job Openings at a Very High Level Job Openings and Labor Turnover, Thousands 7,500 6,500 Job Openings Hires Quits 5,500 4,500 3,500 2,500 1,500 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: Bureau of Labor Statistics. Copyright 2017 RISI, Inc. All rights reserved. 12
Job Growth Continues Monthly Employment Change, Total Non Farm, Thousands; Six Month Moving Average 600 400 200 0 200 400 600 800 1,000 Employment Change Six Month Moving Average (Employment Change) 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: Bureau of Labor Statistics. 13
Consumption Growth Strongest in Services Annualized Percentage Change in Real Personal Consumption Expenditure, Unemployment 12% 10% 8% 6% 4% 2% 0% 2% 4% 6% Durable Goods Nondurable Goods Services Unemployment 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: Bureau of Economic Analysis. 14
Fed Rate Hikes Impact Credit Growth Consumer Credit, Year over Year Percentage Change, Not Seasonally Adjusted; Fed Rates 20% 15% 10% 5% 0% 5% 10% Revolving Non revolving Fed Funds Rate (Eff.) (R) Fed Upper Limit (R) 6% 5% 4% 3% 2% 1% 15% 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: Federal Reserve. 0% 15
Housing Starts and Sales Stall Existing and New Home Sales and Housing Starts, Millions of Units 8.00 7.00 Existing Home Sales (L) Housing Starts (R) New Home Sales (R) 6.00 5.00 4.00 3.00 2.00 1.00 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: National Association of Realtors, US Census Bureau. 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 16
Housing Sales and Mortgage Rates Connected Existing and New Home Sales, Millions of Units; Average Mortgage Rates 8.00 7.00 6.00 Existing Home Sales (L) New Home Sales (L) 15 Year Fixed Rate Mortgage Average (R) 30 Year Fixed Rate Mortgage Average (R) Inverse Scale 0.0 % 1.0 % 2.0 % 5.00 4.00 3.00 2.00 1.00 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: National Association of Realtors, US Census Bureau, Federal Reserve. 3.0 % 4.0 % 5.0 % 6.0 % 7.0 % 8.0 % 17
Dollar Gaining Strength Again Trade Weighted US Dollar Index: Broad, January 1997 = 100 130 125 120 115 110 105 100 95 90 85 80 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Source: Federal Reserve. 18
Policy Now Supporting Manufacturing? Index of Industrial Production, January 2012 = 1.00; PMI 1.2 1.1 1.0 0.9 0.8 0.7 0.6 Industrial Production PMI 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 70 65 60 55 50 45 40 35 30 25 20 Source: Federal Reserve, Institute for Supply Management. 19
US Economy Maintains Growth Real GDP Growth, Annualized Percentage Change 10% 8% 6% 4% 2% 0% 2% 4% 6% 8% 10% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Oil and US Economy Boost Canada Real GDP Growth, Annualized Percent Change 8.0 % 6.0 % 4.0 % 2.0 % 0.0 % 2.0 % 4.0 % 6.0 % 8.0 % 10.0 % 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Source: Statscan. Copyright 2017 RISI, Inc. All rights reserved. 21
Canadian Dollar Expected to Weaken Slightly from Current Level 1.1 1.0 USD/CAD 0.9 0.8 0.7 0.6 95 95 96 97 98 98 99 00 01 01 02 03 04 04 05 06 07 07 08 09 10 10 11 12 13 13 14 15 16 16 17 18 19 19 Source: Fed, RISI. 22
3 Improvement, Challenges Remain Latin America Inflation manageable in most countries Political risk Copyright 2018 RISI, Inc. Proprietary Information 23
Latin America Improvement, Challenges Remain Positives Commodity prices have stabilized Inflation manageable in most countries Negatives Slowing China Low investment Political risk Basket case economies 24
Global Economy and Improved Domestic Environment Providing a Boost Latin America Annual Real GDP Growth* 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1.0% 2.0% 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 Source: IMF, RISI. *Measured at purchasing power parity exchange rates. 25
Economies Back on a Growth Path Annual Real GDP Growth 9 7 5 3 1 1 3 5 Brazil Chile Argentina Mexico 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Source: IMF, RISI. 26
Inflation Heading Up; Argentina in Its Own Class Consumer Price Indexes, Annual Inflation Rate 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Brazil Argentina Chile Mexico 5% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: CEIC. 27
Interest Rates in Brazil Fell as Inflation Eased 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 06 07 08 09 10 11 12 13 14 15 16 17 18 Brazil Chile Source: BCB, BCC. 28
Investment at a Low Level in Latin America Investment as a Percentage of GDP 35 30 25 20 15 10 5 0 Advanced Economies Emerging Economies Latin America & the Caribbean Argentina Brazil Chile Mexico 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: IMF. 29
Brazilian Real Expected to Maintain Current Levels Nominal Exchange Rate 4.5 4.0 BRL/USD 3.5 3.0 2.5 2.0 1.5 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 30
Chilean Peso Closely Linked to Copper Price 750 700 650 600 550 500 450 400 350 Inverse Scale CLP/USD Copper (R) 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 0 2,000 4,000 6,000 8,000 10,000 12,000 Source: CEIC. 31
Mexican Economy to Maintain Pace Year over Year Percentage Change in Exports and Industrial Production, Three Month Moving Averages; Mexican Peso vs US Dollar; Real GDP Growth 60% 40% 20% 0% 10% 5% 0% 5% 20% Exports (L) Industrial Production (R) 10% 40% 15% 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Exchange Rates Real GDP Growth 25 10.0 % 20 MXN/USD 5.0 % 15 10 0.0 % 5 5.0 % 0 10.0 % 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Source: IMF, CEIC, RISI. 32
4 Transition Continues China Economy going through restructuring Continuing concerns about debt levels Trade war an additional risk Copyright 2018 RISI, Inc. Proprietary Information 33
China: The Transition Continues Economy going through restructuring Investment led growth transitioning to consumer based growth Growth resizing to lower levels Global economy boosted growth Continuing concerns about debt levels Trade war an additional risk 34
Industrial Side of Economy Settling Fixed Asset Investment, Year over Year Percentage Change; Industrial Production, Yearover Year Percentage Change 50.0% 40.0% 30.0% Industrial Production Growth, Y/Y Fixed Asset Investment Growth, Y/Y 20.0% 10.0% 0.0% 10.0% 05 06 07 08 09 10 11 12 13 14 15 16 17 18 35
High Lending Increases Debt Risks New Bank Loans, Aggregate Financing, Billion Renminbi; Money Supply, Year over Year Percentage Change 5,500 4,500 3,500 Aggregate Financing New Bank Loans Money Supply M2 35% 30% 25% 20% 2,500 1,500 500 500 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: CEIC. 15% 10% 5% 0% 36
Trade Recovered to Higher Level in 2017 Exports and Imports, Year over Year Percentage Change 100% 80% 60% Import Export 40% 20% 0% 20% 40% 60% 07 08 09 10 11 12 13 14 15 16 17 18 Source: China National Bureau of Statistics, CEIC. 37
Chinese Economy Decelerating Modestly Real GDP Growth, Annual Percentage Change 14% 12% 10% 8% 6% 4% 2% 0% 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 Source: NBS, RISI. 38
5 Growth, but Losing Momentum? Europe Growth, but slowing down Inflation remains a challenge Loss of momentum? Copyright 2018 RISI, Inc. Proprietary Information 39
Europe: Growth, but Losing Momentum? The Positives Growth, but slowing down Unemployment at pre crisis levels or below The Negatives Inflation remains a challenge Loss of momentum? The Risks Lack of policy coordination, politics Geopolitics 40
Unemployment Improves, but Differences Remain Harmonized Unemployment Rate, Seasonally Adjusted 30% 28% 26% 24% 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Eurozone Germany Greece Spain France Italy Portugal Czech Republic Poland 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 41
Inflation Continues to Struggle CPI, Core CPI; Year over Year Percentage Change, ECB Policy Rate; Brent, Euros per Barrel 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1.0% 05 06 07 08 09 10 11 12 13 14 15 16 17 18 100 90 80 70 60 50 40 30 20 10 0 Source: Eurostat. CPI Core CPI ECB Target ECB Policy Rate Brent, Euros per Barrel (R) 42
Loss of Momentum in Euro Area? 70 60 50 40 30 Euro Area GDP Growth Q/Q (R) 20 Euro Area Composite PMI (L) Economic Sentiment Indicator ( 50) 10 Industrial Confidence Indicator (+50) Consumer Confidence Indicator (+50) 0 2012 2013 2014 2015 2016 2017 2018 1.0 % 0.8 % 0.6 % 0.4 % 0.2 % 0.0 % 0.2 % 0.4 % 0.6 % 0.8 % 1.0 % Source: IHS Markit, Eurostat. 43
Euro Recovering from Lower Levels $1.60 $1.50 $1.40 $1.30 $1.20 $1.10 $1.00 $0.90 $0.80 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 44
Eurozone Economy Growing at a Steady Pace Annual Real GDP Growth 5.0 4.0 3.0 2.0 1.0 0.0 1.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2.0 3.0 Germany France 4.0 Italy 5.0 UK 6.0 Eurozone 7.0 Source: IMF, RISI 45
Conclusions World economy expected to remain similar to 2018 in 2019 US economy projected to perform well Trump administration policies? Housing market still presents upside risk Manufacturing side of economy improving Positive outlook for Latin America Boost from global economy Challenges remain along with concerns about political stability 46
Conclusions China moving toward consumer led growth Slowdown will continue, hard landing unlikely High debt is a risk, trade war as well Europe is predicted to post growth Unemployment improving Government policies tend to stifle economy Loss of momentum? 47
Increased Uncertainties, Elevated Risks US economic policy Trade war China: Pace of GDP growth deceleration Geopolitical tensions Eurozone problems Low inflation Political uncertainty 48
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