the world did not end in q1forex reserves of $3.6trn •gov’t debt of 17% gdp • external debt of...

The World Did Not End in Q1

Sam Wilkin

Senior Advisor, Business Research

Blog: www.samwilkin.com

06.2015

http://www.samwilkin.com/

5

Exports to Russia: 10% of Finnish

exports; 4% of Finnish GDP

6

1. Global Economic Weather Report

2. Economic Outlook

Europe

Grexit

US

China

Russia/Ukraine

7

Global Economic Growth Heat Map – 1993

Source: IMF

8


Source: IMF

9


Source: IMF

10


Source: IMF

11


Source: IMF

12


Source: IMF

13

Next up:

Europe Outlook

What happens if Greece exits?

China Outlook

US Outlook

Russia/Ukraine Outlook

14


2. Economic Outlook

Europe

Grexit

US

China

Russia/Ukraine

18

-6

-3

0

3

6

9

12

15

18

2000 2002 2004 2006 2008 2010 2012 2014

Source: Haver Analytics

% year

Eurozone: Lending to non-financial corporations

20

-5

-4

-3

-2

-1

0

1

2

3

4

5

-40

-35

-30

-25

-20

-15

-10

-5

0

5

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Source: Haver Analytics

% balance % year

Retail sales* (RHS)

Consumer confidence

(LHS)

Eurozone: Consumer confidence & retail sales

*3 month moving average

22

-25

-20

-15

-10

-5

0

5

10

15

20

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Source: Oxford Economics

% year

Eurozone: Industrial new orders

23

5

7

9

11

13

15

17

19

21

23

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Cash holdings of non-financial corporations

% of GDP

Source : Oxford Economics/Haver Analytics

France

Germany

UK

24

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2002 2004 2006 2008 2010 2012 2014 2016 2018

% quarter


Forecast

Eurozone: GDP

% quarter-on-quarter (LHS)

% year-on-year (RHS)

% year

25

RAPPORTO DEBITI/PIL FAMIGLIE

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

20

40

60

80

100

StatiUniti

Zona euro

Regno Unito

RAPPORTO DEBITI/PIL FAMIGLIE

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

20

40

60

80

100

Italia

FranciaGermania

Spagna

Household Debt (%GDP) Household Debt (%GDP)


UK

US

EurozoneGermany

Spain

France

Italy

26

RAPPORTO DEBITI/PIL AZIENDE*

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

50

100

150

200

Stati Uniti

Zona euro

RegnoUnito

* Settore non-finanziario

RAPPORTO DEBITI/PIL AZIENDE*

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

50

100

150

200

Francia

Germania

Spagna

* Settore non-finanziario.

Italia

Corporate Debt (%GDP) Corporate Debt (%GDP)


Germany

Spain

France

Italy

Eurozone

UK

US

27

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2002 2004 2006 2008 2010 2012 2014 2016 2018

% quarter


Forecast

Eurozone: GDP

% quarter-on-quarter (LHS)

% year-on-year (RHS)

% year

28

80

90

100

110

120

130

140

150

160

2000 2002 2004 2006 2008 2010 2012 2014

2000=100


Unit labour costs

France

Germany

Italy

Greece

Spain

Forecast

29

-10 -5 0 5 10 15

Italy

Finland

Greece

Austria

Germany

Beligum

Eurozone

Neth

France

Portugal

Spain

Slovakia

Ireland

Productivity growth

2008-14,%Source : Oxford Economics/Haver Analytics

30

-1 0 1 2 3 4

CyprusGreeceFinland

ItalyAustria

BelgiumFrance

EuroZonePortugal

NetherlandsGermanySloveniaEstonia

LuxembourgMalta

SpainSlovakia

Ireland

GDP growth forecast for 2015

% yearSource: Oxford Economics

31


2. Economic Outlook

Europe

Grexit

US

China

Russia/Ukraine

32

Germany and other AAA

countries

Eurozone periphery

states

2009-

2012

0

5

10

15

20

25

30

35

40

45

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Greece Spain

Portugal Ireland

Italy

Eurozone: Credit spreads% spread of 10-year bonds over German bunds

Source :Oxford Economics/Haver Analytics

2012

0

1

2

3

4

5

6


Italy

Italy



2012

35

0

5

10

15

20

25

30

35

40

45


Greece Spain

Portugal Ireland

Italy



26.7.12: Draghi's

"Whatever it takes"

2014

0

1

2

3

4

5

6


Italy

Italy



26.7.12: Draghi's

"Whatever it takes"

2014

37

Now!

0

5

10

15

20

25

30

35

40

45


Greece Spain

Portugal Ireland

Italy



Greek

Elections

26.7.12: Draghi's

"Whatever it takes"

Now!

0

1

2

3

4

5

6


Italy

Italy



Greek

Elections

26.7.12: Draghi's

"Whatever it takes"

Germany and other AAA

countries

Greece

Now!

40

Implicit views of markets based on bond prices:

1. Greece and EU reach agreement 78%

2. Agreement stays on track 12-18 months 67%

3. Capital controls 48%

4. Greek exit 38%Source: Oxford Economics

41

-40

-30

-20

-10

0

10

20

30

40

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Spain Greece Ireland

Cyprus Portugal

Retail deposits at Eurozone banks*% annual growth

* Non-MFIs excluding central governmentSource : Oxford Economics/ECB

42

Eurozone bank lending to Greece

In 2008: €175bn

In 2014: €42bn(0.5% of German GDP)

(Eurozone gov’t lending to Greece: €250bn)

44

Greek exit scenario

46

Greek exit scenario

47


2. Economic Outlook

Europe

Grexit

US

China

Russia/Ukraine

53

-15

-10

-5

0

5

10

15

20

25

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

US, UK & Eurozone: Corporate loan growth

% year


US loans inc. commercial real estate

Eurozone loans to PNFCs

UK loans to PNFCs

55

10

30

50

70

90

110

130

150

1999 2001 2003 2005 2007 2009 2011 2013 2015

1985=100

Consumer confidenceConference Board

Source: Conference Board, University of Michigan/Haver Analytics

US: Consumer attitudes

Consumer sentimentUniversity of Michigan

56

-3

-2

-1

0

1

2

3

4

5

6

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Source: BLS, Oxford Economics

% year

Real

Nominal

US: Real wage rate

57

70

80

90

100

110

120

130

140

150

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

US: Relative unit labour costs2008=100


Forecast

58

50

60

70

80

90

100

110

120

130

2007 2008 2009 2010 2011 2012 2013 2014

Japan UK Germany US

Manufacturing InvestmentIndex: 2007 = 100


64


2. Economic Outlook

Europe

Grexit

US

China

Russia/Ukraine

66

-2

0

2

4

6

8

10

12

1989 1994 1999 2004 2009 2014

Excluding China Including China


World: Broad money

% year

71

China’s…

• Forex reserves of $3.6trn

• Gov’t debt of 17% GDP

• External debt of 9% GDP

= bailoutability

73

Economic Growth Forecast for China (%)

About 10%

About 6%

74


2. Economic Outlook

Europe

Grexit

US

China

Russia/Ukraine

75

Source: nypost.com

76 Source: abcnews.com

77 Source: taringa.net

78 Source: businessinsider.com

Increase in

income per

person over

the past 30

years in the

world’s major

oil-rich

nations*

* Oil revenues

are more than

10% of

economic

output

* Population of

three million

people or more

Source: World Bank World Development Indicators11

Increase in

income per

person over

the past 30

years in the

world’s major

oil-rich

nations*

* Oil revenues

are more than

10% of

economic

output

* Population of

three million

people or more


6th-best performance

out of 163 countries

in the world

153 out of 163

162 out of 163

157 out of 163

A barrier to manufacturing (especially exports)

A barrier to democracy

A target in war

‘Rental income’: control more valuable than creation

13

Increase in

income per

person over

the past 30

years in the

world’s major

oil-rich

nations*

* Oil revenues

are more than

10% of

economic

output

* Population of

three million

people or more


Russia

+$3,600 since 1998

A class by itself?

Or, will the resource curse

return?

83

Economic Growth Forecast for Russia (%)

86

Conclusion

87

OVERALL SUMMARY

Eurozone• Market impacts of brinksmanship ended in 2012

• But people & companies are deleveraging

• Hence ‘new normal growth’, with some bright spots

US• Deleveraging largely complete. Q1 slowdown a one-off

• Hence return to growth; but will it be ‘old normal’?

China• No longer the world’s credit engine. ‘New normal’ is 6%

per annum. And, might crash

Russia• Revenge of the resource curse. ‘New normal’ is uncertain

The World Did Not End in Q1

Sam Wilkin

Senior Advisor, Business Research

Blog: www.samwilkin.com

06.2015

http://www.samwilkin.com/

the world did not end in q1forex reserves of $3.6trn •gov’t debt of 17% gdp • external debt of...

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