Global & euro zone update Am ber Rabinov Senior Economist ANZ Research March 2 0 1 2
Global econom ic outlook • ANZ forw ard indicators of the global econom y stabilised in late 2 0 1 1 and are now picking up. • Advanced econom ies face headw inds - fiscal austerity, deleveraging by households and financial institutions. I nflation pressures w ill be m uted am id sizable spare capacity. Policy rates w ill be near zero for a long tim e. – The US recovery will remain vulnerable to setback and shocks without a fully fledged housing recovery. There are some signs US housing is improving but there is a long way to go yet. – Europe’s problems continue. Recent policy actions (eg. ECB’s LTRO) appear to have got some traction with a positive impact on sovereign yields and auctions. Activity has stabilised, but unemployment continues to rise. • Em erging econom ies w ill be the m ain driver of global grow th. Policy settings are such that there is plenty of scope to support grow th if need be. – China has slowed (“soft landing”) as desired by the authorities. This has growth on a sustainable path. • Europe rem ains the biggest risk to the outlook. W ith the banking crisis of 2 0 0 8 still fresh investor m inds, even a sm all chance of a significant financial event w ill ham per risk appetite for the foreseeable future. – That said, a rising risk (particularly for the US outlook) is the recent rise in oil prices (WTI). 1
Em erging m arkets rem ain m ain driver of global grow th Contribution to w orld GDP W orld GDP ( An n . % c h a n g e ) Fo re c a st ( % ) 1 2 6 1 0 8 4 6 4 2 2 0 0 W o r ld - 2 Ea st A sia e x - Ja p a n A sia e x Ja p a n G 7 G 7 O th e r W o r ld - 4 - 2 9 1 9 3 9 5 9 7 9 9 0 1 0 3 0 5 0 7 0 9 1 1 1 3 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 1 0 1 1 1 2 1 3 W orld trade I ndustrial production (I ndex) (I ndex) 180 (I ndex) 150 235 World, lhs 140 Advanced, lhs 160 205 Em erging, rhs 130 175 140 120 110 145 120 100 115 90 100 85 80 80 70 55 00 01 02 03 04 05 06 07 08 09 10 11 12 92 94 96 98 00 02 04 06 08 10 12 Source: Bloomberg, CPB Netherlands, ANZ 2
ANZ lead indicators point to a pick up in global m acro conditions ANZ Lead indicator and global I P ANZ inventory pulse 3 3 1 8 0 2 0 % 2 2 1 5 % 1 6 0 Dev from 12 m th trend Dev 12 mth trend Dev 12 mth trend 1 1 1 0 % 0 1 4 0 I ndex 0 5 % -1 1 2 0 -1 -2 0 % -2 -3 1 0 0 - 5 % -3 -4 8 0 - 1 0 % 2008 2009 2010 2011 2 0 0 0 2 0 0 3 2 0 0 6 2 0 0 9 2 0 1 2 US new ords/ invent ory EU new ords/ inventory A N Z G lo b a l le a d I n d ic a t o r in d e x ( LH S ) Japan new orders/ invent ory China new ords/inventory A N Z S t e e l- w e ig h t e d I P ( R H S ) ANZ Lead indicator and risk appetite ANZ lead indicator and inventory pulse 2.5 1 8 0 3 2.0 dev from 12 mth trend 1.5 2 1 6 0 Dev from 12 m th trend 1.0 1 0.5 1 4 0 I ndex 0.0 0 -0.5 1 2 0 -1.0 - 1 -1.5 1 0 0 - 2 -2.0 -2.5 8 0 - 3 05 06 07 08 10 11 1 9 9 4 1 9 9 7 2 0 0 0 2 0 0 3 2 0 0 6 2 0 0 9 2 0 1 2 A N Z G lo b a l le a d I n d ic a t o r in d e x ( LH S ) ANZ risk appetite ANZ global inv entory pulse indicator A N Z G lo b a l r a t io n e w o r d e r s / in v e n t o r y ( R H S ) 3 Source: Bloomberg, BoAML, ANZ
Lead indicators – picking up ‘Strong’ Europe PMI Broad regional PMI s 65 65 60 60 55 55 50 50 (Index) (I ndex) 45 45 40 40 35 35 US Japan Ger m any 30 30 Fr ance Euro zone UK China 25 25 05 06 07 08 09 10 11 12 05 06 07 08 09 10 11 12 Asian PMI ‘W eak’ Europe PMI 70 7 0 6 0 60 5 0 (Index) (I ndex) 50 C h in a 4 0 S in g a p o r e S o u th Ko r e a 40 I taly Ta iw a n 3 0 Spain I n d ia Greece I reland 30 2 0 05 06 07 08 09 10 11 12 0 5 0 6 0 7 0 8 0 9 1 0 1 1 1 2 4 Source: Bloomberg, ANZ
Advanced econom ies face substantial headw inds – large fiscal debts and sizable consolidation programs Fiscal & Debt position 160 Greece 140 J apan 120 Italy 100 Singapore US P ort ugal Net Debt % GDP, 2012f Belgium 80 Ireland U K France India 60 Spain Germany Taiwan 40 C anada Hong Kong China 20 Indonesia NZ Australia Denmark 0 -20 Korea -40 -8 -6 -4 -2 0 2 4 6 8 10 12 Fiscal Deficit % GDP, 2012f 5 Source: IMF, ANZ
A broadening US recovery is a key pre-requisite for better global prospects – w e are cautiously optim istic Sm all business optim ism Household credit grow th (I ndex) (% y/ y) 110 20 105 15 100 10 95 5 90 0 85 -5 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 80 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 I SM - m anufacturing Housings starts and NAHB (I ndex) 70 ('000, saar) (I ndex) 2400 90 60 80 2000 70 50 60 1600 50 40 40 Com posite 1200 New orders 30 20 30 800 Housing starts, lhs 10 NAHB housing index, rhs 400 0 20 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 05 06 07 08 09 10 11 Source: Bloomberg 6
The US labour m arket is continuing to im prove, particularly in term s of private sector job creation Non-farm payrolls Unem ploym ent and participation rates (%) (%) (m/ m '000) Privat e Public 12 68 280 LT avg privat e LT avg public 240 10 67 200 160 8 66 120 6 80 65 40 4 0 Unemployment rat e, lhs 64 2 - 40 Part icipat ion rat e, rhs - 80 0 63 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 01 02 03 04 05 06 07 08 09 10 11 12 11 11 11 11 11 11 11 11 11 11 11 11 12 Non-farm payrolls and tem porary help Jobless claim s ('000) (mn) (mn) 700 2.8 140 2.5 600 130 2.2 500 1.9 120 1.6 400 110 Temporary help, lhs Act ual 1.3 Non- farm payrolls, rhs 8 week m.a. 300 1 100 Jan- 08 Jul- 08 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 Jan- 12 91 93 95 97 99 01 03 05 07 09 11 7 Source: Bloomberg, ANZ
How do you solve a problem called the euro zone? Gross governm ent debt IMF forecasts 200 Italy Greece Portugal 180 Germany Spain France Ireland Australia New Zealand 160 140 120 % of GDP 100 80 60 40 20 0 90 92 94 96 98 00 02 04 06 08 10 12 14 16 8 Source: IMF, Bloomberg
How w ill Europe’s unsustainable public debt be funded? 1 0 -year sovereign bond yields % % 18 40 Ireland Italy Portugal 16 35 Spain Germany Greece (RHS) 14 30 12 25 10 20 8 15 6 10 4 5 2 0 0 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 9 Source: IMF, Bloomberg
The ‘solution’ – grow your w ay out – highly unlikely. Forced deleveraging – yes. Policy support – yes. Austerity vs m onetary reflation Slow econom ic grow th Forced deleveraging 1.5 6 220 200 1.0 4 I ndex, Jan 2005 = 100 180 0.5 2 Annual % change I ndex 160 0.0 0 140 -0.5 -2 120 Greece's bank -1.0 -4 100 demand deposits the only to decline 80 f l -1.5 -6 03 04 05 06 07 08 09 10 11 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Greece Germany France Portugal Ireland I taly €-coin index, 3mths fwd (lhs) EZ GDP ( rhs) Germ an business conditions Unem ploym ent rates (% ) (% ) Germ any France 12 22 120 Record high I taly Spain, rhs 115 10 18 110 105 8 14 100 Index 95 6 10 90 85 4 6 80 00 01 02 03 04 05 06 07 08 09 10 11 12 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 IFO - Business Climate 10 Source: ECB, Bloomberg
‘Misery’ indices am ongst European nations Euro zone Germany France Italy 15 30 Austria Netherlands Spain, rhs unemployment rate plus inflation rate unemployment rate plus inflation rate 14 13 25 12 11 20 10 9 8 15 7 6 10 5 4 3 5 00 01 02 03 04 05 06 07 08 09 10 11 12 Source: Eurostat, Bloomberg, ANZ Research 11
Decoupling am ongst European PMI s 60 55 50 45 40 35 30 Jan- 01 Jan-04 Jan-07 Jan-10 Strong Europe Weak Europe Source: ECB, Bloomberg 12
W eak Europe is not large 70 60 50 40 30 20 10 0 EM+ other US Euro- strong Japan Euro-weak World PPP weights Sources: Bloomberg, ANZ 13
China’s GDP grow th slow ed to below potential in Q4 2 0 1 1 We view that the bounce in China’s December PMI is the start of a rebound in activity; a hard landing in the property market is the biggest risk. China – GDP Grow th China – Contributions to GDP Grow th 20 20 18 15 16 14 10 12 10 5 8 6 0 4 2 -5 0 01 02 03 04 05 06 07 08 09 10 11 2005 2006 2007 2008 2009 2010 2011 Consumption Investment Net Exports GDP, y/y y/y q/q, saar China – Property Price I ndex China – PMI s China - Property Price I ndex (y/ y) 60 18 16 14 55 12 10 50 8 6 45 4 2 40 0 -2 35 -4 2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011 2012 Official PMI HSBC PMI Official Property Price Index ANZ Property Price Index Sources: Bloomberg, CEIC, and ANZ 14
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