freddy van den spiegel chief economist economic outlook. are we getting out of the mess? brussels,...

Freddy Van den SpiegelChief Economist

Economic outlook.Are we getting out of the mess?

Brussels, February 03 2011.

February 03, 2011 | 2

• 2007: starting problems in US housing market and “toxic” financial products.

• 2008: major banks fail in US and EU, global economy into recession.

• 2009: global recession.

• 2010: sovereign risks.

• 2011: currency and trade wars or gradual normalisation?

History of the crisis

February 03, 2011 | 3

But surprising economic recovery

Changing forecasts:

Date of forecast: sep/09 jan/10 apr/10 jul/10 okt/01

World 3,1 3,9 4,2 4,6 4,8

US 1,5 2,7 3,1 3,3 2,6

EMU 0,3 1,0 1,0 1,0 1,7

China 9,0 10,0 10,0 10,5 10,5

Russia 1,5 3,6 4,0 4,3 4,0

Source: IMF

2010 Forecasts

February 03, 2011 | 4

1. Economic outlook: focus on the consensus view.

US: Growth is back but quid sustainability?

• Corporate sector healthy.

• Consumer sector fragile.

• Government sector supportive beyond reasonable levels.

• External balance deteriorating again.

• Banking sector: deleveraging going on but still a long way to go.

CONTINUOUS RECOVERY GOING ON BUT REMAINS VULNERABLE

SUSTAINABLE FOR HOW LONG?

February 03, 2011 | 5


EMU: Growth is back but slower than US.


• Consumer sector hesitant.

• External sector pulling economy.

• Government debt levels increasing but still under control.

• Banking sector stabilised, but vulnerable.

• Monetary and Economic Cohesion at risk.

SUSTAINABLE GROWTH BUT FINANCIAL AND POLITICAL UNCERTAINTY

February 03, 2011 | 6


Belgium: strong performance within EMU


• Consumer sector strong.

• Government sector the Achilles’ heel.

• External sector pulling economy.

• Banking sector oversized and vulnerable: ongoing need to deleverage.

Nice profile with political and financial weak spots.

February 03, 2011 | 7


Russia: sustained growth.

• Activity supported by oil prices.

• Consumer sector benefitting from lower unemployment.

• Government sector: room for expansion.

• External sector: comfortable balance.

• Tighter monetary policy due to inflation.

• Long term potential.

February 03, 2011 | 8


Asia: Continued growth and apparent stability.

• No fundamental problems with crisis (banks and government debt).

• But based on massive government support.

• But still focused on exports which is unsustainable.

• But inflationary pressures building.

And not only a China story

February 03, 2011 | 9

MAJOR NEW ECONOMIES: REAL GDP GROWTH (%YoY)IMF Figures

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

00 01 02 03 04 05 06 07 08 09 10 11 12

India Brazil Indonesia Russia

IMF Forecasts

February 03, 2011 | 10


Asia: Continued growth and apparent stability.

• No fundamental problems with crisis (banks and government debt).

• But based on massive government support.

• But still focused on exports which is unsustainable.

• But inflationary pressures building.

And not only a China story

Growth can continue at high speed, but increasing dangers of conflicts with major clients and internal bottle necks.

February 03, 2011 | 11

Summary.


2010 2011 2012 2010 2011 2012 2010 2011 2012US 2,8 2,1 2,8 1,6 1,1 0,8 -8,9 -8,6 -7,0EMU 1,7 1,6 1,7 1,6 2,2 1,6 -6,2 -4,7 -3,7Belgium 2,1 2,2 2,0 2,3 2,6 1,8 -4,6 -3,8 -3,1Russia 4,1 4,2 4,5 6,9 8,3 8,7 -3,9 -3,5 -3,0China 10,0 9,0 9,4 3,2 3,8 3,8 -2,7 -2,3 -2,5Source: BNP Paribas

GDP Growth Inflation Budget Balance

2010 2011 2012 2010 2011 2012 2010 2011 2012US 2,7 2,2 3,1 1,6 1,1 1,1 -10,5 -8,8 -6,8EMU 1,7 1,7 2,0 1,5 1,3 1,2 -6,3 -4,6 -3,5Belgium 2,1 1,8 1,8 2,1 1,6 1,8 -4,9 -4,5 -3,6Russia 4,0 4,3 4,4 6,6 7,5 6,5 -4,8 -3,6 -2,9China 10,5 9,7 9,7 3,1 3,3 3,0 -1,9 -2,2 -2,1Source: OECD/IMF

GDP Growth Inflation Budget Balance

February 03, 2011 | 12

1. Economic outlook: the consensus view.

2. Are we getting out of the mess: overview of developments in risk areas.

February 03, 2011 | 13

2. Are we getting out of the mess? Overview of risk areas.

• Banking health.

• Confidence stable.

• Lending to private sector recovers.

• Profitability back but still vulnerable

• Stress tests reassuring but controversial.

• But exposure to risky assets remains significant.

• But funding gap remains wide.

• But new regulations create uncertainty.

• But many weaker banks remain dependent on ECB in some countries.

BANKS ARE RECOVERING BUT STILL VERY VULNERABLE, A LONG WAY TO GO

February 03, 2011 | 14


Central Banks balance sheets.

• Massive support during the crisis and no serious exit yet.

• Leading to inflation?

Conclusion: no hurry to exit, but what when M3 wakes up?

February 03, 2011 | 15


Government finances.

• Deficits and unsustainable debt levels.

• Deficits are structural: no easy way out.

Conclusion: Governments cannot continue to support the economy but have no other

option in case of (unexpected) further slowdown. A dangerous potential dilemma.

February 03, 2011 | 16


Economic divergence within EURO zone.

• Diverging performance.

• GDP growth: from top performers to PIGS.

• Unemployment.

• Government deficit.

• Government debt.

• Current account.

• Competitiveness.

February 03, 2011 | 17


EMU Netherlands Germany Belgium France Ireland Spain Portugal Italy Greece

GDP 1,5 1,9 1,0 1,7 1,6 4,4 2,8 1,2 0,6 3,4

Government debt (end 2009) 78,9 60,9 73,2 96,7 77,6 64,0 53,2 76,8 115,8 115,1

Unemployment (end 2009) 9,4 3,4 7,5 7,9 9,4 11,9 18,0 9,6 7,8 9,5

Government deficit -1,8 -0,8 -2,0 -1,0 -3,1 -0,6 -1,3 -4,0 -3,0 -5,9

Inflation 2,0 2,3 1,6 2,0 1,8 2,9 2,9 2,6 2,3 3,1

Current account 0,2 5,4 3,3 2,6 0,3 -2,1 -5,8 -9,2 -1,5 -9,0

ULC (2000 = 100) 120,2 124,6 106,9 123,1 121,1 134,0 131,4 127,0 132,2 137,6

Performance 1999-2009

February 03, 2011 | 18

2. Are we getting out of the mess? Overview of risk areas.YIELD ON EMU GOVERNMENT BONDS 10Y

Spread with German Bund 10y in bp17/01/2011

0

50

100

150

200

250

300

350

400

450

500

550

600

650

700

750

800

850

900

950

1000

jan/07 apr/07 jul/07 okt/07 jan/08 apr/08 jul/08 okt/08 jan/09 apr/09 jul/09 okt/09 jan/10 apr/10 jul/10 okt/10 jan/11

0

50

100

150

200

250

300

350

400

450

500

550

600

650

700

750

800

850

900

950

1000

Belgium

Spain

Italy

Portugal

Ireland

Greece

February 03, 2011 | 19

Government Finances / Sovereign Debt crisis in Europe

• Divergence within EU: the EURO crisis.

• Crisis as a consequence.

• Political reaction

• Rescue package

• National Austerity Programs.

• Reform of Economic Governance.


February 03, 2011 | 20

Government Finances / Sovereign Debt crisis in Europe

• Divergence within EU: the EURO crisis

• Crisis as a consequence

• Political reaction.

CONCLUSION:

• PROBLEMS ARE UNDER CONTROL FOR THE TIME BEING BUT THE FUNDAMENTAL ISSUE OF COMPETITIVENESS IS FAR FROM RESOLVED;

• MARKETS DO NOT BELIEVE THIS IS A SOLUTION, ESPECIALLY FOR GREECE

• THIS ISSUE WILL CONTINUE TO WEIGHT ON EU ECONOMIES

• POLITICAL REACTIONS UNCREDIBLE SO FAR


February 03, 2011 | 21

Inflation/deflation

- Inflation on the rise worldwide.

- Pressures from commodities and monetary expansion.

- Core inflation remains low for the moment.

- Inflation expectations remain in check for the moment.

A REMAKE OF THE 2007-08 SCENARIO WITH INFLATION SURPRISE AS A TRIGGER FOR CRISIS?


February 03, 2011 | 22


Global imbalances and geopolitical tensions/ protectionism.

• Imbalances in trade flows.

February 03, 2011 | 23

Current Account Balances

February 03, 2011 | 24

Current Account Balances

February 03, 2011 | 25




• Financial imbalances.

February 03, 2011 | 26

2. Are we getting out of the mess? Overview of risk areas.US: NET FOREIGN ASSET POSITION OF THE US

(in mio USD)

-9.000.000

-8.000.000

-7.000.000

-6.000.000

-5.000.000

-4.000.000

-3.000.000

-2.000.000

-1.000.000

0

1.000.000

Q1 19

70

Q1 19

71

Q1 19

72

Q1 19

73

Q1 19

74

Q1 19

75

Q1 19

76

Q1 19

77

Q1 19

78

Q1 19

79

Q1 19

80

Q1 19

81

Q1 19

82

Q1 19

83

Q1 19

84

Q1 19

85

Q1 19

86

Q1 19

87

Q1 19

88

Q1 19

89

Q1 19

90

Q1 19

91

Q1 19

92

Q1 19

93

Q1 19

94

Q1 19

95

Q1 19

96

Q1 19

97

Q1 19

98

Q1 19

99

Q1 20

00

Q1 20

01

Q1 20

02

Q1 20

03

Q1 20

04

Q1 20

05

Q1 20

06

Q1 20

07

Q1 20

08

Q1 20

09

Q1 20

10

(stock)

"-" indicates net debtor position of US w.r.t. rest of the World Source: Federal Reserve

February 03, 2011 | 27

2. Are we getting out of the mess? Overview of risk areas.CHINA: GOLD AND FOREIGN RESERVES

Billion USD

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2200

2400

2600

2800

3000

jan/80 jan/82 jan/84 jan/86 jan/88 jan/90 jan/92 jan/94 jan/96 jan/98 jan/00 jan/02 jan/04 jan/06 jan/08 jan/10

Source: Thomson Financial Datastream

February 03, 2011 | 28




• Financial imbalances.

AS A CONSEQUENCE TENDENCY TO NATIONALISM AND PROTECTIONISM: THE END OF GLOBALISATION?

February 03, 2011 | 29


• Banking health.

• Central Banks balance sheets.

• Government finances.

• Divergence within EMU – future of EURO.

• Inflation / deflation.

• Global imbalances and geopolitical stress / protectionism.

THE BIGGEST RISK: INTERCONNECTEDNESS AND POTENTIAL CHAIN REACTIONS.

February 03, 2011 | 30


DRAMA

Example of chain reactions.

Double dip

Deflation

Banking trouble

Government finance(Sovereign risk)

Euro crisis

February 03, 2011 | 31

Conditions to support economic integration• Common culture• Neighbourhood • Complementarity• Political willingness

EU – RUSSIA ECONOMIC INTEGRATION HAS A HUGE POTENTIAL

3. Globalisation and EU – Russia relationship

Thank you.

freddy van den spiegel chief economist economic outlook. are we getting out of the mess? brussels,...

Documents

external sector

government sector supportive

consumer sector strong

consumer sector fragile

consumer sector hesitant

banking sector oversized

emucorporate sector

consensus view