Global Economic Outlook Speed Limits to the Upswing

1
Global Economic OutlookSpeed Limits to the
Upswing

• Gavyn DaviesAdvisory Director
• Pensions Convention, 2002
• 12 June 2002

2
GDP Forecasts
3
3
GDP Forecasts
2002
2003
2001
( qoq ann)
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
US
-1.3
1.7
5.6
3.0
2.5
2.5
3.0
3.5
3.5
3.5
Euroland
0.8
-0.7
0.9
1.6
2.7
2.9
2.2
2.1
2.5
2.7
Japan
-2.1
-4.8
2.7
-1.0
-0.7
0.3
1.6
1.4
1.4
1.4
Advanced Economies
-0.7
-0.3
3.5
1.8
2.0
2.2
2.5
2.6
2.8
2.8
4
4
The Provisional GLI Picks Up The Same Turning
Points as the Final Indicator
8
yoy
7
6
5
4
Confirmed
3
2
1
Provisional
0
-1
The provisional indicator would have
-2
signalled the November pick-up
-3
92
93
94
95
96
97
98
99
00
01
02
03
5
5
The GLI Signals the Major Turning Points in
Industrial Production
12
yoy
10
8
6
GLI
4
2
0
-2
Industrial Production
-4
-6
-8
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
6
6
and in World Equity Returns minus Bond Returns
8
60
yoy
yoy
7
6
40
GLI
5
4
20
3
2
0
1
0
-20
World Equity Returns minus
-1
Bond Returns in US
-2
-40
-3
-4
-60
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
7
7
Oil Price Scenarios (/bl)
8
Limited Impact of Higher Oil Prices
8
9
Current Liquidation Earlier and Steeper Than
Past Norms Inventory Change, Eight Prior
Recessions
9
105
Index
104
103
Range
102
Present Case
101
100
99
Median
98
97
96
Excluding 1980 recession
Source Dept of Commerce, GS Calculations
95
-2
-1
0
1
2
3
4
10
10
US Labour Market Not Yet Stabilised
550
4.2
Millions
Thousands
4.0
500
3.8
3.6
450
3.4
3.2
Initial Unemployment Claims
400
3.0
2.8
350
2.6
Continuing Unemployment Claims
2.4
300
2.2
2.0
Four Week Moving Average
250
1.8
1999
2000
2001
2002
2003
11
11
US Productivity vs Unit Costs
10
qoq ann
8
6
4
2
0
0
0
Unit Labour Costs
-2
Productivity
-4
Source Department of labour
-6
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
2000
2001
2002
12
12
Financing Gap Still Wide
Nonfarm Nonfinancial Corporate Business
14
of GDP
12
Capital Expenditures
10
8
6
Less Cash Flow
4
2
0
Equals Financing Gap
-2
Note Solid line indicates start of 2001 recession
Shaded areas represent periods of recessions
Source Federal Reserve Board
-4
52
54
56
58
60
62
64
66
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
13
13
US Household Saving Rate Still Too Low
12
4.0
Ratio,

inverted
10
4.5
Net Worth/Disposable
Income Ratio
8
5.0
6
4
Household
5.5
Saving Rate
2
6.0
0
Note The personal saving rate in Q3 was boosted
by the tax rebate
-2
6.5
90
91
92
93
94
95
96
97
98
99
00
01
02
03
14
US Financial Conditions Have Not Eased Much
14
98.5
Index,
1987-95100
98.0
97.5
Tighter
97.0
96.5
96.0
95.5
95.0
98
99
00
01
02
03
15
Weak Prospects for Nominal Growth
15
Nominal GDP
120
Index, NBER
Trough100
115
Range of Past Cycles (1948-91)
110
105
Current Cycle Estimate
(2001 Q4Trough)
100
Median of Past Cycles
Quarters from Trough
Source Dept of Commerce, NBER, GS Estimates
95
-2
-1
0
1
2
3
4
16
GS Leading Indicator Signals Recovery
16
Annual
9
Change
Simulation
GS Leading Indicator
7
5
3
1
-1
Euroland Industrial Production
-3
-5
97
98
99
00
01
02
03
17
Euroland Inventory Cycle is Close to Turning
17
1.0
-8
of GDP
Balance, inverted
Stockbuilding
'insufficient' stocks
as of GDP
need to rebuild levels
(3 quarter avg)
0.6
2
0.2
12
Assessment
-0.2
on Stocks
22
'excessive' stocks
need to adjust levels
-0.6
91
92
93
94
95
96
97
98
99
00
01
02
03
18
Euroland External Demand Picking Up
18
15
30
Balance
yoy
Chg
12
20
9
Exports
6
10
3
0
Exports Expectations
0
-3
-10
90
91
92
93
94
95
96
97
98
99
00
01
02
03
19
Euroland Consumption Hit By Weaker Incomes
19
4.0
Annual
Change
3.5
3.0
forecast
Real Consumer
Spending
2.5
2.0
1.5
1.0
Real Household
0.5
Disposable Income
0.0
95
96
97
98
99
00
01
02
03
04
20
A Synchronised Global Recovery
20
12
qoq
Annualised
10
8
US
6
4
2
Euroland
0
-2
1999
2000
2001
2002
2003
2004
21
Euro / US Dollar
21
GSDEER
Spot
22
Japans Industrial Production and Inventories
22
(3 Month Moving Average)
30
chg
27
yoy
24
21
Inventory Ratio
18
Inventories
15
12
9
6
3
0
-3
-6
-9
Industrial
Production
-12
-15
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
23
Trend in Japanese Machinery Orders
23
30
yoy
20
Private-sector
Machinery Orders
10
0
-10
GDP Private
Capex
Electronic
-20
Communication
Equipment
Source EPA
-30
90
91
92
93
94
95
96
97
98
99
00
01
02
24
Japan GDP and Industrial Production
24
16
yoy
14
12
10
GDP
8
6
4
2
0
-2
-4
-6
-8
Industrial Production
-10
-12
-14
-16
78
80
82
84
86
88
90
92
94
96
98
00
02
04
25
G7 10-yr Bond Yields
25

Actual
Equilibrium
Forwards
26
Relative Performance of World Equities vs Bonds
and OECD LI
26
40
12
yoy
yoy
10
30
OECD Leading
8
Indicator
20
6
10
4
0
2
0
-10
-2
-20
World Equity Returns
-4
minus Bond Returns in US
-30
-6
-40
-8
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
27
Global 15-Yr Required Real Earnings Growth Rate
Total Market
27
12

11
10
9
8
7
6
Average
5
4
3
2
1
Average growth rate for 15 years required to
justify market valuations
0
90
91
92
93
94
95
96
97
98
99
00
01
02
03
28
Required Cash Flow Identifies Value In Tech
Hardware, Software and Media
28
15

12
Consensus
11
10
9
9
9
Required
7
7
6
5
3
2
0
Software
Telecoms
Media
Tech Hardware
Long-term growth rate