columbus 2020 investor update | january 2015 | michael weidokal

The 2015 ISA Global Trade and Investment Outlook WWW.ISA-WORLD.COM

The 2015 ISA Global Trade and Investment Outlook

Created by ISA (International Strategic Analysis)

www.isa-world.com

Presented by Michael Weidokal, Executive Director

[email protected]


About ISA (International Strategic Analysis)

•  Founded in 2003, ISA (International Strategic Analysis) is now one of the world’s leading economic and political risk forecasting firms.

•  ISA has clients in more than 100 countries, including from major multinationals, government bodies and research organizations.

•  ISA publishes a range of best-selling international reports and forecasts, including:

•  ISA Country Reports •  ISA Economic Forecasts •  ISA Region Reports •  ISA Risk Forecasts •  The ISA Global Update

•  ISA provides customized research and advisory services for some of the world’s leading business and research organizations.

About ISA


Objectives and Agenda

•  To determine how the trends and events of the past year will impact international trade and investment in 2015 and the years beyond.

•  To predict the key economic, business and political issues and trends that will shape global trade and investment in 2015 and the years beyond.

•  To determine which long-term issues and trends will play a key role in the future of global trade and investment and the direction of the global economy.

A Look Back at the Previous Year The Outlook for the Global Economy in 2015 Key International Risks in 2015 Key International Opportunities in 2015 Regional Outlooks in 2015 Summary

Objectives Agenda


A Look Back at the Previous 12 Months

How 2014 Will Impact 2015


2014 – The World Economy

•  Global economic growth has hovered a little above 3% over the past three years, reflecting the fact that the recovery from 2008’s financial crisis has been lackluster at best.

•  This is the first time since the mid-1990s that global economic growth rates have been below 4% for three consecutive years.

•  As in the 1990s, much of the fault for this sluggish growth has been found in Europe and Japan, where domestic demand has been very weak.

Key Developments Global Economic Growth


2014 – More Mixed Results for Global Trade and Investment

•  Global trade levels remained relatively stagnant in 2014, with global trade growth once again coming in at less that 5%.

•  China’s weakening demand for natural resources had a major impact on this decline in trade.

•  Foreign investment levels picked up across much of the world in 2014, although growth was muted by lower levels of investment in Europe and South America.

Overview Global Trade Growth


2014 – A Mixed Bag

•  In North America, the year started on a down note thanks to a severe winter, but growth accelerated over the course of the year.

•  In contrast, Europe started the year hoping that its fragile recovery could gain steam, but instead it fell deeper into stagnation.

•  China’s economy settled in with growth rates around 7.5%, but signs of a slowdown were evident throughout the country.

•  Japan experienced a roller coaster ride as growth soared before April 2014’s sales tax hike, but then plunged afterwards.

•  Key emerging markets such as Brazil, Russia and Mexico continued to disappoint in 2014.

Key Developments Economic Performance by Country


2014 – North American Economies Pick Up Steam

•  The expected strengthening of the United States economy was delayed by a severe winter, but it accelerated at a strong pace after the winter.

•  Canada experienced relatively steady growth over the past year.

•  Mexico’s economy continued to underperform in 2014, but many key reforms were enacted during the course of the year.



2014 – Asia Continues to Drive Growth

•  While the overall rate of economic growth in Asia slowed for the fourth consecutive year, Asia remains a key driver of global economic growth.

•  China’s growth rates continued to decelerate towards 7% and its economy continued to rebalance from a dependence upon exports to one driven by domestic demand.

•  India’s slump began to abate, although growth rates remained well below those from a few years ago.

•  Other large Asian emerging markets performed well, although with growth rates slightly below those of previous years.

•  Japan experienced a roller coaster ride over the past year due to the implementation of a sales tax hike in April 2014.



2014 – Europe’s Recovery Stutters

•  Overall, the European economic recovery has proven to have been both weak and short-lived, as domestic demand has remained depressed.

•  There have been a few bright spots, most notably in Britain and the Iberian Peninsula.

•  However, Germany, which had been the engine of European growth, began to slow in 2014.

•  Likewise, two of the region’s other key economies, France and Italy, continued to stagnate in 2014.



2014 – A Number of Key Emerging Markets Struggle

•  Volatility continued to plague many of the world’s leading emerging markets in 2014 due to both internal and external factors.

•  The continued withdrawal of the quantitative easing programs in the United States led to a fall in foreign investment in emerging markets.

•  China’s slowdown and Europe’s ongoing struggles led to lower demand for exports for many emerging markets.

•  Falling oil prices have had a major impact on the world’s leading oil producing countries.



2014 – Oil Prices Fall Sharply

•  After rising to $107 a barrel (West Texas Intermediate Crude) in mid-2014, oil prices fell sharply in the latter part of 2014 and in early 2015.

•  Oil prices fell have fallen by 55% over the past seven months, and this fall in prices appeared to be accepted by Saudi Arabia, Kuwait and some other major oil producers.

•  The sharp increase in oil output in the United States and Saudi Arabia’s desire to combat oil and geopolitical rivals were the key reasons for these lower oil prices.

•  In addition, oil demand in Europe and parts of Asia remained soft.

•  Lower oil prices could jeopardize many non-traditional oil projects.

Overview Oil Prices


Key Global Risks in 2015

The Leading Risks for International Trade and Investment in 2015


Key Risk in 2015: Long-Term Stagnation and Deflation in Europe

•  The Eurozone’s current struggles bear many of the hallmarks of Japan’s two-decade slump that began in 1992.

•  In both cases, demographic declines led to a downturn in domestic demand levels that left both economies dependent upon exports.

•  However, both economies suffered a sharp decline in export competitiveness.

•  Unsustainable growth in key sectors of both economies played key roles in their downfalls.

Overview Eurozone and Japan


Key Risk in 2015: Weak Demand Levels in the Eurozone

•  Domestic demand inside the Eurozone remains very weak.

•  Consumer spending and retail sales in the Eurozone remain more than 5% smaller than before the global financial crisis.

•  In contrast, consumer demand in the United States and, to a lesser extent, Britain, have rebounded strongly in recent years.

Overview Retail Sales Growth


Key Risk in 2015: Currency Wars

•  The US dollar has appreciated sharply against the currencies of most of its leading trading partners over the past two years.

•  Investors are flocking the US dollar due to the outlook for the US economy and its status as a safe haven investment.

•  Some countries are enacting policies aimed at weaken their currencies in order to boost their export competitiveness.

•  The US dollar is forecast to remain strong over the course of 2015 and into 2016.

Key Developments Major Currencies vs. the US Dollar


Key Risk in 2015: The US Recovery Fails to Meet Expectations

•  The global economy is once again counting on the United States to be a key driver of economic growth.

•  However, there are a number of factors that could prevent the US recovery from meeting expectations (weak export demand, low wage growth, etc.).

•  Even with a strong recovery in the coming years, the US faces its second consecutive decade with less than 3% average annual GDP growth (first time in more than a century).

Overview US GDP Growth by Decade


Key Risk in 2015: Ukraine and Russia

•  The situation in eastern Ukraine remains unresolved as pro-Russian militants, backed by Russian forces, continue to control a good deal of territory.

•  Moreover, Russia’s annexation of Crimea has caused major problems for Russia and Ukraine.

•  Elsewhere, large ethnic Russian minorities live in a number of the countries neighboring Russia.

Overview Russians Outside of Russia


Key Risk in 2015: Flashpoints

Map of Key Flashpoints in 2015

Iran’s Nuclear Program

Venezuela’s Economic Fall

Social Unrest in South America

Ukraine’s Uncertain Future

Civil War in Syria

The Volatile Sahel

Civil War in Libya The Islamic

State

East Asian Tensions

East African Terrorism

Pakistan Unrest


Key Global Opportunities in 2015

The Leading Opportunities for International Trade and Investment in 2015


Key Opportunity in 2015: Booming North America

•  North American economic growth rates are forecast to rise in the coming years.

•  The United States economy will realize solid economic growth rates in the coming years and this will provide a major boost for Canadian and Mexican exporters.

•  North American economic competitiveness will continue to improve in the years ahead thanks to expanding working-age populations and lower energy costs.

Overview GDP Growth Rates


Key Opportunity in 2015: The Chinese Domestic Market

•  The Chinese economy is continuing to undergo a gradual transformation from one that was driven by export demand to one that derives much of its growth from domestic demand.

•  The purchasing power of Chinese consumers has risen faster over the past 25 years than anywhere else in the world.

•  Moreover, with huge pent-up savings and a strengthening currency, Chinese consumers’ appetite for imported goods and services will boom in 2015 and the years beyond.

Overview Retail Sales in China


Key Opportunity in 2015: China’s Urban Centers

Largest Cities in China Economic Growth by Region


Key Opportunity in 2015: Southeast Asia

•  Southeast Asia, home to nearly 660 million people, will continue to be one of the fastest-growing regions in the world in the coming years.

•  Larger Southeast Asian countries such as Indonesia, Vietnam and the Philippines will benefit from higher levels of foreign investment that is attracted by low labor costs and rapidly-growing domestic markets.

•  Meanwhile, Myanmar’s political reforms are opening that country’s economy to foreign investors.

Overview GDP Growth in Southeast Asia


Key Opportunity in 2015: The Global Elderly Market

•  The fastest growing market segment in the world in the coming decades will be the elderly market.

•  In developed countries, the elderly population will growth by more than 70% by the middle of this century, while all other age groups will stagnate or decline.

•  In emerging markets, the elderly population will soar as life expectancies continue to rise.

Overview Elderly Demographics


Ohio Exports – The Global Picture

•  Half of Ohio’s exports are still destined for Canada and Mexico, although Canada’s share of Ohio’s exports has fallen from 50% to 40% over the past decade.

•  The Asia-Pacific region has overtaken Europe as the second largest regional export market for Ohio, with China accounting for one-third of Ohio’s exports to this region.

•  Ohio’s exports to Europe have stagnated in recent years, due to the economic crisis in that region.

Key Developments Ohio Exports by Region


Ohio Exports – Growth Markets

•  The fastest growing markets for exports from Ohio are mostly found in East Asia and in the Middle East.

•  China has grown to become the third largest export market for Ohio exporters.

•  East Asian manufacturing economies such as South Korea, Malaysia and Taiwan are providing major growth opportunities for Ohio exporters.

•  Ohio vehicle manufacturers are recording very strong growth rates in the wealthier markets of the Middle East, such as Saudi Arabia.

Key Developments High Growth Export Markets for Ohio


Ohio Exports – Untapped Markets

•  Ohio exporters have yet to fully tap the potential of many of the world’s fastest-growing export markets.

•  Many of these untapped markets are found in Asia, including the region’s second- and third-largest emerging markets, India and Indonesia.

•  Two of Europe’s leading manufacturing countries, Spain and Poland, are relatively untapped by Ohio’s exporters.

Key Developments Undeveloped Export Markets for Ohio


Regional Outlooks for 2015

The Outlook for All of the World’s Regions in 2015


Regional Outlook: North America

•  The United States and Canada constitute a combined developed market of nearly 360 million people that will be a key driver of global economic growth in the coming years.

•  The US economy will grow by an average of 3% over the next five years, its best performance since before the financial crisis.

•  Mexico has been one of the world’s most disappointing emerging markets in recent years, but growth is set to trend upwards in the coming years.

•  Economic growth rates will vary greatly across Central America in coming years, with Panama continuing to be that region’s best-performing economy.

Economic Outlook Economic Performance

North American Politics in 2015 •  Mexican parliamentary elections in July

•  Canadian parliamentary elections in October

•  US-Cuban ties restored


Regional Outlook: South America

•  The key drivers of economic growth in South America will continue to be the natural resource exporters of the Andes Mountains.

•  Brazil’s economic performance will continue to disappoint in the coming years.

•  Venezuela and Argentina face the near-term threat of hyper-inflation and will struggle to record any economic growth.


South American Politics in 2015 •  Argentina’s national elections in October

•  Venezuela on the brink of collapse

•  Colombian peace talks continue


Regional Outlook: West Europe

•  Economic growth will remain sluggish across most of the Eurozone in the coming years as domestic demand remains weak and export competitiveness fails to improve.

•  Britain and a handful of northern European economies will grow at a pace above the regional average in the coming years.

•  Spain and Portugal will benefit from economic reforms that allow their economies to recover, somewhat, from the recent crisis.

•  Without major reforms, France and Italy face longer-term stagnation.


West European Politics in 2015 •  British parliamentary elections in May

•  Spanish parliamentary elections in December

•  Unrest on Europe’s periphery leading to a surge in illegal immigration


Regional Outlook: Central and East Europe

•  The war in eastern Ukraine has devastated that country’s economy.

•  Russia too has felt the impact of the war in Ukraine as well as the sharp fall in oil prices, leading to a looming recession.

•  Russia could face more economic sanctions as a result of the crisis in Ukraine.

•  Export-dependent Central European economies will continue to suffer as a result of sluggish demand in West Europe.


Central and East European Politics in 2015 •  The war in Ukraine is likely to intensify

•  Russian President Vladimir Putin is cornered, and dangerous

•  Parliamentary and presidential elections in Poland


Regional Outlook: Middle East and North Africa

•  The recent fall in oil prices will have significant repercussions for the region’s leading oil producers.

•  While Saudi Arabia, Kuwait and the UAE have sufficient currency reserves to survive a few years of low prices, the region’s other leading oil producers do not.

•  Political unrest is impacting many of the region’s economies, although this unrest has thus far remained outside of most of the region’s economic centers.


Middle East and North African Politics in 2015 •  The war with the Islamic State continues

•  New failed states in Libya, Syria, Iraq and Yemen

•  Iran, Turkey and Saudi Arabia jockey for regional leadership


Regional Outlook: Sub-Saharan Africa

•  Sub-Saharan Africa will remain the region with the fastest-growing economy in the world over the remainder of this decade.

•  Export demand for natural resources from Sub-Saharan Africa will continue to fuel much of this growth.

•  Slowly, but surely, domestic demand levels are also on the rise across the region.


Sub-Saharan African Politics in 2015 •  National elections in Nigeria in February amid the

Boko Haram insurgency

•  The Sahel remains a dangerous flashpoint

•  Ebola outbreak brought under control, gradually


Regional Outlook: Central and South Asia

•  India’s economic slump will slowly come to an end, but without major reforms, the high rates of growth realized in previous years will be unattainable.

•  South Asia’s other leading economies will record solid rates of growth in the coming years.

•  Pakistan’s economy will continue to struggle as that country’s political unrest hampers its ability to attract foreign investment.


Central and South Asian Politics in 2015 •  Pakistan and Afghanistan remain unstable

•  US-Indian ties strengthen

•  Russia seeks to reassert its position in Central Asia


Regional Outlook: East Asia and Pacific

•  China will continue to head towards economic growth rates of between 6% and 7%, with domestic consumer spending playing an ever-larger role in the economy.

•  Other large East Asian emerging markets such as Indonesia, Vietnam and the Philippines will benefit from soaring domestic demand.

•  South Korea and Australia will remain two of the world’s fastest-growing developed economies.

•  Japan’s sluggishness will return as domestic demand continues to falter, while real interest rates in Japan are now negative.


East Asia and Pacific Politics in 2015 •  China’s Asian maritime disputes are the most

important flashpoints over the longer-term

•  Korean Peninsula remains a dangerous flashpoint

•  US re-focus on Asia will continue


Summary


Summary

•  North America will once again be the key driver of global economic growth in the years ahead.

•  China’s economic rebalancing will continue, with growth rates gradually trending downwards.

•  Many of Europe’s leading economies will continue to experience long-term stagnation as domestic demand remains weak.

•  Political volatility will remain high in many areas of the world and could implicate some of the world’s leading powers.

Key Takeaways


The 2015 ISA Global Trade and Investment Outlook

Created by ISA (International Strategic Analysis)

www.isa-world.com

Presented by Michael Weidokal, Executive Director

[email protected]

columbus 2020 investor update | january 2015 | michael weidokal

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