PMI and economic outlook Chris Williamson Chief Business Economist, IHS Markit 1 st November 2017
2 PMI coverage Current coverage Expansion pipeline 40+ Countries covered 27,000+ Companies surveyed every month 87% Global GDP
3 NEVI Netherlands PMI 65 Expanding 60 55 Dot com bubble bursts Euro replaces guilder Eurozone debt Global crisis financial crisis prompts ECB stimulus Eurozone debt crisis worsens 50 ECB cuts rates and extends QE 45 ECB starts buying govt debt 40 Contracting 35 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
4 Netherlands economy Netherlands economy & GDP Netherlands economy & GDP trend
5 Netherlands economy Exports Manufacturing employment
6 Manufacturing PMI: business activity
7 Eurozone economy Eurozone economy & GDP Eurozone employment
8 EU economy
9 Eurozone supply chains Eurozone PMI Manufacturing Input Prices Index 90 Eurozone PMI Suppliers' Delivery Times Index (inverted) 32 80 37 70 42 60 50 47 40 52 30 Eurozone PMI manufacturing input prices 20 Eurozone PMI suppliers' delivery times 10 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 57 62
10 Manufacturing PMI: input prices
11 Interest rates ECB policy and business activity ECB policy and price pressures
12 Global economy Developed market output Emerging market output
13 Global economy Global GDP and the PMI Developed v emerging market output
14 Global price pressures Prices and supply delays Output and supply delays
15 Industrial materials prices remain well below previous peaks IHS Markit weekly indexes, 2002:1=1 6 5 4 3 2 1 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 All industrial materials Chemicals Nonferrous metals
16 Global outlook
17 Global economy Annual % change Why did world trade slow? Real GDP Industrial production 5 4 Real goods & services trade Cyclical forces Slow growth in aggregate world demand Weak capital spending Collapse in commodity prices 3 Shift from manufacturing to services 2 Structural forces Shortening of global supply chains Lack of trade liberalization Technological advances 1 0 2012 2013 2014 2015 2016 2017 2018 2019 2020
18 Consumer price inflation Annual % change 10 8 6 4 2 0 2000 2003 2006 2009 2012 2015 2018 World Advanced countries Emerging markets Why is inflation so low? No sustained inflationary liftoff yet anywhere. Many explanations, but little consensus Prices: > Lacklustre growth and large output gaps > Excess industrial capacity > Technology > Rolling positive supply shocks (e.g. commodity markets) Wage inflation: > Labor market slack > Demographics > Poor productivity growth > Technology and globalization > Earnings pressure and the shift in market power Bottom line: Inflation will rise in the next couple of years but slowly
19 Crude oil US$ per barrel 150 125 100 75 50 25 0 2000 2005 2010 2015 2020 2025 Current US dollars 2016 US dollars Strong seasonal demand, declining US crude oil inventories, and expectations that US supply growth will moderate are supporting prices. If prices stay over USD60/barrel, US supplies will surge. Although world oil demand growth will remain firm, a production surplus will reemerge through 2018. North America, Brazil, the United Kingdom, and Kazakhstan will contribute to global production growth. OPEC will likely continue to restrict its output through the end of 2018. This decision could be made at its 30 November ministerial meeting. Price increases are expected after 2018, when supply growth slows. There is no shortage of geopolitical risks to oil supplies, including those posed by tensions between Iraqi federal and Kurdistan Regional Government (KRG) forces as well as the possibility of the United States reimposing nuclear-related sanctions on Iran.
20 Real GDP growth in major economies Real GDP Percent change 2015 2016 2017 2018 2019 World 2.9 2.5 3.2 3.2 3.1 United States 2.9 1.5 2.2 2.5 2.2 Canada 0.9 1.5 3.0 2.3 2.2 Eurozone 2.0 1.8 2.4 2.1 1.8 United Kingdom 2.3 1.8 1.5 1.1 1.2 China 6.9 6.7 6.8 6.5 6.2 Japan 1.1 1.0 1.6 1.1 0.7 India* 8.0 7.1 6.8 7.4 7.6 Brazil -3.8-3.6 0.9 2.1 3.3 Russia -2.8-0.5 1.8 2.1 1.8
21 National economic outlooks Annual % change in real GDP
22 Eurozone outlook After a solid performance in the first three quarters of 2017, the Eurozone economy is expected to grow 2.4% this year and 2.1% in 2018. Monetary stimulus, better access to credit, reduced fiscal headwinds, and rising consumer and business confidence will help sustain growth. Challenges remain. The banking and political situations in Italy are fragile. The rising popularity of nationalist parties in Germany and Austria, and Catalonia s independence proclamation are concerns. Underlying price pressures remain subdued. Core inflation retreated to 0.9% y/y in October, while overall inflation eased to 1.4% y/y. Monetary policy remains accommodative; the European Central Bank is not expected to raise interest rates until the third quarter of 2018. Ireland, Spain, Germany, Sweden, and the Netherlands will maintain relatively healthy economic growth, but the United Kingdom and Italy will lag behind.
23 National economic outlooks Annual % change in real GDP
24 Netherlands in 2018 GDP +2.2% v +3.2% 2017) Domestic demand buoyed (+1.6% v +2.2% 2017) by fall in unemployment rate to 4.5% Fixed investment & government consumption also set to rise Exports a key driver of 2018 growth (+3.6% v +4.8% 2017), despite stronger euro.
25 Interest rates %, end of quarter 6 5 4 3 2 1 0-1 2007 2009 2011 2013 2015 2017 2019 United States Eurozone Japan United Kingdom
26 Exchange rate Euro gaining from: better euro area economic news, diminished domestic political uncertainty Trump-related concerns Trade imbalances to put downward pressure on US$ Monetary policy timing Euro per US dollar 1,20 1,15 1,10 1,05 1,00 0,95 0,90 0,85 0,80 0,75 0,70 0,65 0,60 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
27 What could go wrong? The average duration of an expansion does not tell us much and neither does low unemployment The usual suspects are low-level threats for the moment Monetary (over) tightening Oil shocks Bursting asset bubbles And not all shocks cause recessions But policy mistakes are possibly the biggest threat now A central bank mistake Fiscal debacle Trade war Mismanaged China debt crisis Geopolitical threats (North Korea, Syria, Ukraine etc.) are low probability but potentially high impact events. In Europe, Brexit, the banking and political situations in Italy, the rising popularity of nationalist parties in Germany and Austria, and Catalonia s independence proclamation are concerns. Bottom line: Left to its own devices, the global expansion could go on for another couple of years.