1st Annual Marine Money Cyprus Forum Global economic issues and the impact on Shipping Andreas Assiotis, PhD 26 April 2017
Table of contents 1 2 3 4 5 Economic Fundamentals and Global Drivers 3 Global Economic Outlook 5 Risks to the Outlook Risks Vs. Uncertainties 8 Global Macro Themes 10 Local Economy Local Partner 15
Economic fundamentals 101 consumption net exports investment government exp. Y = C + I + G + NX Monetary Policy Fiscal Policy Trade output 3
Global macro themes Old Themes, New questions Theme 2016 2017 Growth Stabilization, secular stagnation Upside potential, fiscal stimulus Interest rates, inflation Lower for long Inflation expectations Trade Slowdown due to weak demand Slowdown due to protectionism Emerging Markets Low commodity prices Strong dollar, trade wars 4
Real GDP Growth (YoY % change) Global economic outlook 5.0 3.5 3.6 3.7 1.7 1.5 World Advanced economies Euro area Emerging markets Economic activity is picking up (recovery in investment, manufacturing, and trade) Growth to increase marginally beyond 2018; driven by emerging markets Source: IMF, World Economic Outlook April 2017 5
Economic outlook Developed Markets US: strong outlook driven on the assumption of a looser fiscal policy stance EA: modest recovery supported by mildly expansionary fiscal stance and MP Japan: sizeable fiscal stimulus stabilizes growth outlook 6
Economic outlook Emerging Markets China: rebalancing of China s economy to lower, but still high, trend growth rates India: acceleration of activity due to the implementation of structural reforms Brazil: Growth is projected to recover gradually and remain moderate 7
2016: A year of low probability events 8
Political Risks in EU Risks to the outlook Geopolitical tensions Known Unknowns Vs. Unknown Unknowns Faster than expected interest hikes Vulnerabilities in EM Protectionism 9
A. Deflation fears to reflation expectations Headline inflation continues to rise in developed markets o Rising world commodities prices and base effects o Normalization of interest rates? ECB maintains easing bias in spite of rising headline HICP BoJ on hold, remains concerned on the inflation outlook BoE neutral stance; Brexit risks offset FED turns more hawkish 1. Why is the FOMC acting now? 2. Will rising interest rates derail the recovery? 3. When will normalization end? 10
What the Dots say? Target Federal funds rate & 30-day Federal funds futures fata Disparity between market expectations (less optimistic) and FED governors 11
B. Rebalancing from monetary to fiscal policy Anticipated shift in the US policy mix o Prospect of a sizeable fiscal stimulus under the new administration o Output close to potential? ECB: modest recovery to be supported by a mildly expansionary fiscal stance, accommodative financial conditions (if core inflation fails to pick up) 12
C. Trade protectionism? Protectionist policies hinder trade recovery A trade war would be a lose-lose situation Trade: An uneven playing field? 13
D. Developments in the US impacting EM Why is this important?.whenever the FED sneezes, emerging markets catch a cold Fiscal Stimulus interest rates Capital outflows $ denominated debt Source: OECD, 2017 March Economic Outlook 14
Closer to Home: Cyprus economic growth accelerates Real GDP Growth (year-on-year % change) Economic Developments 4 2 0-2 -4-6 -8-10 2010 2011 2012 2013 2014 2015 2016 2017f 2.8 2.8 1.4 1.6 0.4-2.5-0.5-2.4-5.9-3.9-8.7 Actual & current HB forecast Initial Programme forecast Crisis Road to Recovery Growth Hard won recovery Economy operating on fiscal surplus Stronger banking sector Sovereign credit rating improvements Property market is bottoming out Broad based economic growth challenges remain: NPEs, private and public debt 15
Hellenic Bank taking the next step Strong liquidity position (loans to deposits 50%) Only bank in Cyprus with a dedicated shipping business center, exclusively serving the maritime industry Tailor made services, highly experienced team Introducing a new ship finance desk lending selectively, conservatively Serving the Shipping Industry for 40 years 16
Thank you Andreas Assiotis, PhD Hellenic Bank Public Company Ltd email: a.assiotis@hellenicbank.com 17