1 world outlookoxford economic forecasting world macroeconomic outlook november 2005 tel: (44) 1865...
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World outlook 1 Oxford Economic
Forecasting
World Macroeconomic outlook
November 2005
Tel: (44) 1865 268900
Email:[email protected]
John Walker
Oxford Economic Forecasting
World outlook 2 Oxford Economic
Forecasting
World GDP Growth
2002 2003 2004 2005 2006 2007
US 1.6 2.7 4.2 3.6 3.4 3.3
Japan -0.3 1.4 2.6 2.2 2.0 1.7
Eurozone 0.9 0.7 1.8 1.3 1.6 2.2
UK 2.0 2.5 3.2 1.6 2.1 2.8
South Korea 7.0 3.1 4.6 3.8 5.0 5.3
China 8.3 9.4 9.5 9.3 8.6 8.8
Other Asia 3.7 3.6 6.1 4.2 4.4 4.7
Mexico 1.1 1.4 4.4 3.0 3.8 3.6
Other Latin America -1.0 1.7 6.2 4.7 3.9 3.7
Eastern Europe 4.0 6.1 6.6 5.2 5.0 4.5
World 1.7 2.6 4.0 3.4 3.4 3.4
World (PPP) 2.8 3.8 5.2 4.5 4.4 4.5
% Change on Previous Year
World outlook 3 Oxford Economic
Forecasting
Key Issues for world
• Impact of high oil prices
• Will US and China continue to be strong?
• The Dollar
World outlook 4 Oxford Economic
Forecasting
0
10
20
30
40
50
60
70
80
90
1973 1977 1981 1985 1989 1993 1997 2001 2005 2009
0
10
20
30
40
50
60
70
80
90
Source: OEF
$/barrel $/barrel
Real(1995 US prices)
Nominal
Oil price
F'cast
World outlook 5 Oxford Economic
Forecasting
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2000 2001 2002 2003 2004 2005 2006Source: OEF
China & Rest of World: Actual change in demand for oil
mn bpd
China
Rest of World
mn bpd
Forecast
World outlook 6 Oxford Economic
Forecasting
GDP growth forecasts (%yr)
Dec 2003 March June Nov 2004 June 2005 Now
US 3.0 3.7 3.8 3.7 3.6 3.6Japan 1.4 1.4 2.5 2.0 1.5 2.2Eurozone 2.3 2.4 2.3 1.7 1.1 1.3Asia ex Japan 6.1 6.2 6.5 6.0 6.3 6.5UK 2.7 2.7 2.8 2.7 2.4 1.6
GDP growth forecasts (% yr)Forecast for 2005 made in….
World outlook 7 Oxford Economic
Forecasting
GDP growth forecasts (%yr)
Dec 2004 Mar 2005 June Now
US 3.2 3.5 3.4 3.4Japan 1.9 1.4 1.1 2.0Eurozone 2.4 1.8 1.7 1.6Asia ex Japan 6.3 6.3 7.5 6.5UK 2.4 2.5 2.5 2.1
GDP growth forecasts (% yr)Forecast for 2006 made in….
World outlook 8 Oxford Economic
Forecasting
WHY NO REAL EFFECTS ?
i) It is more of a demand shock than a supply shock (given strong demand in the United States and China)
ii) The price build-up has been much more gradual than on earlier occasions
iii) Oil consumption per unit of GDP has declined significantly
iv) Neither price nor wage inflation have (so far) followed
but remember:
i) The lags can be quite long
ii) Absorption in many producing countries remains low
iii) Wages could still respond, at least in the fully employed U.S.
World outlook 9 Oxford Economic
Forecasting
CHANGES IN OIL PRICES
First oil shock:
1973 Q.3 – 1974 Q.1 3.84 times 2 quarters
Second oil shock
1979 Q.1 – 1981 Q.1 2.54 times 8 quarters
Third oil shock
2001 Q.4 – 2005 Q.4 3.62 times 16 quarters (1998 Q.4 – 2005 Q.4 6.31 times 28 quarters)
World outlook 10 Oxford Economic
Forecasting
30
40
50
60
70
80
90
100
1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003
30
40
50
60
70
80
90
100
Oil consumption-GDP ratio
Source: OEF
1973=1001973=100
Japan
US
UK
Eurozone
World outlook 11 Oxford Economic
Forecasting
100
105
110
115
120
125
130
135
140
145
150
1973 1975 1978 1980 2002 2004
100
120
140
160
180
200
220
240
260
280
300
320Inflation (LHS)Oil price (RHS)
Oil prices and OECD inflation
Source: OEF
1973-76
1978-81
2002-05
World outlook 12 Oxford Economic
Forecasting
Impact of Katrina
• Loss of energy production and refining
• Other direct output losses
• Damage to physical capital – insured losses
• Extra Federal spending
• Rebound associated with reconstruction
• Impact on oil prices
World outlook 13 Oxford Economic
Forecasting
-1.0
-0.5
0.0
0.5
1.0
1.5
Jan-02
-1.0
-0.5
0.0
0.5
1.0
1.5
Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05
Source: BEA
%, m/m % , m/m
Consumers' expenditure
World outlook 14 Oxford Economic
Forecasting
-500
-400
-300
-200
-100
0
100
200
300
400
3.5
4.0
4.5
5.0
5.5
6.0
6.5
2001 2002 2003 2004 2005Source: Datastream
US : Employment and unemploymentchange, 000s %
Unemployment rate(RHS)
Employment (LHS)
World outlook 15 Oxford Economic
Forecasting
Net Acquisitions of Financial Assets
1990-98 1999-2000 2003 2004 average average
Households 80 -151 -281 -337
Corporation -30 -220 127 71
Net Acquisitions of Financial Assets US $ bn
World outlook 16 Oxford Economic
Forecasting
Household Assets
1992 1999 2003 2004
Assets 27 49 54 59Tangible 10 14 20 23Financial 17 35 34 37
Liabilities 4 7 10 11
Net worth 23 42 44 48
US $ trn (end year)
World outlook 17 Oxford Economic
Forecasting
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1999 2000 2001 2002 2003 2004 2005 2006
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Source: FRB, OEF
Federal funds rate target %%
Fcast
World outlook 18 Oxford Economic
Forecasting
US
Australia
Canada
UK
Old Europe
Japan
New Asia
OPEC
ROW
Anglosphere
Non-Anglosphere
World discrepancy
-1000 -750 -500 -250 0 250 500 750 1000Source: OEF
Global current account balances 2005($bn)
Eurozone, Norway, Switzerland, Sweden, Denmark
US, Australia, Canada, UK
World outlook 19 Oxford Economic
Forecasting
Changes in the dollar
since Jan 2002 since Oct 2000Euro -30.7 -33.4Pound -23.2 -22.0
Yen -17.1 1.0Chinese Yuan -2.2 -2.2Korean Won -22.1 -9.8New Taiwan Dollar -6.8 1.8
Canadian Dollar -25.4 -21.7Mexican Peso 16.4 11.2Brazil Real -4.6 20.6
No change versus Saudi Riyal
Source: Datastream
Changes in the dollar(% change)
World outlook 20 Oxford Economic
Forecasting
Bilateral Trade Flow
US Asia EU
US - 209 171
Exports Asia 500 - 408
EU 287 258 -
Source: IMF DOTS
Imports(2004 Goods US$bn)
World outlook 21 Oxford Economic
Forecasting
0
100
200
300
400
500
600
700
800
900
1000
1100
1997 1998 1999 2000 2001 2002 2003 2004 2005
0
100
200
300
400
500
600
700
800
900
1000
1100$bn $bn
Source: OEF
Emerging Asia: Official fx reserves
China
Emerging Asia ex China
Japan
Russia & OPEC
World outlook 22 Oxford Economic
Forecasting
US financial account in 2004 (US$bn)2003 2004
US assets abroad -328 -856US private assets -330 -860 Direct investment -141 -252 Foreign securities -156 -102 US claims reported by non bank -24 -149 US claims reported by US banks -10 -356Foreign assets in US 889 1440 Official assets 278 395 Direct investment 67 107 US treasury securities 104 107 US securities other than treasury 226 370 US liabilities reported by US banks 97 323
Source: US Bureau of Economic Analysis
World outlook 23 Oxford Economic
Forecasting
US Corporate Bonds $1.8tr
US Corporate equities $1.9tr
Other$1.3tr
FDI$1.7tr
Official holdings of
gov. securities$1.4tr
Private holdings of
gov. securities$1.2tr
Foreign holdings of US Assets (2004)US$ trillion
Source: Flow of Funds Accounts
Total assets = US$9.3 trTotal liabilities = US$4.3 tr
World outlook 24 Oxford Economic
Forecasting
6
7
8
9
10
11
12
6
7
8
9
10
11
12
2003 2004 2005 2006 2007 2008 2009 2010
Source: OEF calculations
% of financial assets
3% of GDP
4%
Non-US private holdings of US Assets
5%
6%
7%
Projections based on different forecasts for the US current account deficit
% of financial assets