Global Economic Outlook Brittle Strength RISI North American Conference October 2017 Lasse Sinikallas Director Macroeconomics
Agenda 1. Global Snapshot Steady 2. North America Performing 3. China In Transition 4. Europe In Progress 2
Three Common Themes 1. Growth 2. Inflation 3. Uncertainty 3
Global Economic Growth Shows Moderate Acceleration Annual Real GDP Growth Euro Area USA 2.0% 1.8% 1.9% 1.7% 2.6% 1.6% 2.1% 2.7% 15 16 17 18 Latin America 15 16 17 18 China 6.9% 6.7% 6.3% 5.9% 15 16 17 18 0.1% 1.2% 1.3% 2.4% 15 16 17 18 Source: IMF, RISI 4
Both Developed and Developing Economies Doing Better Global Real GDP* Growth 10 8 6 Advanced Emerging World 4 2 0 2 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 4 6 *Measured at purchasing power parity exchange rates Source: IMF, RISI 5
Inflation Remains at a Low Level 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 Source: IMF 6
Oil Prices Picking Up 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 Source: Energy Information Administration, RISI 7
US Economy Maintains Pace Uncertainty associated with Trump policies Change to a solution seeking mode Many reforms not yet realized Concerns about trade and immigration policies Positive: Deregulation stepped up Domestic growth remains healthy Employment and wage growth Housing market Dollar lost some of the strength it had Tightening labor supply 8
Job Openings at a 15 Year High Job Openings and Labor Turnover, Thousands 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 Source: Bureau of Labor Statistics 9
Job Growth Slowing Down Monthly Employment Change, Total Non Farm, Thousands 600 400 200 0 200 400 600 800 1,000 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Source: Bureau of Labor Statistics 10
Inflation Pressure Building Up Unemployment vs. Average Hourly Salary Change Year over Year; 10 Year Sample 4.0% 3.5% Salary Change 3.0% 2.5% 2.0% September August July 2Q17 1.5% 1.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Unemployment Source: Bureau of Labor Statistics 11
US Labor Productivity Growth Slow Non farm, Percentage Change Quarter over Quarter, Annualized 2.0% 1.0% 0.0% 1.0% 12
Consumption Growth in Services Annualized Percentage Change in Real Personal Consumption Expenditure, Unemployment 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2.0% 4.0% 6.0% Durable Goods Nondurable Goods Services Unemployment 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Source: Bureau of Economic Analysis 13
Fed Rate Hikes Impact Credit Growth Consumer Credit, Year over Year Percentage Change; Fed Rates 15% 10% 5% 0% 5% 10% 05 06 07 08 09 10 11 12 13 14 15 16 17 Revolving Nonrevolving Fed Funds Rate (Eff.) (R) Fed Upper Limit (R) 7% 6% 5% 4% 3% 2% 1% 0% Source: Federal Reserve 14
Housing Recovery Slow, Sales Down Existing and New Home Sales and Housing Starts, Millions of Units 8 7 6 5 4 3 2 1 0 Existing Home Sales (L) Housing Starts (R) New Home Sales (R) 05 06 07 08 09 10 11 12 13 14 15 16 17 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 15
Dollar Returning from 10 Year Highs Trade Weighted US Dollar Index: Broad, January 1997 = 100 130 125 120 115 110 105 100 95 90 85 80 Source: Federal Reserve 16
Dollar Supports Manufacturing Index of Industrial Production, Jan 2012 = 1.00; PMI 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 Source: Federal Reserve, Institute for Supply Management 70 65 60 55 50 45 40 35 30 25 20 17
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 18
Oil and US Economy Boost Canada Real GDP Growth, Annualized Percentage 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 Source: Statscan 19
Canadian Dollar Moving Up from a Weaker Level 1.1 USD/CAD 1.0 0.9 0.8 0.7 0.6 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: Fed, RISI 20
China in Transition Economy going through restructuring Investment led growth to consumer based growth Growth resizing to lower levels Some financial liberalization Fiscal and monetary stimulus seems to have worked Continuing concerns about debt levels Increased volatility for renminbi 21
Industrial Side of Economy Settling Fixed Asset Investment, Year over Year Percentage Change; Industrial Production, Year over 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% 5 6 7 8 9 10 11 12 13 14 15 16 17 22
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 2,500 1,500 500 500 Aggregate Financing New Bank Loans Money Supply M2 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 35% 30% 25% 20% 15% 10% 5% 0% Source: CEIC 23
Trade Recovered to Growth 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 Source: China National Bureau of Statistics, CEIC 24
Industrial Imports Continue to Climb Three Month Average of Imports by Quantity, Index 2005 = 100 500 450 400 350 300 250 200 150 100 50 0 Iron Ore Crude Oil Copper 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Source: CEIC 25
Renminbi Volatility Increased 9.00 8.50 8.00 7.50 CNY/USD 7.00 6.50 6.00 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Source: Fed 26
Chinese Economy Slows 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 27
Europe Positive Momentum? The Positives Growth positive and steady, even picking up speed Bank lending improving The Negatives Still some risk of deflation Unemployment remains high The Risks Lack of policy coordination Geopolitics 28
Unemployment Improving, but Still High Outside of Germany Harmonized Unemployment Rate 30% 28% 26% 24% 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Eurozone Germany Greece Spain France Italy Portugal 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Source: Eurostat 29
Inflation on the Rise, but Still Weak CPI, Core CPI; Year over Year Percentage Change 5.0% 4.0% CPI Core CPI ECB Target 3.0% 2.0% 1.0% 0.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1.0% Source: Eurostat 30
Euro Recovered from French and Dutch Elections to a Stronger Level $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 Source: Fed, RISI 31
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 2.0 3.0 4.0 5.0 6.0 7.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Germany France Italy UK Eurozone Source: IMF, RISI 32
Conclusions World economy expected to accelerate modestly in 2017 2018, 2019 US economy projected to perform well New administration policies? Housing market still presents upside risk Manufacturing side of economy improving China moving toward consumer led growth Slowdown will continue, hard landing unlikely 33
Conclusions Europe is predicted to post steady growth Unemployment improving Government policies tend to stifle economy Emerging economies doing well Continue to benefit from Chinese growth Helped by good growth in developed world 34
Uncertainties Make Global Economy Brittle US economic policy Geopolitical tensions China: Pace of GDP growth deceleration Productivity growth Eurozone problems Low inflation Populism 35
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