Economic Indicators Roland Berger Institute October 2017
Overview Key points Economic Indicators A publication, compiled by the Roland Berger Institute, that provides you with the most important macroeconomic facts and figures. The presentation is updated regularly. Sources We screen the insights of the most important economic research institutes, think tanks and corporate research units around the world. These include IMF, OECD, WTO, Consensus as well as databases such as Bloomberg and Oxford Economics. 1 2 3 Real economic indicators > We are in the midst of a strong recovery of the world economy, but geopolitical risks in particular may threaten growth in the medium-term > GDP growth rates are picking up on a broad base, global GDP growth is projected to reach 3.6% in 2017 and 3.7% in 2018 > Inflation rates in advanced economies are expected to more than double reaching an average of 1.7% in 2017 Financial indicators > Stock markets are in great shape, key indices such as Dow Jones, Nikkei and DAX reaching new all-time highs > Fed interest rate is expected to rise further during 2018, while the ECB's is projected to stay at zero. Euro gained on USD > Low bond yields and CDS indices reflect the current strength of economic activity and decreasing risks Other indicators > Global economic climate has strongly recovered since Q4 2016 reaching high levels in EU and Germany > Consumer sentiment in US and Germany at record levels in fall 2017 2
While in the short term the recovery of the world economy is strengthening, there are several risks to growth in the medium term Development of the world economy > The upswing in global economic activity is strengthening. After a GDP growth rate of 3.2% in 2016, which was the weakest since the global financial crisis in 2009, global growth is expected to increase to 3.6% in 2017 and 3.7% in 2018 > According to the IMF, "broad-based upward revisions in the euro area, Japan, emerging Asia, emerging Europe, and Russia where growth outcomes in the first half of 2017 were better than expected more than offset downward revisions for the United States and the United Kingdom." > In the cyclical pickup of global activity the IMF sees a "window of opportunity to tackle the key policy challenges namely to boost potential output while ensuring its benefits are broadly shared, and to build resilience against downside risks. A renewed multilateral effort is also needed to tackle the common challenges of an integrated global economy." > The IMF recommends structural reforms and growth-friendly fiscal policies to boost productivity and labor supply. Advanced economies should continue with their accommodative monetary policy until there are firm signs of inflation returning to target levels Potential risk factors for the world economy > Growth remains weak in many countries. Commodity exporters are particularly hard hit as their adjustment to a sharp stepdown in foreign earnings continues > High policy uncertainty and geopolitical tensions (e.g. regarding North Korea, Middle East, Ukraine). Policy missteps could take a toll on market confidence, resulting in tighter financial conditions and weaker asset prices > Prospects for medium-term growth are subdued, as negative output gaps shrink and demographic factors and weak productivity weigh on potential growth > Further risks to growth in the medium term: a more rapid and sizable tightening of global financial conditions, financial turmoil in emerging markets, persistently low inflation in advanced economies, a broad rollback of the improvements in financial regulation achieved since the global financial crisis, and a shift towards protectionism. Source: IMF 3
The global economic upswing gained further momentum in 2017 Broad based upward revisions of short term growth forecasts Real GDP growth [%] 2015 2016 2017 (change in forecast) 1) 2018 (change in forecast) 1) World 3.4 3.2 3.6 (0.1) 3.7 (0.1) 3.0 5.4 4.3 3.5 World 3.5 3.6 3.4 3.2 3.6 3.7 Advanced economies 2) 2.2 US 2.9 1.5 Eurozone 2.0 1.8 2.1 (0.4) Germany 1.5 1.9 2.0 (0.4) France 1.1 1.2 1.6 (0.2) 1.7 2.2 (0.2) 2.2 (-0.1) 2.0 (0.0) 2.3 (-0.2) 1.9 (0.3) 1.8 (0.3) 1.8 (0.2) Italy 0.8 0.9 1.5 (0.7) Spain 3.2 3.2 3.1 (0.5) 1.1 (0.3) 2.5 (0.4) -0.1 2008 2010 2012 2014 2016 2018 Japan 1.1 1.0 1.5 Emerging/dev. economies 4.3 China 6.9 6.7 6.8 (0.2) Russia -2.8-0.2 1.8 (0.4) 4.3 (0.3) 0.7 (0.1) 4.6 (0.1) 4.9 (0.1) 6.5 (0.3) 1.6 (0.2) 1) Change related to previous forecast (April 2017) indicates stability of the forecast; all 2017 and 2018 figures on the following slides are forecasts 2) Advanced economies is the term used by IMF to describe developed countries Source: IMF 4
Economies of Brazil, Russia and Nigeria emerge from recession China and India continue remain engines of growth Real GDP growth [%] BRICS NEXT-11 2) ASEAN-5 Brazil Russia India China Weighted avg. 3) 2016-3.6-0.2 5.1 2017 0.7 1.8 5.7 2018 1.5 1.6 7.1 6.7 7.4 6.7 6.8 6.5 South Africa 0.3 0.7 1.1 5.8 Bangladesh Egypt Iran Mexico Nigeria Pakistan 2016 2017 2018 2016 2017 2018 7.2 4.3 12.5 2.3-1.6 4.5 7.1 4.1 3.5 2.1 0.8 5.3 7.0 4.5 3.8 1.9 1.9 5.6 Indonesia Malaysia Philippines Thailand Vietnam Weighted avg. 3) 5.0 4.2 6.9 3.2 6.2 4.9 5.2 5.4 6.6 3.7 6.3 5.2 5.3 4.8 6.7 3.5 6.3 5.2 South Korea 2.8 3.0 3.0 MIST 1) Turkey 3.2 5.1 3.5 2016 2017 2018 Weighted avg. 3) 4.5 4.2 4.1 Weighted avg. 3) 3.5 4.0 3.6 1) MIST states comprise Mexico, Indonesia, South Korea and Turkey 2) Except for the Asean-5 countries Indonesia, Philippines and Vietnam; however the weighted average includes all countries of the aggregate Next 11, not only the ones listed 3) Average weighted via GDP in PPP current international dollar Source: IMF 5
The risk of recession has declined all over the world With the USA being a notable exception Probability of recession within the next four quarters following Q4 and Q1 2017 [%] 50 45 40 35 30 25 20 15 10 5 0 23.8 21.6 United States 29.5 21.7 Eurozone 44.0 40.0 Japan 0.8 0.6 Emerging Asia 28.7 19.6 Latin America 32.6 31.6 Rest of the World Comments > Compared to the IMF WEO Outlook from April 2017 and reflecting higher projected growth rates, the probability of a recession within the next four quarters declined esp. in the Eurozone and Latin America > Exception USA: Recession risk low but slightly rising > Overall, Japan shows the highest recession risk with 40.0% IMF WEO October 2017: Probability of recession within the period 2017 Q4 2018 Q3 IMF WEO April 2017: Probability of recession within the period 2017 Q2 2018 Q1 Source: IMF 6
Compared to recoveries after previous recessions OECD countries' investment levels since the last crisis remain too low Investment evolution of OECD countries following recessions 1) [Ind.] Pre-recession peak = 100 140 130 120 110 100 Total investment [% of GDP] Advanced economies US Eurozone Germany Japan 2015 2016 World 25.8 25.3 25.4 (0.0) 25.5 (-0.1) 21.2 20.4 20.0 19.1 19.7 20.3 19.2 23.3 19.8 20.6 19.4 23.4 (-0.3) (0.6) (0.3) (-0.1) 20.0 20.8 19.6 23.5 (-0.6) (0.6) (0.4) France 22.8 23.0 23.3 (1.1) 23.0 (1.2) 23.9 20.9 2017 (change in forecast) 2) 2018 (change in forecast) 2) 21.1 (0.1) 21.3 (-0.1) (-0.2) 90 Emerging/dev. economies 33.0 32.3 32.0 (0.0) 31.9 (0.0) 80 1 2 3 4 5 6 7 8 9 10 Years after peak China Russia 44.7 22.1 44.2 44.0 (0.1) 43.3 (0.0) 25.3 23.8 (1.5) 24.4 (1.5) Current recovery Average previous 3 recoveries 1) Current recovery since 2008 Q1 including forecast in the dotted line. Previous 3 recoveries pre-recession peak in 1973 Q4, 1980 Q1 and 1990 Q3. Investment is real total gross fixed capital formation 2) Change related to previous forecast (April 2017) indicates instability of the forecast Source: OECD, IMF 7
Mixed picture regarding output gaps: Some countries still have room for improvement while others are stretching their limits Output gap in 2017 [% of potential GDP] 1) Developed countries Developing countries 0.8 1.6 0.3 0.1 0.8-0.1-0.7-0.3-0.7-1.8-1.6-3.7 France Italy Spain UK US Germany Brazil India Russia China Turkey Iran 1) The output gap is actual minus potential output, as a percentage of potential output. Potential output referred to as the production capacity of the economy is the maximum amount of goods and services an economy can turn out when it is most efficient (at full capacity). Estimates of the output gap are subject to significant margins of uncertainty Source: IMF 8
Oil price on the up, but high inventories and quick responses by shale producers are expected to limit sharp price rises Oil price (Brent) [USD/barrel] 1) Forward curve and forecast 2) +85.7 147.5 Highest value +30.6 Jul 2008 125.9 122.9 112.4 61.8 75.2 57.4 45.6 87.4-120.4 97.8 66.8 53.0 57.7 65.0 57.8 48.0 62.0 57.6 46.5 65.0 57.2 45.0 65.0 56.7 43.0 67.0 56.2 40.7 66.0 56.0 40.7 Jan 2016 27.1 Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Oct 2017 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 1) All values (except highest, lowest and latest) are end-of-month based; highest and lowest values are the max-/minimum on a daily basis, latest value is end-of-day value of Oct 24th 2017 2) The blue dashed lines indicate a forecast range of highest and lowest values; the black dashed line is the forward curve Source: Bloomberg 9
Gold price remains volatile around 1,200 USD Commodity prices rose in the last months, mainly driven by increasing energy prices Gold price [USD per ounce] 1) S&P GSCI [Index value] 1) 2) Highest value Sep 2011 1,921.2-642.1 890.3 Highest value Jul 2008 +131.1 Lowest value Jan 2006 516.9 974.2 +1,404.3 1,179.6 1,327.3 1,351.0 1,293.0 1,279.1 1,234.6 1,152.3 1,061.4 453.9 +436.4 599.3 758.8 703.5 549.9 591.0-618.5 658.6 445.6 402.9 724.6 336.2 Jan 2016 271.8 Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Oct 2017 Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Oct 2017 1) All values (except highest, lowest and latest) are end-of-month based, highest and lowest values are on a daily end-of-day basis, latest value is end-of-day value of Oct 24th 2017 2) S&P GSCI (formerly Goldman Sachs Commodity Index): serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time Source: Bloomberg 10
In the US, housing market index approaches its 2006 high Global manufacturing index solid above 50 signaling further expansion Case Shiller Index [Index] 1) 3) JPM Global Manufacturing PMI [Index] 2) 3) 206.5 Highest value Jul 2006 +67.9 202.0 Highest value April 2010 and Feb 2011 57.4-4.2 202.0 +4.5 180.7 165.6 181.8 193.6 54.6-20.3 49.1 52.9 51.3 48.6 53.2 50.5 53.2 52.7 50.0-72.4 148.9 146.6 139.3 143.0 March 2012 134.1 Lowest value Dec 2008 34.3 +23.1 Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014 July 2017 Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Sep 2017 1) Measure for the US residential housing market 2) JP Morgan's Purchasing Managers' Index is based on surveys covering purchasing executives in 40 countries accounting for an estimated 95% of global manufacturing output; 50 = neutral mark (no change on prior month) values above 50 indicate rising and below falling values 3) All values are end-of-month based Source: Bloomberg 11
Advanced economies' inflation is strongly increasing, but due to the relatively weak oil price less than previously anticipated Inflation rate 1) [%] 2015 2016 2017 (change in forecast) 1) 2018 (change in forecast) 1) 6.3 World 2.8 2.8 3.1 (-0.4) 3.3 (-0.1) Advanced economies 0.3 0.8 1.7 (-0.3) 1.7 (-0.2) 5.0 World US 0.1 1.3 2.1 (-0.5) 2.1 (-0.3) Eurozone 0.0 0.2 1.5 (-0.2) 1.4 (-0.1) 4.1 Germany 0.1 0.4 1.6 (-0.5) 1.5 (-0.2) 3.7 3.7 3.2 2.8 2.8 3.1 3.3 France 0.1 0.3 1.2 (-0.2) 1.3 (0.1) Italy 0.1-0.1 1.4 (0.2) 1.2 (-0.1) Spain -0.5-0.2 2.0 (-0.4) 1.5 (0.0) 2.7 Japan 0.8-0.1 0.4 (-0.6) 0.5 (-0.1) Emerging/dev. economies 4.7 4.4 4.2 (-0.4) 4.4 (0.0) 2008 2010 2012 2014 2016 2018 China Russia 1.4 2.0 1.8 15.5 7.0 4.2 (-0.6) (-0.2) 2.4 3.9 (0.1) (-0.3) 1) Annual change in average consumer prices (headline inflation) 2) Change from previous forecast (April 2017) indicates instability of the forecast Source: IMF 12
The strong economic pick-up lowers unemployment rates briskly But in the Eurozone rates are still high Unemployment rate [%] 2015 2016 2017 (change in forecast) 1) 2018 (change in forecast) 1) 7.6 9.6 11.4 10.2 10.2 9.6 9.3 8.9 8.1 12.0 11.6 10.9 Eurozone 7.4 10.0 9.2 8.7 Advanced economies 6.7 6.2 US Eurozone Germany France 5.3 10.9 4.6 10.4 Italy 11.9 4.9 10.0 4.4 (-0.3) 4.1 (-0.5) 4.2 3.8 (-0.4) 3.7 (-0.5) 10.0 11.7 5.7 (-0.3) 5.4 (-0.4) 9.2 (-0.3) 8.7 (-0.4) 9.5 (-0.2) 9.0 (-0.2) 11.4 (0.0) 11.0 (0.0) 5.8 US 6.2 5.3 4.9 4.4 4.1 Spain 22.1 Japan China Russia 19.6 3.4 3.1 2.9 4.1 4.0 4.0 5.6 5.5 5.5 17.1 (-0.6) 15.6 (-1.0) (-0.2) (0.0) (0.0) 2.9 4.0 5.5 (-0.2) (0.0) (0.0) 2008 2010 2012 2014 2016 2018 1) Change from previous forecast (April 2017) indicates instability of the forecast Source: IMF 13
US and German equities scaling new peaks, while Shanghai Composite continues to climb Dow Jones [Index value] 1) DAX [Index value] 1) Shanghai Composite [Index value] 1) Highest value Oct 2017 23,368 23,274 Highest value Oct 2017 13,095 12,375 13,027 6,124 Highest value Oct 2007-2,736 +16,898 +9,506 4,612 13,930 12,811 16,285-94 8,067 7,376 9,495-68 +4,962 3,412 3,235 2,688 3,388 10,865 10,913 5,674-4,395-2,085 6,470 Mar 2009 3,589 5,502 Mar 2009 1,162 1,871 Jan 2006 2,048 Jan 2006 Oct 2017 Jan 2006 Oct 2017 Jan 2006 Oct 2017 1) All values (except highest, lowest and latest) are end-of-month based; highest and lowest values are the max-/minimum on a daily basis, latest value is end-of-day value of Oct 23rd or 24th 2017 Source: Bloomberg 14
EURO STOXX, Nikkei and CAC 40 mirror the upward trend Nikkei following Dow Jones and DAX reaching new all-time highs EURO STOXX [Index value] 1) Nikkei [Index value] 1) CAC 40 [Index value] 1) Highest value Jun 2007 +881 3,692 4,573 3,013 +1,851 18,262 16,650 3,697 3,616 Highest value Oct 2017 +14,810 16,291 21,805 19,651 15,576 4,948 6,168 +1,220-3,703 Highest value Jun 2007 4,110 +2,935 5,083 4,237 5,400 2,865-9,655 11,090-2,807 1,765 2,119 Mar 2009 6,995 8,928 Oct 2008 2,465 3,017 Mar 2009 Jan 2006 Oct 2017 Jan 2006 Oct 2017 Jan 2006 Oct 2017 1) All values (except highest, lowest and latest) are end-of-month based; highest and lowest values are the max-/minimum on a daily basis, latest value is end-of-day value of Oct 24th 2017 Source: Bloomberg 15
While Fed interest rates are set to rise, ECB's are expected to stay at zero Since Trump taking office, Euro gained ground on USD Interest rates [%] 1) Forecast 2) EUR/USD exchange rate [EUR/USD] 1) Forecast 3) 5.25 1.60 Highest value Apr 2008 4.50 4.25 ECB 1.50 1.45 1.39 1.28 1.33 2.25 Fed 2.00 1.00 0.25 1.50 0.25 1.25 1.25 0.50 0.00 1.75 0.00 0.00 2.25 1.18 1.23 1.23 1.25 1.15 Jan 2017 1.03 1.19 1.19 1.09 1.20 1.08 Jan 2006 Oct 2017 Q4 2018 Jan 2006 Oct 2017 Q3 2018 1) All values (except highest, lowest and latest) are end-of-month based; highest and lowest values are the max-/minimum on a daily basis, latest value is end-of-day value of Oct 26th 2017 2) Fed forecast figures show the upper limit 3) The blue dashed lines indicate a forecast range of highest and lowest values; the black dashed line is the forward curve Source: Bloomberg, Commerzbank, Postbank 16
Low bond yields and declining CDS indices reflect the current strength of economic activity and the overall lower risk levels Yields of 10y government bonds [%] 1) Credit default swaps (CDS) [Index 01/11=100] 1) 35 30 25 20 LATEST VALUES 5.6 Greece 3.7 China 2.3 Portugal 2.0 Italy 1.6 Spain 0.9 France 0.5 Germany 200 150 LATEST VALUES 64 US 52 Eurozone 78 Asia 15 100 10 5 0-5 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Oct 2017 50 0 First 36 month LTRO 2) announcement 21 Dec 2011 Jan 2011 Jan 2013 Jan 2015 Oct 2017 1) All values (except latest) are end-of-month based; latest value is for Oct 24th 2017 2) LTRO: Long Term Refinancing Operations. ECB lends money to Eurozone banks at a very low interest rate Source: Bloomberg 17
Austerity efforts continue EU and Eurozone are heading towards an average level of 1% government net lending Fiscal balance [% of GDP] 1) 2015 2016 2017 2018-1.1-3.3 1.2-1.4-3.8-8.6 Emerging & developing economies 2) -1.0-6.2-1.7-3.6 Advanced economies 2) -2.8-4.8-2.3-4.2 2004 2006 2008 2010 2012 2014 2016 2018 Selected advanced economies Selected emerging economies France Germany Greece Ireland Italy Japan Portugal Spain United Kingdom United States EU-28 Eurozone Brazil China India Mexico Russia -3.6 0.6-3.1-1.9-2.7-3.5-4.4-5.1-4.3-3.5-10.3-2.8-7.1-4.1-3.4-3.4 0.8 1.0-0.7-2.4-4.2-2.0-4.5-2.9-4.4-9.0-3.7-6.6-2.9-3.7-3.0 0.7-1.7-0.5-2.2-4.1-1.5-3.2-2.9-4.3-9.2-3.7-6.4-1.4-2.1-3.0 0.8-1.1-0.2-1.3-3.3-1.4-2.5-2.3-3.7-2.4-1.7-1.5-1.2-2.1-1.5-1.3-1.0-9.3-3.7-6.2-2.5-1.5 1) Fiscal balance is represented by the IMF indicator "general government net lending/borrowing" 2) Average of all advanced and emerging & developing countries in line with the following chart (general government gross debt) Source: IMF 18
but for advanced economies there is still a long way to go to reduce their substantial levels of government debt General government gross debt [% of GDP] 1) 2015 2016 2017 2018 Germany 70.9 68.1 65.0 107 105 106 Advanced 104 Greece 179.4 181.6 180.2 98 economies Ireland 77.1 72.9 69.3 77 47 74 38 79 34 38 Emerging & developing economies 2004 2006 2008 2010 2012 2014 2016 2018 37 40 47 50 Advanced economies Emerging economies France Italy Japan Portugal Spain United Kingdom United States EU-28 Eurozone Brazil China India Mexico Russia 95.6 132.1 238.1 129.0 99.8 89.0 105.2 90.0 72.5 41.1 69.5 53.7 15.9 96.3 132.6 239.3 130.4 99.4 89.3 107.1 89.0 78.3 44.3 69.6 58.4 15.6 96.8 133.0 240.3 125.7 98.7 89.5 108.1 87.4 83.4 47.6 68.7 53.3 17.4 97.0 61.8 184.5 67.8 131.4 240.0 122.5 97.2 89.7 107.8 86.5 85.7 84.2 82.6 85.6 87.7 50.8 67.1 52.4 17.7 1) Gross debt consists of all liabilities that require payments of interest and/or principal by the debtor to the creditor in the future. No financial assets of a state, such as gold, currency reserves, loans and other accounts receivables are deducted Source: IMF 19
Most big EU countries sit along former Maastricht fiscal balance yardstick but are far from the 60% government debt benchmark Public finances 2017 Fiscal balance and general government gross debt [% of GDP] Fiscal balance 3 2 1 0-1 -2-3 -4-5 -6-7 -8-9 -10 Russia Former Maastricht criteria: max. 60% Mexico China Germany Ireland Eurozone India UK EU-28 Brazil France Spain United States Portugal Italy Greece Former Maastricht criteria: max. -3% 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200 210 220 230 240 250 Japan General government gross debt Source: IMF 20
Global economic climate strongly recovered since Q4 2016 EU back to its former high point, Germany surpassing previous highs World economic climate [Balances] 1) Economic climate EU [Balances] 1) Eco. climate Germany [Balances] 1) +3.4 30.2 Highest value Q3 2007 +65.4 +21.2 35.2 Highest values Q3 2007 and Q3 2017 35.2 Highest value Oct 2017 25.8 26.8-82.9 17.2-52.7-14.7 14.9 8.8-7.1 Q1 2009 12.7 14.0 0 0-95.5 7.4-31.5-60.3 +95.5-33.1 24.3-9.4 4.5 Q1 2009 4.9 0 20.0-42.8 Lowest value Q2 2009 21.4-37.9-4.5 15.0 0.0 +63.7 Q1 2006 Q3 2017 Q1 2006 Q3 2017 Q1 2006 Oct 2017 1) Arithmetic mean of judgment about the present and the expected economic situation. As of the first quarter 2017 the Ifo Institute uses "balances" to illustrate the economic climate instead of indices. The balances range between 100 and + 100 points. Source: Ifo Institute 21
Consumer confidence in Germany and the US climbed to new heights in fall 2017 Consumer index Germany 1) [Indicator] Consumer sentiment US [Index; 1966=100] 9.1 8.4 Highest value Sep. 2017 +9.3 8.9 10.9 9.8 10.7 91.2 96.9 90.4 Highest value Oct 2017 85.1 82.7 101.1 101.1 94.7 87.2 4.6 4.2 6.0 5.7-0.1 79.1-35.9 70.3 77.5 73.2 +45.8 4.0-2.5 1.5 Sep 2008 55.3 55.7 Nov 2008 Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Nov 2017 Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Oct 2017 1) Indicates change in real private consumption compared to the year before divided by 10; value of 10 indicates consumption growth of 1% Source: GFK, University of Michigan 22
Contacts & selected resources for further reading Contacts Further reading IMF Klaus Fuest +49 (211) 4389-2231 klaus.fuest@rolandberger.com Christian Krys +49 (211) 4389-2917 christian.krys@rolandberger.com World Economic Outlook (October 2017) Link OECD Economic outlook and interim economic outlook (September 2017) Link Eurostat Data for short term economic analysis (October 2017) Link 23