Escape velocity at last? Arup Raha CIMB April 2017 The Global - PowerPoint PPT Presentation

Global economy: Escape velocity at last? Arup Raha CIMB April 2017

The Global Outlook The global economy is rebounding, mainly manufacturing and trade It’s been 9 years; what took so long? Balance sheet recession; the “delta” on global growth comes from the US; EU, JP have structural issues; China on short-term stimulus. Is it sustainable? Will crucially depend on policy What really matters for ASEAN? Trade and monetary policy US rates rise modestly; there is a lower natural rate of interest globally Rate cycle turning in ASEAN USD and RMB are the strongest influence on currencies ASEAN: A pause for now Risks Internally -- political; Externally -- US policies; geo-politics. 2

IMF’s forecasts vs. actual growth %yoy 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 2011 2012 2013 2014 2015 2016 US's GDP (IMF's Forecast in January) World's GDP (IMF's Forecast in January) US's GDP (Actual) World's GDP (Actual) Sources:IMF, CIMB research 3

Euro Area and Japan Euro area: GDP growth since 1960s Euro Area: Working age population: Aged 15-64 Working Age Population: Aged 15-64 % yoy Period Real GDP growth (%) 1.0 0.8 1961-70 5.3 0.6 1971-80 3.3 0.4 1981-90 2.4 0.2 1991-00 2.2 0.0 2001-10 1.2 -0.2 -0.4 2011-15 0.7 -0.6 2006 2007 2008 2009 2010 2011 2012 2013 Japan: GDP growth since 1960s Japan: Working age population: Aged 15-64 Period Real GDP growth (%) %yoy 0.5 1961-70 9.3 0.0 1971-80 4.5 -0.5 1981-90 4.6 -1.0 1991-00 1.3 -1.5 2001-10 0.9 -2.0 2011-15 1.0 2006 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Federal Reserve Bank of St. Louis, Bloomberg, CIMB research 4

US: Financial surplus or deficit by sector Source: Richard Koo 5

Consumption and investment during the recovery Investment Consumption Source: OECD, CIMB Research 6

US: Labour Productivity and Real Wages Real wage Labour Productivity Source: OECD, CIMB Research 7

US: Retail Sales %yoy 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Mar-14 Mar-15 Mar-16 Mar-17 Source: Fred 8

US: University of Michigan Consumer Sentiment 100.0 95.0 90.0 85.0 80.0 75.0 70.0 65.0 60.0 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Source: Fred 9

MIST: Exports (USD term) 3mma; % yoy 25 20 15 10 5 0 -5 -10 -15 -20 -25 2014 2015 2016 2017 Malaysia Indonesia Singapore Thailand Source: CEIC,CIMB research 10

ASEAN: The problem with exports Chart 1: US business investment, consumer Chart 2: China and Asean exports spending, and imports % yoy % yoy %yoy (9 mma) 35 8 50 6 25 40 4 15 30 2 20 5 0 10 -5 0 -2 -10 -15 -4 -20 -25 -6 -30 -35 -8 -40 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 US Imports US Business Investment US Consumer Spending (RHS) China Imports form ASEAN China Exports to USA Sources: CEIC, CIMB research Sources: CEIC, CIMB research 11

US: Industrial Production Index (2012=100) 108.0 106.0 104.0 102.0 100.0 98.0 96.0 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Sources: CEIC, CIMB research 12

ASEAN: The problem with exports Chart 1: US business investment, consumer Chart 2: China and Asean exports spending, and imports % yoy % yoy %yoy (9 mma) 35 8 50 6 25 40 4 15 30 2 20 5 0 10 -5 0 -2 -10 -15 -4 -20 -25 -6 -30 -35 -8 -40 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 US Imports US Business Investment US Consumer Spending (RHS) China Imports form ASEAN China Exports to USA Sources: CEIC, CIMB research Sources: CEIC, CIMB research 13

China: Issues that define the medium term The Labor Problem The Productivity Problem 300 38 16 Person mn Years 37 250 14 36 200 35 12 150 34 10 33 100 8 32 Labor Prodcutivity 50 31 6 0 30 05 06 07 08 09 10 11 12 13 14 15 4 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 China: Population Aged 15-24 (LHS ) China: Median age (RHS ) Sources: CEIC, xxx Sources: United Nations, xxx The Debt Problem Stimulus to Fight Landing 140 65.0 40% % % %y/y 35% 120 60.0 30% 100 55.0 Government 25% 50.0 80 Household 20% Corporate 45.0 60 15% 40.0 10% 40 35.0 5% 20 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 0 PRC PMI (LHS ) TS F outstanding ex eq 2007 2008 2009 2010 2011 2012 2013 2014 Sources: CEIC, xxx Sources: Wind, CIMB 14

Credit to private non - financial sector as % of GDP % 200 180 160 140 120 100 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 China Japan US Euro area Source: BIS 15

China’s exports to US and China’s imports from ASEAN %yoy (9 mma) 50.00 40.00 30.00 20.00 10.00 0.00 -10.00 -20.00 -30.00 -40.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 China Imports form ASEAN China Exports to USA Sources: CEIC, CIMB research 16

MIST: Exports (Volume term) 3mma; %yoy 35 25 15 5 -5 -15 -25 -35 2013 2014 2015 2016 2017 Malaysia Indonesia Singapore Thailand Source: CEIC,CIMB research 17

MIST: Private consumption growth %yoy 20.0 15.0 10.0 5.0 0.0 -5.0 2011 2012 2013 2014 2015 2016 Malaysia Indonesia Singapore Thailand Source: CEIC,CIMB research 18

MIST: Private investment growth %yoy 30.0 25.0 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 -15.0 2011 2012 2013 2014 2015 2016 Malaysia Thailand Singapore Indonesia Source: CEIC,CIMB research 19

MIST – Where’s the response? Debt service ratio of private nonfinancial sector Return on assets, listed firms Sources: East Asia and Pacific Economic Update, october 2016; WB Sources: East Asia and Pacific Economic Update, october 2016; WB Fiscal deficit as % of GDP Credit growth - MIST % %yoy 4 25 3.5 20 3 15 2.5 10 2 5 1.5 0 1 -5 0.5 2013 2014 2015 2016 2017 0 Malaysia Indonesia Thailand Malaysia Indonesia Singapore Thailand 2013 2014 2015 2016p 2017f 2018f Sources: CEIC, CIMB research Sources: World Bank, CIMB research 20

Thank you

Changes in oil price and currencies (Index 2011=100) 145.0 125.0 105.0 85.0 65.0 45.0 25.0 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Brent Crude Index USD/MYR index USD/JPY index DXY Sources: CEIC, CIMB research 22

US Dollar Index (DXY) 104.0 102.0 100.0 98.0 96.0 94.0 92.0 90.0 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 U.S. Dollar Index: daily Sources: CEIC, CIMB research 23

US: 10 Y Bond Yield % 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 10-Year Treasury Constant Maturity Rate, Daily Sources: FRED 24