Economic Outlook For US Dried Fruit and Nut Export Destinations Vernon Crowder SVP, Senior Analyst May 9, 2016
Team of 94 professionals in 10 different countries; A truly Global Team 2
Global Growth Outlook Muddling Through GDP Inflation Unem ploym ent rate 2015 2016 2017 2015 2016 2017 2015 2016 2017 United States 2.4 2.0 2.6 0.1 0.9 2.2 5.3 4.8 4.5 Japan 0.5 0.2 0.3 0.6 0.5 0.3 3.6 3.8 3.8 China 7.0 6.5 6.0 1.4 1.7 1.7 na na na United King dom 2.2 2.1 2.1 0.1 0.4 1.4 5.5 5.1 5.2 Eurozone 1.5 1.2 1.5 0.0 0.2 1.4 10.9 10.2 9.6 Germ any 1.4 1.7 1.7 0.1 0.5 1.5 4.6 5.7 4.3 France 1.1 1.0 1.0 0.2 0.2 1.0 10.5 10.5 10.3 Italy 0.6 0.7 0.8 0.1 0.2 1.2 11.9 11.0 10.5 Spain 3.2 2.5 2.3-0.5 0.0 1.5 21.9 19.8 18.3 Belg ium 1.4 1.0 1.5 0.6 1.5 1.7 8.3 8.0 8.0 Netherlands 1.9 1.9 2.0 0.2 0.5 1.3 6.9 6.3 6.0 Source: Financial Markets Research 3
Rabobank s Global Strategic Framework 450 400 Public and private debt (% GDP) 450 400 Too much debt Structural problems Overcapacity Incentives to weaken currency (Currency Wars) 350 350 Percent of GDP 300 250 200 150 100 50 300 250 200 150 100 50 Percent of GDP Slow trade and economy Commodity prices Global disinflation 0 United States Eurozone 0 Japan China (ex- shadowbank sector) Low wage growth, more saving Source: Financial Markets Research 4
Stronger Dollar and Lower Commodity Prices Source: Financial Markets Research 5
Unprecedented Monetary Policy Stimulus... 20000 18000 Balance sheet totals major central banks (USD, cumulative) 20000 18000 USD billion 16000 14000 12000 10000 8000 6000 4000 2000 0 2009 2010 2011 2012 2013 2014 2015 2016 ECB FED BOJ PBOC BOE 16000 14000 12000 10000 8000 6000 4000 2000 0 Source: Financial Markets Research 6
FX Wars Only Make Things Worse China gets weaker CNY The process...was one excessive depreciation after another in which each country would emerge from its own deflationary problems at the expense of the system as a whole. Kindleberger (1984, p.399) Japan needs weaker JPY US needs weaker USD Talking about the 1930s Europe needs weaker EUR Source: Financial Markets Research 7
This Isn t Working Anymore. It s Even Self- defeating Negative rates World trade suffering from FX wars Misallocation of capital and financial bubbles Rising income and wealth inequality Can we still cope with new shocks? Source: Financial Markets Research 8
FX Forecast 1 April 2016 1m 3m 6m 9m 12m EUR/USD 1.137 1.12 1.10 1.08 1.07 1.07 USD/JPY 112.2 112.0 114.0 115.0 116.0 116.0 GBP/USD 1.434 1.42 1.39 1.46 1.49 1.53 USD/CHF 0.961 0.97 0.99 1.01 1.02 1.02 USD/CAD 1.304 1.31 1.33 1.35 1.33 1.30 AUD/USD 0.766 0.75 0.73 0.71 0.70 0.69 NZD/USD 0.690 0.67 0.65 0.63 0.62 0.61 USD/NOK 8.285 8.44 8.64 8.89 8.88 8.83 USD/SEK 8.127 8.26 8.36 8.33 8.74 8.22 USD/DKK 6.554 6.65 6.77 6.90 6.96 6.96 DXY 94.69 95.8 97.5 98.3 98.8 98.0 Others 1m 3m 6m 9m 12m USD/ZAR 14.765 15.20 15.40 15.80 16.00 16.20 EUR/ZAR 16.785 17.02 16.94 17.06 17.12 17.33 Asian FX 1m 3m 6m 9m 12m USD/CNY 6.465 6.65 6.80 7.20 7.40 7.60 USD/HKD 7.755 7.76 7.76 7.76 7.76 7.76 USD/IDR 13,195 13,600 13,750 13,900 14,100 14,200 USD/INR 66.2 68.0 68.0 68.0 68.5 68.7 USD/KRW 1,149 1,220 1,250 1,275 1,300 1,325 USD/MYR 3.90 4.25 4.50 4.52 4.55 4.55 USD/PHP 46.1 48.0 48.5 48.8 48.9 49.0 USD/SGD 1.350 1.420 1.470 1.480 1.500 1.500 USD/THB 35.1 36.0 36.8 37.6 38.2 38.8 USD/TWD 32.3 33.8 34.5 35.2 35.3 36.0 USD/VND 22,280 22,632 22,882 23,032 23,182 23,332 CEE 1m 3m 6m 9m 12m EUR/CZK 27.04 27.1 27.1 27.0 27.0 26.8 EUR/HUF 313.9 306 304 302 300 302 EUR/PLN 4.245 4.26 4.24 4.22 4.20 4.18 EUR/RON 4.470 4.45 4.40 4.36 4.32 4.30 EUR/TRY 3.211 3.20 3.17 3.13 3.12 3.15 EUR/RUB 76.36 73.9 74.8 75.6 77.0 74.9 USD/HUF 276.10 273 276 280 280 282 USD/PLN 3.734 3.80 3.85 3.91 3.93 3.91 USD/RUB 67.08 66.0 68.0 70.0 72.0 70.0 USD/TRY 2.823 2.86 2.88 2.90 2.92 2.94 RUB basket 71.10 69.6 71.1 72.5 74.3 72.2 LatAm 3m 6m 9m 12m USD/BRL 3.592 3.50 3.30 3.50 3.75 4.00 USD/CLP 667.7 690 720 735 750 760 USD/COP 3,002 3,000 3,200 3,350 3,400 3,500 USD/MXN 17.34 17.5 18.0 18.5 19.0 19.8 USD/PEN 3.313 3.45 3.50 3.60 3.70 3.80 USD/ARS 14.705 14.50 15.00 15.50 16.00 17.00 EUR/BRL 4.088 3.92 3.63 3.78 4.01 4.28 EUR/MXN 19.71 19.6 19.8 20.0 20.3 21.2 1m 3m 6m 9m 12m Brent 40 37 33 35 35 38 WTI 38 35 31 33 33 35 Source: Rabobank 9
2015 Nuts and Dried Fruit Exports Destinations & Value Mexico 3% Middle East 12% Others 7% China & Hong Kong 12% India 7% Japan 6% Crop Almonds Walnuts Pistachios Export Value 4.7 Billion 1.5 Billion 850 Million Canada 7% Other Asia 5% Pecans Raisins 470 Million 334 Million Other Europe 18% Germany 9% Spain 9% South East Asia 5% Hazelnuts Dates Figs 111 Million 50 Million 17 Million Source: USDA, GATS, Rabobank, 2016 10
GDP Growth in the Eurozone Source: Financial Markets Research 11
Will the Eurozone Hold Under Renewed Stress? Combination of income inequality and long-term unemployment a fertile soil for populist parties and calls for self-determination Migrant flows a risk as well as an opportunity to fight demographic challenges 80 70 gr % long- term unemployed 60 50 40 30 20 be nl fi se mt at dk fr it ie de uk pt es cy 10 0 20 25 30 35 40 Gini coefficient of income unequality Source: Financial Markets Research 12
Japan Economic Forecast Yearly Quarterly 2015 2016 2017 Q4/2015 Q1/2016 Q2/2016 Q3/2016 GDP 0.5 0.2 0.3 0.7 0.0 0.1 0.4 Consumption -1.2-0.3 0.6-1.1-1.2-0.1-0.5 Investment 1.1 2.0 0.7 2.2 2.0 2.3 1.9 Government 1.2 1.2 1.2 1.4 1.4 1.2 1.3 Trade 0.4 0.0 0.0 0.0 0.0 0.0 0.0 Inventories 0.5-0.1-0.4 0.5 0.0-0.5 0.1 CPI (% YoY) 0.6 0.5 0.3 0.3 0.4 0.5 0.6 Unemp. %rate 3.6 3.8 3.8 3.6 3.7 3.7 3.8 Source: Rabobank 13
Japanese Yields have Fallen Dramatically Source: Bloomberg 14
India Economic Forecast Yearly Quarterly 2015 2016 2017 Q4/2015 Q1/2016 Q2/2016 Q3/2016 GDP 7.3 7.6 7.3 7.3 7.7 7.6 7.2 Consumption 3.5 3.8 3.7 3.6 3.9 4.0 4.0 Investment 1.7 2.2 2.6 0.9 2.3 2.8 2.2 Government 0.2 1.0 0.8 0.5-0.2 0.7 1.4 Trade 0.1 0.7 0.3 0.5 2.1 1.3-0.5 Inventories 0.5-0.1-0.1 0.5 0.6-0.3-0.4 CPI (% YoY) 5.1 5.3 5.2 5.5 5.7 5.4 5.1 Source: Rabobank 15
Indian vs. Chinese FX Reserves Source: Bloomberg 16
One Could Certainly Call This Model a Success! 20,000 Nominal GDP, USDbn 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 China Source: Financial Markets Research Euro area Japan US Australia 17
Investment Driven By Financial Repression Keep savings rates below inflation (i.e., banks tax households) Keep lending rates below nominal GDP growth (i.e., banks subsidize firms)...et volia! USD 3 trillion available to invest Source: Financial Markets Research 18
To All Things There is Was a Season......in... too many houses too much investment Way too much debt overcapacity, deflation STRUCTURAL PROBLEMS Source: Bloomberg, Financial Markets Research 19
In Short, No Easy Path for China Ahead Mass bankruptcy MARKET REFORMS? Banking crisis Recession Growth keeps slowing MORE STIMULUS? Debt-to-GDP keeps rising Japan scenario or debt crisis No global demand EXPORT WAY OUT? CNY overvalued Trade wars to follow? Source: Financial Markets Research 20
Mexico: USD/MXN Forecasts Source: Rabobank 21
Canadian Growth and Inflation 5 GDP growth y/y, % CPI inflaton y/y, % Core CPI inflaton y/y, % 4 3 2 1 0-1 - 2-3 - 4-5 MeeLng Probability of 25bp cut 4/13/2016 5.9% 5 5/25/2016 10.5% 4 7/13/2016 10.4% 3 9/7/2016 13.1% 2 1 10/19/2016 19.8% 0 12/7/2016 22.1% - 1 Jan- 10 Jul- 11 Jan- 13 Jul- 14 Jan- 16 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '14 '15 Source: Bloomberg 22
We are USD Bulls for 2016 1300 1250 1200 1150 1100 1050 1000 950 900 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 105 100 95 90 85 80 75 70 BBG USD index (larger basket that includes EM) DXY USD index Source: Bloomberg 23
The Bigger Picture 1) There is currently no obvious, strong driver of global growth. 2) FX Wars will rage globally. 3) US growth is fragile and will likely be subdued this year. 4) EM are slowing and China will be forced to allow greater currency depreciaton. 24
Contact Details Rabobank N.A. Vernon Crowder Senior Vice President, Senior Analyst Food & Agribusiness Research and Advisory Vernon.Crowder@Rabobank.com The financial link in the global food chain DISCLAIMER This presentation has been prepared exclusively for the benefit and internal use of Rabobank International and does not carry any right of publication or disclosure other than to Rabobank International. Neither this presentation nor any of its contents may be used for any other purpose without the prior written consent of the Coöperatieve Centrale Raiffeisen- Boerenleenbank B.A. ( Rabobank ). The information in this presentation reflects prevailing market conditions and our judgment as of this date, all of which may be subject to change. This presentation is based on public information. The information and opinions contained in this document have been compiled or arrived at from sources believed to be reliable, but no representation or warranty, express or implied is made as to their accuracy, completeness or correctness. The information and opinions contained in this document are wholly indicative and for discussion purposes only. No rights may be derived from any potential offers, transactions, commercial ideas et cetera contained in this presentation. This presentation does not constitute an offer or invitation. This document shall not form the basis of or be relied upon in connection with any contract or commitment whatsoever 25
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