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ICAEW Economic Insight: Greater China
Launch event presentation
Douglas McWilliams
Chief Executive, Cebr
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Objectives
• To provide an update on the prospects for the world economy
• To share our latest thinking on the economic outlook for the
People’s Republic of China
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Outline
• The world economy
• Oil and commodity prices
• The Chinese economy
• Implications for accountants
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The world’s greatest ever economic event
• The East grows, the West falls back
• The real price of primary commodities like energy, minerals and
food rises – inflation becomes increasingly a commodity price
based phenomenon
• Growth/commodity price cycles become endemic
• It’s a good time to be a capitalist – in the East you will benefit
from growth, in the West from cheaper labour (actually this was
a prediction of Karl Marx!)
• The terms of trade move against Western economies
• The world’s wealth is moving towards countries which
traditionally have high savings ratios creating a glut of savings
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Cebr World Economic League Table (WELT)
2010
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Country
$ GDP (billions)
United States
14,527
People's Republic of China
5,878
Japan
5,459
Germany
3,286
France
2,563
United Kingdom
2,250
Brazil
2,090
Italy
2,055
India
1,632
Russia
1,480
Canada
1,577
Spain
1,410
Australia
1,237
Mexico
1,034
Korea
1,014
Rank
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Country
Netherlands
Turkey
Indonesia
Switzerland
Poland
Belgium
Sweden
Saudi Arabia
Taiwan
Norway
Islamic Republic of Iran
Austria
Argentina
South Africa
United Arab Emirates
$ GDP (billions)
781
735
707
528
469
468
459
448
430
413
407
377
370
364
302
Countries ranked in order of GDP in $ at current market prices. The GDP data for 2010 is taken from the IMF World
Economic Outlook. Forecasts for 2011 and 2020 are Cebr forecasts based on our global economic prospects forecasts
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Cebr World Economic League Table (WELT)
2020
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Country
$ GDP (billions) Change from 2010
United States
21,278
People's Republic of China 17,888
Japan
7,630
Russia
4,584
7
India
4,501
4
Brazil
4,262
1
Germany
4,187
-3
United Kingdom
3,975
-4
France
3,689
-2
Italy
2,678
-2
Canada
2,432
-1
Korea
2,268
3
Australia
2,092
Indonesia
2,068
4
Spain
1,969
-3
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Rank
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Country
$ GDP (billions) Change from 2010
Mexico
1,822
2
Turkey
1,555
Taiwan
1,072
6
Netherlands
1,065
-3
Sweden
1,010
2
Saudi Arabia
917
2
Poland
858
-2
Switzerland
855
-4
Islamic Republic of Iran
789
2
Thailand
778
7
Belgium
708
-5
Argentina
663
1
South Africa
648
1
Norway
605
-4
United Arab Emirates
572
-
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QE in the US has been augmented by US
banks’ repatriation of capital
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Source: Federal Reserve, European Central Bank
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The monetary merry-go-round
•
The Fed has already had two bouts of official monetary easing, has conducted
open market operations and has committed not to raise rates till end 2014
•
The ECB has spent two tranches of around €500 billion each ‘creating banking
liquidity’ which has stabilised the European economic situation
•
The PBoC (People’s Bank of China) has cut its reserve requirement ratio twice
(in November and on 24 Feb). The 24 Feb announcement is expected to allow
increased lending of $64 billion
•
The Bank of England has announced two further bouts of QE – the latest an
additional £50 billion on Feb 8th
Meanwhile there is capital flight by non European banks from Europe only partly
offset by European banks repatriating their own capital.
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World growth is slowing but key risks are the
Euro and impact of Middle East uncertainty
World real GDP, annual percentage change
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
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Source: IMF, Cebr analysis
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-4%
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United States economy shows resilience,
but QE boost is unlikely to continue
US real GDP growth, annual change
4%
3%
2%
1%
0%
-1%
-2%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
-3%
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Source: IMF, Cebr analysis
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10
Significant Eurozone downside risks remain
Euro area real GDP, annual percentage change
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
Baseline scenario
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Source: IMF, Cebr analysis
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-5%
Downside scenario
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Oil price may dip in 2012/13 as West ends
monetary easing, but rise again in mid-decade
Average of Brent, WTI & Dubai Fateh crude oil spot price, $/barrel, average across calendar year
160
140
120
100
80
60
40
20
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Source: Macrobond, Cebr analysis
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
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Commodity prices also to correct before
recovering
IMF non-fuel commodity price index (2005=100)
225
200
175
150
125
100
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
75
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Source: IMF, Cebr analysis
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Impact of possible Euro breakup on world
trade
(% world trade deviation from base where Euro does not break up)
1.2
1
0.8
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
-0.8
2020
2019
2018
2017
2016
2015
Source: CPB, Cebr analysis
2014
2013
2012
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Exports have been an important driver for
Chinese growth so far….
Mainland China monthly exports and trade balance in US dollars
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Source: China NBS, Cebr analysis
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…but the dependence on exports is reducing
rapidly
Contributions to economic growth by type of expenditure
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Source: China NBS
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Investment growth, particularly in property,
is likely to slow
Mainland China urban fixed asset investment, change YTD Y/Y
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Source: China NBS
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We expect Chinese inflation to be below the
4% target for most of the next 18 months
Consumer price index, total index, index excluding food and food only, annual percentage change
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Source: China NBS
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We expect that the renminbi will edge up
against Western currencies
Movement of the US dollar against renminbi since July 2005, annual percentage change
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Source: Macrobond, Cebr analysis
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Hong Kong is now the top ranked
international financial centre
World Economic Forum ranking of international financial centres
Hong Kong
China
Singapore
US
UK
2011
1
19
4
2
3
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Source: World Economic Forum
2010
4
22
3
1
2
2009
5
26
4
3
1
2008
8
24
10
1
2
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Growth will continue to be strong, if slightly
more subdued than in the recent past
People’s Republic of China GDP growth forecasts
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Source: Cebr analysis
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Implications for the accountancy profession
• World economy currently being boosted by monetary easing in US and
Europe
• But further monetary easing is less likely
• We expect downward pressure on inflation as monetary easing comes
to an end
• Risks for the world economy are excess monetary growth leading to
inflation, Middle East tensions leading to spikes in oil price and Euro
problems leading to a disorderly breakup
• Chinese growth is changing gear and becoming much more dependent
on domestic demand
• Urban investment growth in property seems unlikely to keep growing
• Chinese inflation has been kept low by availability of labour – as this
diminishes, will monetary policy have to become more counterinflationary
• Mainland China is still on course to overtake the US and become the
world’s largest economy
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A world leader of the
accountancy and finance profession
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