Global Economic Overview - Samiran Chakraborty, Standard Chartered

Global economic overviewGlobal economic overview

Samiran Chakraborty

13 November 2013

Global economic overviewGlobal economic overview

Contents

The story till 2013

• Weak recovery in both DM and EM

• Fiscal discipline

• Low core inflation and continued monetary easing

• Gradual export recovery

• FX markets punish countries slow on reforms• FX markets punish countries slow on reforms

Themes for 2014

• Reversing monetary easing and its impact

• China recovery and what it means for EM

The long – term: EM growth is key to the Super-cycle

Low core inflation and continued monetary easing

cycle

2

Weak recovery from the crisisGDP Q2 2013, rebased to Q1-2008, index

100

102

104

106

90

92

94

96

98

Q1-08 Q1-09 Q1-10

2008, index

Germany

US

Source: Bloomberg, Standard Chartered Research 3

Italy

UK

Japan

Q1-11 Q1-12 Q1-13

Incomes still weak 5.5 years after 2008Change in GDP per capita since Q1-2008 %

-4

-2

0

2

-12

-10

-8

-6

-4

Germany US Japan France

Incomes still weak 5.5 years after 2008-09 crisis2008 %


Euro area

UK Italy Spain

Large output gaps in developed marketsOutput gap (spare capacity) as % of GDP

-4

-2

0

-10

-8

-6

-4

Japan Germany Canada UK OECD

Large output gaps in developed marketsOutput gap (spare capacity) as % of GDP

Source: OECD, Standard Chartered Research 5

OECD US France Italy Spain

Unemployment is high except in GermanyUnemployment %

2007

10

12

14

2013

0

2

4

6

8

Japan Germany US OECD

Unemployment is high except in Germany


UK France Italy Euro

Developed markets recovery scorecardThe more asterisks the better

Fix balance sheets

Original asset bubble fully deflated

Healthy household balance sheets

Healthy corporate balance sheets

Healthy banks

Stabilised government debt/low deficitStabilised government debt/low deficit

Other reforms/growth stimulus

Revived ‘animal spirits

SUMMARY – STRUCTURAL (out of 35)

Supportive fiscal policy (2013)

Easy money overall

Low real rates

Cheap currency

Rising asset prices

Lending up to private sector

Healthy money growth

SUMMARY – FISCAL AND MONETARY POLICY (out of 10)

Developed markets recovery scorecard

US Japan UK Spain

***** ***** **** **

***** **** *** *

***** ***** ***** ***

***** **** ** *

*** * ** **

Source: Standard Chartered Research 7

*** * ** **

*** * * ***

*** ** * *

29 22 18 13

* **** ** **

***** *** **** *

**** ** *** *

***** ***** ***** **

***** *** **** *

**** *** ** *

***** *** **** *

6 7 6 3

EM growth has slowed since 2010Real GDP growth % y/y

20108

10

12

2011

2012

0

2

4

6

Brazil China India

EM growth has slowed since 2010

8Source: IMF, Standard Chartered Research

Turkey Russia Indonesia

Major fiscal restraint since 2010 except in JapanCyclically adjusted fiscal balance as % of GDP

20082011

2012

2013

-4

-2

0

20092010

-12

-10

-8

-6

Euro Japan

Major fiscal restraint since 2010 except in JapanCyclically adjusted fiscal balance as % of GDP


UK US

Core inflation is well below targetCPI ex food and energy, % y/y

2.0

2.5

3.0

Euro area

0.5

1.0

1.5

2.0

Jan-00 Jan-02 Jan-04 Jan-06

US


Jan-08 Jan-10 Jan-12

World trade has recovered, led by AsiaExport volumes, indexed to pre-recession peak

120

140

160

Q2-08 Q1-09 Q4-09 Q3-

40

60

80

100

World trade has recovered, led by Asiarecession peak

Developing Asia

Source: IMF DOTS, Standard Chartered Research 11

Advanced Economies

World

-10 Q2-11 Q1-12 Q4-12

China, the leading trade powerhouse% of world exports

USA

12%

14%

16%

18%

China

Germany

1960 1965 1970 1975 1980 1985

0%

2%

4%

6%

8%

10%

China, the leading trade powerhouse


1985 1990 1995 2000 2005 2010

FX markets punish countries needing reformExchange rate against USD, Jan 2012= 100

120

125

130

135

90

95

100

105

110

115

Jan-12 Apr-12 Jul-12 Oct-12

FX markets punish countries needing reformExchange rate against USD, Jan 2012= 100

INR

IDR


MXN

TRY

Jan-13 Apr-13 Jul-13

The super-cycle re-assessedThe super-cycle re-assessedassessedassessed

Super-cycles – Global GDP growth

1820-70: 1.7% 1913

5%

10%

1870-1913: 2.7%

-10%

-5%

0%

1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920

Global GDP growth

1913-46: 1.7% 1973-19: 3.0%

Actual global GDP growth

Source: Angus Maddison, IMF, Standard Chartered Research 15

1946-73: 5.0% 2000-30: 3.5%

Average global GDP growth

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

The world economy is set to doublUSD tn

Real GDP (2012 prices and market exchange rates)

150

200

250

0

50

100

150

2013

USD 69 tn

ble in real terms, triple in nominal

Real GDP (2012 prices and market exchange rates)

Nominal GDP

USD 223 tn

Source: IMF, Standard Chartered Research 16

Real GDP (2012 prices and dollars)

2030

USD 132 tn

USD 129 tn

2014 – 2030 GDP growth

17

10 largest economies by decadeUSD tn

1990 USD tn 2000 USD tn 2010

1 US 5.9 US 10.3 US

2 Japan 3.1 Japan 4.7 China

3 Germany 1.7 Germany 1.9 Japan

4 France 1.2 UK 1.5 Germany

5 Italy 1.1 France 1.3 France

6 UK 1.0 China 1.2 UK

7 Canada 0.6 Italy 1.1 Italy

8 Spain 0.5 Canada 0.7 Brazil

9 Brazil 0.5 Brazil 0.6 Canada

10 China 0.4 Mexico 0.6 Russia

2010 USD tn 2020 USD tn 2030 USD tn

US 15.0 US 23.5 China 53.8

China 5.9 China 21.9 US 38.5

Japan 5.5 Japan 6.1 India 15.0

Source: Standard Chartered Research 18

Germany 3.3 Germany 5.1 Japan 9.3

France 2.5 India 4.5 Germany 7.4

UK 2.3 Brazil 3.9 Brazil 6.3

Italy 2.0 France 3.9 UK 5.8

Brazil 2.1 UK 3.7 France 5.7

Canada 1.6 Italy 2.7 Indonesia 4.7

Russia 1.5 Russia 2.6 Russia 4.6

EM growth to drive two-thirds of global growth % of total 2012-30 (based on real 2012 prices and dollars)

India

Latam

Asia ex CIJ

US

China

Japan

SSA

CIS

ROW

MENA

EU28

India

0 5 10

thirds of global growth 30 (based on real 2012 prices and dollars)

19

15 20 25 30

Source: IMF, Standard Chartered Research

The world is more open than everWorld exports-to-GDP ratio

25

30

35

0

5

10

15

20

1820 1870 1913 1929 1950 1960 1965 1970 1975

2013F

Source: Angus Maddison, IMF WEO, Standard Chartered Research 20

1975 1980 1985 1990 1995 2000 2005 2010 2030

South-South trade boom to continue % of world trade

25%

30%

35%

0%

5%

10%

15%

20%

2000 2002 2004 2006 2008 2010 2012 2014

South trade boom to continue


2014 2016 2018 2020 2022 2024 2026 2028 2030

Asia to surpass EU in world trade % of world exports, projections for 2013

30%

40%

50%

0%

10%

20%

30%

1990 2000

Asia to surpass EU in world trade

Asia


EU

2010 2020 2030

Exports by regionUSD bn

Total exports 2000

China 249

India 42

Asia ex-CIJ 830

Africa 125Africa 125

MENA 30

Latam 365

US 772

EU-27 2,424

Japan 478

ROW 1,064

World 6,379

2012 2030

2,050 17,067

297 2,692

895 949

489 824


489 824

1,349 5,609

1,098 4,446

1,546 4,619

5,573 12,097

799 2,427

3,759 23,853

17,855 74,583

Thank YouThank You

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Global Economic Overview - Samiran Chakraborty, Standard Chartered

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