Global and singapore economic outlook 2014 a pinch better
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Global and Singapore economic outlook, 2014 A pinch better …. Irvin Seah Senior Vice President DBS Currency & Economic Research January 2014 . Data sources: Data for all charts and tables are US-EIA, CEIC and Bloomberg. Estimates are by DBS Group Research. Global outlook.

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Global and singapore economic outlook 2014 a pinch better

Global and Singapore economic outlook, 2014A pinch better …

Irvin Seah

Senior Vice President

DBS Currency & Economic Research

January 2014

Data sources: Data for all charts and tables are US-EIA, CEIC and Bloomberg. Estimates are by DBS Group Research.



2013 markets rewarded economies for simply avoiding disaster
2013: markets rewarded economies forsimply avoiding disaster

  • US: 1.6% growth, 28% return

  • EZ: -0.5% growth, 12% return

  • JP: 1.8% growth, 45% return

  • Asia: 6.1% growth, 5% return


2014 markets will demand genuine growth the only place we see that is in asia
2014: markets will demand genuine growth,the only place we see that is in Asia

  • Conclude: Asia will outperform in 2014

Asia growth = weighted average of GDP growth of China, Hong Kong, Taiwan, Korea, Singapore, Indonesia, Malaysia, Indonesia, Thailand, Philippines


Asia 2014 europe is the biggest plus sideways x to eu will add 0 5 to asia gdp growth in 2014
Asia 2014: Europe is the biggest plus!Sideways X to EU will add 0.5% to Asia GDP growth in 2014



Asia will continue to drive itself asia adds a germany every 4 years
Asia: will continue to drive itselfAsia ‘adds’ a Germany every 4 years


Asia 2014 china steady near 8 focus remains on long run structural change reform
Asia 2014: China steady, near 8%Focus remains on long-run structural change, reform


Us risks consumption consumption growth finally picking up after 3 years
US risks: consumptionConsumption growth finally picking up after 3 years?


Us labour market still weak despite falling unemployment rate
US: labour marketstill weak despite falling unemployment rate


Us risks investment zero capex growth for 18 months
US risks: investmentzero capex growth for 18 months


Us risks debt deleveraging takes time
US risks: debtdeleveraging takes time…


Us risks housing mortgage applications falling hard and fast
US risks: housing!Mortgage applications falling hard and fast


2014 risks housing warrants special mention
2014 risks: housing warrantsspecial mention

  • QE3: Fed is buying $45bn worth of houses every month

  • That’s 5x the value of all new homes sold every month

  • What happens when the Fed stops buying?

    • Mortgage applications drop

    • Sales/prices drop

    • Construction drops

  • It’s not ‘speculation’. It’s what the textbooks predict

  • If housing drops, tapering stops!


Would markets like a fed u turn
Would markets like a Fed U-turn?

  • No!

  • Fed is stuck between a rock and a hard place.

  • Can’t live with QE, can’t live without it

  • A Fed U-turn is the biggest market risk for 2014

  • Markets would dub it QE4


Risks 2014 europe slow growth continues
Risks 2014: EuropeSlow growth continues



Eu risks us vs ez rates
EU risks: US vs EZ rates


Risks 2014 asia
Risks 2014: Asia

  • China: structural change is tough

    • Long-run: restructuring is harder than it seems

      • China is 30x bigger today than it was in 1978

    • Short-run: consumption can’t take over for investment

      • And the quick switch mechanism is disappearing

  • Fed tapering? Probably not a risk anymore

    • The idea that Asia saw a lot of inflows from QE is wrong in the first place


China s long term focus financial sector reform is getting most attention at the moment
China’s long-term focusFinancial sector reform is getting most attention at the moment




Most of asia s inflows have been long run flows
Most of Asia’s inflows have been long-run flows years!

  • Capital has come to Asia for 2 reasons: long-run and short-run

  • Most of the capital inflow has been long-run inflow

  • Since 2001 dotcom crash:

    • US$2.4 trn gross inflow to Asia-10

    • US$ 800bn gross outflow ($500bn in 2008; $300bn since Sept11)

    • Net inflow of $1.6 trn

  • Three steps forward, one step back

  • For every dollar of inflow, 66 cents has stayed for the long haul

  • Pretty good signal-to-noise ratio


The biggest structural change underway in the global economy today
The biggest structural change years! underway in the global economy today




Nodx share shifting towards asia china
NODX years! share shifting towards Asia/China



Asia driving services growth e g tourism
Asia driving services growth years! – e.g. tourism


Mfg external environment improving
Mfg years! : External environment improving

Indicators are showing gradual improvement


Mfg picking up
Mfg years! : Picking up




Slightly better in 2014
Slightly better in 2014 years!

  • GDP growth for 2013 is expected to register 4.0%



Higher inflation in 2014
Higher inflation in 2014 years!

  • Inflation to register 3.0% in 2013


Global and singapore economic outlook 2014 a pinch better

A years! tight SGD NEER policy to curb inflation

Source: DBS Research

37



Residential
Residential years!

  • Household debt and mortgage debt as a percentage of GDP has risen to 77% and 45% respectively


Income growth kept pace with credit growth
Income growth kept pace with credit growth years!

Income growth in Singapore had largely kept apace with credit expansion with mortgage loan growth averaging 6% since 2000 vs 5% annual income expansion


Looking ahead
Looking ahead…. years!

  • We reckon there could be a surplus of 27,000-42,000 homes

  • This would push vacancies up from the present 5.6% to 8-9% by 2017

  • Historically, rental rates and yields weaken when vacancies rises above 7%


Tipping point in demand squeeze
….tipping point in demand squeeze years!

  • Population per housing stock reached a high of 4.4 in 2012 from 3.76 in 2004. This ratio could retrace back to 3.7 by 2017

  • Historically, property prices closely mirrors this trend



Residential overview
Residential overview years!

  • No boom and bust asset bubble in the works

  • Oversupply and cooling measures such as the TDSR will curb demand and result in private home price inflexion

  • Private home vacancies could rise to 8-9% over the next 3 years

  • Expect up to a 30% decline in primary home transactions this year

  • Private homes prices to retrace by 5% a year over the next 3 years


Summary 2014
Summary: 2014 years!

  • Global outlook is improving and Asia will continue to outperform

  • Risks:

    • US: housing is the big one; Fed U-turn possible

    • EU17: unemployment and interest rates go higher, someone wants out of the euro

    • Asia: China’s restructuring proves harder than thought

  • Singapore will benefit from stronger Asia growth

  • GDP growth likely to register 4.0% in 2014… back to medium term potential growth rate

  • Inflation will be higher, at 3.0% in 2014

  • Overall, 2014 will be a pinch better….

  • ……… Happy New Year!


Thank you

Thank you years!




Global and singapore economic outlook 2014 a pinch better

Disclaimer years!