The Global Economy Emerging Market Troubles · Title: Microsoft PowerPoint - David Katsnelson...

The Global Economy –Emerging Market Troubles

David KatsnelsonDirector, Macroeconomics

European Conference, March 2016

© Copyright 2016 RISI, Inc. | Proprietary Information

Agenda

1. Global Snapshot – Heightened Risks

2. Europe – Growing Slowly

3. USA – Improving Moderately

4. China – Slowing, Not Crashing

© Copyright 2016 RISI, Inc. | Proprietary Information 2

Global Economy Growing Moderately, with Heightened RisksAnnual Real GDP Growth

Source: IMF, RISI

2.4% 2.4% 2.6% 2.5%

14 15 16 17

USA 0.9% 1.5% 1.6% 1.3%

14 15 16 17

Euro Area

1.3% ‐0.4% 0.1% 1.8%

14 15 16 17

Latin America

7.3% 6.9% 6.4% 6.1%

14 15 16 17

China


4

Developed Economies Leading Global Growth…Global Real GDP* Growth

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

95 97 99 01 03 05 07 09 11 13 15 17

*Measured at purchasing power parity exchange rates

Source: IMF, RISI


5

…While Emerging Markets Have Slowed…Annual Real GDP Growth

-10%

-5%

0%

5%

10%

15%

20%Brazil RussiaIndia ChinaSouth Africa

Source: IMF, RISI


-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

…As Commodities Have Fallen…Percentage Change Since July 2014


-60%

-50%

-40%

-30%

-20%

-10%

0%

…And Currencies Have CrumbledPercentage Change Since July 2014 Versus US Dollar


8

Oil Prices Staying Low on OversupplyBrent North Sea Crude Oil, Price per Barrel

0102030405060708090

100110120130

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Brent € Brent $

Source: Energy Information Administration, RISI

© Copyright 2014 RISI, Inc. All rights reserved.


Europe – Slow and Steady• The Positives Growth positive and steady Oil prices and the euro Bank lending improving

• The Negatives Risk of deflation Unemployment remains high Reforms have stalled

• The Risks Russia Quantitative Easing Migration crisis


10

Eurozone Economy Growing, But Weakly Annual Real GDP Growth

Source: IMF, RISI

-7.0-6.0-5.0-4.0-3.0-2.0-1.00.01.02.03.04.05.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

GermanyFranceItalyUKEurozone


Consumer Leading the RecoveryReal Consumption Expenditures, Year‐over‐Year Percent Change

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

03 04 05 06 07 08 09 10 11 12 13 14 15

Germany UKFrance ItalySpain

Source: Eurostat


Unemployment Improving, But Still High Outside of GermanyHarmonized Unemployment Rate

4%6%8%

10%12%14%16%18%20%22%24%26%28%

03 04 05 06 07 08 09 10 11 12 13 14 15

Eurozone GermanyGreece SpainFrance ItalyPortugal

Source: Eurostat


Bank Lending Supporting GrowthBank Loans to Households and Non‐Financial Corporations, M3, Year‐over‐Year Percent Change

-5%

0%

5%

10%

15%

20%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Non-Financial CorporationsHouseholdsMoney Supply

Source: ECB


Weaker Euro Helping Export Growth, But External Environment Is DifficultTotal Exports, Seasonally Adjusted Year‐over‐Year Percent Change

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

GermanySpainFranceItaly

Source: Eurostat


Investment Growth Remains WeakFixed Capital Formation, Seasonally Adjusted Year‐over‐Year Percent Change

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

GermanySpainFranceItalyEurozone

Source: Eurostat


0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

03 04 05 06 07 08 09 10 11 12 13 14 15

Euro Area Germany

France Italy

Industrial Production Growth TepidIndustrial Production Indices, January 2010=1

Source: Eurostat


Deflation Risk LesseningCPI, Core CPI; Year‐over‐Year Percent Change

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CPI

Core CPI

ECB Target

Source: Eurostat


$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

$1.60

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

USD

/EU

R

Euro Will Weaken Versus Dollar on Continuing Central Banks’ Actions

Source: Fed, RISI


19

Developing Europe Improves Along with EurozoneAnnual Real GDP Growth

Source: IMF, RISI

-8

-6

-4

-2

0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Poland Czech RepublicHungary Slovakia


20

The US Economy

USA – “Oasis of Prosperity”?

• Partially decoupling from rest of world• Domestic‐based growth is healthy Employment and wage growth Cheap energy Housing

• Non‐domestic side of economy struggling Manufacturing Exports


-6.0-5.0-4.0-3.0-2.0-1.00.01.02.03.04.05.0

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

2015 Was Another Year of Healthy Job GrowthChange in US Total Payroll Employment, Millions

Source: Bureau of Labor Statistics


0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Wage Growth Picking UpAverage Hourly Earnings of All Private Employees, Year-over-Year Percent Change

Source: Bureau of Labor Statistics


Consumption Growth Driving US EconomyReal Consumption Expenditure, Annualized Percentage Change; Unemployment Rate

-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%6%7%8%9%

10%11%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

ConsumptionUnemployment Rate

Source: Bureau of Economic Analysis, RISI


Housing Recovery AcceleratingExisting and New Home Sales and Housing Starts, Millions of Units

0.0

0.5

1.0

1.5

2.0

2.5

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

05 06 07 08 09 10 11 12 13 14 15

Existing Home Sales (Left)Housing Starts (Right)New Home Sales (Right)

Source: National Association of Realtors, US Census Bureau


30

35

40

45

50

55

60

65

0.70

0.80

0.90

1.00

1.10

1.20

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Industrial Production

PMI

Strong Dollar, Weak External Environment, Oil Pressuring Manufacturing Index of Industrial Production, January 2000 = 1.00; PMI

Source: Federal Reserve, Institute for Supply Management


Dollar Strong on Decent Growth and Tighter Monetary PolicyTrade Weighted US Dollar Index: Broad, March 1973 = 100

85

90

95

100

105

110

115

120

125

130

Source: Federal Reserve


27

Low Natural Gas Prices Helping US Manufacturers Landed Prices of LNG December 2015, Dollars per MMBtu

1.98

5.17 5.406.09

7.01 7.13 7.16 7.16 7.16 7.16 7.18

$0

$1

$2

$3

$4

$5

$6

$7

$8

Source: Federal Energy Regulatory Commission


US Economy Growing, But Growth is UnimpressiveReal GDP Growth, Annualized Percent Change

-9%-8%-7%-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%6%7%8%9%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17Source: Bureau of Economic Analysis, RISI


China in Transition• Economy undergoing major restructuring Investment‐led growth to consumer‐based growth Trade still important, supporting economy in the near term Days of 9‐10% growth in the past Some financial liberalization Some retreat on reform agenda

• Monetary policy has become accommodative Interest rate and RRR cuts to support growth Targeted support for key industries, especially real estate Greater regulation of “shadow banking”

• Debt has become a serious issue• Increased volatility for renminbi


55 55 46 50 6640 22

12591

6576 45

71

46

3676

7619

9 6

20

65 42

64

615 12

21

0

50

100

150

200

250

300GovernmentCorporateHouseholdFinancial Sector

264251

151135 129

109

282

High Debt Presents Risk for ChinaDebt, Percentage of GDP, Second Quarter 2014

Source: McKinsey Global Institute


-10%

0%

10%

20%

30%

40%

50%

05 06 07 08 09 10 11 12 13 14 15

Industrial Production Growth Y/Y

Fixed-Asset Investment Growth Y/Y

Industrial Side of Economy SlowingFixed Asset Investment, Year‐over‐Year Percent Change; Industrial Production, Year‐over‐Year Percent Change

Source: PBC, CEIC


35

40

45

50

55

60

65

07 08 09 10 11 12 13 14 15 16

PMI ManufacturingPMI Services

PMIs Show Dual‐Track EconomyPurchasing Managers’ Index Manufacturing, Services

Source: PBC, CEIC


Trend of Trade Growth Is Down, But Some Recent ImprovementExports and Imports, Year‐over‐Year Percent Change

-40%

-20%

0%

20%

40%

60%

80%

100%

05 06 07 08 09 10

Exports Imports

Source: China National Bureau of Statistics, CEIC


0

50

100

150

200

250

300

350

400

450Ja

n-00

Jul-0

0Ja

n-01

Jul-0

1Ja

n-02

Jul-0

2Ja

n-03

Jul-0

3Ja

n-04

Jul-0

4Ja

n-05

Jul-0

5Ja

n-06

Jul-0

6Ja

n-07

Jul-0

7Ja

n-08

Jul-0

8Ja

n-09

Jul-0

9Ja

n-10

Jul-1

0Ja

n-11

Jul-1

1Ja

n-12

Jul-1

2Ja

n-13

Jul-1

3Ja

n-14

Jul-1

4Ja

n-15

Jul-1

5

Iron Ore

Copper

Crude Oil

Industrial Imports at All‐Time HighsThree‐Month Average of Imports by Quantity, Index 2005 = 100

Source: CEIC


Hard Landing for China Is UnlikelyReal GDP Growth, Annual Percent Change

0%

2%

4%

6%

8%

10%

12%

14%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17Source: NBS, RISI


6.0

6.5

7.0

7.5

8.0

8.5

9.0

03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

CNY/USD

Renminbi to Depreciate

Source: Fed, RISI


Conclusions

• US economy growing moderately Improving employment should support increased spending Housing market still presents upside risk Manufacturing side of the economy struggling

• Europe growing, but slowly Potential growth rate is lower QE helping somewhat Threat of deflation present, but low


Conclusions

• Slower growth for emerging markets, but no crisis China’s growth will be an important driver for other emerging economies Increasing risks for emerging markets from the strong US dollar Latin America facing tough times Revaluation of currencies

• Risks around the world have increased


Monthly Economic Commentarywww.risi.com/mec

Thank you for your attention!

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The Global Economy Emerging Market Troubles · Title: Microsoft PowerPoint - David Katsnelson...

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