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Global Economic Trends & Processes

Global Economic Trends & Processes. Dr. Jacob A. Frenkel Vice Chairman AIG, Chairman G30. DRAFT -. The 8 th Herzliya Conference January 20-23 2008. Global Equity Markets. U.S. Equity Markets Global Equity Indices: U.S. S&P 500 Index U.K. FTSE 100 Index Germany DAX Index

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Global Economic Trends & Processes

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  1. Global Economic Trends & Processes Dr. Jacob A. Frenkel Vice Chairman AIG, Chairman G30 DRAFT - The 8th Herzliya Conference January 20-23 2008

  2. Global Equity Markets • U.S. Equity Markets • Global Equity Indices: • U.S. S&P 500 Index • U.K. FTSE 100 Index • Germany DAX Index • Japan Nikkei 2

  3. Global Equity Markets Source: Bloomberg, Market Data, Last Observation 17 Jan 2008 3

  4. Global Equity Markets Year-end 2006 Value Source: Bloomberg, Market Data, Last Observation 17 Jan 2008 4

  5. Economic Growth • Industrial Countries • Developing Countries 5

  6. Real GDP Growth (%) Industrial Countries Asian NICs 4.4% Eurozone 2.1% U.S. 1.9% Japan 1.7% Source: IMF, av. annual growth rates, Asian NICs (Hong Kong, Korea, Singapore, Taiwan), last update 10/2007 (2007, 2008 forecast) 6

  7. Real GDP Growth (%) Developing Countries Developing Asia 8.8% Africa 6.5% Russia 6.5% Central & East. Europe 5.2% Latin America 4.3% Source: IMF, av. annual growth rates, last update 10/2007 WEO (2007, 2008 forecast)

  8. Inflation • Headline Inflation • Oil-Price Inflation • Gold-Price Inflation 8

  9. Headline CPI Inflation (%) U.S. 4.1% Eurozone 3.1% Japan 0.6% Source: U.S. Dept. of Labor, Eurostat, Japan MIC, quarterly averages, last observation 12/2007, Japan 11/07 9

  10. Oil Price per Barrel 2006 av. $65.9 2005 av. $59.8 14 Jan ‘08 $90.5 2004 av. $39.6 2003 av. $30.8 2001 av. $24 Source: EcoWin, WTI Light Crude, USD/barrel, Last observation 17 Jan 2008 10

  11. Gold Price and Oil Price per Barrel Gold: 17 Jan $894.5 Oil: 17 Jan $90.5 Source: EcoWin, WTI Light Crude, USD/barrel, Gold, USD/troy oz, Last observation 17 Jan 2008 11

  12. Labor Market • Unemployment • Unit Labor Cost 12

  13. Unemployment Rate (%) Eurozone 7.2% U.S. 5.0% Japan 3.8% Source: National Statistical Institutes, quarterly end of period values, last observation US 12/2007, Eurozone & Japan 11/2007 13

  14. Relative Unit Labor Cost (Manuf. Sector) Italy +31.0% since 2002 France +9.86% since 2002 Germany -5.05% since 2002 U.S. -31.61% since 2002 Source: OECD, last observation Q4/2007 (2007 estimate) 14

  15. Current Account Imbalance • International Imbalances • The Role Of Asia • The Role of China 15

  16. Current Account of Balance of Payments Asia $736B Asia & Oil Exporters Save ME Oil Exp. plus Russia $296B Europe Balances Eurozone -$51B U.S. - $788B US Spends Source: IMF, av. annual growth , last update 10/2007 WEO Forecast (2007, 2008 forecast) 16

  17. Accumulation of Foreign Exchange Reserves ($B) Stock (September 2007) Flow (2005 – Q3 2007) Source: Nat. Statistical Institutes, last update 10/2007, Foreign-Exchange Reserves excluding gold. 17

  18. U.S. & EU People’s Republic of China Asia China’s Role in Global Trade Exports Exports $500 billion $588 billion Imports $644 billion Imports $185 billion Source: National Bureau of Statistics of China, 12-months through October 2007 18

  19. Labor Cost Comparison Unit Labor cost comparisons for manufacturing workers, 2002 (U.S. = 100) Source: The Conference Board published 2006 19

  20. National Savings Rate Comparison Gross Domestic Savings: 2007 (% of GDP) Source: EIU estimates, annual average rates, Last update 12/2007 20

  21. U.S. Housing • Housing Prices, Sales and Inventories • Mortgages • Delinquencies and Foreclosures 21

  22. Changes in U.S. Home Prices Nov 2007 -4.9% Source: National Asc. of Realtors, Annual growth in median home prices, quarterly averages, last Observation 11/2007 22

  23. U.S. Household Real Estate Wealth Q3 2007 103.20% Source: Federal Reserve, Owners’ Equity in Household Real Estate as % of Disposable Household Income, last observation Q3/2007 23

  24. U.S. New Home Sales and Housing Starts New Home Sales: 0.68M Housing Starts: 1.15M Source: U.S. Dep. of Commerce, National Association of Realtors, quarterly averages, last observation Starts 12/2007, Sales 11/07 24

  25. U.S. Home Inventory-to-Sale Ratio Existing Home: 10.1 New Home: 89.2 Source: U.S. Dep. of Commerce, National Association of Realtors, monthly values, last observation 11/2007 25

  26. U.S. Delinquencies Q3 2007 16.31% (Right) Q3 2007 5.59% (Left) Source: Mortgage Bankers Association, last observation 9/30/2007 26

  27. U.S. Foreclosures Q3 2007 6.89% Q3 2007 1.69% Source: Mortgage Bankers Association, last observation 9/30/2007 27

  28. U.S. Composition Mortgage Market Source: Mortgage Bankers Association, last observation 6/30/2007 28

  29. U.S. Financial Markets • Asset-backed Commercial Papers (CP) • Financial Market Volatility • Credit Market Spreads 29

  30. U.S. Composition of Asset-backed CP Market Corporate non-financial (right) Asset-Backed (left) Financials (left) Source: Federal Reserve, last update 17 Jan 2008 30

  31. U.S. Stock Volatility Index 28 Sep ‘01 35.07% 30 Sep ‘02 37.65% 30 Sep ‘98 38.20% 17 Jan ‘08 22.25% Source: CBOE VIX, Monthly averages, last observation 17 Jan 2008 31

  32. U.S. Credit Market Spreads High Yield Spreads High Grade Spreads Source: Market Rates, weekly averages, last update 10 Jan 2008 32

  33. U.S. Recession? • Retails Sales: Housing & Non-Housing • Construction Spending • Corporate Profits • Investment: Business & Residential • US Consumer Confidence and Spending • Exchange Rates 33

  34. U.S. Change inRetail Sales Housing Related Non-Housing Source: The Census Bureau, Last Observation 11/2007 34

  35. U.S. Construction Spending By Sector Private Non-residential Public Private Residential Res. Constr. Spending 2007-Q3 $519B Non-Res. Constr. Spending 2007-Q3 $356B Public Constr. Spending 2007-Q3 $294B Source: U.S. Census Bureau, last observation 11/2007 35

  36. U.S. Investment Business Investment Residential Investment Source: Bureau of Economic Analysis, Annual Rate, last observation 9/2007 (2007 estimate) 36

  37. Residential Investment as a % Total Source: Bureau of Economic Analysis, Annual Rate, last observation 9/2007 (2007 estimate) 37

  38. U.S. Consumer Confidence and Spending Real Consumer Spending (left) Consumer Confidence (right) Source: Conference Board, BEA, period averages; last observation 11/2007 Consumer Spending, 12/07 Consumer Confidence 38

  39. U.S. Corporate Profits as % of GDP Q3 2007 8.24% Source: U.S. Department of Commerce, last observation 9/2007 39

  40. Trade Weighted Value of U.S. Dollar 29 Mar ‘02 112.46 17 Jan ‘08 74.7 Source: Federal Reserve, 3/31/2000 = 100, end of quarter, last observation 17 Jan 2008. 40

  41. Long-term Demographic Challenge • Developed Countries • Developing Countries • U.S., Europe, Asia, Africa 41

  42. Developed Countries Demographic Challenge Projected change in population 2005 - 2025: +37.7M Source: United Nations Populations Division 42

  43. Developing Countries Demographic Challenge Projected change in population 2005 - 2025: +1,402.8M Source: United Nations Populations Division 43

  44. U.S. Demographic Challenge Projected change in population 2005 - 2025: +51.9M Source: United Nations Populations Division 44

  45. Europe Demographic Challenge Projected change in population 2005 - 2025: -21.2M Source: United Nations Populations Division 45

  46. Asia Demographic Challenge Projected change in population 2005 - 2025: +882.7M Source: United Nations Populations Division 46

  47. Japan Demographic Challenge Projected change in population 2005 - 2025: -3.3M Source: United Nations Populations Division 47

  48. China Demographic Challenge Projected change in population 2005 - 2025: +125.6M Source: United Nations Populations Division 48

  49. India Demographic Challenge Projected change in population 2005 - 2025: +292.1M Source: United Nations Populations Division 49

  50. Africa Demographic Challenge Projected change in population 2005 - 2025: +438.6M Source: United Nations Populations Division 50

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