2012: Deeper into crisis or the long road to recovery?

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1 2012: Deeper into crisis or the long road to recovery? Bart Van Craeynest Hoofdeconoom Petercam 1

2 2012: crises looking for answers Global slowdown No rerun Crises looking for answers Eurocrisis US debt crisis Asian bubbles 2

3 No rerun Growth world economy (in %) Bron: IMF - WEO September 2011 page Gross domestic product - Real GDP Growth tot 2011.xls

4 4

5 2012: global slowdown Continuing debt deleveraging Subdued recovery Liquidity trap Focus on fiscal tightening Confidence shock 5

6 Worries for 2012: global slowdown OECD Industrial confidence Global semiconductor sales Source: OECD Industrial Confidence.xls sheet 1 Nov-01 Nov-03 Nov-05 Nov-07 Nov Annualised 3-monthly change in % Source: WorldSEMICONDUTORSn.xls Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11 6

7 Worrying outlook for consumers Worries for 2012: US households 8 6 Consumer spending Consumer expectations Annual change in % Source: Input AAC Nov xls sheet EXTRA1 Jan-99 Jan-01 Jan-03 Jan - 05 Jan-07 Jan-09 Jan

8 Worries for 2012: recession in Europe Manufacturing sector under pressure German manufacturing orders EMU export orders Annualised 3-monthly change in % Source: Input AAC Nov xls sheet EXTRA2 Jan-99 Jan-01 Jan-03 Jan - 05 Jan-07 Jan-09 Jan

9 Worries for 2012: emerging Asia slowing down Industrial production Exports Korea Taiwan India 250 Korea Taiwan India China Index (August 2007 = 100) Eco strat May2011.xls sheet Asia Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug Index (August 2007 = 100) Eco strat May2011.xls sheet Asia Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 9

10 10

11 2012: things to be cheerful about Healthy corporates No investment/inventory excesses 11

12 Positives for 2012: healthy US corporate sector Cash position Profit margin Cash position Profit margin In % of total assets Source: Slides Eco stratjuly2011bis.xls sheet cash Q1 70 Q1 74 Q1 78 Q1 82 Q1 86 Q1 90 Q1 94 Q1 98 Q1 02 Q1 06 Q Source: Slides Eco stratjuly2011bis.xls sheet cash Q1 70 Q1 74 Q1 78 Q1 82 Q1 86 Q1 90 Q1 94 Q1 98 Q1 02 Q1 06 Q

13 2012: things to be cheerful about Healthy corporates No investment/inventory excesses Deleveraging paying off Easing inflation 13

14 Positives for 2012: households Inflation heading lower Deleveraging is paying off Financial obligation ratio (as a % of disposible income) Headline inflation Oil in range Annual change in % Oil to 90 Oil to 130 Source : Eco strat Oct2011.xls Sheet US INFL Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul Source : Eco strat Oct2011.xls Sheet Fin Obli Q Q Q Q Q Q Q Q

15 2012: things to be cheerful about Healthy corporates No investment/inventory excesses Deleveraging paying off Easing inflation Ultra-loose loose monetary policy Continued liquidity provision 15

16 Positives for 2012: massive monetary expansion Central bank balance sheet Fed ECB Source : Eco strat April2011 -sheets world inflation -Core Inflation -Inflation Asia.xls -Sheet balance sheet Mln USD Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug Source : Eco strat April2011 -sheets world inflation -Core Inflation -Inflation Asia.xls -Sheet balance sheet Mln EUR Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 16

17 17

18 Crises looking for answers Low growth at best, important risks In Europe: EUROCRISIS In the US: public & private DEBT In Asia: BUBBLES 18

19 19

20 Eurozone interest rates Eurocrisis hits bond markets 35 Greece Portugal Ireland Italy Spain Belgium 0 Germany Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 20

21 Current account Eurocrisis: how did we get so far? Germany PIIGS Mln EUR Source: Input Financieel Forum 29 Nov 2011.xls sheet EMU CA

22 Eurocrisis: living above your means Current account deficit countries at risk Estonia Greece Cyprus Portugal Spain Ireland France Italy Euro area Belgium Austria Finland Gerrmany Netherlands Input OvdP 18 Oct Layout AWI.xls sheet 3 As a % of GDP 22

23 23

24 Monetary unions do not survive if they are not also a political / economic union Less union More union Strong countries leave Major shock to banking sector Spectacular currency strengthening Weak countries leave Immediate public and private default Banking sector collapse Eurolevel fiscal authority Eurobonds Eurolevel banking authority Structural reforms Deep recession Financial chaos Takes a long time Up to the ECB to buy time 24

25 Eurocrisis: waiting for the ECB ECB bond purchases Looking to Frankfurt Mandate: financial stability in the eurozone Unlimited means Risks Inflation Moral hazard 0 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Source: Eco strat August2011.xls Sheet ECB Alternative??? 25

26 26

27 Debt-financed growth model is finished Total debt in US economy As a % of GDP Source: Input Financieel Forum 29 Nov 2011.xls sheet US debt 27

28 Debt-financed growth model is finished Debt outstanding Households Non-fin business Financial sectors Government Q Q Q Q Q Q As a % of GDP Source : Input Financieel Forum 29 Nov 2011.xls Sheet US debt sector OR G92M.xls sheet 1 28

29 US public finances on an unsustainable path Public debt Public debt Scenario CBO As a % of GDP Source: Input Financieel Forum 29 Nov 2011.xls sheet US gov debt

30 US Budget: heading for policy tightening Fiscal tightening to hit the economy Focus on fiscal tightening From fiscal stimulus to fiscal tightening Obama job plan: 2% stimulus for 2012, but needs Congress Failed deficit committee: automatic spending cuts from 2013 onwards As % of GDP Source: Input Financieel Forum 29 Nov 2011.xls sheet US fisc tight

31 31

32 China's unhealthy investment addiction Consumer spending vs Investment 50 Consumer spending Investment As a % of GDP Source: Input Financieel Forum 29 Nov 2011.xls sheet China inv

33 10 for Weak growth in the US, recession in Europe 2. Slowdown in Emerging Asia 3. Belgium in recession, labour market holds up, public finance target does not 4. Inflation coming down 5. Continuing eurocrisis, but euro survives thanks to ECB 33

34 10 for Volatile equity markets end the year higher thanks to second half of the year 7. Commodity prices stable to slightly lower 8. Increasing protectionism 9. Obama re-elected 10. Another year of natural disasters 34

35 Bart Van Craeynest Chief Economist +32 (0) Petercam N.V. Sint Goedeleplein Brussel Tel.: +32 (0) Fax : +32 (0) Brussels Amsterdam - Paris London Luxembourg - Geneva 35

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