an economic outlook for 2017, and beyond · 8.75% reshoring cash ... 24 – 29 years old ... 10...

STEPHANE GARELLI TRONDHEIM, 21 SEPTEMBER 2017

STEPHANE GARELLI

PROFESSOR AT IMD AND AT THE UNIVERSITY OF LAUSANNE, SWITZERLAND,

FOUNDER WORLD COMPETITIVENESS CENTER

THE WORLD IN RESET MODE

AN ECONOMIC OUTLOOK FOR 2017, AND BEYOND

2017…

TRONDHEIM

21 SEPTEMBER

2017

L

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OF EFFICIENCY

OF CHANGE

THE FRAMEWORK FOR SUCCESS


+1.8% +3.7%

+2.1%

+0.3%

+0.9% +0.3% -8.8%

IS IT A RECOVERY? GDP GROWTH

12 MONTH PERIOD

Q2

Q1

+6.9% +2.0%

+6.7%

+5.8%

+5.0%

+2.7%

+2.9%

+2.1%

+2.2%

+1.8%

+3.1%

+1.7%

+1.5%

+2.1%

+2.5%

+1.1%

+3.3%

+1.0% 0.2%

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INFLATION: UP AND DOWN?

2% 2%

1.2%

1.7%

1.3% 1.5% 1.8%

2.6%

1.7%

INFLATION IS PAYING

30 euros FOR A HAIRCUT

WHICH USED TO COST

20 euros

WHEN YOU HAD HAIR…



RECONCILING

HARD DATA

AND

SOFT DATA


A STRANGE ADVICE?

“PLEASE

DON’T CONFUSE

ME

WITH FACTS!”

Anonymous banker…


SOFT DATA (STOCK MARKET)?

“ANIMAL SPIRITS?”

US$7bn US$151bn

REVENUES

MARKET CAPITALIZATION

US$61bn US$45bn

PRODUCTION(cars)

76,000 6.7m


EXPECTATIONS, EXPECTATIONS…

GROWTH AND INCOME SHARE PRICE


GDP ACCOUNTS ONLY MONETIZED TRANSACTIONS…

JOHN MAYNARD KEYNES,

1883 - 1946

SUCCESSFUL

INVESTING

IS ANTICIPATING

THE ANTICIPATIONS

OF OTHERS

THE ADVICE OF KEYNES…

FORECASTING

THE ECONOMY


SUMMARIZING

THE

SITUATION


BUDGET

POLICIES MONETARY

POLICIES

“DO WE HAVE MONEY OR NOT…?”

POLICY MIX

CASH RICH – INVESTMENT POOR?


A REAL PROBLEM

UNEMPLOYMENT

OF LABOUR

UNEMPLOYMENT

OF MONEY


BUT, I AM

YOUR BROKER…

ARE YOU WORRIED?


WHO

HAS

MONEY?


WHAT ABOUT CENTRAL BANKS?

TOTAL BALANCE SHEETS: 9 CENTRAL BANKS

2003 2008 2016

$B

ILL

ION

$3,560BN

PLEASE WAIT

YOUR DOLLARS

ARE PRINTED!

$17,650BN

$7,580BN


SOVEREIGN WEALTH FUNDS

$813BN

CHINA INVEST.

CORPORATION

$441BN

SAFE INVEST.

COMPANY

$456BN

HKMA

$828BN

ABU DHABI

INVEST. AUTHOR.

$524BN

KUWAIT INVEST.

AUTHOR.

$514BN

SAMA

$320BN

QATAR INVEST

AUTHOR. $359BN

GOVT. INVEST.

CORP.

$998BN

GOVT. PENSION

FUND

9 SOVEREIGN WEATH FUNDS

$5’177bn

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CASH AND EQUIVALENT

$1.700BN

$1.300BN

$5.500BN

Listed companies 2017 (Bloomberg estimates)

$2.100BN

COMPANIES HAVE MONEY…



PEOPLE HOARDING CASH?

$2.4m

BRIEFCASE UNDER YOUR BED

$100.6m

YOUR HOTEL ROOM

$11.900m


PRESIDENT

TRUMP’S


THE BLUEPRINT

DEFENSE SPENDING: + 10%

CUT CORPORATE TAXES: 15%

INVESTMENT IN

INFRASTRUCTURE: $550bn - $1000bn

DEREGULATE: BANKS - ADMINISTRATION


BORDER ADJUSTMENT

- NO TAX ON EXPORTS

- NO DEDUCTION IMPORTS

BRING PROFITS BACK

8.75% RESHORING CASH

FULL EXPENSING ONE YEAR WRITE-OFF CAPEX

NO INTEREST DEDUCTIBLE ON LOANS

CORPORATE TAX RATE:

35% 15%

THE NEW PROPOSED TAX CODE


50 US COMPANIES = $1,100bn 5 US TECH COMPANIES = $504bn

$256BN $111BN $70BN $61BN $52BN

93% of

Cash

abroad

90% of

Cash

abroad

58% of

Cash

abroad

+$1.3tn

BRINGING THE MONEY BACK HOME…


- TERRITORIAL REPORTING

- PEER REVIEW

- EQUALITY OF TREATMENT

- TRANSPARENCY

BUT: NO TAX RATES

HARMONIZATION!

PRINCIPLES BEHIND THE GLOBAL TAX REFORM


THE VOLKER RULE:

297, 000 WORDS

THE DODD-FRANK ACT AT STAKE? (7,000 Rules)

NEW TESTAMENT:

181,253 WORDS

600 REGULATIONS

= $743bn

Source: The Trump Administration


3.6% WORLD-WIDE =

Investment as a % of PIB INFRASTRUCTURE SPENDING

8.5%

5.2%

2.6%

1.2%

3.7% 2.1% 2.0% 1.8%

4.4% 3.9%

2.4%

STREETS, SEWER, WATER, POWER…

24 – 29 YEARS OLD

Source: BEA, 2015

GLOBAL NEED = $3.7tn

INVESTED = $2.7tn

GAP = $1.0tn Annually

Source: World Bank, McKinsey Global Institute, 2016

= 3.7%





AT WHAT COST?

DEBT?

TRUMP’S PROGRAM

$7.4tn US FEDERAL DEBT

$19.9tn

(101% of GDP)


“I AM THE KING OF DEBT,

I DO LOVE DEBT,

7 MAY 2016

I LOVE PLAYING WITH IT…”

DOES THE PRESIDENT WORRY?


A FEW

GLOBAL

UNCERTAINTIES…


THE BREXIT AGENDA

1. THE WITHDRAWAL (June – Dec. 2017)

• EXIT BILL (55bn?)

• CITIZEN RIGHTS

• IRELAND

2. THE FUTURE RELATIONSHIP (Jan – June 2018)

• MARKET ACCESS

• FINANCIAL SERVICES

• DISPUTES?

3. THE TRANSITION (July – Oct 2018)

• JURIDICTION

• FREE MOVEMENT

• AGENCIES

4. RATIFICATION (Nov 2018 – March 2019)

759 AGREEMENTS WITH 168 COUNTRIES


OIL PRICE: CONFLICTING FORCES…

OPEC /RUSSIA

Production deal

ECONOMIC

RECOVERY

DISCOVERIES? Lowest in 60y

174/450

US SHALE OIL

RENEWABLES

4.9 b/d

60% Capacity

Growth

STOCKS

278 days

50$

60$

70$

80$

90$

Source: Data International Energy Agency, 2017

PRICE PRESSURE ON OIL PRICE


WHO

OWNS

WHAT?


GLOBALIZATION + CASH + TAX OPTIMIZATION

M&A AND CONSOLIDATION

$3,600bn (2016)

=

THE “MAGIC” FORMULA


A REVOLUTION IN CORPORATE OWNERSHIP

NEWCOMERS’GLOBALIZATION

EMERGING

ECONOMIES

COMPANIES

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CHINA BUYING…

OUTBOUND M&A 2016: $225bn

20%


PRIVATE EQUITY FUND

$ 93 billion

MONEY-MARKET FUND

$165 billion

EVEN MORE MONEY…


AND NOW THE CENTRAL BANKS?

buying shares…

$98bn (200 of 225 Nikkei shares)

$130bn (50% in the US)

PRINTING….


ALAN GREENSPAN

1926 -

“IF I SEEM

UNDULY

CLEAR TO YOU…

YOU MUST HAVE

MISUNDERSTOOD

WHAT I SAID“

IN FULL TRANSPARENCY?


WHO IS DOING WHAT?

ELECTRONIC PAYMENT

CLOUD COMPUTING

ADVERTISING

BATTERIES

WATCHES


TECHNOLOGY

BECOMES

INTELLIGENT…


ROBOTS OUTPERFORMING HUMANS?

1997:

DEEP BLUE (IBM) - CHESS

2016:

ALPHAGO (GOOGLE) – GO

2017:

LIBRATUS - POKER

ASSEMBLING,

TRANSPORTATION,

HEALTH,

AGRICULTURE,

FINANCE, TAXATION,

TRANSLATION, etc.

JOBS

“TAX THEM”

BILL GATES WHAT IS A ROBOT?


ARE HUMAN VULNERABLE?

SLOW

BIOLOGICAL EVOLUTION FAST

RE-PROGRAMING


“WE ARE LOOKING FOR SOMEONE WITH YOUR EXACT QUALIFICATION…

BUT A ROBOT VERSION!


ARE ROBOT VULNERABLE?

COMPETENCE

ULTIMATE WEAPON

COMPREHENSION

IS NOT

UNPLUG!


A NEW PARADIGM FOR

OFFSHORING

CHEAP

MAN-POWER

CHEAP

BRAIN-POWER

CHEAP

MACHINE – BRAIN

POWER

AI =

DATA-DRIVEN

LEARNING MACHINES

ONSHORING? COMPANIES


THE IMPACT ON JOBS

OFFSHORING

BLUE COLLAR JOBS

ONSHORING

WHITE COLLAR JOBS

SOCIAL

UNREST

EARLY

DE-

INDUSTRIALIZATION


STILL A “NO ACCESS” WORLD

11%

NO

ACCESS TO CLEAN WATER

NO

ELECTRICTY

15%

39%

NO

BANK ACCOUNT

20%

NO

IDENTITY

7.5bn

55% NO INTERNET


A

“YOUTHQUAKE”!


“MEISM”

REALISATION DE SOI

et

“Narcissisme…”

THE “SELFIEs”

GENERATION

“MEISM” Self

Fulfillment

and

“Narcissism…”

UNDERSTANDING MILLENIALS (age 18-35)


ESCAPING REALITY… Time spent

with a screen

SMARTPHONE

TV

PC

TABLET

Source: Nielsen Audience Report, 2016

10 HOURS, 39 MINUTES.

SLEEPING

-7H.30 CONFRONTING

REALITY:

6

HOURS per day



LITTLE

AFFILIATION Political, Religious…

“MEISM”

REALISATION DE SOI

et


“MEISM” Self

Fulfillment

and

“Narcissism…”

CONCERNED

State of the World


“WE HAVE A GENERATIONAL CHALLENGE:

NOT ONLY

TO CREATE NEW JOBS,

BUT TO CREATE

A RENEWED SENSE OF PURPOSE,

NOT ONLY FOR YOURSELF,

BUT ALSO FOR OTHERS!”

MARK ZUCKERBERG

1984 -



LITTLE


“MEISM”

REALISATION DE SOI

et


“MEISM”

Self

Fulfillment

and

“Narcissism…”

CONCERNED

State of the World

ENTITLEMENT

Demanding

And

Intrusive


MARK TWAIN, 1835 - 1910

“NEVER

DO WRONG,

ESPECIALLY

WHEN SOMEBODY

IS

LOOKING! “

A SENSE OF TRANSPARENCY?


OWNERSHIP (SHARING)


ENTITLEMENT

Demanding

And

Intrusive

LITTLE


MEISM

Self

Fulfillment

and

“Narcissism…

”

CONCERNED State of the World

“Free is Cool!”


I LOVE YOUR

MOVIES

I HAVE PIRATED

THEM ALL


THERE IS NO FREE LUNCH…

IF YOU THINK THAT A PRODUCT IS FREE

TIM COOK, CEO APPLE

THEN YOU ARE THE PRODUCT!


A NEW FAUSTIAN BARGAIN?

IF IT IS FREE…

THEN YOU CAN HAVE ALL THE INFORMATION ON MY

PRIVATE LIFE


“HOW CAN I TRUST YOUR INFORMATION WHEN YOU ARE USING…

SUCH AN OUTDATED TECHNOLOGY!

MILLENIALS LEAD THEIR PARENTS

33% OF USERS ARE OLDER THAN 45 YEAR OLD


2 YEARS EXPERIENCE 45 YEARS OLD 50+

THE WAGE CURVE

Source: Hired company, 2017


CONSEQUENCE

PETER DRUCKER,

1909 - 2005

THAN

CHANGES

IN MANAGEMENT

TODAY,

CHANGES

IN SOCIETY

HAVE A DEEPER

IMPACT ON COMPANIES


WHAT DOES IT

MEAN

FOR COMPANIES?


MANAGING VALUES IN A COMPANY

WORK /

SUCCESS

COMPANY

ACHIEVEMENT

20s 65s

> 60 HOURS A WEEK

COMPANY ANIMALS

MOBILE

SUCCESS DRIVEN

FULLY DEDICATED



WORK /

SUCCESS

COMPANY

ACHIEVEMENT

WORK / LIFE

BALANCE

SOCIAL

ACHIEVEMENT

20s 65s

40 - 60 HOURS A WEEK

PERSONAL ACHIEVEMENT

MOBILE WITH A HOME BASE

WORK-LIFE BALANCE



WORK /

SUCCESS

COMPANY

ACHIEVEMENT

WORK / LIFE

BALANCE

SOCIAL

ACHIEVEMENT

LIFE / LIFE

BALANCE

PERSONAL

ACHIEVEMENT

20s 65s

< 40 HOURS A WEEK

LIFE QUALITY

IMMOBILE

LIFE-LIFE BALANCE


DO NOT TAKE ANYTHING FOR GRANTED…

OLD DELHI – BRITISH COLONIAL TIME

REWARD

RAISING SNAKES SNAKES BACK IN THE

STREETS

THE LAW OF “UNINTENDED CONSEQUENCES”

an economic outlook for 2017, and beyond · 8.75% reshoring cash ... 24 – 29 years old ... 10...

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