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The Global Economic Outlook
Tim Quinlan, Economist
April 14, 2010
OECD Industrial Production
OECD Industrial Production
Index, 2005=100
120
120
100
Following the worst recession in
decades, the global economy is
on the rebound
100
80
80
60
60
OECD Industrial Production: Dec @ 95.6
40
1981
40
1985
1989
1993
1997
2001
2005
Source: Organisation for Economic Cooperation and Development and Wells Fargo Securities, LLC
Economics
2
2009
Economic Growth
Real GDP
Bars = Compound Annual Rate
10%
Is recent growth due entirely to
stimulus?
Line = Yr/Yr % Change
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
Real GDP: Q4 @ 5.6%
-6%
-6%
Real GDP: Q4 @ 0.1%
-8%
-8%
96
97
98
99
00
01
02
03
04
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
3
05
06
07
08
09
10
U.S. Auto Sales
Light Vehicle Sales
Seasonally Adjusted Annual Rate, In Millions
22
“Cash for clunkers” gave a boost
to auto sales
22
20
20
18
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
Light Vehicle Sales: Mar @ 11.8 Million
0
2004
0
2005
2006
2007
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
4
2008
2009
2010
Residential Construction
Housing Starts
Seasonally Adjusted Annual Rate, In Millions
2.4
The first-time home buyer tax
credit helped to boost
residential construction
2.4
2.2
2.2
2.0
2.0
1.8
1.8
1.6
1.6
1.4
1.4
1.2
1.2
1.0
1.0
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2
Housing Starts: Feb @ 575K
0.0
0.0
01
02
03
04
05
06
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
5
07
08
09
10
Retail Spending
Retail Sales Ex-Autos, Gas & Building Materials
12%
12%
All Series are 3-Month Moving Averages
10%
It would be a mistake, however,
to say that there would have
been no growth without
stimulus
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
Year-over-Year Percent Change: Feb @ 2.7%
3-Month Annual Rate: Feb @ 4.6%
-8%
-8%
-10%
-10%
96
97
98
99
00
01
02
03
04
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
6
05
06
07
08
09
10
Capital Spending
NonDefense Capital Goods Orders, Ex-Aircraft
Series are 3-Month Moving Averages
40%
40%
30%
30%
20%
20%
10%
10%
0%
A rebound in capex appears to
be underway
0%
-10%
-10%
-20%
-20%
-30%
-30%
-40%
-40%
3-Month Annual Rate: Feb @ 9.3%
Year-Over-Year Percent Change: Feb @ 5.4%
-50%
-50%
93
95
97
99
01
03
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
7
05
07
09
Real Exports and Imports
Exports & Imports of Goods, Constant Dollar
Billions of Dollars
$170
$170
Exports: Jan @ $89.5 Billion
Imports: Jan @ $130.5 Billion
Stronger growth in the rest of
the world is lifting U.S. exports
again
$150
$150
$130
$130
$110
$110
$90
$90
$70
$70
$50
1997
$50
1999
2001
2003
2005
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
8
2007
2009
U.S. Business Inventories
Change in Real Inventories
Billions of Dollars, Annual Rate
$125
$125
$100
$100
$75
Forecast
$50
$50
$25
$25
$0
Inventories should boost growth
over the next few quarters
$0
-$25
-$25
-$50
-$50
-$75
-$75
-$100
-$100
-$125
-$125
-$150
-$150
-$175
-$200
2000
-$175
Change in Private Inventories: Q4 @ -$19.7B
-$200
2002
2004
2006
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
$75
9
2008
2010
Real GDP Forecast
Real GDP
Bars = CAGR
10.0%
Line = Yr/Yr Percent Change
10.0%
GDPR - CAGR: Q4 @ 5.6%
GDPR - Yr/Yr Percent Change: Q4 @ 0.1%
8.0%
6.0%
8.0%
6.0%
Forecast
The worst for the U.S. economy
is probably behind us
4.0%
4.0%
2.0%
2.0%
0.0%
0.0%
-2.0%
-2.0%
-4.0%
-4.0%
-6.0%
-6.0%
-8.0%
-8.0%
2000
2002
2004
2006
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
10
2008
2010
Real PCE Forecast
Real Personal Consumption Expenditures
Bars = CAGR
8.0%
Line = Yr/Yr Percent Change
8.0%
6.0%
6.0%
Forecast
Growth in consumer spending
should remain sluggish for the
foreseeable future
4.0%
4.0%
2.0%
2.0%
0.0%
0.0%
-2.0%
-2.0%
-4.0%
-4.0%
PCE - CAGR: Q4 @ 1.6%
PCE - Yr/Yr Percent Change: Q4 @ 1.0%
-6.0%
-6.0%
2000
2002
2004
2006
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
11
2008
2010
Consumer Balance Sheet
Household Debt - Consumer & Mortgage
As a Percent of Disposable Personal Income
130%
The consumer sector remains
rather leveraged
130%
120%
120%
110%
110%
100%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
50%
Household Debt: Q4 @ 115.3%
40%
40%
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
12
Net Worth
Net Worth
Trillions of Dollars
$70
The decline in household net
worth over the past year or so
has been unprecedented
$70
$60
$60
$50
$50
$40
$40
$30
$30
$20
$20
$10
$10
Net Worth: Q4 @ $54.2 Trillion
$0
$0
80
82
84
86
88
90
92
94
96
98
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
13
00
02
04
06
08
Personal Saving Rate
Personal Saving Rate
Disp. Personal Income Less Spending as a % of Disp. Income
15%
15%
12%
The personal saving rate
probably will trend higher over
the next few years
12%
9%
9%
6%
6%
3%
3%
Personal Saving Rate: Jan @ 3.3%
Personal Saving Rate, 12-Month M.A.: Jan @ 4.2%
0%
0%
60
63
66
69
72
75
78
81
84
87
90
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
14
93
96
99
02
05
08
Employment
Nonfarm Employment Change
Change in Employment, In Thousands
600
It may be some time before
payrolls begin to grow
significantly
600
400
400
200
200
0
0
-200
-200
-400
-400
-600
-600
Nonfarm Employment Change: Mar @ 162,000
-800
2000
-800
2001
2002
2003
2004
2005
2006
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
15
2007
2008
2009
2010
U.S. Economic Forecast
Wells Fargo U.S. Economic Forecast
Actual
Sluggish growth in consumer
spending will probably lead to a
sub-trend growth rate in real
GDP
2006
Real Gross Domestic Product
Personal Consumption
Equipment and Software
Government Purchases
Economics
16
2010
2011
0.4
-0.2
-2.6
3.1
3.8
-2.4
-0.6
-16.6
1.8
-0.3
3.0
1.9
7.4
1.6
2.3
2.5
2.0
9.3
1.2
2.4
10.5
-4.1
-11.8
-3.8
13.7
8.0
4.71
4.04
2.25
3.85
4.30
4.70
2
Fo recast as o f: A pril 7, 2010 Co mpo und A nnual Gro wth Rate Year-o ver-Year P ercent Change
Source: Wells Fargo Securities, LLC
2009
2.1
2.6
2.6
1.7
2.9
Consumer Price Index2
1
2008
2.7
2.9
7.4
1.4
3.2
1
Corporate Profits Before Taxes 2
10-Year Treasury Note
2007
Forecast
OECD Industrial Production
OECD Industrial Production
Year-over-Year Percent Change
10%
A synchronous global snapback
represents an upside risk to the
U.S. economy
10%
5%
5%
0%
0%
-5%
-5%
-10%
-10%
-15%
-15%
OECD Industrial Production: Dec @ 0.7%
-20%
-20%
81
85
89
93
97
01
05
Source: Organisation for Economic Cooperation and Development and Wells Fargo Securities, LLC
Economics
17
09
Commercial Real Estate
Moody's Real Commercial Property Price Index
Year-over-Year Percent Change
Write-downs related to
commercial real estate represent
a downside risk to the U.S.
economic outlook
30%
30%
20%
20%
10%
10%
0%
0%
-10%
-10%
-20%
-20%
-30%
-30%
Commercial Property: Q4 @ -29.2%
-40%
-40%
2002
2003
2004
2005
Source: Moody’s and Wells Fargo Securities, LLC
Economics
18
2006
2007
2008
2009
Monetary Base
Monetary Base
Billions of USD
2400
2200
2200
2000
2000
1800
1800
1600
1600
1400
1400
Could the surge in monetary
stimulus be inflationary?
1200
1200
1000
1000
800
800
600
600
400
400
200
0
2006
0
2007
2008
Source: Federal Reserve and Wells Fargo Securities, LLC
Economics
200
Monetary Base: Mar-24 @ $2,059 Billion USD
19
2009
2010
Bank Lending
C & I Loans at Weekly Reporting Banks
Both Series are Changes in 4 Week Moving Averages
40
35
30
Credit growth is negative at
present
40
Change from Week Ago: Mar-24 @ -$13.4 Billion USD
13 Week Change, Annual Rate: Mar-24 @ -18.9%
35
30
Year over Year Percent Change: Mar-24 @ -19.6%
25
25
20
20
15
15
10
10
5
5
0
0
-5
-5
-10
-10
-15
-15
-20
-20
-25
-25
-30
-30
86
88
90
92
94
96
98
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Economics
20
00
02
04
06
08
10
CPI Inflation
CPI vs. Core CPI
Year-over-Year Percent Change
6.0%
The risk of deflation exceeds the
risk of inflation over the next
year or two
6.0%
5.0%
5.0%
4.0%
4.0%
3.0%
3.0%
2.0%
2.0%
1.0%
1.0%
0.0%
0.0%
-1.0%
-1.0%
CPI: Feb @ 2.1%
-2.0%
-2.0%
Core CPI: Feb @ 1.3%
-3.0%
-3.0%
92
94
96
98
00
02
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
21
04
06
08
10
United Kingdom Economic Growth
U.K. Real GDP
Bars = Compound Annual Rate
6.0%
The U.K. economy is now about
six percent smaller than it was
at the peak in the first quarter of
2008
Line = Yr/Yr % Change
6.0%
4.0%
4.0%
2.0%
2.0%
0.0%
0.0%
-2.0%
-2.0%
-4.0%
-4.0%
-6.0%
-6.0%
-8.0%
-8.0%
-10.0%
Compound Annual Growth: Q4 @ 1.8%
-10.0%
Year-over-Year Percent Change: Q4 @ -3.1%
-12.0%
-12.0%
2000
2002
2004
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
22
2006
2008
United Kingdom Economic Growth
Household Liabilities
As a Percentage of Nominal GDP
120%
100%
Like their U.S. counterparts,
households in the U.K. are
fairly indebted
120%
Euro-zone: 2007 @ 65.0%
United States: 2007 @ 101.8%
United Kingdom: 2007 @ 96.7%
Japan: 2007 @ 74.4%
Canada: 2007 @ 77.8%
100%
80%
80%
60%
60%
40%
40%
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source: EuroStat, Federal Reserve, IHS Global Insight, Statistics Canada and Wells Fargo Securities, LLC
Economics
23
Euro-zone Economic Growth
Euro-zone Real GDP
Bars = Compound Annual Rate
6.0%
The Euro-zone economy is
starting to grow
Line = Yr/Yr % Change
6.0%
4.0%
4.0%
2.0%
2.0%
0.0%
0.0%
-2.0%
-2.0%
-4.0%
-4.0%
-6.0%
-6.0%
-8.0%
-8.0%
-10.0%
Compound Annual Growth: Q4 @ 0.0%
-10.0%
Year-over-Year Percent Change: Q4 @ -2.2%
-12.0%
-12.0%
2000
2001
2002
2003
2004
2005
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
24
2006
2007
2008
2009
Euro-zone Household Liabilities
Household Liabilitites in the Euro-zone
As a Percent of GDP
140%
140%
1999
120%
2007
120%
100%
Three countries are very highly
geared—and Greece has had a
dramatic rise
100%
80%
80%
60%
60%
40%
40%
20%
20%
0%
0%
Austria
Belgium Finland
France Germany Greece
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
25
Italy
Neth.
Port.
Spain
Government Debt in the Euro-zone
Government Debt and Deficits
Percent of GDP
120%
Debt
110%
Deficit
100%
Greece is not the only country in
the Euro-zone where the
government’s fiscal position is a
bit precarious
120%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
0%
Greece
Ireland
Source: Eurostat and Wells Fargo Securities, LLC
Economics
110%
26
Portugal
Spain
Chinese Economic Growth
Chinese Real GDP
Year-over-Year Percent Change
14.0%
The Chinese economy is clearly
strengthening
14.0%
12.0%
12.0%
10.0%
10.0%
8.0%
8.0%
6.0%
6.0%
4.0%
4.0%
2.0%
2.0%
Year-over-Year Percent Change: Q4 @ 10.7%
0.0%
0.0%
2000
2002
2004
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
27
2006
2008
Korean Economic Growth
South Korean Real GDP
Bars = Compound Annual Rate
20%
The upturn in Asia is not
confined to China alone
Line = Yr/Yr % Change
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
-10%
-10%
-15%
-15%
Compound Annual Growth: Q4 @ 0.7%
-20%
-20%
Year-over-Year Percent Change: Q4 @ 6.3%
-25%
-25%
2001
2002
2003
2004
2005
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
28
2006
2007
2008
2009
Chinese Lending
Chinese Loan Growth
Year-over-Year Percent Change
35%
Stimulative monetary policy in
China has engendered a growth
spurt in lending activity
35%
30%
30%
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
Chinese Loan Growth: Jan @ 29.3%
0%
0%
99
01
03
Source: CEIC and Wells Fargo Securities, LLC
Economics
29
05
07
09
Latin American Economic Growth
Brazilian Real GDP
Bars = Compound Annual Rate
12%
Growth in many Latin countries
has strengthened as well
presently
Line = Yr/Yr % Change
12%
9%
9%
6%
6%
3%
3%
0%
0%
-3%
-3%
-6%
-6%
-9%
-9%
Compound Annual Growth: Q4 @ 8.4%
-12%
-12%
Year-over-Year Percent Change: Q4 @ 4.3%
-15%
-15%
2000
2001
2002
2003
2004
2005
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
30
2006
2007
2008
2009
Global Forecast
Wells Fargo International Economic Forecast
(Year-over-Year Percent C hange)
GDP
2009
Growth in global GDP will be
negative for the first year in
decades
2010
2011
2009
2010
2011
Global (PPP weights)
Global (Market Exchange Rates)
-0.8%
-2.0%
4.3%
3.1%
4.1%
2.9%
2.8%
n/a
4.6%
n/a
4.4%
n/a
Advanced Economies 1
United States
Eurozone
United Kingdom
Japan
Korea
Canada
-3.4%
-2.4%
-4.0%
-4.9%
-5.2%
0.1%
-2.6%
2.5%
3.0%
1.3%
1.5%
2.6%
5.0%
3.1%
2.5%
2.5%
2.2%
2.4%
1.7%
3.5%
2.8%
-0.3%
-0.3%
0.3%
2.2%
-1.3%
2.8%
0.3%
1.8%
2.3%
1.5%
2.9%
-0.5%
2.5%
2.2%
1.8%
2.4%
1.4%
1.9%
0.5%
2.8%
2.1%
Developing Economies 1
China
India
Mexico
Brazil
Russia
2.4%
8.5%
6.8%
-6.5%
-0.2%
-7.9%
6.3%
9.7%
8.0%
3.4%
4.9%
3.6%
6.1%
9.0%
7.8%
3.5%
5.3%
4.1%
6.5%
-0.7%
11.4%
5.3%
4.9%
11.8%
7.9%
2.9%
13.7%
5.6%
5.6%
6.8%
7.5%
3.5%
8.0%
6.1%
6.1%
8.8%
Forecast as of: April 7, 2010
1
Aggregated Using PPP Weights
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
CPI
31
Foreign Currency Forecast
Wells Fargo Bank Currency Strategy Group Forecast
(End of Quarter Rates)
2010
Q2
Stronger growth prospects in the
United States than in many
foreign economies should cause
the dollar to strengthen in the
near term
Major Currencies
Euro ($/€)
U.K. ($/£)
U.K. (£/€)
Japan (¥/$)
Canada (C$/US$)
Switzerland (CHF/$)
Other Currencies
Australia (US$/A$)
China (CNY/$)
South Korea ($/KRW)
Singapore ($/SGD)
Taiwan ($/TWD)
Mexico ($/MXN)
Norway (NOK/$)
Sweden (SEK/$)
Q3
2011
Q4
Q3
1.30
1.48
0.88
95
1.04
1.12
1.28
1.45
0.88
98
1.07
1.15
1.25
1.43
0.88
100
1.10
1.18
1.23
1.40
0.88
102
1.11
1.22
1.23
1.40
0.88
105
1.12
1.22
0.94
6.82
1100
1.40
31.75
12.60
5.90
7.24
0.94
6.80
1075
1.39
31.75
12.40
6.00
7.38
0.92
6.70
1050
1.41
31.50
12.20
6.04
7.45
0.90
6.60
1050
1.42
31.50
12.20
6.08
7.52
0.88
6.50
1025
1.43
31.25
12.00
6.24
7.67
0.87
6.40
1050
1.45
31.25
12.00
6.29
7.76
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
32
Q2
1.34
1.50
0.89
92
1.02
1.09
Forecast as of: March 10, 2010
Economics
Q1
Summary of Near-Term Outlook
Growth
Interest Rates
 The credit crunch caused the
U.S. economy to enter its
deepest recession in decades. A
gradual recovery seems to be
taking hold, but business
conditions likely will remain
challenging for the next few
years as consumers retrench.
 Most major foreign economies
also fell into deep recessions.
However, growth seems to be
returning abroad as well.
Insert slideSummary
callout
 The Federal Reserve will likely
maintain an accommodative
stance until recovery is firmly
established.
 Central banks in most major
foreign economies have also
responded to the crisis by
slashing rates. Policy rates in
most major countries probably
won’t be raised until well into
2010.
Title
 Commodity prices are up from the lows that were reached earlier this year.
Prices of most commodities will probably continue to trend higher, but
another moonshot in commodity prices, à la 2008, does not seem likely, at
least not until global recovery is firmly established.
 We project that the dollar will appreciate modestly over the next few
quarters versus most major currencies as the U.S. economic recovery
prompts foreign buying of higher yielding U.S. assets. “Commodity” and
emerging market currencies may weaken a bit in the near term, but they
likely will appreciate further on a trend basis as higher levels of risk
tolerance causes capital to flow to those countries.
Economics
33
Wells Fargo Securities, LLC Economics Group
Diane Schumaker-Krieg
Global Head of Research & Economics





[email protected]
Mark Vitner
Jay H. Bryson, Ph.D.
Senior Economist
Global Economist
[email protected]
 U.S. Macro Economy
 Real Estate
John E. Silvia, Ph.D.
Chief Economist

[email protected]
Scott Anderson, Ph.D.
Eugenio Aleman, Ph.D.
Senior Economist

[email protected]
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