2012: Deeper into crisis or the long road to recovery? Bart Van Craeynest Hoofdeconoom Petercam Bart.vancraeynest@petercam.be 1
2012: crises looking for answers Global slowdown No 2008-0909 rerun Crises looking for answers Eurocrisis US debt crisis Asian bubbles 2
No 2008-09 rerun Growth world economy (in %) 6 5 4 3 2 1 0 -- 1 1993-2002 2003 2004 2005 2006 2007 Bron: IMF - WEO September 2011 page 178 - Gross domestic product - Real GDP Growth - 1993-2002 tot 2011.xls 2008 2009 2010 2011 2012 2016 3
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2012: global slowdown Continuing debt deleveraging Subdued recovery Liquidity trap Focus on fiscal tightening Confidence shock 5
Worries for 2012: global slowdown OECD Industrial confidence Global semiconductor sales 104 80 102 60 100 98 40 20 0 96 94-20 - 40 92 90 Source: OECD Industrial Confidence.xls sheet 1 Nov-01 Nov-03 Nov-05 Nov-07 Nov-09-60 - 80 Annualised 3-monthly change in % Source: WorldSEMICONDUTORSn.xls Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11 6
Worrying outlook for consumers Worries for 2012: US households 8 6 Consumer spending Consumer expectations 140 120 4 100 2 80 0 60 -- 2 40 -- 4 Annual change in % Source: Input AAC Nov 9 2011.xls sheet EXTRA1 Jan-99 Jan-01 Jan-03 Jan - 05 Jan-07 Jan-09 Jan-11 20 7
Worries for 2012: recession in Europe Manufacturing sector under pressure 60 40 German manufacturing orders EMU export orders 20 10 0 20-10 0-20 -20-30 -40-40 -50-60 -60-80 Annualised 3-monthly change in % Source: Input AAC Nov 9 2011.xls sheet EXTRA2 Jan-99 Jan-01 Jan-03 Jan - 05 Jan-07 Jan-09 Jan-11-70 8
Worries for 2012: emerging Asia slowing down Industrial production Exports 140 130 Korea Taiwan India 250 Korea Taiwan India China 120 200 110 100 150 90 80 100 70 60 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 50 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
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2012: things to be cheerful about Healthy corporates No investment/inventory excesses 11
Positives for 2012: healthy US corporate sector Cash position Profit margin 6.0 5.5 Cash position 16 15 Profit margin 5.0 14 13 4.5 12 4.0 11 3.5 10 3.0 9 8 2.5 2.0 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 Q1 10 7 6 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 Q1 10 12
2012: things to be cheerful about Healthy corporates No investment/inventory excesses Deleveraging paying off Easing inflation 13
Positives for 2012: households Inflation heading lower Deleveraging is paying off 5 4 19.0 18.5 Financial obligation ratio (as a % of disposible income) 3 18.0 2 17.5 1 17.0 0 16.5 -- 1 Headline inflation Oil in 100-110110 range 16.0 -- 2 -- 3 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-12 15.5 15.0 Source : Eco strat Oct2011.xls Sheet Fin Obli Q1 1982 Q1 1986 Q1 1990 Q1 1994 Q1 1998 Q1 2002 Q1 2006 Q1 2010 14
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
Positives for 2012: massive monetary expansion Central bank balance sheet 3000000 3000000 Fed ECB 2500000 2500000 2000000 2000000 1500000 1500000 1000000 1000000 500000 500000 0 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 - 11 0 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
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Crises looking for answers Low growth at best, important risks In Europe: EUROCRISIS In the US: public & private DEBT In Asia: BUBBLES 18
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Eurozone interest rates Eurocrisis hits bond markets 35 Greece 30 25 20 15 10 5 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
Current account Eurocrisis: how did we get so far? 250000 200000 150000 100000 50000 0-50000 -100000-150000 Germany PIIGS -200000-250000 Mln EUR 1993 1995 1997 1999 2001 Source: Input Financieel Forum 29 Nov 2011.xls sheet EMU CA 2003 2005 2007 2009 2011 21
Eurocrisis: living above your means Current account deficit countries at risk 10 5 0 -- 5 Estonia Greece Cyprus Portugal Spain Ireland France Italy Euro area Belgium Austria Finland Gerrmany Netherlands -10-15 -20 Input OvdP 18 Oct 2011- Layout AWI.xls sheet 3 As a % of GDP 22
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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
Eurocrisis: waiting for the ECB 25000 20000 ECB bond purchases Looking to Frankfurt Mandate: financial stability in the eurozone 15000 Unlimited means 10000 5000 Risks Inflation Moral hazard 0 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Source: Eco strat August2011.xls Sheet ECB Alternative??? 25
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Debt-financed growth model is finished Total debt in US economy 400 350 300 250 200 150 100 1900 1910 1920 1930 1940 1950 As a % of GDP 1960 1970 1980 1990 2000 2010 Source: Input Financieel Forum 29 Nov 2011.xls sheet US debt 27
Debt-financed growth model is finished Debt outstanding 140 120 100 Households Non-fin business Financial sectors Government 80 60 40 20 0 Q1 1952 Q1 1962 Q1 1972 Q1 1982 Q1 1992 Q1 2002 As a % of GDP Source : Input Financieel Forum 29 Nov 2011.xls Sheet US debt sector OR G92M.xls sheet 1 28
US public finances on an unsustainable path Public debt 200 180 Public debt Scenario CBO 160 140 120 100 80 60 40 20 0 As a % of GDP 1950 1960 1970 1980 1990 Source: Input Financieel Forum 29 Nov 2011.xls sheet US gov debt 2000 2010 2020 2030 29
US Budget: heading for policy tightening Fiscal tightening to hit the economy Focus on fiscal tightening 0.0-0.5-1.0-1.5-2.0-2.5 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 -3.0-3.5 As % of GDP Source: Input Financieel Forum 29 Nov 2011.xls sheet US fisc tight 2011 2012 2013 30
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China's unhealthy investment addiction Consumer spending vs Investment 50 Consumer spending Investment 45 40 35 30 25 As a % of GDP 1991 1993 1995 1997 1999 Source: Input Financieel Forum 29 Nov 2011.xls sheet China inv 2001 2003 2005 2007 2009 32
10 for 12 1. 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
10 for 12 6. 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
Bart Van Craeynest Chief Economist +32 (0)2 229 62 32 bart.vancraeynest@petercam.be Petercam N.V. Sint Goedeleplein 19-1000 Brussel Tel.: +32 (0)2 229 63 11 - Fax : +32 (0)2 229 65 98 Brussels Amsterdam - Paris London Luxembourg - Geneva 35