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Global Economy Chartbook April 2014. Charles Collyns Chief Economist & Managing Director Felix Huefner Deputy Director, Global Macroeconomic Analysis Saacha Mohammed Research Assistant. Table of Contents. Global Business Cycle Overview Economic Policy and Financial Conditions

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Global Economy ChartbookApril 2014

Charles Collyns

Chief Economist & Managing Director

Felix Huefner

Deputy Director, Global Macroeconomic Analysis

Saacha Mohammed

Research Assistant


Table of Contents

Global Business Cycle Overview

Economic Policy and Financial Conditions

G7 Business Investment─ Coming Out of the Doldrums?

Capital Flows to Emerging Economies Under Pressure

U.S.: Achieving a Smooth Exit from Policy Stimulus

Euro Area: Still Work to Do

Japan: Will Abenomics Work?

Challenges for Emerging Economies

Page 3

Page 11

Page 16

Page 19

Page 26

Page 31

Page 35

Page 37


Global Business Cycle Overview


Signs of a Pick-up in the Global Economy

Real GDP Growth Rate

Consumer Prices

% q/q, saar

% oya

Sources: IIF, Datastream.

Last Observation: Q4 2013

Sources: IIF, Datastream.

Last Observation: Feb. 2014


Stronger Growth in MEs, but EM Performance Has Been Mixed

Mature Economies: Real GDP Growth Rate

Emerging Economies: Real GDP Growth Rate

% q/q, saar

% q/q, saar

Sources: IIF, Datastream.

Last Observation: Q4 2013

Sources: IIF, Datastream.

Last Observation: Q4 2013


Business Confidence Has Softened

Manufacturing PMI

Industrial Production

% change, 3m/3m saar

index, breakeven=50

Sources: IIF, Datastream.

Last Observation: Jan. 2014

Sources: Datastream, Markit Economics, Bloomberg.

Last Observation: Mar. 2014


Exports and Retail Sales Have Faltered

Merchandise Exports

Retail Sales

%3m/3m, saar

%3m/3m, saar

Sources: IIF, Datastream.

Last Observation: Jan. 2014

Sources: IIF, Datastream, Bloomberg.

Last Observation: Jan. 2014


IIF Growth Forecasts Shaded Down

Real GDP Growth Rate

% q/q, saar

% y/y, horizontal lines represent 2000-07 average

Sources: IIF.

Sources: IIF.


Top 6 Risks for the Global Economy

Sources: IIFGlobal Economic Monitor, April 2014


The Ukraine Crisis

Energy from Russia

Real GDP Growth in 2013-14

% (both axes)

% change

Sources: Oxford Economics, IIF

Sources: Oxford Economics, IIF


Economic Policy and Financial Conditions


Financial Conditions Ease in Mature Economies

Global Equity Markets

Goldman Sachs Financial Conditions Index*

Index, Jan 2010 = 100

Index, value greater than 100 implies tightening

Source: Goldman Sachs,*Weighted sum of short-term bond yield, a long term corporate yield, the exchange rate and a stock market variable

Last Observation: Feb. 2014

Source: Bloomberg

Last Observation: Apr. 7, 2014


Smaller Fiscal Headwinds In 2014, Except For Japan

  • Change in Cyclically Adjusted Fiscal Balances

  • Emerging Economies

  • Mature Economies

  • % of potential GDP

  • % of potential GDP

  • Source: IMF Fiscal Monitor April 2014.

  • Source: IMF Fiscal Monitor April 2014.


Monetary Policy Remains Easy in ME, But is Tightening in EM

Trends in Official Policy Rates

Bank Lending to Private Sector

%, GDP-weighted average (both scales)

% oya

  • Source: Datastream, Bloomberg, IIF.

  • Last Observation: Apr. 1, 2014

  • Source: IIF, IMF.

  • Last Observation: Jan. 2014


Adjusting Monetary Policy in EMs─ Credibility Matters

  • Inflation and Official Interest Rates

  • Inflation and Credit Growth

  • Source: National Sources, IIF estimates.

  • Source: Bloomberg, National Sources, IIF;

  • Inflation is IIF’s 2014 forecast.

  • Updated: Apr. 3, 2014


G7 Business Investment─ Coming Out of the Doldrums?


  • Business Investment has Turned Down…

  • G7 Private Nonresidential Fixed Investment

  • Real Investment Rate vs. Real GDP Growth, 1970-2013*

  • Investment as a % of GDP

  • % of GDP, current prices

  • GDP Growth, y/y

  • Source: Datastream;

  • *Unweighted avg.; constant prices; Japan, Germany, France, Italy

  • Source: Eurostat, CANSIM, Datastream.

  • Last Observation: Q3 2013


  • …But some Cyclical Pick-up is on the Cards

  • G7 Non-Financial Corporations’ Net Lending

  • Fixed Investment in Equipment & Machinery

  • % of GDP, GDP-weighted, 2q ma

  • Percent change, q/q, saar; 2q ma

  • Source: U.S. Flow of Funds, Eurostat, Datastream.

  • Last Observation: Q3 2013

  • Source: Eurostat, Haver Analytics.

  • Last Observation: Q4 2013


Capital Flows to Emerging Economies Under Pressure


  • Capital Flows Have Been Volatile Recently

  • Net Inflows into EM Funds

  • Emerging Market External Bond Issuance*

  • $ billion

  • $ billion

  • Source: EPFR.

  • Last Observation: Feb. 2014

Source: Thomson Financial; IIF calculations. * Includes bonds issued in an external market, for the 30 major EM countries covered in the IIF's Capital Flows to EM report.

Last Observation: Mar. 2014


  • Capital Inflows to EM Under Pressure

  • Exchange Rate Changes: Then and Now

  • Current Account Balances and Exchange Rate Changes

  • Sources: Bloomberg, IIF.

  • Last Updated: Apr. 8, 2014.

  • .

  • Sources: Bloomberg, IIF.

  • Current Account Balance is 2014 estimate.

  • Last Updated: Apr. 8, 2014.


  • IIF’s New Capital Flows Tracker

  • Total Portfolio Equity Inflows to EMs

  • Total Portfolio Debt Inflows to EMs

  • $ billion

  • $ billion

  • Source: IIF, EPFR.

  • Last Observation: Q4 2013

  • Source: IIF, EPFR.

  • Last Observation: Q4 2013


  • New Tracker Suggests Some Resilience

  • Total Portfolio Equity Inflows to EMs

  • Total Portfolio Debt Inflows to EMs

  • $ billion

  • $ billion

  • Source: IIF.

  • Source: IIF.


Capital Flows Outlook Likely to be Choppy

  • Emerging Market Capital Inflows

  • Emerging Market Private Capital Inflows, Net

  • $ billion, quarterly data

  • $ billion % of GDP

  • Forecast

  • Source: IIF Capital Flows Report January 2014.

  • Source: IIF Capital Flows Report January 2014.


  • Drivers For EM Capital Flows

  • GDP Growth Differential EM/Mature Economies

  • Financial Globalization and Deepening (2002-2012)

  • percentage points

  • total financial assets in % of GDP

  • (foreign assets + foreign liabilities) / GDP

  • Source: IIF Capital Flows Report October 2013.

  • Triangle indicates last observation

  • Source: IIF.


U.S.: Achieving a Smooth Exit From Policy Stimulus


U.S. Fiscal Consolidation Underway

U.S. Federal Budget Balance

U.S. Public Debt

percent of GDP

percent of GDP

  • Source: Congressional Budget Office.

  • Source: Congressional Budget Office.


  • Household Deleveraging has Progressed

  • Household Saving Rate

  • U.S. Corporate Profits and Household Net Worth

  • % of GDP (both axes)

  • % of disposable income

  • Source: Bureau of Economic Analysis, IIF.

  • Last Observation: Q4 2013

  • Source: Datastream.

  • Last Observation Q2 2013


  • Labor Market Challenges Remain

U.S. Labor Market

  • U.S. Unemployment Rate

percent

  • % of labor force

  • *Mid-point of central tendency projections.

  • Source: Datastream.

  • Last Observation: Mar. 2014

  • Source: Datastream.

  • Last Observation: Mar. 2014


  • Fed Tapering is Underway

  • Fed Funds Target Rate during Fed Tightening Cycles

  • Fed Holdings of Securities

  • $ trillion

  • %, t in months

  • *Market expectations estimated from fed funds future and Eurodollar contracts

  • Sources: Bloomberg, CME Group, IIF.

  • Last Updated: Apr. 8, 2014

  • Source: Fed.

  • Last Updated: Apr. 8, 2014


Euro Area: Still Work to Do


Euro Area Recession has Ended…

Manufacturing PMIs

Real GDP Growth

index, 50=breakeven

% q/q, saar

  • Source: Bloomberg.

  • Last Observation: Mar. 2014

  • Source: Datastream, IIF.


Update (Kristina)

…But Fragmentation Continues…

Cross-Country Dispersion in Business

Sentiment and Bank Lending Rates

HICP Inflation Rates

Stand. Dev., 3mma; DE, FR, IT, ES; all maturity and size

Percentage change over a year ago

  • Source: ECB, European Commission.

  • Last Observation: Feb. 2014

  • Source: Eurostat, National Sources.

  • Last Observation: Mar. 2014


…And Disinflation Remains a Concern

Euro Area Headline Inflation and Projections

Policy Rate Expectations

%, based on fed fund futures and EONIA forward rate

Percentage change over a year ago

  • Source: Bloomberg.

  • Last Updated: Apr. 8, 2014

  • Source: ECB, Datastream.

  • Last Observation: Mar. 2014


Japan: Will Abenomics Work?


Inflation and Inflation Expectations are Rising

CPI Inflation

Inflation Expectations

% oya

%, 1-month moving average

Source: Bloomberg.

Last Observation: Apr. 4, 2014

Source: Ministry of International Affairs & Communication.

Last Observation: Feb. 2014


Labor Reforms Key for Abenomics Success

Base Wage Growth Remains Weak

Gender Gap in Prime-Age

Labor Force Participation (Male – Female)

percent, 2012

percent, oya

Source: Ministry of Health, Labor and Welfare.

Last Observation: Feb. 2014

Source: OECD.


Fiscal and Structural Challenges Remain

Net Government Debt in Advanced Economies

Potential Growth

% of GDP

% y/y

Source: IMF.

Source: BoJ, IIF.


Challenges for Emerging Economies


  • A Broad – Based Slowdown

  • GDP Growth in Emerging Economies

  • GDP Growth in Emerging Economies

  • percent, y/y

  • percent, y/y

  • Source: IIF.

  • Source: IIF.


EM Challenge 1 – Rising Debt

Credit Intensity of Growth

  • Change in Non-Financial Private Sector Debt

Ratio of private credit to GDP (%)

  • percentage points, difference between 2007Q1 and 2013Q1

  • Source: BIS, IMF, IIF.

  • Source: BIS, IMF, IIF.


EM Challenge 2 – Aging Populations

  • BRICS: Age Old Dependency

  • Emerging Markets: Growth in Population Aged 15-64

  • ratio of people aged 65+ over population aged 15-64

  • Percent, average annual growth

  • Source: UN, IIF.

  • Source: UN.


Challenge 3 – Fading Drivers of Growth

  • Investment to GDP Ratio

  • Investment Efficiency

  • Investment to GDP ratio divided by GDP growth rate

  • Difference between 2012 and 2007 level

  • Source: IIF.

  • Source: IIF.


Challenge 4 – Domestic and External Imbalances

General Government Overall Balance

Trends in Current Account Balance

percent of GDP

percent of GDP

  • Source: IIF.

  • Source: IMF.


IIF EM Bank Lending Survey: Tighter Conditions

EM Lending Conditions by Category

Overall EM Bank Lending Conditions

Diffusion index (below 50=easing, above 50=tightening)

Diffusion index (below 50=easing, above 50=tightening)

  • Source: IIF Emerging Market Bank Lending Conditions Survey.

  • Source: IIF Emerging Market Bank Lending Conditions Survey.


  • China: Looking for a Soft Landing

Short-term Indicators

Credit, Investment and GDP Growth

  • diffusion index (50=neutral) %, oya

  • %, oya

Sources: Datastream, IIF.

Sources: Datastream, IIF.


  • China: Rebalancing Challenges

  • share of GDP

  • share of GDP

  • Source: Datastream, IIF.

  • Source: Datastream, IIF.


  • References

  • Global Economic Monitor, April 2014: http://www.iif.com/emr/resources+3433.php

  • Portfolio Flows Tracker, March 2014: http://www.iif.com/emr/resources+3414.php

  • Emerging Markets Bank Lending Conditions Survey- 2013Q4, January 2014: http://www.iif.com/emr/resources+3333.php

  • Capital Flows to Emerging Market Economies, January 2014: http://www.iif.com/emr/capflows201401.php

  • Japan: Abenomics Faces A Tougher Second Year, January 2014: http://www.iif.com/emr/resources+3291.php

  • Structural Challenges to Emerging Market Growth, October 2013: http://www.iif.com/emr/resources+3080.php


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