Transcript Top-10 Economic Predictions for 2013: Implication for the Port Nariman Behravesh, Chief Economist, IHS January 15, 2013

Top-10 Economic
Predictions for 2013:
Implication for the Port
Nariman Behravesh, Chief Economist, IHS
January 15, 2013
Introduction
• World growth will stabilize in 2013
• After having slowed down from 4.2% in 2010, to 3.0% in 2011 to around 2.6% in
2012 (with the Eurozone and Japan going back into recession), the growth rate of
the world economy will hold steady at around 2.5% in 2013
• Moreover, the stage will be set for a modest acceleration of growth in latter part of
the year and in 2014
• The massive monetary stimulus put in place in many key economies over the past
year and a half will have some positive impact on growth
• The current episode of “extreme uncertainty”—related to the US fiscal cliff, the
Eurozone debt crisis, China’s growth, and instability in the Middle East and
Africa—will become less intense, and worries about many of these risks will
diminish
• The US and Asian economies will likely lead the way
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2
Purchasing managers’ indexes for manufacturing signal
subpar global economic growth
65
(Index, over 50 indicates expansion)
60
55
50
45
40
35
30
25
2005
2006
2007
2008
United States
2009
Eurozone
2010
China
2011
2012
2013
Japan
Sources: Institute for Supply Management, Markit, China Federation of Logistics and Purchasing
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3
Global real GDP growth will stabilize in 2013
6
(Quarter-on-quarter percent change, annual rate)
4
2
0
-2
-4
-6
-8
2006
2007
2008
2009
2010
2011
2012
2013
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2014
4
Real GDP growth by region
8
(Annual percent change)
6
4
2
0
-2
NAFTA
2011
Other Western Emerging Mideast- SubAmericas Europe Europe N. Africa Saharan
Africa
2012
2013
2014
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Japan
Other
AsiaPacific
2015-20
5
1. The US recovery will gradually pick up steam—
barring more mischief from Washington
• The dynamics for a gradually accelerating US recovery are already in place.
• The balance of forces affecting US consumer spending has turned positive.
• Housing markets are—finally—showing signs of life, and can be expected to keep
improving over the next year.
• As global growth begins to re-accelerate (albeit gradually), exports will follow suit.
• Last but not least, with uncertainties about the fiscal cliff and deficit/debt reduction
having diminished somewhat, US businesses are likely to spend and hire more.
• This means growth will average around 2% next year.
• Of course, these is always the risk that another round of bitter disputes over
raising the debt ceiling and cutting the deficit will badly damage confidence.
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6
US growth and unemployment rate
9
10
6
9
3
8
0
7
-3
6
-6
5
-9
4
2001
2003
2005
2007
2009
2011
2013
2015
Real GDP growth (Left scale, annual percent change)
Unemployment rate (Right scale, percent)
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7
US light-vehicle sales will continue to recover
20
(Millions of units, annual rates)
16
12
8
4
0
1980
1985
1990
1995
Total
2000
Cars
2005
2010
2015
2020
Light trucks
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8
Housing starts beginning a long climb; prices have
probably hit bottom
2.25
230
2.00
220
1.75
210
1.50
200
1.25
190
1.00
180
0.75
170
0.50
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
160
Housing Starts (LS, millions of units)
FHFA House Price Index (RS, purchase-only index, 1991Q1 = 100)
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9
2. European growth will be weak in the north and
negative in the south
• Recent policy actions by the European Central Bank and EU governments have
reduced the financial risks related to the Eurozone sovereign debt crisis, and
helped to reduce long-term interest rates in the hardest hit economies.
• Nevertheless, during the coming year, the economies in Southern Europe will
remain deep in recession territory, mostly because of tough austerity programs
and very high unemployment rates.
• Unfortunately, this will drag down the economies in Northern Europe as well.
• Some (including Germany) will see positive but weak growth—in others (including
Belgium, France, and the Netherlands) growth will be flat to slightly down.
• On balance, this means a real GDP contraction of around -0.2% for the Eurozone
economy in 2013.
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10
Real GDP growth in Western Europe
4
(Annual percent change)
3
2
1
0
-1
-2
-3
Germany
France
2011
2012
United
Kingdom
2013
Italy
2014
Spain
2015-20
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11
Real GDP growth in Western Europe (continued)
4
(Annual percent change)
3
2
1
0
-1
Netherlands
Switzerland
2011
2012
Sweden
2013
Belgium
2014
Norway
2015-20
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12
Real GDP growth in the Eurozone’s peripheral countries
4
(Annual percent change)
2
0
-2
-4
-6
-8
Eurozone
Italy
2011
Spain
2012
2013
Greece
2014
Portugal
Ireland
2015-20
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13
3. The Chinese economy will slowly gain momentum
• Since 2010, the Chinese economy has decelerated significantly, with growth
falling from over 10% to around 7.5%.
• Fortunately, there are signs that growth has bottomed out and that a gradual
pickup in momentum is in the offing—this trend is likely to continue in 2013.
• Modest stimulus seems to have been effective in limiting the depth and duration of
the domestic demand downturn.
• With the leadership transition now complete, there could even be a little more
stimulus in the coming year.
• Furthermore, export growth can be expected to rebound, thanks to continued (and
improving) growth in Asia and the United States.
• All this will translate into growth of around 8% for China in 2013.
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14
Real GDP growth in China
15
(Percent change)
12
9
6
3
0
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
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15
4. Other emerging markets will also show signs of life
• Weak growth in the US economy, recessions in Europe and Japan, and a soft
landing in China all took a toll on growth in other emerging markets last year.
• This was compounded by the tight money policies that many of these economies
had in place through the fall of 2011.
• With monetary conditions now easier than a year ago and with prospects for the
world economy looking a little brighter, the outlook for emerging markets in 2013 is
also looking sunnier.
• This is especially true in Asia (and particularly the ASEAN economies), where
domestic demand growth has been fairly strong and where there is scope for more
stimulus, if needed.
• Latin America, Emerging Europe, and Sub-Saharan Africa will also see modest
rebounds.
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16
Real GDP growth in Asia-Pacific
10
(Annual percent change)
8
6
4
2
0
China
India
2011
Australia
2012
2013
South
Korea
Indonesia
2014
2015-2020
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Taiwan
17
Real GDP growth in Asia-Pacific
6
(Annual percent change)
5
4
3
2
1
0
Thailand
Malaysia
2011
2012
Singapore
2013
Hong Kong
2014
Philippines
2015-20
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18
Real GDP growth in Emerging Europe
10
(Annual percent change)
8
6
4
2
0
-2
Russia
Turkey
2011
Poland
2012
2013
Czech
Republic
2014
Romania
Hungary
2015-20
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19
Real GDP growth in Latin America
10
(Annual percent change)
8
6
4
2
0
Brazil
Argentina Colombia Venezuela
2011
2012
2013
Chile
2014
Peru
Mexico
2015-20
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20
Real GDP growth in the Middle East
9
(Annual percent change)
6
3
0
-3
Saudi
Arabia
Iran
2011
UAE
2012
2013
Israel
2014
Iraq
Kuwait
2015-20
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21
Real GDP growth in Africa
10
(Annual percent change)
8
6
4
2
0
South Africa
Nigeria
2011
Egypt
2012
2013
Algeria
Morocco
2014
2015-20
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Angola
22
5. Commodity prices will move sideways, again
• Despite a good deal of volatility during the past twelve months, commodity prices
are roughly at the same levels they were a year ago.
• Chances are good that 2013 will see a repeat performance.
• There are mild downward pressures from soft growth and relatively high
inventories in some markets (especially oil).
• On the other hand, stronger growth in China and the rest of Asia could push price
higher as the year progresses.
• Meanwhile, tensions in the Middle East and North Africa could be a wild card in oil
markets, driving prices up if the instability in the region gets worse or pulling them
down if there is a de-escalation.
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23
Industrial materials prices
7
(IHS Global Insight indexes, 2002:1=1.0)
6
5
4
3
2
1
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
In US dollars
In GDP-weighted currency basket
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24
US crude oil and natural gas prices
140
14
120
12
100
10
80
8
60
6
40
4
20
2
0
1998
0
2000 2002 2004 2006 2008 2010 2012 2014 2016
Crude oil, US refiners’ acquisition price (Left scale, USD/barrel)
Natural gas, Henry Hub (Right scale, USD/million Btu)
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25
6. Inflation will remain tame
• Soft growth, large output gaps, and high unemployment rates in the past couple of
years have significantly reduced price pressures.
• Between 2011 and 2012 the rate of inflation has fallen in all but one region (Middle
East and North Africa).
• This benign state of affairs is likely to continue through 2013, despite worries
about the inflationary potential of the massive amounts of liquidity sloshing around
the global economy and despite the recent rise in food prices (which is likely to be
temporary).
• In fact, in the developed world and some emerging regions (notably Asia, the
Middle East and Africa), inflation will continue to drift down over the coming year.
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26
Consumer price inflation by region
(Annual percent change)
10
8
6
4
2
0
-2
NAFTA
Other Western Emerging Mideast- SubJapan
Americas Europe Europe N. Africa Saharan
Africa
2011
2012
2013
2014
2015-20
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Other
AsiaPacific
27
7. Central banks will mostly be in wait-and-see mode
• The behavior of central banks over the past year and a half can best be described
as aggressive easing.
• Nevertheless, as growth prospects in many of the world’s key economies start to
look better, central banks will begin to take a more neutral stance, putting
monetary policy on hold.
• While a little more easing (interest rate cuts and/or quantitative easing) by the
Fed, the European Central Bank, Bank of England, Bank of Japan, and the
Reserve Bank of India is probably in the cards …
• … Other central banks are likely to take a more cautious approach to further
stimulus, while still keeping a lookout for any signs of renewed weakness in the
coming year.
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28
Policy interest rates in the advanced countries will stay
low for several years
(Percent, end of quarter)
6
5
4
3
2
1
0
2007
2008
2009
United States
2010
2011
Eurozone
2012
Japan
2013
2014
2015
United Kingdom
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29
Policy interest rates in emerging markets
(Percent, end of quarter)
14
12
10
8
6
4
2
0
2007
2008
2009
2010
Brazil
2011
Russia
2012
India
2013
2014
2015
China*
* One-year loan rate
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30
8. Fiscal policy will stay tight or become tighter
• This is mainly true of the United States, the Eurozone, and Japan, all of which
face large and rising government debt ratios.
• US fiscal policy was set to tighten, regardless of the fiscal cliff—the mostly likely
scenario calls for a gradual further reduction in the deficit, which will help to
stabilize the US debt ratio, without hurting growth unduly.
• In Southern Europe austerity is damaging growth prospects—but this will not deter
further tightening.
• France will also be pressured to constrict fiscal policy even more—it has one of
the biggest deficit-to-GDP ratios of the non-crisis Eurozone countries and its
government spending-to-GDP ratio is one of the highest in the developed world.
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31
Fiscal deficits are narrowing in most regions
6
(Federal budget balance, % of GDP)
3
0
-3
-6
-9
-12
NAFTA
Other Western Emerging Mideast- SubJapan
Americas Europe Europe N. Africa Saharan
Africa
2010
2011
2012
2013
2014
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Other
AsiaPacific
32
Eurozone fiscal deficits
(Fiscal balance as a percent of GDP)
0
-3
-6
-9
-12
-30.9%
-15
Eurozone
Italy
2010
Spain
2011
2012
Greece
2013
Portugal
Ireland
2014
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33
9. The US dollar will be stronger against the euro and flat
against the rest
• During the coming year, economic fundamentals (e.g., growth differentials and
current account balances) will tend to favor the dollar, especially relative to other
developed economy currencies.
• As the growth outlook in the emerging world improves and capital flows into these
economies rise once again, the upward pressure on these currencies could
intensify, balancing out some of the positive forces working on the dollar.
• Meanwhile, as the world’s principal reserve currency, the US dollar is very
sensitive to swings in investor sentiment and changes in risk aversion …
• … Consequently, enduring worries about the Eurozone debt crisis will tend to
favor the dollar over the euro and other risky currencies.
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34
The dollar’s real exchange value
1.6
(Real trade-weighted dollar index, 2005=1.0)
1.4
1.2
1.0
0.8
0.6
0.4
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
Major trading partners
Other important trading partners
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35
Exchange rates per US dollar
Canadian Dollar
Euro
(Canadian dollars per US dollar, quarterly averages)
(Euro per US dollar, quarterly averages)
1.8
1.2
1.6
1.1
1.4
1.0
0.9
1.2
0.8
1.0
0.7
0.8
0.6
0.6
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
0.5
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Japanese Yen
Chinese Renminbi
(Yen per US dollar, quarterly averages)
(Yuan per US dollar, quarterly averages)
140
120
9
8
7
100
6
80
60
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
5
4
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
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36
10. The risks facing the global economy will be more
balanced
• Over the past year, the risks facing the global economy were skewed to the
downside.
• In the coming year, not only will some of the big-four threats—another US
recession, a Eurozone meltdown, a China hard landing, and a war in the Persian
Gulf—become less menacing, but there could be some upside surprises as well.
• Chief among these is pent-up demand from consumers and businesses.
• In the wake of the Great Recession and subsequent Great Stagnation,
households and companies have been very cautious about their spending,
preferring to save more and reduce their debts.
• There is some evidence that this process may be winding down—especially in the
United States and parts of Asia.
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37
Thank you!
Nariman Behravesh, Chief Economist, IHS
[email protected]