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IHS ECONOMICS
World Economic Outlook
18 August 2016
Sara Johnson, Senior Research Director, Global Economics
+1 781 301 9115, [email protected]
© 2016 IHS
ihs.com
US Economic Outlook / August 2016
Global economic growth remains subdued
• Global growth will remain below 3% in 2017 as slowdowns in Europe
and China offset accelerations in the United States and emerging
markets.
• US economic growth will pick up from 1.6% in 2016 to 2.4% in 2017,
led by consumer spending and homebuilding.
• Economic and political uncertainty will hurt UK investment, consumer
spending, and capital inflows, stalling UK growth in the year ahead.
• Eurozone growth is projected to slow from 1.5% in 2016 to 1.1% in
2017, reflecting increased political instability and banking problems.
• China’s economic growth will slow further because of
imbalances in credit, housing, and industrial markets.
• Recessions in Brazil and Russia are abating.
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2
US Economic Outlook / August 2016
Markit manufacturing PMIs send mixed signals
(Index, over
50 indicates
expansion)
Purchasing
managers’
indexes
Index, over 50 signals expansion
60
55
50
45
40
35
30
25
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
United States
Sources: Markit
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Eurozone
China
Japan
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3
US Economic Outlook / August 2016
Emerging markets will lead a pickup in global growth
Real GDP
10
Percent change
8
6
4
2
0
-2
-4
1990
1993
1996
World
Source: IHS
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1999
2002
2005
Advanced countries
2008
2011
2014
2017
2020
Emerging markets
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4
US Economic Outlook / August 2016
Asia-Pacific (excluding Japan) will achieve the fastest
growth in real GDP
Real GDP
Annual percent change
6
4
2
0
-2
NAFTA
Other Western Emerging MideastSubAmericas Europe Europe N. Africa Saharan
Africa
2015
2016
2017
2018
2019–23
Source: IHS
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Japan
Other
AsiaPacific
© 2016 IHS
5
US Economic Outlook / August 2016
Real GDP growth in major economies: August forecast
Real GDP
Percent change
2014
2015
2016
2017
2018
World
2.7
2.7
2.4
2.8
3.1
United States
2.4
2.6
1.6
2.4
2.4
Canada
2.5
1.1
1.2
2.4
2.4
Eurozone
1.1
1.9
1.5
1.2
1.5
United Kingdom
3.1
2.2
1.6
0.2
1.3
China
7.3
6.9
6.6
6.2
6.4
Japan
-0.1
0.6
0.5
0.7
1.0
India
7.2
7.5
7.5
7.4
7.7
Brazil
0.1
-3.9
-3.1
-0.1
1.7
Russia
0.7
-3.7
-1.4
0.6
1.7
Source: IHS
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© 2016 IHS
6
US Economic Outlook / August 2016
The United States will outpace the Eurozone and Japan
in real GDP growth
Real GDP
6
Percent change
4
2
0
-2
-4
-6
2000
2002
2004
2006
2008
United States
Source: IHS
© 2016 IHS. ALL RIGHTS RESERVED.
2010
2012
Eurozone
2014
2016
2018
2020
Japan
© 2016 IHS
7
US Economic Outlook / August 2016
Real GDP growth in key emerging markets: Recessions
in Russia and Brazil are abating
Real GDP
15
Percent change
10
5
0
-5
-10
2000
2002
2004
2006
China
Source: IHS
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2008
India
2010
2012
Brazil
2014
2016
2018
2020
Russia
© 2016 IHS
8
US Economic Outlook / August 2016
The era of rapid growth in world trade has ended
Real GDP and trade
16
Percent change
12
8
4
0
-4
-8
-12
1975
1980
1985
1990
1995
Real world exports
Source: IHS
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2000
2005
2010
2015
2020
2025
Real world GDP
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9
US Economic Outlook / August 2016
Why has growth in world trade slowed?
Cyclical
forces
Structural
forces
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•
•
•
•
Slow growth in aggregate world demand
Weak capital spending
Collapse in commodity markets
Limited progress on trade liberalization
• Shift from manufacturing to services
• Rising trade in data and information,
supplanting physical trade
• Shortening of global supply chains
10
US Economic Outlook / August 2016
European and Japanese central banks will keep policy
interest rates low for several more years
Policy interest rates
Percent, end of quarter
6
5
4
3
2
1
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
United States
Source: IHS
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Eurozone
Japan
United Kingdom
© 2016 IHS
11
US Economic Outlook / August 2016
Policy interest rates in key emerging markets respond
to inflation and exchange-rate pressures
Policy interest rates
Percent, end of quarter
18
15
12
9
6
3
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Brazil
* One-year loan rate
Source: IHS
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Russia
India
China*
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12
US Economic Outlook / August 2016
Industrial materials prices have rebounded since midJanuary but remain low
IHS Materials Price Index
IHS weekly indexes, 2002:1=1
6
5
4
3
2
1
2007
2008
2009
2010
All industrial materials
Source: IHS
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2011
2012
Chemicals
2013
2014
2015
2016
Nonferrous metals
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13
US Economic Outlook / August 2016
The global crude-oil market returns to balance
• High product stocks will restrain prices in the near term.
• After significant surpluses in 2015 and the first half of 2016, the global
liquids market will return to balance in late 2016 and in 2017.
• A continuing decline in US oil production into 2017 will be key to
supporting oil prices.
• The United States, China, and India drive global oil demand growth.
• Reduced economic growth in the United Kingdom and European Union
will lead to some modest reduction in oil demand, but the low oil
intensity of European countries mitigates the downside risk.
• The price of Dated Brent is projected to average USD44 per barrel in
2016, USD57 in 2017, and USD64 in 2018.
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14
US Economic Outlook / August 2016
Crude-oil prices will gradually recover
Price of Dated Brent crude oil
125
Dollars/barrel
100
75
50
25
0
2000
2002
Source: IHS
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2004
2006
2008
2010
2012
2014
2016
2018
2020
© 2016 IHS
15
US Economic Outlook / August 2016
Consumer price inflation varies widely
Consumer price inflation
Annual percent change
20
43.8%
15
10
5
0
-5
NAFTA
Other Western Emerging Mideast- SubJapan
Americas Europe Europe N. Africa Saharan
Africa*
2015
2016
2017
2018
2019-23
Source: IHS
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Other
AsiaPacific
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16
US Economic Outlook / August 2016
The drop in oil prices has erased the Middle East’s
current-account surplus
Current-account balances
1,000
Billions of US dollars
750
500
250
0
-250
-500
-750
-1,000
2000
2002
United States
Source: IHS
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2004
2006
2008
Western Europe
2010
Japan
2012
2014
2016
Asia exc. Japan
2018
2020
Middle East
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17
US Economic Outlook / August 2016
A widening US trade deficit will contribute to a retreat in
the dollar’s real exchange value in 2017‒20
Real trade-weighted dollar index
1.6
Index, 2009 = 1.0
1.4
1.2
1.0
0.8
0.6
1980
1984
1988
1992
1996
Major trading partners
Source: IHS
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2000
2004
2008
2012
2016
2020
Other important trading partners
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18
US Economic Outlook / August 2016
Exchange rates per US dollar
Canadian dollar
Euro
1.6
1.2
1.4
1.0
1.2
0.8
1.0
0.6
0.8
0.4
0.6
2000
2003
2006
2009
2012
2015
Source: IHS
2018
© 2016 IHS
Japanese yen
0.2
2000
9
120
8
100
7
80
6
60
5
2003
2006
2009
2012
2015
2018
© 2016 IHS
Chinese renminbi
140
40
2000
2003
Source: IHS
2006
2009
Source: IHS
2012
2015
2018
© 2016 IHS
4
2000 2003 2006 2009 2012 2015 2018
Source: IHS
© 2016 IHS
Quarterly averages
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19
US Economic Outlook / August 2016
The euro will depreciate further against the US dollar
before recovering
Euro exchange rate
US dollar/euro, quarterly average
1.6
1.5
1.4
1.3
1.2
1.1
1.0
2006
Source: IHS
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2008
2010
2012
2014
2016
2018
2020
© 2016 IHS
20
US Economic Outlook / August 2016
After a disappointing first half, US economic growth is
picking up in the second half of 2016
• Real GDP increased at a slow 1.2% annual rate in the second quarter,
as 2.4% growth in final sales was offset by an inventory correction.
• Prolonged weakness in business fixed investment and labor
productivity growth is holding back US economic progress.
• Real GDP is projected to increase 1.6% in 2016 (revised down from
1.9%) and 2.4% in 2017 and 2018 (unchanged).
• Consumer spending will drive the expansion, supported by growth in
employment, real incomes, and household net worth.
• Housing construction will continue to recover in response to pent-up
demand from young adults and improved credit availability.
• The Federal Reserve will be cautious in raising interest rates; the next
increase is expected in December but could come in September.
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21
US Economic Outlook / August 2016
Real GDP growth will pick up, but job growth will slow
Real GDP and payroll employment
Percent change, annual rate
6
3
0
-3
-6
-9
2007
2009
2011
Real GDP
Source: IHS
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2013
2015
2017
Employment
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22
US Economic Outlook / August 2016
US economic growth by sector
Real GDP and its components
Percent change
2015
2016
2017
2018
Real GDP
2.6
1.6
2.4
2.4
Consumption
3.2
2.7
2.6
2.3
11.7
5.9
7.4
5.4
Business fixed investment
2.1
-0.4
4.1
4.6
Federal government
0.0
0.8
0.9
-1.3
State and local government
2.9
1.5
0.9
0.9
Exports
0.1
-0.3
3.1
4.4
Imports
4.6
1.2
4.9
5.2
Residential investment
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23
US Economic Outlook / August 2016
Canada’s energy sector is holding back growth
• Wildfires near Alberta’s oil sands fields temporarily disrupted production
in the second quarter, causing a setback to real GDP.
• Fiscal stimulus will support near-term growth, but declining investment
in resource industries will restrain it.
• The Bank of Canada should keep its policy rate at 0.50% through the
summer of 2017 to support economic growth.
• The Canadian dollar and oil prices will gradually recover in 2017–20.
• Regional performances have diverged, with weakness in Alberta,
Saskatchewan, and Newfoundland, but strength in British Columbia,
Ontario, and Manitoba.
• Housing prices and construction are surging in Vancouver and Toronto,
but declining in Calgary.
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24
US Economic Outlook / August 2016
Canada’s real GDP and industrial production growth
Real GDP and industrial production
8
Percent change
4
0
-4
-8
-12
1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
Real GDP
Source: IHS
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Industrial production
© 2016 IHS
25
US Economic Outlook / August 2016
Canada outlook summary
Real GDP growth (%)
Consumer price inflation (%)
4
3
3
2
2
1
1
0
2010
2012
2014
2016
2018
Source: IHS
2020
© 2016 IHS
Exchange rate per US dollar*
0
2010
2014
2016
2018
2020
© 2016 IHS
Current-account balance**
1.4
0
1.3
-15
1.2
-30
1.1
-45
1.0
-60
0.9
2010
2012
Source: IHS
-75
2012
2014
2016
Source: IHS
2018
2020
© 2016 IHS
2010
Source: IHS
2012
2014
2016
2018
2020
© 2016 IHS
*Annual average, **Billions of US dollars
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26
US Economic Outlook / August 2016
Canada’s economic growth by sector
Real GDP and its components
Percent change
2015
2016
2017
2018
Real GDP
1.1
1.2
2.4
2.4
Consumption
1.9
2.1
2.1
2.2
Residential investment
3.8
4.1
2.7
3.1
Business fixed investment
-10.6
-9.3
-1.3
2.9
Government consumption
1.7
1.6
1.9
1.8
Exports
3.4
1.3
1.8
1.8
Imports
0.3
-1.4
1.1
1.4
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27
US Economic Outlook / August 2016
Mexico’s economic outlook
• Mexico is linked to the US economy through trade, capital inflows, and
remittances.
• Global automotive and petrochemical companies continue to invest in
new capacity in Mexico.
• The opening of Mexico’s energy industry to private investment will
eventually reverse the decline in oil production.
• The drop in oil revenues has led to deep cuts in public investment.
• The Bank of Mexico will raise interest rates in step with the US Federal
Reserve to prevent capital outflows and peso depreciation.
• Security risks and corruption scandals are taking a toll on business
sentiment, investment, and economic growth.
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28
US Economic Outlook / August 2016
Mexico outlook summary
Real GDP growth (%)
Consumer price inflation (%)
6
4.5
4.0
4
3.5
2
3.0
0
2010
2012
2014
2016
2018
Source: IHS
2020
© 2016 IHS
Exchange rate per US dollar*
2.5
2010
2014
2016
2018
2020
© 2016 IHS
Current-account balance**
20
0
18
-10
16
-20
14
-30
12
2010
2012
Source: IHS
-40
2012
2014
2016
Source: IHS
2018
2020
© 2016 IHS
2010
Source: IHS
2012
2014
2016
2018
2020
© 2016 IHS
*Annual average, **Billions of US dollars
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29
US Economic Outlook / August 2016
Economic performance varies across South America
• Brazil’s economy shows signs of stabilizing at a depressed level.
Markets have welcomed the leadership changes.
• Chile, Peru, and Colombia will benefit from sound fiscal and monetary
policies, trade alliances, and a rise in commodity export revenues.
• Argentina’s government has lifted currency controls, cut taxes, and
successfully returned to the international bond market. Reducing
inflation and fiscal deficits will be a more difficult challenges.
• Venezuela’s oil-dependent economy is in chaos, with huge deficits,
hyperinflation, currency devaluation, and collapsing investment.
• The region’s long-term challenges include inadequate infrastructure,
restrictive business environments, and income inequality.
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30
US Economic Outlook / August 2016
Real GDP growth in South America
Real GDP
Annual percent change
6
4
2
0
-2
-4
-6
-8
-10
Brazil
Argentina
2015
Source: IHS
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Venezuela
2016
2017
Colombia
2018
Chile
Peru
2019–23
© 2016 IHS
31
US Economic Outlook / August 2016
Brazil’s recession is abating; recovery is not in sight
• Brazil’s industrial production appears to be stabilizing at a depressed
level, but a rebound is unlikely in the near term.
• The new government will face resistance to needed fiscal austerity.
• Low oil prices and corruption investigations are taking a heavy toll on
Petrobras and the energy, construction, and financial sectors.
• To fight inflation, the central bank is holding its Selic rate at 14.25%.
• Consumer price inflation, while still high, is beginning to ease in
response to weak demand and a recovery in the exchange rate.
• High and complex taxation, local-content regulations, administered
prices, and infrastructure bottlenecks undermine competitiveness.
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32
US Economic Outlook / August 2016
Brazil outlook summary
Real GDP growth (%)
Consumer price inflation (%)
9
10
6
8
3
0
6
-3
-6
2010
2012
2014
2016
2018
Source: IHS
2020
© 2016 IHS
Exchange rate per US dollar*
4
2010
2012
2014
2016
2018
Source: IHS
2020
© 2016 IHS
Current-account balance**
5
0
4
-25
-50
3
-75
2
1
2010
-100
-125
2012
2014
2016
Source: IHS
2018
2020
© 2016 IHS
2010
Source: IHS
2012
2014
2016
2018
2020
© 2016 IHS
*Annual average, **Billions of US dollars
© 2016 IHS. ALL RIGHTS RESERVED.
33
US Economic Outlook / August 2016
Brazil’s economic growth by sector
Real GDP and its components
Percent change
2015
2016
2017
2018
Real GDP
-3.9
-3.1
-0.1
1.7
Private consumption
-4.0
-4.7
0.1
0.9
-14.1
-11.7
0.2
3.7
-1.0
-3.2
-1.3
1.6
Exports
6.1
7.0
1.8
0.8
Imports
-14.2
-15.2
1.4
0.2
Fixed investment
Government consumption
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34
US Economic Outlook / August 2016
Eurozone sentiment indexes are relatively stable
Positive replies minus negative replies
40
Percent of total
30
20
10
0
-10
-20
-30
-40
2000
2002
2004
Consumers
Source: European Commission
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2006
2008
Industrial sector
2010
2012
2014
2016
Services sector
© 2016 IHS
35
US Economic Outlook / August 2016
Western Europe stays on a slow growth path
• Eurozone growth slowed in the second quarter, with a loss of
momentum in consumer spending and business investment.
• Increased uncertainty will discourage capital spending, although some
investment will be diverted from the United Kingdom to EU countries.
• Aggressive monetary stimulus, a weaker euro, and reduced fiscal
headwinds will help sustain growth.
• With inflation picking up only gradually, the European Central Bank
(ECB) is not expected to raise interest rates until 2019.
• The euro is projected to bottom out near USD1.04 in late 2016/early
2017 and then gradually recover to USD1.24 by the end of 2020.
• Ireland, Spain, and Sweden will maintain relatively healthy economic
growth, but the United Kingdom, Italy, and France will struggle.
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36
US Economic Outlook / August 2016
Real GDP growth in Western Europe
Real GDP
Annual percent change
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Germany
2015
Source: IHS
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United
Kingdom
2016
France
2017
Italy
2018
Spain
2019–23
© 2016 IHS
37
US Economic Outlook / August 2016
Real GDP growth in Western Europe
Real GDP
Annual percent change
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Netherlands Switzerland
2015
Source: IHS
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2016
Sweden
2017
Belgium
2018
Norway
Austria
2019–23
© 2016 IHS
38
US Economic Outlook / August 2016
Ten-year Eurozone government bond yields remain low
10-year government bond yields
Percent, quarterly averages
14
12
10
8
6
4
2
0
-2
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Germany
Source: IHS
© 2016 IHS. ALL RIGHTS RESERVED.
France
Italy
Spain
Portugal
Ireland
© 2016 IHS
39
US Economic Outlook / August 2016
Despite a pickup, consumer price inflation will stay
subdued across Western Europe
Consumer price index
Annual percent change
3
2
1
0
-1
-2
Germany
Source: IHS
© 2016 IHS. ALL RIGHTS RESERVED.
United
France
Kingdom
2015
2016
2017
Italy
2018
Spain
Greece
2019–23
© 2016 IHS
40
US Economic Outlook / August 2016
With inflation below target, the European Central Bank
will keep its policy rate near zero until 2019
Consumer price inflation and policy interest rate
5
4
Percent
3
2
1
0
-1
1998
2000
2002
2004
2006
CPI inflation
Source: IHS
© 2016 IHS. ALL RIGHTS RESERVED.
2008
2010
2012
2014
2016
2018
ECB policy rate
© 2016 IHS
41
US Economic Outlook / August 2016
The United Kingdom’s outlook is clouded by the vote to
exit the European Union
• Real GDP growth picked up to 0.6% in the spring quarter, as strength
in consumer spending was offset by weakness in business investment.
• Our forecast assumes the United Kingdom invokes Article 50 in early
2017, initiating two years of negotiations on future UK-EU relations.
• Uncertainty about the terms of Brexit is a major restraint on growth,
leading to cutbacks in foreign and domestic investment.
• A mild recession is expected in late 2016 and early 2017.
• In early August, the Bank of England cut its policy rate from 0.50% to
0.25% and restarted quantitative easing. Fiscal policies remain tight.
• Sterling will likely sink further as Brexit triggers capital flight.
© 2016 IHS. ALL RIGHTS RESERVED.
42
US Economic Outlook / August 2016
Factors shaping the UK outlook after a vote to leave the
European Union
• Success in concluding trade deals with the European Union and other
countries/regions during the next two years
• Extent of access to the EU single market
• Effects on London as a financial center
• Deregulation initiatives in the United Kingdom
• UK immigration policy
• Would Scotland leave the United Kingdom?
• Capital inflows diminish, leading to sterling depreciation
© 2016 IHS. ALL RIGHTS RESERVED.
43
US Economic Outlook / August 2016
British sterling will depreciate further until the terms of
Brexit are clarified
Average exchange rate per GBP
Sterling exchange rates
2.2
2.0
1.8
1.6
1.4
1.2
1.0
2000
2002
2004
2006
2008
US dollar
Source: IHS
© 2016 IHS. ALL RIGHTS RESERVED.
2010
2012
2014
2016
2018
2020
Euro
© 2016 IHS
44
US Economic Outlook / August 2016
UK outlook summary
Real GDP growth (%, fiscal years)
Consumer price inflation (%)
4
5
3
4
3
2
2
1
1
0
2010
2012
2014
2016
2018
Source: IHS
2020
© 2016 IHS
Exchange rate per US dollar*
0
2010
2014
2016
2018
2020
© 2016 IHS
Current-account balance**
0.90
0
0.80
-40
0.70
-80
0.60
-120
0.50
2010
2012
Source: IHS
-160
2012
2014
2016
Source: IHS
2018
2020
© 2016 IHS
2010
Source: IHS
2012
2014
2016
2018
2020
© 2016 IHS
*Annual average, **Billions of US dollars
© 2016 IHS. ALL RIGHTS RESERVED.
45
US Economic Outlook / August 2016
UK economic growth by sector
Real GDP and its components
Percent change
2015
2016
2017
2018
Real GDP
2.2
1.6
0.2
1.3
Private consumption
2.5
2.4
1.2
1.6
Fixed investment
3.3
-1.2
-6.2
-0.2
Government consumption
1.4
1.2
0.8
1.4
Exports
4.8
4.5
4.7
3.2
Imports
5.8
3.6
2.1
2.8
Industrial production
1.3
0.7
-0.5
1.7
© 2016 IHS. ALL RIGHTS RESERVED.
46
US Economic Outlook / August 2016
Emerging Europe: Varying risks and growth prospects
• Weak export markets in Western Europe will restrain growth in
emerging Europe.
• The attempted coup in Turkey and the government’s response will hurt
exchange-rate stability, capital inflows, and economic growth.
• Poland’s domestic demand will continue to expand, supported by an
improving labor market, record-low interest rates, and fiscal stimulus.
• With their well-educated workforces and low risk profiles, the Czech
Republic and Slovakia are attractive investment destinations.
• Low oil prices, economic sanctions, and capital flight have led to a
severe recession in Russia, which should end in 2016.
• The easing of currency controls will improve Ukraine’s business
climate, but fiscal consolidation, political instability, and emigration
remain obstacles to growth.
© 2016 IHS. ALL RIGHTS RESERVED.
47
US Economic Outlook / August 2016
Real GDP growth in Emerging Europe
Real GDP
Annual percent change
6
4
2
0
-2
-4
Russia
Source: IHS
© 2016 IHS. ALL RIGHTS RESERVED.
Turkey
2015
Poland
2016
2017
Czech
Republic
2018
Romania
2019–23
Hungary
© 2016 IHS
48
US Economic Outlook / August 2016
Russia’s recession is beginning to subside
• The drop in oil prices, economic and financial sanctions, and capital
flight have led to a deep, protracted recession.
• Real GDP fell 1.2% year on year in the first quarter.
• Recent monthly data show declines in retail trade and fixed investment
moderating, while industrial production has edged up.
• The fallout from Brexit, however, will likely delay Russia’s recovery,
since the European Union is its most important export market.
• The central bank reduced its policy rate from 11.00% to 10.50% in midJune. As inflation moderates, further easing is expected.
• Unfavorable demographics, outmoded manufacturing capacity, and an
overburdened infrastructure will limit long-term growth.
© 2016 IHS. ALL RIGHTS RESERVED.
49
US Economic Outlook / August 2016
Russia outlook summary
Real GDP growth (%)
Consumer price inflation (%)
6
17
4
14
2
11
0
8
-2
5
-4
2010
2012
2014
2016
2018
Source: IHS
2020
© 2016 IHS
2
2010
2012
2014
2016
2018
Source: IHS
2020
© 2016 IHS
Exchange rate per US dollar*
Current-account balance**
80
100
80
60
60
40
40
20
20
2010
0
2012
2014
2016
2018
Source: IHS
2020
© 2016 IHS
2010
Source: IHS
2012
2014
2016
2018
2020
© 2016 IHS
*Annual average, **Billions of US dollars
© 2016 IHS. ALL RIGHTS RESERVED.
50
US Economic Outlook / August 2016
Japan’s economy travels a slow growth path
• The yen’s recent appreciation will hurt exports (first price and later
volume), corporate earnings, capital spending, and tourism.
• The Kumamoto earthquake in April disrupted production and tourism,
limiting real GDP growth to a 0.2% annual rate in the second quarter.
• A new fiscal stimulus package and monetary policy easing will have
modest effects on economic growth.
• Labor markets are tight, with the unemployment rate at 3.2%, but weak
real wage gains are restraining consumer spending.
• A declining, aging population limits growth potential.
• High government debt may become a serious challenge.
© 2016 IHS. ALL RIGHTS RESERVED.
51
US Economic Outlook / August 2016
Japan’s outlook summary
Real GDP growth (%)
Consumer price inflation (%)
6
3
4
2
2
1
0
0
-2
2010
2012
2014
2016
2018
Source: IHS
2020
© 2016 IHS
Exchange rate per US dollar*
-1
2010
2012
2014
2016
2018
Source: IHS
2020
© 2016 IHS
Current-account balance**
140
250
120
200
150
100
100
80
60
2010
50
0
2012
2014
2016
Source: IHS
2018
2020
© 2016 IHS
2010
Source: IHS
2012
2014
2016
2018
2020
© 2016 IHS
*Annual average, **Billions of US dollars
© 2016 IHS. ALL RIGHTS RESERVED.
52
US Economic Outlook / August 2016
Asia-Pacific will lead all regions in growth
• China’s fixed investment is decelerating as the economy rebalances
toward consumer spending and services.
• India’s economy is growing and foreign investment is rising, although
progress has been slow on Prime Minister Narendra Modi’s reforms.
• Indonesia’s growth is stabilizing in the 4–5% range; capital inflows are
critical to financing the country’s significant infrastructure needs.
• New manufacturing hubs such as Vietnam are emerging in Southeast
Asia and South Asia as China loses cost competitiveness.
• The information technology–business process outsourcing industry is
set for continued rapid growth in India, Malaysia, and the Philippines.
• Japan, Malaysia, and Vietnam would be major beneficiaries if the
Trans-Pacific Partnership is implemented.
© 2016 IHS. ALL RIGHTS RESERVED.
53
US Economic Outlook / August 2016
Real GDP growth in Asia-Pacific
Real GDP
Annual percent change
8
6
4
2
0
China
India
2015
Source: IHS
© 2016 IHS. ALL RIGHTS RESERVED.
South Korea
2016
2017
Australia
2018
Indonesia
Taiwan
2019–23
© 2016 IHS
54
US Economic Outlook / August 2016
Real GDP growth in Asia-Pacific
Real GDP
Annual percent change
8
6
4
2
0
Thailand
Hong Kong
2015
Source: IHS
© 2016 IHS. ALL RIGHTS RESERVED.
2016
Malaysia
2017
Singapore
2018
Philippines
Vietnam
2019–23
© 2016 IHS
55
US Economic Outlook / August 2016
China’s economic slowdown will continue in 2017
• China’s slowdown is most evident in mining, heavy manufacturing, and
utilities; services and light manufacturing are more resilient.
• Brexit’s effects will be limited, and China’s government will support
economic growth with more fiscal and monetary stimuli.
• Home sales have picked up in 2016, although high inventories will
continue to dampen construction activity.
• A determinedly weak renminbi policy is unlikely; concerns about mass
capital flight outweigh potential gains in export cost competitiveness.
• Under China’s 13th Five-Year Plan, services will account for 70% of
incremental growth in 2016–20, up from about 60% in 2011–15.
• Vast excess industrial capacity, financed by an explosion of debt, is the
biggest threat to China’s growth prospects.
© 2016 IHS. ALL RIGHTS RESERVED.
56
US Economic Outlook / August 2016
China outlook summary
Real GDP growth (%)
Consumer price inflation (%)
12
6
9
5
4
6
3
3
2
0
2010
2012
2014
2016
2018
Source: IHS
2020
© 2016 IHS
1
2010
2012
2014
2016
2020
© 2016 IHS
Exchange rate per US dollar*
Current-account balance**
7.3
600
7.0
450
6.7
300
6.4
150
6.1
2010
2018
Source: IHS
0
2012
2014
2016
Source: IHS
2018
2020
© 2016 IHS
2010
Source: IHS
2012
2014
2016
2018
2020
© 2016 IHS
*Annual average, **Billions of US dollars
© 2016 IHS. ALL RIGHTS RESERVED.
57
US Economic Outlook / August 2016
China’s fixed investment has decelerated; retail sales
and industrial output growth is steady
Key indicators
50
Percent change, y/y
40
30
20
10
0
-10
-20
-30
2007
2008 2009 2010 2011
Industrial output
Real fixed investment
Sources: NBS, China Customs, IHS
© 2016 IHS. ALL RIGHTS RESERVED.
2012 2013 2014 2015
Real merchandise exports
Real retail sales
2016
© 2016 IHS
58
US Economic Outlook / August 2016
China’s lending flows remain elevated in 2016, leading
to rapid debt accumulation
Lending flows
Trillions of renminbi
18
15
12
9
6
3
0
2004
2006
2008
Bank loans (LCU and FX)
2010
2012
2014
2016*
Other (shadow) financing
* 2016 forecast based on data through July
Source: People’s Bank of China, IHS
© 2016 IHS. ALL RIGHTS RESERVED.
© 2016 IHS
59
US Economic Outlook / August 2016
Chinese debt is predominantly concentrated in loans
between state entities
Percent of total debt outstanding, 2014
Nonstate entities
23%
Central
government
7%
State-owned
enterprises
52%
Local
governments
18%
Source: IHS
© 2016 IHS. ALL RIGHTS RESERVED.
© 2016 IHS
60
US Economic Outlook / August 2016
China’s economic growth by sector
Real GDP and its components
Percent change
2015
2016
2017
2018
Real GDP
6.9
6.6
6.2
6.4
Private consumption
8.3
7.1
6.7
5.9
Fixed investment
5.3
4.0
4.5
5.2
Government consumption
6.1
7.0
7.1
6.6
Exports
2.4
3.2
5.5
6.0
Imports
2.8
0.5
3.9
4.7
© 2016 IHS. ALL RIGHTS RESERVED.
61
US Economic Outlook / August 2016
China’s economic growth will downshift in the long run
Real GDP and industrial production
Percent change
20
15
10
5
0
1980
1985
1990
1995
2000
Real GDP
Source: IHS
© 2016 IHS. ALL RIGHTS RESERVED.
2005
2010
2015
2020
2025
2030
Industrial production
© 2016 IHS
62
US Economic Outlook / August 2016
India is outpacing China in economic growth
• India’s robust growth is led by consumer spending and services.
• Foreign direct investment and government infrastructure projects are
driving capital spending; local private investment remains weak.
• Brexit could mildly hurt India if global risk aversion leads to reduced
foreign direct and portfolio investment.
• The Reserve Bank of India is expected to hold its policy rate at 6.50%
to restrain inflation. Consumer prices rose 6.10% year on year in July.
• The goods and services tax (GST) is expected to take effect in late
2017. By reducing logistics costs and double taxation, the GST will
improve manufacturing competitiveness and accelerate development of
India’s e-commerce industry.
• Other policy reforms will move forward slowly. Much remains to be
done to open markets, upgrade infrastructure, and raise productivity.
© 2016 IHS. ALL RIGHTS RESERVED.
63
US Economic Outlook / August 2016
India outlook summary
Real GDP growth (%, fiscal years)
Consumer price inflation (%)
12
12
9
10
6
8
3
6
0
2010
2012
2014
2016
2018
Source: IHS
2020
© 2016 IHS
Exchange rate per US dollar*
4
2010
2012
2014
2016
2018
Source: IHS
2020
© 2016 IHS
Current-account balance**
80
0
70
-20
-40
60
-60
50
40
2010
-80
-100
2012
2014
2016
Source: IHS
2018
2020
© 2016 IHS
2010
Source: IHS
2012
2014
2016
2018
2020
© 2016 IHS
*Annual average, **Billions of US dollars
© 2016 IHS. ALL RIGHTS RESERVED.
64
US Economic Outlook / August 2016
The Middle East and North Africa
• The drop in oil prices, regional political instability, and war with the
Islamic State are restraining economic growth.
• The region shifted from current-account surpluses to deficits in 2015; a
return to surplus is expected in 2017 as oil prices recover.
• Lower oil prices are hurting Iran, Kuwait, Iraq, Saudi Arabia, the UAE,
and Libya, but are helping Jordan, Lebanon, Morocco, and Tunisia.
• Whereas Saudi Arabia, Kuwait, and the UAE have substantial reserves,
the finances of Iran, Libya, and Algeria are strained.
• The end of sanctions is raising Iran’s oil exports and economic growth.
• Egypt’s economy is expanding, but political and security risks remain.
• Addressing job growth, economic diversification, and competitiveness
will be critical to regional stability in the long run.
© 2016 IHS. ALL RIGHTS RESERVED.
65
US Economic Outlook / August 2016
Real GDP growth in the Middle East and North Africa
Real GDP
Annual percent change
6
5
4
3
2
1
0
Saudi Arabia
UAE
2015
Source: IHS
© 2016 IHS. ALL RIGHTS RESERVED.
Iran
2016
2017
Egypt
Israel
2018
2019–23
Iraq
© 2016 IHS
66
US Economic Outlook / August 2016
Sub-Saharan Africa depends on commodity exports
• Weak commodity prices and the slowdown in China are hurting export
revenues, foreign investment, and economic growth.
• South Africa will struggle with large fiscal and current-account deficits
and a challenging business environment.
• In Nigeria, terrorism by Boko Haram and attacks on oil facilities could
threaten foreign direct investment and the economy. The naira has
plummeted following the end of peg to the US dollar.
• Poor infrastructure (especially power generation), political instability,
and corruption remain obstacles to economic development.
• In the long run, expanding domestic markets, growing middle-class
populations, and regional integration will support economic growth.
• Several countries have strong growth prospects, including Kenya,
Mozambique, Ethiopia, Liberia, Uganda, Ghana, and Tanzania.
© 2016 IHS. ALL RIGHTS RESERVED.
67
US Economic Outlook / August 2016
Real GDP growth in sub-Saharan Africa
Real GDP
Annual percent change
10
8
6
4
2
0
-2
Nigeria
South Africa
2015
Source: IHS
© 2016 IHS. ALL RIGHTS RESERVED.
2016
Angola
2017
Kenya
2018
Ethiopia
Ghana
2019–23
© 2016 IHS
68
US Economic Outlook / August 2016
Summary
• Europe’s growth will be restrained by the UK vote to exit the European
Union, leaving global economic growth below 3% through 2017.
• Emerging markets will rebound but will not regain the peak growth
rates of the 2000s.
• The US economy is fundamentally strong; consumer spending and
homebuilding will drive growth.
• The Asia-Pacific region will make the strongest contribution to global
economic growth.
• Risks abound, including financial-market turbulence, China’s rising debt
and excess capacity, conflicts in the Middle East and Africa, high
Eurozone debt burdens, and stagnation in developed countries.
© 2016 IHS. ALL RIGHTS RESERVED.
69
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IHSTM ECONOMICS
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