Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Goldman Sachs Global Economics, Commodities and Strategy Research 2010 1 The Credit Crisis and the Euro Ben Broadbent Managing Director & Senior European Economist September 2010 Goldman Sachs Global Economics, Commodities and Strategy Research 2010 2 Summary Europe recovering but sharp divergence within the Eurozone. Partly industrial composition: investment-driven cycle so sharpest “V”s in capital-goods-producing countries. Credit crunch has also blown away a decade of interestrate convergence between “core” and “periphery”. Eurozone needs (i) more fiscal discipline ahead in good times &/or (ii) more support in bad times. Will politics allow this? Goldman Sachs Global Economics, Commodities and Strategy Research 2010 3 Estimated banks’ losses, March 2009 Eurozone banks: EUR 920bn (10.1% of GDP) UK banks: GBP 210bn (14.6%) Total: USD 1.4tn (15.1%) Goldman Sachs Global Economics, Commodities and Strategy Research 2010 4 Domestic Demand and Growth Contributions, Last Decade 45 % 40 2000-2009 average contribution in USD terms 35 Demand Contribution 30 Growth Contribution 25 20 15 10 5 0 China Russia India Brazil BRICs US Euroland Source: GS Global ECS Research Goldman Sachs Global Economics, Commodities and Strategy Research 2010 5 Chinese Growth: Not Just Exports 60 %yoy, 3MMA 40 20 0 -20 Total Exports Non-Commodity Imports -40 05 06 07 Goldman Sachs Global Economics, Commodities and Strategy Research 2010 08 09 10 11 6 US not as central as it once was 100 80 USD Billion Jan 2007 Change in Real Retail Sales Since Jan 2007 60 40 20 0 -20 -40 -60 Jan-07 U.S. China Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Source: GS Global ECS Research Goldman Sachs Global Economics, Commodities and Strategy Research 2010 7 Very aggressive policy response 3 Base Rate (%) 2 Max 1 0 -1 Mean -2 -3 -4 Euroland (Current Cycle) Min UK (Current Cycle) Months from start of crisis -5 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 Source: GS Global ECS Calculations Goldman Sachs Global Economics, Commodities and Strategy Research 2010 8 No comparison with Japan 240 220 Index (0 = 100) Central bank liabilities (as a % of nominal GDP) 200 180 160 Weighted average of ECB, BoE & Fed 140 120 BoJ 100 80 -24 -12 0 12 24 Source: ECB, BoE, Fed, BoJ. Goldman Sachs Global Economics, Commodities and Strategy Research 2010 36 48 60 72 84 96 108 120 Months since start of crisis 9 Not the Great Depression II for output... 105 Index 100 95 June 1929=100 90 April 2008=100 85 80 75 70 65 60 0 6 12 18 24 Source: Almunia et al, with GS updates Goldman Sachs Global Economics, Commodities and Strategy Research 2010 30 36 42 48 Months since peak 10 ...or for asset prices 120 Index 110 100 June 1929=100 90 April 2008=100 80 70 60 50 40 30 0 6 12 18 24 Source: Almunia et al, with GS updates Goldman Sachs Global Economics, Commodities and Strategy Research 2010 30 36 42 48 Months since peak 11 Bounce in asset prices has helped banks’ balance sheets 14 12 10 Tier I Capital, % RWA Average 2005-07 2008 2009 8 6 4 2 0 Italy Spain France Germany UK Source: Bank of England FSR Goldman Sachs Global Economics, Commodities and Strategy Research 2010 12 More like other post-war financial crises 108 GDP Index 103 NOR JAP ESP SWE GS F'cast Euro-zone (current cycle) 98 FIN 93 88 UK (current cycle) 83 Current cycle includes GS Forecast 78 -5 -4 -3 -2 -1 0 1 Source: OECD, GS Global ECS research Goldman Sachs Global Economics, Commodities and Strategy Research 2010 2 3 4 5 6 Years from start of crisis 13 Divergence 4 Periphery Other EMU 2 0 -2 -4 GDP growth, % yoy -6 05 06 07 08 09 10 Source: National sources, Eurostat Goldman Sachs Global Economics, Commodities and Strategy Research 2010 14 Partly reflects industrial composition 20 % yoy 15 10 5 0 Private consumption -5 -10 -15 Private-sector investment -20 -25 00 01 02 03 04 Goldman Sachs Global Economics, Commodities and Strategy Research 2010 05 06 07 08 09 10 15 But markets price of sovereign debt has also diverged significantly 450 bps 400 Periphery 350 Germany 300 250 200 150 100 50 0 07 08 09 10 Source: Datastream, GS Global ECS Research Goldman Sachs Global Economics, Commodities and Strategy Research 2010 16 Spill-over impact on banks’ funding costs 250 Weighted ave. of European Sovereigns iTraxx Senior European Financials 5-yr CDS Spread, bps 200 150 100 50 0 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Source: GS Global ECS Research, Datastream Goldman Sachs Global Economics, Commodities and Strategy Research 2010 17 Divergence follows years of convergence 15 27 Real GDP Level ('000 EUR per capita) 25 14 Other EMU 13 Periphery 23 12 21 11 19 10 17 9 15 8 13 7 80 83 86 89 92 Source: National sources, Eurostat Goldman Sachs Global Economics, Commodities and Strategy Research 2010 95 98 01 04 07 10 18 No evidence EMU deepened trade integration 34 23 (Trade shares) %, GDP 22 32 21 30 Intra Euroland (rhs) 28 20 19 26 18 17 24 16 World Exports (lhs) 22 15 20 14 18 13 91 93 95 97 99 01 03 05 07 09 Source: Eurostat, IMF, GS Calculations. Goldman Sachs Global Economics, Commodities and Strategy Research 2010 19 But it did help compress bond yields 18 % 16 German 10-yr yields 14 Weighted ave. 10-yr yield (Periphery) 12 10 8 6 4 2 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 Source: National sources, Eurostat Goldman Sachs Global Economics, Commodities and Strategy Research 2010 20 And as income converged, current accounts diverged 10 % of GDP 5 Current Account 0 -5 -10 Germany France Italy Greece Ireland Portugal Spain -15 95 96 97 98 99 00 01 02 Source: Haver Analytics and GS Global ECS Research Goldman Sachs Global Economics, Commodities and Strategy Research 2010 03 04 05 06 07 08 21 Low rates encourage domestic demand 7 6 60 pp of GDP % of GDP 50 5 4 40 3 2 30 1 0 20 -1 Change in gov. expenditure (lhs) Gov. expenditure (2000) Gov. expenditure (2008) -2 -3 -4 10 0 Germany France Spain Italy Greece Ireland Portugal Source: OECD and GS Global ECS Research Goldman Sachs Global Economics, Commodities and Strategy Research 2010 22 Strong demand raises domestic costs 22 Index (2005=100) % of GDP 21 120 110 20 Real Effective Exchange Rate (ULC, rhs) 100 19 18 90 17 Government Consumption (lagged 4q) 16 80 70 15 14 60 85 87 90 92 95 97 00 02 05 07 10 Source: IMF, the Spanish Statistical Office and GS Global ECS Research Goldman Sachs Global Economics, Commodities and Strategy Research 2010 23 …causing declines in the periphery’s export market shares 110 Index (2000 =100) 105 100 Export Market Shares (Volume Index) 95 90 85 Germany Spain Portugal France Italy Greece 80 75 70 00 01 02 03 04 05 06 07 08 Source: IMF Goldman Sachs Global Economics, Commodities and Strategy Research 2010 24 And sharp deteriorations in external positions 40 20 % of GDP Net International Investment Position 0 -20 -40 -60 2000 2008 -80 -100 -120 Portugal Spain Greece Ireland Italy France Germany Source: Haver Analytics and GS Global ECS Research Goldman Sachs Global Economics, Commodities and Strategy Research 2010 25 Not a problem for the Eurozone as a whole 30 % Euroland GDP 25 20 Country's Share of Euroland GDP (2009) 15 10 5 Goldman Sachs Global Economics, Commodities and Strategy Research 2010 Malta Cyprus Slovenia Luxembourg Slovakia Portugal Ireland Finland Greece Austria Belgium Netherlands Spain Italy France Germany 0 26 Hefty adjustments needed to achieve stabilization of debt levels 6 % of GDP 4 2 0 -2 -4 -6 Debt-stabilizing primary balance -8 Targeted primary balance (2010) -10 Greece Ireland Italy Portugal Spain Source: National Budget Offices, GS Global ECS Research Goldman Sachs Global Economics, Commodities and Strategy Research 2010 27 Decline in interest rates not restricted to the Eurozone 7 6 Real ex ante consol rate, % 5 4 Avg. since 1700 3 2 1 0 1750 1775 1800 1825 1850 1875 1900 1925 1950 1975 2000 Source: BoE, GS calculations Goldman Sachs Global Economics, Commodities and Strategy Research 2010 28 Reform: The options Nothing: let countries restructure (if they have to) Piecemeal: More support/control ex post (EFSF plus EC intervention); tighter standards ex ante (Van Rompouy) Wholesale: Full fiscal federalism (note US example: political union precedes monetary union). Euro break-up Goldman Sachs Global Economics, Commodities and Strategy Research 2010 29 Macro rebalancing Keynes (Bretton Woods, 1946): “the process of adjustment is compulsory for the debtor and voluntary for the creditor. If the creditor does not choose to make, or allow, his share of the adjustment, he suffers no inconvenience. For whilst a country’s reserve cannot fall below zero, there is no ceiling which sets an upper limit”. Goldman Sachs Global Economics, Commodities and Strategy Research 2010 30 Disclaimer I, Ben Broadbent, hereby certify that all of the views expressed in this report accurately reflect personal views, which have not been influenced by considerations of the firm’s business or client relationships. Global product; distributing entities The Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs, and pursuant to certain contractual arrangements, on a global basis. Analysts based in Goldman Sachs offices around the w orld produce equity research on industries and companies, and research on macroeconomics, currencies, commodities and portfolio strategy. This research is disseminated in Australia by Goldman Sachs JBWere Pty Ltd (ABN 21 006 797 897) on behalf of Goldman Sachs; in Canada by Goldman Sachs & Co. regarding Canadian equities and by Goldman Sachs & Co. (all other research); in Hong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman Sachs (India) Securities Private Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in New Zealand by Goldman Sachs JBWere (NZ) Limited on behalf of Goldman Sachs; in Russia by OOO Goldman Sachs; in Singapore by Goldman Sachs (Singapore) Pte. (Company Number: 1986021 European Union: Goldman Sachs International, authorised and regulated by the Financial Services Authority, has approved this research in connection w ith its distribution in the European Union and United Kingdom; Goldman, Sachs & Co. oHG, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht, may also distribute research in Germany. General disclosures This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that w e consider reliable, but w e do not represent it is accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Other than certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgment. Goldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have investment banking and other business relationships w ith a substantial percentage of the companies covered by our Global Investment Research Division. SIPC: Goldman, Sachs & Co., the United States broker dealer, is a member of SIPC (http://w w w .sipc.org). Our salespeople, traders, and other professionals may provide oral or w ritten market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent w ith the recommendations or view s expressed in this research. We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, w ill from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction w here such an offer or solicitation w ould be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider w hether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Investors should review current options disclosure documents w hich are available from Goldman Sachs sales representatives or at http://w w w .theocc.com/publications/risks/riskchap1.jsp. Transactions cost may be significant in option strategies calling for multiple purchase and sales of options such as spreads. Supporting documentation w ill be supplied upon request. All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client w ebsites. Not all research content is redistributed to our clients or available to third-party aggregators, nor is Goldman Sachs responsible for the redistribution of our research by third party aggregators. For all research available on a particular stock, please contact your sales representative or go to w w w .360.gs.com Disclosure information is also available at http://w w w .gs.com/research/hedge.html or from Research Compliance, 200 West Street, New York, NY 10282. No part of this m aterial m ay be (i) copied, photocopied or duplicated in any form by any m eans or (ii) redistributed w ithout the prior w ritten consent of The Goldm an Sachs Group, Inc. © Copyright 2010, The Goldm an Sachs Group, Inc. All Rights Reserved. Goldman Sachs Global Economics, Commodities and Strategy Research 2010 31