Cautious Optimism For a New Era of Global GrowthMAPI Foundation Webinar on the Global Economic Outlook

August 29, 2017 Cliff WaldmanChief Economist

cwaldman@mapi.net

• Growing signs of a coordinated but modest global growth improvement.

• The falling dollar adds a tailwind for U.S. manufacturing at a time of global economic strengthening.

• The MAPI Foundation baseline forecast is for an average of 1.7% • U.S. Manufacturing Growth from 2017-2020. • While modest, this is a meaningful acceleration from the nearly stagnant 2013-2016

period.

• U.S. political/policy shocks, Brexit uncertainty, and the confrontation with North Korea are the principle risks to the U.S. manufacturing outlook. The impact of the hurricane Harvey will take some time to assess but will vary by subsector.

• Population shifts that will catalyze changes in global labor supply and urbanization as well as the rise of Africa will govern global manufacturing developments in the decades to come.

Key Takeaways

• A fundamental turn in the world

• Advanced economies generally surprise to the upside

• Mixed data from China but the rebound persists

• Developing economies stabilize

• Global manufacturing forecasts

• U.S. manufacturing: modest improvement in the cards

• The outlook from 30,000 feet

• Looking far ahead: What will shape the world in the coming decades?

Today’s Presentation

-2

-1

0

1

2

3

4

5

6

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

Jan-

16

Jul-1

6

Jan-

17

Jul-1

7

Perc

ent (

Year

/Yea

r)

Japan Eurozone United Kingdom

Consumer Price Inflation: Japan, the Eurozone, and the UK

Source(s): IHS Global Insight, and United Kingdom Central Statistics Organization (year/year for China and the Eurozone, annual percent rate for the UK)

Central Bankers Breathe Easier: Deflation Risks Abate

-1

0

1

2

3

4

5

6

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017(F)

2018(F)

Perc

ent

Expectations Grow For An Improved Global Outlook

World GDP Growth

F=ForecastSource(s): International Monetary Fund

-2

-1

0

1

2

3

4

5

6

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

2017

Q1

2017

Q2

Annu

al P

erce

nt C

hang

e

In a Switch, the U.S. Economy Becomes a Global Risk Spot Due To Political, Policy, and Geopolitical Strains

U.S. GDP Growth, Inflation-Adjusted, Seasonally Adjusted

Source(s): U.S. Commerce Department, Bureau of Economic Analysis

65

70

75

80

85

90

95

100

105

110

115

120

85

90

95

100

105

110

115

120

125

130

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

Jan-

16

Jul-1

6

Jan-

17

Jul-1

7

Index March 1973=100

Inde

x: J

anua

ry 1

997=

100

Broad nominal dollar Dollar vs. major currencies

U.S. Broad Nominal Dollar and Dollar Versus Major Currencies

Source(s): Federal Reserve Board

The Resulting Dollar Reversal Grows as an Outlook Issue

-2

-1

0

1

2

3

4

5

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

2017

Q1

2017

Q2

Perc

ent

United Kingdom Eurozone

As Brexit Looms, Improving Growth in the Eurozone, Slowing Growth in the U.K.

Eurozone and UK Real GDP Growth, Year-Over-Year

Source(s): United Kingdom Central Statistical Office

Eurozone Manufacturing Production, Year-Over-Year Growth

-8

-6

-4

-2

0

2

4

6

8

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Dec

-15

Jun-

16

Dec

-16

Jun-

17

Perc

ent C

hang

e

Source(s): Eurostat

Improvement For Eurozone Manufacturing

-12

-8

-4

0

4

8

12

2010

Q4

2011

Q3

2012

Q2

2013

Q1

2013

Q4

2014

Q3

2015

Q2

2016

Q1

2016

Q4

Perc

ent

At Long Last, Japan Finds Consistent Growth

Japan, Real GDP Growth, Seasonally Adjusted at Annual Rate

Source(s): Economic and Social Research Institute

Japan, Manufacturing Output Growth, Year-Over-Year Percent Change

-10

-5

0

5

10

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

Sep-

16

Dec

-16

Mar

-17

Perc

ent

Source(s): Bank of Japan

Japanese Manufacturing Growth On the Upswing

-6

-4

-2

0

2

4

6

8

2010

Q3

2011

Q2

2012

Q1

2012

Q4

2013

Q3

2014

Q2

2015

Q1

2015

Q4

2016

Q3

Perc

ent

Encouraging Signs for Canada as Global Commodity Markets Firm

Canada Real GDP Growth, Seasonally Adjusted at Annual Rate

Source(s): Statistics Canada

China’s Annual GDP Growth

0

2

4

6

8

10

12

14

16

2003

2005

2007

2009

2011

2013

2015

Perc

ent

Source(s): National Bureau of Statistics of China

China’s Slowdown: It’s Over!

China’s Total Export and Total Import Growth

-60

-40

-20

0

20

40

60

80

100

Dec

-07

Jun-

08

Dec

-08

Jun-

09

Dec

-09

Jun-

10

Dec

-10

Jun-

11

Dec

-11

Jun-

12

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Dec

-15

Jun-

16

Dec

-16

Jun-

17

Perc

ent

(Yea

r/Yea

r)

Exports Imports

Source(s): China Statistical Information and Consultancy Service Center

Positive Growth in China Trade Resumes

0

5

10

15

20

25

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

Jan-

16

Jul-1

6

Jan-

17

Jul-1

7

Year

to D

ate

Perc

ent C

hang

e (Y

ear/Y

ear)

China’s Fixed Asset Investment, Purchase of Equipment and Tools

Source(s): National Bureau of Statistics of China

Dodging the Bullet on a China Investment Contraction

-5

0

5

10

15

20

25

30

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

Jan-

16

Jul-1

6

Jan-

17

Jul-1

7

Perc

ent (

Year

/Yea

r)

China’s Growth of Industrial Value-Added

Source(s): National Bureau of Statistics of China

The Chinese Manufacturing Slowdown Has Reached a Bottom

-10

-5

0

5

10

2012

Q4

2013

Q3

2014

Q2

2015

Q1

2015

Q4

2016

Q3

Perc

ent (

Year

/Yea

r)

Stabilization in Troubled Emerging Markets

Brazil’s Real GDP Growth

Source(s): IHS Global Insight

-6

-4

-2

0

2

4

6

2012

Q4

2013

Q3

2014

Q2

2015

Q1

2015

Q4

2016

Q3

2017

Q2

Perc

ent

As Commodity Prices Firm, Russia Finds Stability

Russia’s Real GDP Growth, Year Over Year

Source(s): IHS Global Insight

-5

0

5

10

15

Aug

-14

Nov

-14

Feb-

15

May

-15

Aug

-15

Nov

-15

Feb-

16

May

-16

Aug

-16

Nov

-16

Feb-

17

May

-17

Perc

ent

Unfortunately, Emerging Weakness in India Prevents a Manufacturing Recovery

India, Manufacturing Production Growth, Year-Over-Year

Source(s): Reserve Bank of India

Mexico, Growth of Total Export Demand

-20

-10

0

10

20

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Dec

-15

Jun-

16

Dec

-16

Jun-

17

Perc

ent (

Year

/Yea

r)

Source(s): National Institute of Statistics and IHS Global Insight

Significant Export Improvement In Mexico, A Good Sign for North America

Mexico Manufacturing Production Growth, Year-Over-Year

Stronger Manufacturing Growth Could Lead the Way to Stronger Economic Growth in Mexico

-4

-2

0

2

4

6

8

10

Jun-

15

Dec

-15

Jun-

16

Dec

-16

Jun-

17

Perc

ent

Source(s): National Institute of Statistics and IHS Global Insight

0 1 2 3 4 5 6 7

World

United Kingdom

Eurozone

Japan

China

Asia, ex Japan

Brazil

Mexico

Perc

ent

2017 2018

On the Whole, A Mixed But Improving Picture for Global Manufacturing Growth

Select Economies, Forecast of Manufacturing/Industrial Production Growth

Source(s): Consensus Forecasts and MAPI Foundation

-3

-2

-1

0

1

2

3

4

5

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

2017

Q1

2017

Q2

Perc

ent

U.S. Manufacturing Growth Strengthens as An Improving Global Economy and a Falling Dollar Spur Factory Activity

U.S. Manufacturing Production Growth, Annual Percent Change, Seasonally Adjusted

Source(s): Federal Reserve Board

Purchasing Managers’ Index for U.S., Manufacturing

20

25

30

35

40

45

50

55

60

65

Jul-1

6

Aug

-16

Sep-

16

Oct

-16

Nov

-16

Dec

-16

Jan-

17

Feb-

17

Mar

-17

Apr

-17

May

-17

Jun-

17

Jul-1

7

Perc

ent

Source(s): Institute for Supply Management

The Purchasing Managers’ Index Has Generally Transmitted Optimistic Signals About Better Days for U.S. Manufacturing

-6

-4

-2

0

2

4

6

8

10

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

2017

Q1

2017

Q2

Perc

ent

Hints of Stronger U.S. Export Demand From a More Stable World

U.S. Total Export Growth, Annual Rate, Seasonally Adjusted

Source(s): U.S. Bureau of Economic Analysis

-14

-8

-2

4

10

16

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

2017

Q1

2017

Q2

Perc

ent

Modest Firming in U.S. Equipment Investment as Global Risks Abate

U.S. Equipment Expenditure Growth, Annual Rate, Seasonally Adjusted

Source(s): U.S. Bureau of Economic Analysis

-4

-3

-2

-1

0

1

2

3

4

5

6

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

(F)

2018

(F)

2019

(F)

2020

(F)

Perc

ent

MAPI Foundation Forecast: The Era of Moderate Economic Growth Continues in the U.S.

U.S. GDP Growth, Inflation-Adjusted

F=ForecastSource(s): U.S. Bureau of Economic Analysis and MAPI Foundation

-4

-3

-2

-1

0

1

2

3

4

5

2015

2016

2017

(F)

2018

(F)

2019

(F)

2020

(F)

Annu

al P

erce

nt C

hang

e

Exports Business Equipment Investment

MAPI Foundation Forecast: Modest Outlook for the Drivers of Manufacturing Activity

U.S. Manufacturing Production Growth

F=ForecastSource(s): MAPI Foundation

-15

-10

-5

0

5

10

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

(F)

2018

(F)

2019

(F)

2020

(F)

Annu

al P

erce

nt C

hang

e

MAPI Foundation Manufacturing Forecast: Better But Still Slow

U.S. Manufacturing Production Growth

F=ForecastSource(s): Federal Reserve Board and MAPI Foundation

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

Basline Dollar Scenario Bearish Dollar Scenario

Perc

ent

U.S. Manufacturing Forecast, Alternative Dollar Scenarios, Projected Average of U.S. Manufacturing Growth for 2017-2020

Source(s): MAPI Foundation

Upside Risk to U.S. Manufacturing Growth From a More Protracted Fall in the Dollar

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Basline Pessimistic Optimistic

Perc

ent

Non-U.S. Advanced Country GDP Developing Country GDP U.S. Manufacturng Growth

U.S. Manufacturing Forecast, Alternative Global Growth Scenarios, Projected Average of U.S. Manufacturing Growth for 2017-2020

Source(s): MAPI Foundation

U.S. Political/Policy Risk and Geopolitical Tensions Guide the Pessimistic Growth Scenario. A Strong Coordinated Global Upturn Guides the Optimistic Outcome.

• Growing signs of coordinated but modest global growth improvement.

• The falling dollar adds a tailwind for U.S. manufacturing at a time of global economic strengthening.

• The MAPI forecast remains for a modest improvement in U.S. manufacturing growth over the nearly stagnant 2013-2016 period.

• Political/Policy shocks, Brexit uncertainty, and the confrontation with North Korea are the principle risks to the U.S. manufacturing outlook.

The Outlook From 30,000 Feet

• Labor Supply: The shift from a labor rich to labor scarce global economy.

• Urbanization: Population concentration creates spatial scarcities, reshapes supply chains, alters household structures, and impacts the composition of goods demand.

• Africa’s Promise: Favorable demographics and accelerating economic growth shed sunlight on a difficult continent. But it’s a diversified and nuanced story of winners and losers.

Shaping the World in the Decades to Come

50

55

60

65

70

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

(F)

Perc

ent

World Less Developed More Developed

Labor Supply Becomes a Worldwide Challenge

Share of World, More Developed, and Less Developed Populations in theAged 15-64 Cohort

F=ForecastSource(s): United Nations, World Population Prospects, 2017 Revision

0

10

20

30

40

50

60

70

80

90

1950

1970

1990

2010

2030

(F)

2050

(F)

Perc

ent

World More Developed Regions Less Developed Regions

Share of Population Residing in Urban Areas: World and Major Divisions

Source(s): United Nations, Department of Economic and Social Affairs, World UrbanizationProspects, 2014 Revision

As Population Growth Slows and as Populations Age, They Appear to Concentrate

-2

0

2

4

6

8

10

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

(F)

Perc

ent C

hang

e

World Emerging market and developing economies Sub-Saharan Africa

Economic Growth Shows Promise Even in the Poorest Region of Africa

Real GDP Growth

F = ForecastSource(s): International Monetary Fund

Questions, Anyone?