Download Cabrera - Phoenix Chamber of Commerce

THE BIG SHIFT
WORLD ECONOMIC OUTLOOK 2012
Ángel Cabrera
Thunderbird School of Global Management
@CabreraAngel
SHIFT HAPPENS
WORLD ECONOMIC OUTLOOK 2012
Ángel Cabrera
Thunderbird School of Global Management
@CabreraAngel
THE BIG SHIFT
WORLD ECONOMIC OUTLOOK 2012
Ángel Cabrera
Thunderbird School of Global Management
@CabreraAngel
IMF September Forecast for 2012
• Advanced economies
• +1.9% (-0.7% from June)
• Emerging economies
• +6.1% (-0.3% from June)
• World
• +4.0% (-0.5% from June)
IMF September Forecast for 2012
• United States
• +1.8% (-0.9% from June)
• Euro Area
• +1.1% (-0.6% from June)
• Japan
• +2.3% (-0.6% from June)
Emerging Markets GDP Growth
Composition of World Real GDP
$39T
EM:
42%
$73T
EM:
52%
N.A.
W. Europe
$180T
Average Real GDP per Capita
2010-2030E
CAGR
World
3.6%
EM:
70%
Asia Dev.
Latin America
Source: Citi Investment Research & Analysis report “Global Growth Generators,” February 2011.
Note: Asia Developed is comprised of Japan, Australia and New Zealand.
CEEMEA
Asia Emerging
Rise of Emerging Markets Trade Flows
EM Trade as a % of Total World Trade
Exports/Imports
Emerging
Markets
Developed
Markets
Source: UN Conference on Trade and Development (UNCTAD) Handbook of Statistics 2010.
(1) Calculated using purchase power parity exchange rates.
Source: Citi Investment Research & Analysis report “Global Growth Generators,” February 2011 and Pricewaterhouse Coopers, “UK Economic Outlook,”
November 2009.
G7 vs. E7
• U.S., Japan, Germany,
U.K., France, Italy and
Canada
• China, India, Brazil,
Russia, Mexico,
Indonesia and Turkey
G7 vs E7
Source: PWC.com
What world do you prefer
• Option A: We grow at 2% while others grow at 1%
• Option B: We grow at 3% while others grow at 6%
SHOULD WE WORRY?
Emerging Markets Driving Global GDP Growth
200%
Japan
Developed
Public Debt 2010 (%GDP)
Emerging
Italy
France
United
Kingdom
Spain
Canada
Germany
Netherlands
United
States
Argentina
Brazil
India
Turkey
Mexico
South Africa
Korea
Australia
Indonesia
Saudi Arabia
Russia
Average GDP Growth 2010-2014 (%)
Source: Citi, Economist Intelligence Unit.
China
Europanic
• Interbank markets sign
trouble
• A run on Italian and
Spanish debt can
make Lehman
Brothers seem trivial
Europanic
Summary
• Explosive mix:
• Slow recovery, even
recession in developed
economies
• Increased fiscal and financial
uncertainty
• Rebalancing necessary
• Internal: from public to private
demand.
• External: from advanced
economy to developing
economy demand
• Worries about sovereign
bonds, translated into
worries about banks
holding that debt
Areas of attention
• Fiscal consolidation
• Not too fast or it will kill
• Not too slow or it will feed uncertainty
• Just right!
• Manage looming crisis
• Support weak links that can trigger domino effect: european
sovereign debt, banks, ease housing troubles
• Rebalance global trade
• Learn new acronyms
• E7
• E2E
GLOBAL BUSINESS
DIALOGUE - NOV 10-11
Thunderbird School of Global
Management
@Thunderbird
Global Trends and Business Drivers
Emerging Markets
– Sustained higher GDP growth
– Rise of EM corporate multinationals
– Growth in EM consumer demand
– Growing trade and capital flows, particularly intra-EM
– Rapid population growth in EM cities
Large Investment
Needs
– Significant and growing demand for credit and investment in
EM
– Growing capital markets volumes and products
– Financial re-intermediation as investment needs are met
largely by traditional banking products (lending, cash
management)
Technology
– Driving changes in consumer behavior and expectations
– Improving efficiency
– Increasing ability to store and use data
The Shift from G7 to E7
• Measured by GDP in purchasing power parity (PPP) terms,
which adjusts for price level differences across countries, the
largest E7 emerging economies seem likely to be bigger than
the current G7 economies by 2020, and China seems likely to
have overtaken the US by that date. India could also overtake
the US by 2050 on this PPP basis.
If instead we look at GDP at market exchange rates (MERs),
which does not correct for price differences across economies
but may be more relevant for practical business purposes, then
the overtaking process is slower but equally inexorable. The
Chinese economy would still be likely to be larger than that of
the US before 2035 and the E7 would overtake the G7 before
2040. India would be clearly the third largest economy in the
world by 2050, well ahead of Japan and not too far behind the
US on this MER basis.
Its not all gloom for G7
• Although current fuel prices are at historical highs (at least in real U.S. dollar
•
•
•
•
•
•
terms), food prices are at or below levels that prevailed before the mid-1990s.
The major shift in economic power to emerging countries such as China and India
should be grasped by those in established economies as an opportunity for
mutual benefit in terms of the economy and business as opposed to a zero sum
competitive game that should be feared.
Rapid growth in consumer markets in the major emerging economies associated
with a fast growing middle class will provide great new opportunities for Western
companies that can establish themselves in these markets.
Even though relative GDP shares decline, the average per capita income will
remain well above the E7. The rise of the E7 should boost average G7 incomes in
absolute terms through the newly created market opportunities
G7 economies can specialize in their areas of comparative advantage and have
access to a larger global market both at home and overseas
G7 customers will continue to benefit from low cost imports from the E7 and other
emerging economies
Restructuring of emerging market economies will give rise to many more
opportunities for private equity firms
Inflation still lower in G7 countries
Other Considerations
• This changing world order poses both challenges and opportunities for
businesses in the current advanced economies. On the one hand,
competition from emerging market multinationals will increase steadily over
time and the latter will move up the value chain in manufacturing and some
services (including financial services given the weakness of the Western
banking system after the crisis).
• Until recently, emerging market economies have been largely immune to the
adverse developments of the financial crisis. They have had to deal with
volatile capital flows, but in general have continue to sustain high growth.
Indeed, some are close to overheating, although prospects are more
uncertain again for many others. Under certain risk scenarios, they may well
suffer more adverse export conditions and even more volatile capital flows.
Low exports and, perhaps, lower commodity prices will also create challenges
for low-income countries.
• Finally, there will also be challenges arising from the rapid rise of China, India
and other emerging economies in terms of pressure on natural resources
such as energy and water, as well as implications for climate change.
Commodity prices will tend to remain high, so boosting exporters of these
products (e.g Brazil. Russia, Indonesia, the Middle East) and increasing input
costs for natural resource importers.
Source: PWC.com
So What?
• Too many companies in mature markets assume that the only
reason to enter emerging countries is to pursue new
customers. They fail to perceive the potential for innovation in
those countries or to notice that a few visionary multinationals
are successfully tapping that potential for much-needed ideas
in products and services
• There becomes an increased need to leverage “global
bridgers”
• This term coined by Nathan T. Washburn and B. Tom Hunsaker
– two colleagues who teach at Thunderbird School of Global
Management, is used to describe a new kind of manager that
multinationals need to foster, cultivate and deploy globally.
• These managers come up with innovations in emerging
markets and bring home tested ideas that are integrated into
their companies’ offerings worldwide.
Source: hbr.org