group economics crucial themes for the global …...arjen van dijkhuizen senior economist marine...
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Arjen van Dijkhuizen Senior Economist Marine Money, East Meets West Singapore, 20 September 2016
Crucial themes for the global economy Global economic and political challenges and the impact on shipping
Group Economics
Marketing Communication
2
Outline
China: the complex task of guiding a heavyweight downhill, slowly
Europe: can (geo)politics spoil the party?
Are emerging markets ready to deal with another Fed rate hike?
Implications for the global outlook
3
The ECB’s dilemma Europe: can (geo)politics spoil the party?
Eurozone growth momentum fading
4 Source: Thomson Reuters Datastream, ABN AMRO Group Economics
Contribution to % qoq GDP growth, ppts
-0.6-0.4-0.20.00.20.40.6
12Q1 12Q3 13Q1 13Q3 14Q1 14Q3 15Q1 15Q3 16Q1
Consumption and investment Foreign trade GDP
Divergence remains large
5 Source: Thomson Reuters Datastream, ABN AMRO Group Economics
Real GDP growth, Q2 data, % yoy
-1.0-0.50.00.51.01.52.02.53.03.5
ES NL DE BE FR AT FN PT IT GR
Eurozone
Brexit : short-term impact looks mild so far, longer-term more uncertain
6 Source: Thomson Reuters Datastream, ABN AMRO Group Economics
% qoq index %
35
40
45
50
55
60
65
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
08 09 10 11 12 13 14 15 16
Economic growth (lhs) Composite PMI (rhs)
02468
10121416
IE NL BE DE ES FR PT IT FI GR AT
Share of UK in total exports
The end to eurozone austerity? More is in the pipeline.
7 Source: ABN AMRO Group Economics
% GDP
-0.5
0.0
0.5
1.0
1.5
2010 2011 2012 2013 2014 2015 2016
Change in eurozone governments' structural budget balances
ECB monetary policy: what next?
8
ECB revises its projections for GDP growth and inflation slightly lower
0.1
1.31.6
0.2
1.31.6
0.2
1.2
1.6
0.0
0.5
1.0
1.5
2.0
2016 2017 2018
March 2016 June 2016 September 2016
1.41.7 1.8
1.6 1.7 1.71.7 1.6 1.6
0.0
0.5
1.0
1.5
2.0
2016 2017 2018
March 2016 June 2016 September 2016
% %
Source: ECB, ABN AMRO Group Economics 9
ECB on hold in September, but Draghi signals action going forward
10
• ECB left policy rates and QE programme unchanged in September
• Draghi left door open for action in coming months
• ABN AMRO expects ECB will expand duration of its QE programme from March 2017 currently to September 2017 (most likely at October meeting)
• ECB also likely to increase universe of eligible assets. In our view, there are two options (separately or in combination): ECB could buy bonds yielding less than deposit rate and/or bonds below 2y
maturity ECB could increase issue/issuer limit from current 33%
• We think dropping the capital key allocation system for purchases is not likely at the moment
A number of possible sources of geopolitical risk in Europe
11
• Political risk is a broad trend not idiosyncratic
• Brexit market contagion has been limited so far, but political contagion still a risk • Austria presidential election could result in new general elections • Italy referendum could also trigger new general elections • Third Spanish election cannot be ruled out
• Portugal risks have risen (ECB eligibility)
• Refugee crisis adds to internal EU divisions and affects voter sentiment
• Complex relations with EU neighbours (Russia/Ukraine, Turkey)
Brexit: risk of contagion
12 Source: IPSOS-Mori, ABN AMRO Group Economics
0 10 20 30 40 50 60
HUGESPPOBESWFRIT
Want EU referendum Would vote to LEAVE
% of public in poll
13
Political timetable in Europe
Source: ABN AMRO Group Economics
Main political events calender eurozone
Country Last election Next election due Major issues / remarks
Germany Sept 2013 Autumn 2017 Regional elections on 4, 11 and 18 September 2016
France June 2012 June 2017 Presidential election in Spring 2017
Italy Feb 2013 May 2018 Referendum on political reform autumn 2016
Spain June 2016 June 2020 Fragmented result June 2016 - chance of new election
Netherlands Sept 2012 March 2017 Loss of support for parties in government, fragmentation
Belgium May 2014 May 2019
Austria Sept 2013 Sept 2018 Reprise of presidential election on 4 December 2016
Finland April 2015 April 2019 Presidential election February 2018
Greece Sept 2015 Sept 2019 Risk of break-down of agreement with creditors
Portugal Oct 2015 Oct 2019 Unstable left-wing minority coalition, early election likely
Ireland Feb 2016 April 2021 Minority government led by Fine Geal
14
The rise of Euroscepticism
Source: Various polling agencies, ABN AMRO Group Economics
Elections in 2017 or 2018, % of votes
0
10
20
30
40
FPÖAT
AfDDE
PVVNL
FNFR
M5SIT
LNIT
Result previous election Current polls Main rival in current polls
CDU/CSU UMP/LRPD PD
SPÖ
VVD
15
Italy’s constitutional referendum: almost 50-50
Source: Various polling agencies, ABN AMRO Group Economics
% of votes (5-poll moving average)
20
40
60
80
Mar-14 Feb-16 Jun-16
Yes No
16
Spain: political fragmentation continues after second round
Source: www.theworldweekly.com
Spain election result: 176 seats needed to form a government
17
Refugee inflows economically modest for most countries
Source: ABN AMRO Group Economics, EC
% population
0,0
0,1
0,2
0,3
0,4
0,5
GE SW BE NE AU FR UK
2014 2015
18
The ECB’s dilemma China: the complex task of guiding a heavyweight downhill, slowly
China-phobia has eased
19 Source: Thomson Reuters Datastream, Bloomberg, ABN AMRO Group Economics
1. Fears of large CNY depreciation have abated
3. Stock markets have stabilised
2. Capital outflows have eased, FX reserves stabilise
Shanghai Stock Exchange, A Shares, Index
4. CDS premium has come down again
CNY and CNH versus USD
%yoy
USD trn. USD bn.
-200
-100
0
100
200
2
3
4
11 12 13 14 15 16Monthly change (rhs) FX reserves, stock (lhs)Estimated capital outflows (rhs)
6
6.2
6.4
6.6
6.8
13 14 15 16
USD-CNY USD-CNH
0
1000
2000
3000
4000
5000
6000
7000
04 06 08 10 12 14 16 50
75
100
125
150
175
200
11 12 13 14 15 16
Shift of growth model is underway, but takes years
20 Sources: EIU, ABN AMRO Group Economics
Gross value added, by sector (%)
0%
20%
40%
60%
80%
100%
00 02 04 06 08 10 12 14 16
Industry Services Agriculture
We expect China’s gradual economic slowdown to continue …
21 Source: Thomson Reuters Datastream, Bloomberg, ABN AMRO Group Economics
% yoy
5
7
9
11
13
08 09 10 11 12 13 14 15 16Real GDP growth (official) Bloomberg GDP estimate
5
10
15
20
25
30
11 12 13 14 15 16
Industrial production Fixed investment Retail sales
% yoy
… but its transition to remain bumpy
22 Source: EIU, Thomson Reuters Datastream, ABN AMRO Group Economics
%
% yoy % GDP
100
150
200
250
300
05
101520253035
00 02 04 06 08 10 12 14 16
Credit/GDP (rhs) Domestic credit (lhs) Nominal GDP (lhs)
Overcapacity reduction is proceeding gradually
23 Sources: Thomson Reuters Datastream, ABN AMRO Group Economics
0
10
20
30
40
0
2
4
6
8
85 90 95 00 05 10 15
Steel production (lhs) Coal production (rhs)
100 mln metric tonnes
Slowdown has pushed imports down; more signs of bottoming out
24 Sources: Thomson Reuters Datastream, ABN AMRO Group Economics
Merchandise exports and imports, % yoy, 12 months moving average
-30-20-10
01020304050
08 09 10 11 12 13 14 15 16Export growth Import growth
25
The ECB’s dilemma Are emerging markets ready to deal with more Fed rate hikes?
-80
-40
0
40
80
0
1
2
3
4
5
6
05 06 07 08 09 10 11 12 13 14 15 16
Portfolio flows to EM (rhs) Fed rate (lhs) UST 10Y rate (lhs)
EM (portfolio) capital flows, the Fed and other factors
26 Sources: IIF, Thomson Reuters Datastream, ABN AMRO Group Economics
% USD bn
Global crisis 2008-09 Fed taper
tantrum 2013
China + Fed 2015
27
Rise in EM external debt
Source: EIU, ABN AMRO Group Economics
EM external debt, % exports
0
50
100
150
200
250
95 97 99 01 03 05 07 09 11 13 15
Em. Asia Em. Europe Latin America MENA
28
FX buffers have fallen, but generally remain solid
Sources: EIU, ABN AMRO Group Economics
EM FX reserves/total external debt (ratio)
0
1
2
3
4
5
95 97 99 01 03 05 07 09 11 13 15Em. Asia Em. Europe Latin America
0.00
0.25
0.50
0.75
1.00
1.25
95 97 99 01 03 05 07 09 11 13 15
Em. Asia Em. Europe Latin America
EM FX reserves/short-term external debt (ratio)
29
Still, averages may hide vulnerabilities in individual countries
Sources: Fitch, ABN AMRO Group Economics
In % GDP
0
50
100
150
200
250
CHN BRA SAF IND TUR RUS MEX IDN
Total debt Foreign currency debt
30
The ECB’s dilemma Implications for the global outlook
31
Global growth remains moderate, divergence EM-DM is narrowing
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
Manufacturing PMI surveys, indices (50 = ‘neutral’)
30
35
40
45
50
55
60
07 08 09 10 11 12 13 14 15 16
Advanced economies Emerging economies World
32
Global trade still lagging behind global growth
Sources: CPB, Thomson Reuters Datastream, ABN AMRO Group Economics
% yoy
-25-20-15-10-505
101520
95 97 99 01 03 05 07 09 11 13 15Global GDP Global trade Industrial production
83
85
87
89
91
93
95
97
2008 2009 2010 2011 2012 2013 2014 2015 2016
Demand Supply
Oil: Global oversupply stabilizing (Q2)
33 Source: IEA
34
Our key forecasts
Sources: ABN AMRO Group Economics, Thomson Reuters Datastream, Bloomberg
Economic outlook 2015 2016 2017 Global GDP 3.2 2.9 3.2
US 2.6 1.5 1.9
Japan 0.6 0.6 0.7
Eurozone 1.9 1.5 1.3
UK 2.2 1.9 1.3
Emerging markets 4.0 3.8 4.3
Emerging Asia 6.1 6.0 5.7
China 6.9 6.5 6.0
World trade 2.2 3.0 3.0
Rates and FX Spot 2016 2017 (14 Sept) (eop) (eop)
US 3-M Libor rate 0.85 0.80 1.40
US 10Y Treasury 1.70 1.60 1.80
EUR/USD 1.1254 1.10 1.10
Commodities Spot 2016 2017 (14 Sept) (eop) (eop)
Oil – Brent 46.5 65 70
Oil - WTI 43.6 65 65
Gas - HH 3.03 2.25 2.75
Iron ore 56.5 56 64
Copper 4755 5000 6000
35
Important information
ABN AMRO Group Economics on the internet
https://insights.abnamro.nl/en
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