Ian StewartDeloitte
May 2017
Thoughts on the global economy
Economics & Markets, Deloitte LLP, London Ian Stewart, Chief Economist
7
Leading indicators signal stronger global growth ahead
Deloitte Economics & Markets Team
8
Risk assets outperforming
9
Global growth nudges up in 2017, but not back to pre-crisis rates
Real GDP growth (% YoY)*
Pre-Crisis
Post-Crisis 2016 2017 2018
World 4.2 3.3 3.1 3.5 3.6
Advanced 2.8 1.0 1.7 2.0 2.0
Emerging 5.9 5.2 4.1 4.5 4.8
*Pre-crisis = 1998-2007, Post-crisis = 2008-15, Forecasts for 2017, 2018
Source: IMF World Economic Outlook, April 2017
Deloitte Economics & Markets Team
10
Consensus: ‘17 GDP Downside Upside
UK 1.7% Inflation, Brexit, corporate uncertainty and cost control
Fiscal stimulus, consumer resilience, weak £
US 2.1% Protectionism, political risk,higher rates, strong $
Pro-growth policies,wage growth
Euro area 1.7%Inflation, German
elections, Brexit, Italian banks, euro crisis III
Cheap money, consumer spending
China 6.5%Economic rebalancing, asset price falls,
US protectionism, Trump travails, end to stimulus
Strong growth in private consumption,slowdown in capital outflows
Emerging markets x China 4.6% Taper tantrums, higher inflation Indian growth, higher commodity prices,
faster global growth
Japan 1.4% Weak inflation/deflation Further monetary and fiscal easing
Change
Growth prospects vary
Economics & Markets Research, Deloitte LLP, London
Source: Consensus Economics, IMF WEO and Deloitte analysis
11
Potentially pro-growth policies:• Fiscal easing• Deregulation• Tax cuts
Risks to the market view:
• Impeachment
• Protectionism
• Congress stalling policy
• Geopolitics− Chinese retaliation
− Russian aggression in E. Europe
− Iran, North Korea
• Negative effect on EMs
• Higher rates
The good news
Political risks
Equity market view: Trump upsides > risks
12
Average annual GDP growth: Actual & IMF forecasts (% YoY)Chinese growth slowing, not crashing
Economics & Markets, Deloitte LLP, London
10.0
8.4
6.0
2.4
0.91.6
1998-2007 2008-2016 2017-2021
China G7
13
Europe: political risks moderating, and easy money kicking in
14
German industrial confidence highest on record
15
UK incomes’ squeezed…will business takes up the slack?
16
UK CFO confidence at 18-month high
Source: Deloitte CFO Survey Q1 2017
17
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
Brexit: Views on near- & long-term growth
Long-term growth forecasts2020-26
US 2.1
UK 2.1 to 1.5
Canada 1.9France 1.3Germany 1.2Italy 1.2Japan 0.7
GD
P gr
owth
%Yo
Y
2.1%
1.5%
2.0%
Near-term Consensus forecasts
Range of long term forecasts incorporating
Brexit effects
Source: OBR, Consensus Forecasts, various forecasters & Deloitte calculations
18
What determines the business environment? Domestic macro and
microeconomic, political…factors
Brexit factors
Negatives? Positives?
Tariffs Better regulation
Non-tariffbarriers
Reduced Budget contributions
Migration restrictions Better FTAs
Tax policy
Monetary policy
Fiscal policy
Domestic consumption
Business investment
Global demand
FDI
Politics
Education & training
Financial conditions
Public attitudes
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UK business environment is favourable by international standards
Heritage Foundation World BankWorld Economic
Forum#1 Hong Kong Singapore Switzerland
#2 Singapore New Zealand Singapore
#3 New Zealand Denmark United States
#4 Switzerland South Korea Germany
#5 Australia Hong Kong NetherlandsUnited
Kingdom10 6 10
Sweden 26 8 9
Spain 43 33 33
Belgium 44 43 19
France 75 27 22
Italy 86 45 43
Greece 138 60 81
WEF Global Competitiveness Index, World Bank Ease of Doing Business Index and Heritage Foundation Index of Economic Freedom
*Higher rankings indicate better, usually simpler, regulations for businesses, greater ease of doing business, stronger protections of property rights and lower corruption.
Global competitiveness rankings
20
Inflation rising globally as higher commodity prices feed through
Economics & Markets, Deloitte LLP, London
21
Little slack in UK jobs market => wage pressures?
Economics & Markets, Deloitte LLP, London
22Deloitte Economics & Markets Team
Growth forecasts: 6-10 years ahead
Long growth optimism has faded
Japan
France
USA
Germany
Source: Consensus Economics
23
Long-term decline in yields
24
US growth hasn’t flowed through to Main Street: distribution matters
Deloitte Economics & Markets Team
US equities, +2,181%
25
Millennials’ incomes no better than Gen X’s
26
• Global growth, inflation accelerating
• Synchronised upturn in emerging and developed markets
• UK activity holds up in 2017, eases slightly in 2018, no Brexit crash
• But trend growth weaker than pre-crisis, more worries about “left behinds”
• Biggest foreseeable risks: US protectionism, Euro area stress
• Post GFC normalisation + reform = better growth ahead
Conclusions
Deloitte Economics & Markets Team
27
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Economics & Markets, Deloitte LLP, London