Transcript Outlook for World Economies & Markets
Goldman Sachs Challenges for the World Economy
Jim O’Neill Managing Director & Head of Global Economic Research November 2008
GLI vs IP
7 6 5 4 -4 -5 -6 -7 0 -1 -2 -3 3 2 1 98 % yoy 99 00 01 02 03 04 GLI G7 IP 05 06 07 08 2
US Financial Conditions Index
102.5
102.0
101.5
101.0
100.5
100.0
99.5
99.0
98.5
98.0
97.5
00 Index 01 Easier Conditions US FCI 02 03 04 05 06 07 08 09 3
China Lead Indicators
18 16 % yoy 14 12 Index 1996=100 10 8 6 4 GSCA (lhs) CEMAC-GS Leading Indicator (rhs) 2 97 98 99 00 01 02 03 04 05 06 07 08 100 99 98 97 96 105 104 103 102 101 4
China FCI
112 111 Index 110 109 108 107 106 105 104 103 00 01 Easier Conditions 02 03 China FCI 04 05 06 07 08 5
Ted-Spread
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
85 % 87 89 91 spread 93 95 97 99 01 03 05 07 09 6
Credit Spreads
230 210 190 170 150 130 bp 110 90 70 50 30 Jan-06 Jul-06 CDX IG (lhs) CDX HY (rhs) Jan-07 Jul-07 bp Jan-08 Jul-08 1200 1100 1000 900 800 700 600 500 400 300 200 7
Credit Spreads
800 700 600 500 400 bp AA BBB BB 300 200 100 0 -100 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 8
US House Prices vs Income
Ratio 4.5
Percent 3.0
4.0
House Price/Income Ratio* (left) Mortgage Rate (right, inverted) 4.0
5.0
3.5
6.0
7.0
3.0
8.0
2.5
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
* S.a. median home price divided by median family income.
Source: Department of Commerce. FRB. NAR.
9.0
9
Weakness in US Housing Continues
4.0
Ratio 3.5
3.0
Sales/Inventories Ratio, New Homes* (left) Residential Investment (right) % GDP 6.5
6.0
5.5
5.0
2.5
2.0
1.5
4.5
4.0
3.5
1.0
66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 * Using three-month moving averages of sales.
Source: Department of Commerce.
3.0
10
US Employment
600 500 400 300 200 100 0 -100 -200 -300 -400 00 Thousands 01 02 US: Change in Nonfarm Payrolls 03 04 05 06 07 08 11
US Retail Sales
12 10 2 0 -2 8 6 4 -4 -6 00 % yoy 01 02 03 04 05 06 07 08 12
US Export and Import Growth
20 3M MA, % yoy 15 10 5 0 -5 -10 Exports Non-oil Imports -15 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 13
Share of Private Consumption in US GDP
0.72
Share
0.71
0.7
0.69
0.68
0.67
0.66
0.65
0.64
0.63
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008*
*2008 data is based on the first tw o quarters Source:BEA/ Haver
14
Domestic Demand and Growth Contributions, Last 8 Years
45 40 35 30 25 20 15 10 5 0 % 2000-2007 average contribution in USD terms Demand Contribution Growth Contribution China Russia India Brazil BRICs US Euroland 15
Retail Sales US and BRICs
34 30 26 22 18 %yoy USA Russia 14 10 6 2 -2 -6 04 05 * Private final consumption 06 Brazil China 07 BRICs India* 08 16
Retail Sales Contribution
1.2
pps 1 Real Contribution to World Consumption* US BRICS 0.8
0.6
0.4
0.2
0 04 05 06 * Calculated from real retail sales for Brazil, Russia, China, and US.
07 India calculation uses real private consumption. Annual averages 2004-2006, and latest data point for 2007.
17
Recent Trend in Nominal Retail Sales
60000 50000 40000 30000 20000 Million Dollars Change in Retail Sales Since Jan 2007 China US 10000 0 -10000 -20000 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 18
Recent Trend in Real Retail Sales
25000 20000 15000 10000 5000 USD Million Jan 2007 Change in Real Retail Sales Since Jan 2007 China US 0 -5000 -10000 -15000 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 19
Past and Future Potential Chinese Urbanisation
30 20 10 70 60 % population Chinese Urbanisation Rate 50 40 UN Forecasts 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 20
The Largest Economies in 2050
80,000 70,000 60,000 50,000 GDP 2007 US$bn 40,000 30,000 20,000 10,000 0 C U hi ni na te d Sta te s In d ia EU -5 B ra zi l U R ni us te si d a K in gd o m Ja pa n Fr an ce G er m an y C an ad a Ita ly 21
The Largest Economies in 2050
GDP 2007 US$bn
80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0
Source: Goldman Sachs
...but in 2050, the BRICs and N-11 will dominate 22
8 7 6 5 4 3 2 1 0
BRICs & N11. 2007 Growth Environment Score (GES)
1997-2007 Change 1997 GES 2007 Average Developing 1997 Average Developing 23
BoJ Tankan
-10 -20 -30 -40 -50 -60 -70 50 40 30 20 10 0 %, DI BoJ Large manufacturers BoJ Large nonmanufacturers 96 97 98 99 00 01 02 03 04 05 06 07 08 24
Japanese Exports to the US and China
60 50 3M MA.
% yoy US China 40 30 20 10 0 -10 -20 95 96 97 98 99 00 01 02 03 04 05 06 07 08 25
Euroland Leading Indicator vs Industrial Production
2.5
qoq
2.0
1.5
1.0
Euroland IP and leading indicator (3m/3m) 0.5
0.0
-0.5
-1.0
-1.5
IP, 3m/3m Leading indicator
-2.0
97 98 99 00 01 02 03 04 05 06 07 08 09 26
German Employment
28,500 Thousand people Employment fully covered by social security ('real jobs') 28,000 27,500 27,000 26,500 26,000 99 00 01 02 03 04 05 06 07 08 27
German Exports to the BRICs
650
Index Jan 2000= 100 3-Mth Average
550 450 350 250 150 50 00 01 02 03 Source: Bundesbank, GS calculations 04 China India Russia Brazil 05 06 07 08 28
French Manufacturing and Services PMI
25 20 15 10 5 0 -5 -10 -15 -20 -25 00 Index 01 France Business Confidence Inidcators Manufacturing Services 02 03 04 05 06 07 08 29
UK Services PMI
65 Index 60 55 UK Services PMI 50 45 40 97 98 99 00 01 02 03 04 05 06 07 08 30
Inflation?
31
US Import Prices from China
5.5
% yoy 4.5
3.5
2.5
1.5
0.5
-0.5
-1.5
Jan-05 US Import Prices from China Series2 Jan-06 Jan-07 Jan-08 32
20
Non-Energy Import Prices in US, Euroland and UK
% yoy 15 10 US Euroland UK 5 0 -5 -10 95 96 97 98 99 00 01 02 03 04 05 06 07 08 33
Core CPI in US and Euroland
3.5
% yoy 3.0
2.5
2.0
1.5
1.0
US 0.5
Euroland 0.0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 34
Inflation Expectations in US
3.5
3.4
3.3
3.2
3.1
3.0
2.9
2.8
% yoy University of Michigan 5-yr Inflation Expectations 2.7
2.6
2.5
95 96 97 98 99 00 01 02 03 04 05 06 07 08 35
160
Commodity Price Pressure to Ease
% yoy 120 Crude price Corn/Wheat 80 40 0 -40 -80 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 36
1 2 % of GDP 3
World Output Gap
Trend = 4.0% Trend = 3.5% 0 -1 -2 -3 1980 1984 1988 1992 1996 2000 2004 2008 Source: IMF, GS estimates 37
3 2 1 0 06 4
UK Inflation
6 %yoy
UK Inflation forecasts with different oil scenarios
5
Using baseline oil forecast and +/-$20 oil forecasts
07 08 09
38
2
Eurozone Inflation
5 %yoy 4 Oil $20 higher Oil $20 lower Baseline Forecast 3 GS Forecast 1 0 Jan-06 Jan-07 Jan-08 Jan-09 39
US BBoP vs Current Account
0 -1 -2 2 1 % GDP 4-qtr ma -3 -4 -5 -6 BBoP Current Account -7 95 96 97 98 99 00 01 02 03 04 05 06 07 08 40
BRICs BBoP vs Current Account
6 0 -2 4 2 12 % GDP 10 8 Current Account BBoP 97 98 99 00 01 02 03 04 05 06 07 41
Euroland: BBoP vs Current Account
4 1 0 3 2 -1 -2 -3 -4 98 % of GDP 12-Month Mov. Avg.
Current Account 99 00 01 02 BBoP 03 04 05 06 07 08 42
Japan: BBoP vs Current Account
7 6 5 4 3 % of GDP 12-Month Mov. Avg.
Current Account 2 1 0 -1 BBoP -2 95 96 97 98 99 00 01 02 03 04 05 06 07 08 43
GDP Forecasts
% yoy 2006 2007 USA Japan Euroland UK 2.8
2.4
3.0
2.8
2.0
2.2
2.6
3.0
Europe Spain China India 3.3
3.9
11.6
9.6
3.0
3.7
11.9
9.0
BRICs Advanced Economies World 9.4
3.1
5.0
9.8
2.7
4.9
* Consensus Econom ics Novem ber 2008 1.4
3.3
GS 1.3
0.3
1.0
0.8
1.3
1.3
9.0
6.7
7.7
2008 Consensus* 1.4
0.6
1.0
0.9
1.3
1.3
9.5
7.1
8.0
1.4
3.4
GS -0.8
-0.6
-0.3
-0.3
0.1
-0.8
7.5
5.8
6.0
2009 Consensus* -0.6
-0.1
-0.2
-0.9
0.0
-0.5
8.1
6.6
6.8
-0.1
1.8
0.0
2.1
44
Domestic Demand Forecasts (%)
% yoy US Japan Euroland UK Spain China India BRICs Advanced Economies World 2006 2.6
1.7
2.9
2.6
5.0
9.9
8.2
8.7
2.8
4.6
2007 1.4
1.1
2.4
3.6
4.3
9.4
9.9
9.4
2.3
4.5
2008 (f) -0.1
-0.5
0.7
0.6
0.9
8.9
7.9
8.6
0.6
3.1
2009 (f) -1.5
-0.3
-0.4
-1.0
-2.3
6.9
6.9
6.2
-0.3
1.9
45
Inflation Forecasts
% yoy 2006 2007 GS USA Japan Euroland UK Europe Spain China India 3.2
0.2
2.2
2.3
2.1
3.6
1.5
5.5
2.9
0.1
2.1
2.4
2.2
2.8
4.8
4.6
BRICs Advanced Economies World 4.2
2.3
3.4
5.6
2.2
3.6
* Consensus Econom ics Novem ber 2008.
8.5
3.6
5.9
4.2
1.6
3.4
3.8
3.6
4.2
6.1
11.5
2008 Consensus* 4.2
1.6
3.4
3.8
3.6
4.4
6.3
10.0
8.2
3.6
5.5
GS 1.0
0.5
1.8
2.2
2.0
1.7
1.0
5.3
4.5
2009 Consensus* 1.4
0.6
1.8
2.5
2.3
2.5
2.7
6.1
4.8
1.5
3.2
1.7
3.2
46
G7 Real Bond Yields
8 % 7 G7 Real 10-Year Bond Yields* 6 5 4 3 +1 Std Dev Average (time span) 2 -1 Std Dev 1 86 88 90 92 94 96 *Italy included from March 1991 98 00 02 04 06 08 47
Updated Estimates for the Equity Risk Premium*
US Japan UK Europe ex UK Real GDP Growth Real Earnings Growth + Dividend Yield = Expected Real Return 3.0
3.0
3.2
6.2
1.5
1.5
2.8
4.3
2.8
2.3
2.8
2.3
5.6
5.3
8.4
7.5
Real Bond Yield = 2.8
Implied Expected Expected Nominal ERP Inflation Return 3.4
2.0
8.2
1.0
3.3
0.5
4.8
2.7
2.7
5.7
4.9
2.0
2.0
10.4
9.5
World 2.5
Optimistic World 4.0
*Calculated as of 13 November 2008. 2.5
4.0
4.0
4.0
6.5
8.0
2.5
2.5
4.0
5.5
1.8
1.8
8.3
9.8
48
P/E Ratios MSCI 12-Month Forward PEs Japan United States India Europe China Brazil Russia
11.9x
10.8x
10.4x
8.5x
8.1x
6.2x
3.9x
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Unlike 2003, ‘q’ Measure Shows Equities Are Cheap
120% 70% 20% -30% -80% -130% % Real equity returns, next 10 years, inverted, RHS Q relative to its post-war average, LHS 1952 1960 Source: GS estimates 1968 Market overvalued 1976 % -150% -100% -50% 0% 50% 1984 100% 150% 200% 1992 Market undervalued 2000 250% 2008 300% 50
Cyclically Adjusted P/E Not Demanding.
150 100 % , P/E relative to long-run average 50 0 -50 Cyclically adjusted P/E, US market -100 -150 52 56 60 64 68 72 76 80 84 88 92 96 00 04 08 51
Interest Rate Forecasts
US Canada Australia Japan Euroland UK 3M 10Y 3M 10Y Sweden 3M 10Y Switzerland 3M 10Y Close 14 November 08 3M 10Y 3M 10Y 3M 10Y 3M 10Y 3-month horizon 6-month horizon 12-month horizon Current* Forward Forecast Forward Forecast Forward Forecast 2.2
3.7
2.0
3.9
1.2
3.5
1.9
4.0
1.0
3.6
2.2
4.2
1.0
4.0
2.5
3.6
2.0
3.7
2.1
3.7
1.7
3.8
2.1
3.7
1.9
4.0
2.1
4.0
4.7
5.0
0.8
1.5
4.2
3.7
4.0
4.1
4.5
3.3
1.5
2.5
4.4
5.1
0.8
1.5
3.0
3.8
3.5
4.1
3.8
3.3
1.8
2.6
4.7
5.2
0.6
1.5
2.7
3.5
3.3
4.1
3.6
3.5
1.8
2.6
3.7
5.1
0.7
1.6
2.8
3.9
2.7
4.2
3.2
3.3
1.5
2.7
4.7
5.3
0.6
1.6
2.6
3.5
2.6
4.1
3.4
3.6
1.5
2.7
4.0
5.3
0.7
1.7
2.8
4.0
2.9
4.3
3.0
3.4
1.7
3.0
4.6
5.6
0.6
1.9
2.3
3.9
2.7
4.4
2.9
4.0
1.5
2.9
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Foreign Exchange Forecasts
3-months 6-months 12-months Current* Forward Forecast Forward Forecast Forward Forecast EUR/$ $/¥ EUR/¥ EUR/CHF CHF/¥ $/CHF EUR/£ £/$ £/¥ £/CHF EUR/NOK 1.27
96.7
123.1
1.51
81.43
1.19
0.86
1.49
143.7
1.76
8.75
EUR/SEK A$/$ NZ$/$ $/C$ 10.00
0.66
0.56
1.22
$/CNY 6.83
* Close 14 November 08 1.27
96.4
122.3
1.50
81.32
1.18
0.86
1.48
142.7
1.75
8.79
10.00
0.65
0.56
1.22
6.89
1.20
90.0
108.0
1.44
75.00
1.20
0.81
1.48
133.3
1.78
8.70
10.30
0.64
0.52
1.22
6.82
1.27
96.0
121.6
1.50
81.18
1.18
0.86
1.48
141.9
1.75
8.81
10.00
0.65
0.55
1.22
6.92
1.30
100.0
130.0
1.48
87.84
1.14
0.81
1.60
160.5
1.83
8.40
9.80
0.71
0.54
1.15
6.82
1.27
95.3
120.6
1.49
80.77
1.18
0.86
1.48
140.5
1.74
8.85
10.02
0.65
0.54
1.22
6.94
1.30
105.0
136.5
1.52
89.80
1.17
0.78
1.67
175.0
1.95
8.00
9.50
0.71
0.55
1.15
6.62
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