Global economy chartbook april 2014
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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 chartbook april 2014

Global Economy ChartbookApril 2014

Charles Collyns

Chief Economist & Managing Director

Felix Huefner

Deputy Director, Global Macroeconomic Analysis

Saacha Mohammed

Research Assistant


Global economy chartbook april 2014

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 economy chartbook april 2014

Global Business Cycle Overview


Signs of a pick up in the global economy

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

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

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

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

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

Top 6 Risks for the Global Economy

Sources: IIFGlobal Economic Monitor, April 2014


The ukraine crisis

The Ukraine Crisis

Energy from Russia

Real GDP Growth in 2013-14

% (both axes)

% change

Sources: Oxford Economics, IIF

Sources: Oxford Economics, IIF


Global economy chartbook april 2014

Economic Policy and Financial Conditions


Financial conditions ease in mature economies

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

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

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

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


Global economy chartbook april 2014

G7 Business Investment─ Coming Out of the Doldrums?


Global economy chartbook april 2014

  • 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


Global economy chartbook april 2014

  • …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


Global economy chartbook april 2014

Capital Flows to Emerging Economies Under Pressure


Global economy chartbook april 2014

  • 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


Global economy chartbook april 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.


Global economy chartbook april 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


Global economy chartbook april 2014

  • New Tracker Suggests Some Resilience

  • Total Portfolio Equity Inflows to EMs

  • Total Portfolio Debt Inflows to EMs

  • $ billion

  • $ billion

  • Source: IIF.

  • Source: IIF.


Global economy chartbook april 2014

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.


Global economy chartbook april 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.


Global economy chartbook april 2014

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


Global economy chartbook april 2014

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.


Global economy chartbook april 2014

  • 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


Global economy chartbook april 2014

  • 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


Global economy chartbook april 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


Global economy chartbook april 2014

Euro Area: Still Work to Do


Euro area recession has ended

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.


But fragmentation continues

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

…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


Global economy chartbook april 2014

Japan: Will Abenomics Work?


Inflation and inflation expectations are rising

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

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

Fiscal and Structural Challenges Remain

Net Government Debt in Advanced Economies

Potential Growth

% of GDP

% y/y

Source: IMF.

Source: BoJ, IIF.


Global economy chartbook april 2014

Challenges for Emerging Economies


Global economy chartbook april 2014

  • 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

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

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

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

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

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.


Global economy chartbook april 2014

  • 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.


Global economy chartbook april 2014

  • China: Rebalancing Challenges

  • share of GDP

  • share of GDP

  • Source: Datastream, IIF.

  • Source: Datastream, IIF.


Global economy chartbook april 2014

  • 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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