The World Did Not End in Q1 Sam Wilkin Senior Advisor, Business Research Blog: www.samwilkin.com 06.2015
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5 Exports to Russia: 10% of Finnish exports; 4% of Finnish GDP
1. Global Economic Weather Report 2. Economic Outlook Europe Grexit US China Russia/Ukraine 6
Global Economic Growth Heat Map 1993 Source: IMF 7
Global Economic Growth Heat Map 2004 Source: IMF 8
Global Economic Growth Heat Map 2009 Source: IMF 9
Global Economic Growth Heat Map 2010 Source: IMF 10
Global Economic Growth Heat Map 2014 Source: IMF 11
Global Economic Growth Heat Map 2015 Source: IMF 12
Next up: Europe Outlook What happens if Greece exits? China Outlook US Outlook Russia/Ukraine Outlook 13
1. Global Economic Weather Report 2. Economic Outlook Europe Grexit US China Russia/Ukraine 14
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Eurozone: Lending to non-financial corporations % year 18 15 12 9 6 3 0-3 -6 2000 2002 2004 2006 2008 2010 2012 2014 18 Source: Haver Analytics
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Eurozone: Consumer confidence & retail sales % balance % year 5 Consumer confidence 5 0 (LHS) 4-5 -10-15 -20-25 -30-35 *3 month moving average -40 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 20 Retail sales* (RHS) Source: Haver Analytics 3 2 1 0-1 -2-3 -4-5
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Eurozone: Industrial new orders % year 20 15 10-5 -10-15 -20-25 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 22 5 0 Source: Oxford Economics
Cash holdings of non-financial corporations % of GDP 23 21 19 17 15 13 11 9 7 UK Germany France 23 5 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source : Oxford Economics/Haver Analytics
Eurozone: GDP % quarter 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0-1.5-2.0-2.5 % year-on-year (RHS) % quarter-onquarter (LHS) Forecast -3.0 2002 2004 2006 2008 2010 2012 2014 2016 2018 % year 5 4 3 2 1 0-1 -2-3 -4-5 -6 24 Source: Oxford Economics
RAPPORTO DEBITI/PIL Household FAMIGLIE Debt (%GDP) RAPPORTO DEBITI/PIL Household FAMIGLIE Debt (%GDP) Regno UK Unito 100 100 Stati Uniti US Spain Spagna 80 Eurozone Zona euro 80 Germany Germania Francia France 60 60 Italia Italy 40 40 Source: Oxford Economics 20 20 1990251992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
200 RAPPORTO DEBITI/PIL Corporate AZIENDE* Debt (%GDP) 200 RAPPORTO DEBITI/PIL Corporate AZIENDE* Debt (%GDP) Spagna Spain 150 Zona euro Eurozone 150 Francia France Italy Italia Regno Unito UK 100 100 Germania Germany US Stati Uniti 50 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 26 * Settore non-finanziario 50 Source: Oxford Economics 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 * Settore non-finanziario.
Eurozone: GDP % quarter 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0-1.5-2.0-2.5 % year-on-year (RHS) % quarter-onquarter (LHS) Forecast -3.0 2002 2004 2006 2008 2010 2012 2014 2016 2018 % year 5 4 3 2 1 0-1 -2-3 -4-5 -6 27 Source: Oxford Economics
Unit labour costs 2000=100 160 150 140 130 120 110 100 90 Greece Spain France Germany Forecast Italy 80 2000 2002 2004 2006 2008 2010 2012 2014 Source: 28 Oxford Economics
29 Productivity growth Ireland Slovakia Spain Portugal France Neth Eurozone Beligum Germany Austria Greece Finland Italy -10-5 0 5 10 15 2008-14,% Source : Oxford Economics/Haver Analytics
GDP growth forecast for 2015 30 Ireland Slovakia Spain Malta Luxembourg Estonia Slovenia Germany Netherlands Portugal EuroZone France Belgium Austria Italy Finland Greece Cyprus Source: Oxford Economics -1 0 1 2 3 4 % year
1. Global Economic Weather Report 2. Economic Outlook Europe Grexit US China Russia/Ukraine 31
2009-2012 Germany and other AAA countries Eurozone periphery states 32
Eurozone: Credit spreads % spread of 10-year bonds over German bunds 45 40 35 30 Greece Portugal Italy Spain Ireland 2012 25 20 15 10 5 0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source :Oxford Economics/Haver Analytics
Italy Eurozone: Credit spreads % spread of 10-year bonds over German bunds 6 2012 5 Italy 4 3 2 1 0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source :Oxford Economics/Haver Analytics
Eurozone: Credit spreads % spread of 10-year bonds over German bunds 45 40 35 30 Greece Portugal Italy Spain Ireland 26.7.12: Draghi's "Whatever it takes" 2014 25 20 15 10 5 0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 35 Source :Oxford Economics/Haver Analytics
Italy Eurozone: Credit spreads % spread of 10-year bonds over German bunds 6 2014 5 Italy 26.7.12: Draghi's "Whatever it takes" 4 3 2 1 0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source :Oxford Economics/Haver Analytics
Eurozone: Credit spreads % spread of 10-year bonds over German bunds 45 40 35 30 Greece Portugal Italy Spain Ireland 26.7.12: Draghi's "Whatever it takes" Now! 25 20 Greek Elections 15 10 5 0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 37 Source :Oxford Economics/Haver Analytics
Italy Eurozone: Credit spreads % spread of 10-year bonds over German bunds 6 Now! 5 Italy 26.7.12: Draghi's "Whatever it takes" 4 3 Greek Elections 2 1 0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source :Oxford Economics/Haver Analytics
Now! Germany and other AAA countries Greece
Implicit views of markets based on bond prices: 1. Greece and EU reach agreement 78% 2. Agreement stays on track 12-18 months 67% 3. Capital controls 48% 4. Greek exit 38% Source: Oxford Economics 40
Retail deposits at Eurozone banks* % annual growth 40 30 20 10 0-10 -20 Spain Greece Ireland -30 Cyprus Portugal -40 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 41 * Non-MFIs excluding central government Source : Oxford Economics/ECB
Eurozone bank lending to Greece In 2008: 175bn In 2014: 42bn (0.5% of German GDP) (Eurozone gov t lending to Greece: 250bn) 42
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1. Global Economic Weather Report 2. Economic Outlook Europe Grexit US China Russia/Ukraine 47
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US, UK & Eurozone: Corporate loan growth % year 25 UK loans to PNFCs 20 15 10 US loans inc. commercial real estate 5 0 Eurozone loans to PNFCs -5-10 53-15 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source : Oxford Economics/Haver Analytics
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US: Consumer attitudes 1985=100 150 130 110 Consumer confidence Conference Board 90 70 50 30 Consumer sentiment University of Michigan 55 10 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Conference Board, University of Michigan/Haver Analytics
US: Real wage rate % year 6 5 4 Nominal 3 2 1 0-1 -2 Real -3 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 56 Source: BLS, Oxford Economics
US: Relative unit labour costs 2008=100 150 140 Forecast 130 120 110 100 90 80 70 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 57 Source : Oxford Economics/Haver Analytics
Manufacturing Investment Index: 2007 = 100 130 120 Japan UK Germany US 110 100 90 80 70 60 50 2007 2008 2009 2010 2011 2012 2013 2014 58 Source : Oxford Economics/Haver Analytics
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1. Global Economic Weather Report 2. Economic Outlook Europe Grexit US China Russia/Ukraine 64
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World: Broad money % year 12 Excluding China Including China 10 8 6 4 2 0-2 1989 1994 1999 2004 2009 2014 66 Source : Oxford Economics/Haver Analytics
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China s Forex reserves of $3.6trn Gov t debt of 17% GDP External debt of 9% GDP = bailoutability 71
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Economic Growth Forecast for China (%) About 10% About 6% 73
1. Global Economic Weather Report 2. Economic Outlook Europe Grexit US China Russia/Ukraine 74
Source: nypost.com 75
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Increase in income per person over the past 30 years in the world s major oil-rich nations* * Oil revenues are more than 10% of economic output * Population of three million people or more 11 Source: World Bank World Development Indicators
Increase in income per person over the past 30 years in the world s major oil-rich nations* 6 th -best performance out of 163 countries in the world * Oil revenues are more than 10% of economic output * Population of three million people or more 153 out of 163 162 out of 163 157 out of 163 12 Source: World Bank World Development Indicators
A barrier to manufacturing (especially exports) A barrier to democracy A target in war Rental income : control more valuable than creation 13
Increase in income per person over the past 30 years in the world s major oil-rich nations* Russia +$3,600 since 1998 A class by itself? Or, will the resource curse return? * Oil revenues are more than 10% of economic output * Population of three million people or more 11 Source: World Bank World Development Indicators
Economic Growth Forecast for Russia (%) 83
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OVERALL SUMMARY Eurozone Market impacts of brinksmanship ended in 2012 But people & companies are deleveraging Hence new normal growth, with some bright spots US Deleveraging largely complete. Q1 slowdown a one-off Hence return to growth; but will it be old normal? China No longer the world s credit engine. New normal is 6% per annum. And, might crash Russia Revenge of the resource curse. New normal is uncertain 87
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The World Did Not End in Q1 Sam Wilkin Senior Advisor, Business Research Blog: www.samwilkin.com 06.2015