ICAEW Economic Insight: Greater China Launch event presentation

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ICAEW Economic Insight: Greater China Launch event presentation. Douglas McWilliams Chief Executive, Cebr. Objectives. To provide an update on the prospects for the world economy To share our latest thinking on the economic outlook for the People’s Republic of China. Outline. - PowerPoint PPT Presentation

Transcript of ICAEW Economic Insight: Greater China Launch event presentation

  • Douglas McWilliamsChief Executive, CebrICAEW Economic Insight: Greater ChinaLaunch event presentation

  • ObjectivesTo provide an update on the prospects for the world economy

    To share our latest thinking on the economic outlook for the Peoples Republic of China

  • OutlineThe world economyOil and commodity pricesThe Chinese economyImplications for accountants

  • The worlds greatest ever economic eventThe East grows, the West falls backThe real price of primary commodities like energy, minerals and food rises inflation becomes increasingly a commodity price based phenomenonGrowth/commodity price cycles become endemicIts a good time to be a capitalist in the East you will benefit from growth, in the West from cheaper labour (actually this was a prediction of Karl Marx!)The terms of trade move against Western economiesThe worlds wealth is moving towards countries which traditionally have high savings ratios creating a glut of savings

  • Cebr World Economic League Table (WELT) 2010Countries ranked in order of GDP in $ at current market prices. The GDP data for 2010 is taken from the IMF World Economic Outlook. Forecasts for 2011 and 2020 are Cebr forecasts based on our global economic prospects forecasts

  • Cebr World Economic League Table (WELT) 2020

  • QE in the US has been augmented by US banks repatriation of capitalSource: Federal Reserve, European Central Bank

  • The monetary merry-go-roundThe Fed has already had two bouts of official monetary easing, has conducted open market operations and has committed not to raise rates till end 2014The ECB has spent two tranches of around 500 billion each creating banking liquidity which has stabilised the European economic situationThe PBoC (Peoples Bank of China) has cut its reserve requirement ratio twice (in November and on 24 Feb). The 24 Feb announcement is expected to allow increased lending of $64 billionThe Bank of England has announced two further bouts of QE the latest an additional 50 billion on Feb 8thMeanwhile there is capital flight by non European banks from Europe only partly offset by European banks repatriating their own capital.

  • World growth is slowing but key risks are the Euro and impact of Middle East uncertaintyWorld real GDP, annual percentage changeSource: IMF, Cebr analysis

    Chart1

    0.04292000

    0.0122811932001

    0.0155385462002

    0.020497212003

    0.0311939412004

    0.0272382192005

    0.031756172006

    0.0300967142007

    0.0069150292008

    -0.0307648932009

    0.0313115512010

    0.0289659292011

    0.0282012

    0.0262013

    0.0312014

    0.0332015

    0.0372628072016

    Baseline scenario

    Sheet1

    Baseline scenario

    20004.29%

    20010.012281193

    20020.015538546

    20030.02049721

    20040.031193941

    20050.027238219

    20060.03175617

    20070.030096714

    20080.006915029

    2009-0.030764893

    20100.031311551

    20110.028965929

    20120.028

    20130.026

    20140.031

    20150.033

    20160.037262807

  • *US real GDP growth, annual changeUnited States economy shows resilience, but QE boost is unlikely to continueSource: IMF, Cebr analysis

  • Significant Eurozone downside risks remainEuro area real GDP, annual percentage changeSource: IMF, Cebr analysis

  • Oil price may dip in 2012/13 as West ends monetary easing, but rise again in mid-decade Average of Brent, WTI & Dubai Fateh crude oil spot price, $/barrel, average across calendar yearSource: Macrobond, Cebr analysis

  • Commodity prices also to correct before recoveringIMF non-fuel commodity price index (2005=100)Source: IMF, Cebr analysis

  • Impact of possible Euro breakup on world trade (% world trade deviation from base where Euro does not break up)Source: CPB, Cebr analysis

  • Exports have been an important driver for Chinese growth so far.Mainland China monthly exports and trade balance in US dollarsSource: China NBS, Cebr analysis

  • but the dependence on exports is reducing rapidlyContributions to economic growth by type of expenditureSource: China NBS

  • Investment growth, particularly in property, is likely to slowMainland China urban fixed asset investment, change YTD Y/YSource: China NBS

  • We expect Chinese inflation to be below the 4% target for most of the next 18 monthsConsumer price index, total index, index excluding food and food only, annual percentage changeSource: China NBS

  • Movement of the US dollar against renminbi since July 2005, annual percentage changeWe expect that the renminbi will edge up against Western currenciesSource: Macrobond, Cebr analysis

  • Hong Kong is now the top ranked international financial centreWorld Economic Forum ranking of international financial centres Source: World Economic Forum

  • Growth will continue to be strong, if slightly more subdued than in the recent pastPeoples Republic of China GDP growth forecastsSource: Cebr analysis

  • Implications for the accountancy profession

    World economy currently being boosted by monetary easing in US and EuropeBut further monetary easing is less likelyWe expect downward pressure on inflation as monetary easing comes to an endRisks for the world economy are excess monetary growth leading to inflation, Middle East tensions leading to spikes in oil price and Euro problems leading to a disorderly breakupChinese growth is changing gear and becoming much more dependent on domestic demandUrban investment growth in property seems unlikely to keep growingChinese inflation has been kept low by availability of labour as this diminishes, will monetary policy have to become more counter-inflationaryMainland China is still on course to overtake the US and become the worlds largest economy

    A world leader of theaccountancy and finance profession

    ******