Global Economic Outlook: Global Economic Outlook: Shifting Tectonic Plates Shifting Tectonic Plates October 2008 October 2008 Patricia Croft, Vice President & Chief Economist Phillips, Hager & North Investment Management Limited
The Greatest Credit Bubble of The Greatest Credit Bubble of All Time All Time Liquidity – too much and too cheap 1. Trend to deregulation 2. Boom in securitization 3. Democratized credit provision but disconnected lender and � borrower Overconfidence in financial models 4. Result: A fundamental change to world financial system
Third Banking Crisis Since 1930s Third Banking Crisis Since 1930s U.S. Bank and Thrift Failures 600 Today 500 9 banks and 265 major U.S. lenders have 400 "imploded" since late 2006 300 200 100 0 1934 1942 1950 1958 1966 1974 1982 1990 1998 2006 Source: Federal Deposit Insurance Corp., The Mortgage Lender Implode-O-Meter.com
(Un)Happy Anniversary (Un)Happy Anniversary � � Cross product contagion to ABCP, Problem confined to MBS, SIVs, monoline insurers, auction sub prime rate securities, LIBOR financing � Problem now global � Problem confined to the US � Writedowns to date $500 bn – estimates of $1 trillion ++ � Minimal losses � US in recession – UK, Japan and Europe heading that way � No impact on the real economy � Global recoupling – China, India slowing � Global decoupling
Unprecedented Actions Unprecedented Actions December – Fed allows banks to borrow using wider range of collateral January – Fed makes emergency ¾% cut in fed funds March – Fed and Treasury broker sale of Bear Stearns to JP Morgan July – SEC curbs improper short selling of Fannie/Freddie September – Federal government takes control of F&F pledging to provide up to $200 billion WHAT’S NEXT??
The Credit Crisis Is Not Over The Credit Crisis Is Not Over � Bailout of Fannie/Freddie will reduce the cost of borrowing but will not end the credit crisis nor rescue the US economy � European/UK banks under pressure � Emerging market stock markets plunge – risk appetite goes into reverse � Deleveraging is a painful prolonged process
The World is Changing The World is Changing � China now world’s fourth largest economy � Potential growth in China and India far superior Lower labour costs � Growing middle class & market reforms � � Long-term potential growth rate in G-7 is falling due to demographics – 2% or lower � Canada risks falling further behind “There is a fundamental shift in global economic tectonic plates” The Conference Board of Canada
Globalization – An Integrated World Economy World Trade as Share of World GDP 60 50 40 % 30 20 10 0 1996 1998 2000 2002 2004 2006 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 Source: IMF, Economist Intelligence Unit
Chindia: Bigger than U.K. & France on a Nominal GDP Basis Proportion of world GDP, % (2005, nominal) U.S. Japan Germany China U.K. France 12. India 0 5 10 15 20 25 30 Source: World Bank
Emerging Economies Key to Global Growth Emerging Economies Key to Global Growth Outlook Outlook 75 Advanced 70 Emerging 63 65 60 57 60 55 55 % 50 45 43 45 40 37 40 35 30 25 2000 2008 2000 2008 Share of World GDP Share of World GDP growth Source: International Monetary Fund
Catching Up Catching Up Year that India overtakes individual economies Year that China overtakes individual economies Italy Germany Japan Japan Germany U.S.A. 2005 2010 2015 2020 2025 2035 2040 2030 Source: Globe & Mail
2050: A Different World 2050: A Different World World’s Ten Largest Countries in Population (millions) 2050 2007 Country Country Population Population Rank Rank 1 China 1,318 1 India 1,747 2 India 1,132 2 China 1,437 3 U.S. 302 3 U.S. 420 4 Indonesia 232 4 Indonesia 297 5 Brazil 189 5 Pakistan 295 6 Pakistan 169 6 Nigeria 282 7 Bangladesh 149 7 Brazil 260 8 Nigeria 144 8 Bangladesh 231 9 Russia 142 9 Dem Rep of Congo 187 10 Japan 128 10 Philippines 150 Canada 32.9 Canada 41.6 Source: Population Reference Bureau
The World is Changing The World is Changing World’s tallest building? Dubai World’s largest publicly traded company? China World’s largest investment fund? Abu Dhabi Biggest movie industry? Bollywood Largest casino? Macao Largest roller coaster? Singapore Largest shopping mall? China
World’s Top Ten - 2008 World’s Top Ten - 2008 1. Warren Buffet US $62 bn 2. Carlos Slim Helu Mexico $60 bn 3. Bill Gates US $58 bn 4. Lakshmi Mittal India $45 bn 5. Mukesh Ambani India $43 bn 6. Anil Ambani India $42 bn 7. Ingvar Kamprad Sweden $31 bn 8. KP Singh India $30 bn 9. Oleg Deripaska Russia $28 bn 10. Karl Albrecht Germany $27 bn
Show Me the Money! Show Me the Money! High net-worth Individuals, wealth by region % Change Africa 14.9% 40 Middle East 17.5% 35 Latin America 20.4% 30 Asia-Pacific 12.5% ($'000 bn) 25 20 Europe 5.3% 15 10 North America 4.4% 5 Total 9.4% 0 2006 2007 2005 Sources: Capgemini; Merrill Lynch
Why is the World So Pessimistic Why is the World So Pessimistic About the US? About the US? � World’s largest debtor nation – sizeable current account and federal budget deficits � A consuming society that is running out of steam � Political power waning? “The US economy is on a road to disaster and the dollar along with it” Jim Rogers
US is World’s Largest Debtor Nation US is World’s Largest Debtor Nation U.S. Credit Market Liabilities, % of GDP 400 350 300 250 % 200 150 100 50 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Source: U.S. BEA
Personal Savings Rate Near Record Low Personal Savings Rate Near Record Low Personal Savings Rate 14 12 % of disposable income 10 8 Mean 6 4 2% 2 Two standard deviations 1% 0 -2 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Source: US Bureau of Economic Analysis, NBF Financial
House Prices to Fall Further House Prices to Fall Further US Real House Prices: Projections 175 165 155 145 Return to trend Index 135 1989-92 crash: 25% decline 125 115 1979-82 crash: 105 40% decline 95 85 1975 1980 1985 1990 1995 2000 2005 2010 Source: Office of Federal Housing Enterprise Oversight, Bureau of Labor Statistics, PH&N
US Has Greater Income Inequality Than US Has Greater Income Inequality Than Other Developed Countries Other Developed Countries Gini Index of Income Distribution – Zero = Perfect Equality Sweden (2000) 25 Ukraine (2003) 28 Greater income Canada (2003) 31 inequality Is associated with India (2004) 37 worse health status Israel (2001) 39 Burkina Faso (2003) 40 U.S. (2000) 41 Mexico (2004) 46 China (2004) 47 Zambia (2004) 51 Bolivia (2002) 60 Source: 2007 Population Reference Bureau
Obesity Has Become A Global Problem Obesity Has Become A Global Problem Percent of adults who are obese (2005) 42 37 35 34 Males aged 15+ Females aged 15+ 24 2323 21 13 13 10 7 4 4 2 2 Japan South Italy Morocco Mexico South United Canada Korea Africa States Source: 2007 Population Reference Bureau
Health Care & Defense Will Put Pressure Health Care & Defense Will Put Pressure on the Deficit on the Deficit Others include: Others Educ, Training & Soc. Svcs. 3% Social Security 14% 18% Veterans Benefits 2% Debt Interest 7% Transportation 2% Justice 1% Natural Resources & Environment 1% International Affairs 1% National Defense Health 8% 17% Science, Space & Tech 1% Agriculture 1% Medicare 11% Income Off-budget Security 14% 11%
Drop in US Dollar Reflects Global Drop in US Dollar Reflects Global Pessimism Pessimism U.S. Current Account Balance & Dollar Index 2 150 1 140 0 130 -1 % of GDP 120 Index -2 110 -3 100 -4 90 -5 CA balance, % of GDP (left) 80 -6 Trade-weighted value of US dollar against major currencies (right) -7 70 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 Source: U.S. BEA, Federal Reserve
World Happy to Cover US Shortfall for Now World Happy to Cover US Shortfall for Now Current Account Balances, % of GDP Current Account Balances, % of GDP United States Europe 0.5 2.0 0.0 1.5 -0.5 1.0 % of GDP % of GDP -1.0 0.5 -1.5 0.0 -0.5 -2.0 -1.0 -2.5 1989 1993 1995 1999 2001 2005 2007 1987 1991 1997 2003 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 -1.5 -3.0 Source: IMF Source: Bureau of Economic Analysis Japan China 5.0 12.0 4.0 10.0 8.0 % of GDP 3.0 % of GDP 6.0 2.0 4.0 1.0 2.0 0.0 0.0 -2.0 -1.0 -4.0 -2.0 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 -6.0 Source: IMF Source: IMF, Datastream
Demographics Suggest Shrinking Labour Demographics Suggest Shrinking Labour Supply Supply Working-Age Population, % of Total 68 66 64 62 60 % 58 56 G7 54 North America Japan 52 50 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: US Census Bureau, PH&N
Recommend
More recommend
