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The Euro-Zone Crisis and
the Global Economy
Prof. Jacob A. Frenkel
STRICTLY PRIVATE AND CONFIDENTIAL
Chairman, JPMorgan Chase International
Chairman, Board of Trustees, G30
Former Governor, Bank of Israel
The 12th Annual Herzliya Conference
Herzliya, Israel
January 30-February 2, 2012
J.P.Morgan Chase
Global GDP Growth (%)
6
(Percent change)
2009:
2010:
2011:
2012:
5
-0 .7 %
5 .2 %
3 .8 %
3 .3 %
4
3
2
1
0
Forecasts
World Growth
-1
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Source: IMF, last update Jan 24 2012, WEO (2011 & 2012 Forecast)
1/30/2012
2
J.P.Morgan Chase
Real GDP Growth (%) World Economy
GDP Growth
(Avg Annual Growth Rate, Constant Prices)
Country
2000
2005
2008
2009
2010
2011
2012
World
4.8
4.6
2.8
-0.7
5.2
3.8
3.3
Industrial Countries
4.2
2.7
0.1
-3.7
3.2
1.6
1.2
Developing Countries
5.9
7.3
6.0
2.8
7.3
6.2
5.4
Source: IMF, last update Jan 24 2012, WEO (2011 & 2012 Forecast)
1/30/2012
3
J.P.Morgan Chase
Real GDP Growth (%), Selected
Countries
16
(Annual % Change)
14
C hina,
2 0 12:
8 .2 %
12
10
India,
2 0 12:
7 .0 %
8
6
4
US, 2 012:
1 .8 %
2
Japan,
2 0 12:
1 .7 %
0
-2
-4
Forecasts
Euro Area, GDP Growth
China, GDP growth
-6
Euro Area,
2 0 12:-0.5%
US, GDP Growth
Japan, GDP Growth
India, GDP growth
-8
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: IMF, last update Jan 24 2012, WEO (2011 & 2012 Forecast)
1/30/2012
4
J.P.Morgan Chase
Global GDP Shares
2011 IMF Forecast
1990
Latin
America
Other
Advanced
Economies
India, 3%
China, 4%
9%
Latin
America
Other
Emerging
India, 6%
Economies
8%
Other
Advanced
Economies
Other
Emerging
Economies
8%
9%
12%
18%
China
14%
29%
25%
EU-27
10%
20%
United
States
20%
EU-27
Japan
United
States
Japan, 6%
Source: IMF, WEO Database, last update Sep 20 2011, WEO
1/30/2012
5
J.P.Morgan Chase
Current Account of Balance of Payments
(U.S. dollars, bill.)
700
Asia,
2012:
$736B
Asia & Oil Exporters Save
M iddle East,
N. Africa, &
R u ssia,
2012:
$312B
500
300
100
Eu ro area,
2012:
$56B
-100
Europe Balances
-300
US Spends
-500
IMF Forecasts
Euro area
United States
Middle East, N. Africa, & Russia
Asia
-700
-900
2000
US, 2012: $329B
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: IMF, last update Sep 20 2011, WEO (2011 & 2012 Forecast)
1/30/2012
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J.P.Morgan Chase
European Union Exports by Destination
2000
2011
Asia ex
China,
41.1%
Asia ex
China,
38.2%
US, 38.3%
US, 56.6%
China,
20.6%
China,
5.2%
Source: Eurostat, Last Observation: Sep 2011
1/30/2012
7
J.P.Morgan Chase
Unemployment Rate (%): Selected Euro
Area Countries
24
Sp ain:
22.9%
(% of Labor Force)
Germany
Greece
Ireland
Spain
Italy
G reece:
18.2%
18
Ireland:
14.3%
12
Ita ly:
8.6%
6
G ermany:
6.8%
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Eurostat, Last Observation: Ireland, Germany (12/11); Italy, Spain (11/11); Greece (10/11)
1/30/2012
8
J.P.Morgan Chase
Relative Unit Labor Costs,
Manufacturing Sector
140
(index, Q1 2001 = 100)
Stage 2
EMU
Italy:
133
Euro
adoption
130
Spain:
123
120
Euro
Area:
121
Greece:
112
110
100
Germany
Greece
Italy
Spain
Euro Area
Germany:
98
90
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: OECD December 2010, Last observation: Q4/2010
1/30/2012
9
J.P.Morgan Chase
Fiscal Positions: Net Debt – Select Euro
Area Economies
180
(Percent of GDP)
IMF Forecast
Ireland
Germany
Spain
G reece,
2012:
175.4%
Greece
Italy
160
140
Ireland, 2012:
104.6%
120
100
Ita ly, 2012:
100.7%
80
Sp ain,
2012:
58.7%
60
G ermany,
2012:
57.0%
40
20
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: IMF, WEO Database, last update Sep 20 2011, WEO (2011 & 2012 Forecast)
1/30/2012
10
J.P.Morgan Chase
Euro Area Current Account
Balance (% of GDP)
8
(Percent of GDP)
G ermany,
2012: 4.9%
6
4
Eu ro area ,
2012: .4%
2
0
Ita ly, 2012:
-3.0%
-2
-4
G IPS, 2012:
-3.4%
-6
IMF Forecast
Germany
Ireland, Spain, Greece, & Portugal
Italy
Euro area
-8
-10
-12
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: IMF, WEO Database, last update Sep 20 2011, WEO (2011 & 2012 Forecast)
1/30/2012
11
J.P.Morgan Chase
Current Account Balance and Budget
Deficit (% of GDP 2010)
Current Account Balance (% of GDP), 2011
10
Netherlands
8
6
Germany
4
Austria
2
Belgium
Ireland
0
Euro Area
-2
France
-4
Italy
Spain
-6
Greece
-8
Portugal
-10
"Bad" - Zone"
-12
-1
-3
-5
-7
-9
General Government Balance (% of GDP), 2011
Source: IMF, last update Sep 20 2011, WEO (2011 Forecast)
1/30/2012
12
J.P.Morgan Chase
Gross National Saving Rate and Budget
Deficit (% of GDP 2010)
Gross National Saving Rate (% of GDP), 2011
30
Austria
25
Germany
Belgium
Euro Area Slovak Republic
20
Spain
France
Italy
15
10
Ireland
Portugal
Greece
5
"Bad" - Zone"
0
-1
-3
-5
-7
-9
-11
General Government Balance (% of GDP), 2011
Source: IMF, last update Sep 20 2011, WEO (2011 Forecast); Eurostat (2011 forecast, EA13)
1/30/2012
13
J.P.Morgan Chase
Gross Government Debt and Budget
Deficit (% of GDP 2010)
Gross General Government Debt (% of GDP), 2011
170
Greece
150
130
"Bad" - Zone"
Portugal
110
Italy
90
Belgium
Ireland
France
70
Austria
50
Euro Area
Spain
Germany
Netherlands
30
10
0
-2
-4
-6
-8
-10
-12
General Government Balance (% of GDP), 2011
Source: IMF, last update Sep 20 2011, WEO (2011 Forecast)
1/30/2012
14
J.P.Morgan Chase
10yr Government Bond Yield Spread
3,500
(spread over German Bunds, bps)
12/ 21/2011
p eak: 3578bp
G reece:
3224bp
3,000
2,500
2,000
1,500
1,000
500
0
Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12
Source: Bloomberg Market Data, Last Observation: Jan 30, 2012
1/30/2012
15
J.P.Morgan Chase
10yr Government Bond Yields
8
(Yield, %-pts)
Germany
Italy
7
It aly:
6.094%
6
5
4
3
2
G ermany:
1.793%
1
Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12
Source: Bloomberg Market Data, Last Observation: Jan 30, 2012
1/30/2012
16
J.P.Morgan Chase
European Sovereign and Corporate CDS
Spreads
400
(CDS, spread in basis points)
iTraxx Western Europe SovX (sovereign), generic 5y
350
Sovereign:
323bp
iTraxx Europe HG Corporate, generic 5y
iTraxx Europe Senior Financial, generic 5y
300
Financial:
211bp
250
200
Corporate:
141bp
150
100
50
0
Oct-2009
Feb-2010
Jun-2010
Oct-2010
Feb-2011
Jun-2011
Oct-2011
Feb-2012
Source: Markiit iTraxx data, Last Observation: Jan 27, 2012
1/30/2012
17
J.P.Morgan Chase
EUR/USD Spot Exchange Rate
1.600
(USD/EUR)
1.500
USD/EUR:
1.314
1.400
1.300
C hangeover
to euro
L ehman
collapse
1.200
IMF approves
first loan to
Greece
1.100
1.000
0.900
0.800
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Bloomberg Market Data, last observation: January 27, 2012
1/30/2012
18
J.P.Morgan Chase
Coordinated Global Rate Cuts
6
(%)
5
4
3
EUR,
1 .00%
C anada,
1 .0%
2
1
UK 0.5%
US
0 .25%
0
United Kingdom
Japan
Eurozone
Canada
Japan
0 .1%
United States
-1
2005
2006
2007
2008
2009
2010
2011
2012
Source: Bloomberg Market Data, Last observation: 30 Jan, 2012
1/30/2012
19
J.P.Morgan Chase
Total Assets of Key Central Banks
(indexed levels)
400
(indexed, end of June 2007 = 100)
350
300
250
BoE: 378
Current assets
Billions of $
Total
Of Which:
Fed
BoE
ECB
6,893
F ed: 336
2,922
472
3,499
EC B: 224
200
150
100
50
Jun-07
BoE
Dec-07
ECB
Jun-08
Federal Reserve
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Source: NSI's, Last Observation: Fed, BoE (Jan 25, 2012); ECB (Jan 20, 2012)
1/30/2012
20
J.P.Morgan Chase
U.S. Unemployment, by Level of
Education
16
(Unemployment Rate in %)
14
No high school diploma
High school diploma
Total
Some college
College degree or higher
No HS
diploma:
13.8%
12
HS
diploma:
8.7%
10
Total:
8.5%
8
Some
college:
7.7%
6
4
College
or
higher:
4.1%
2
0
2000
2005
2010
Source: Bureau of Labor Statistics, Last Observation: December 2011
1/30/2012
21
J.P.Morgan Chase
U.S. Unemployment, by Duration
(Share of total unemployed)
50
27+wks:
42.5%
40
30
5 to
14wks:
21.7%
20
<5wks:
20.3%
15 to
26wks:
15.5%
Less than 5wks
10
5 to 14wks
15 to 26wks
27 weeks or more
0
2000
2002
2004
2006
2008
2010
2012
Source: Bureau of Labor Statistics, Last Observation: December 2011
1/30/2012
22
J.P.Morgan Chase
World Trade Volume
13
2009:
2010:
2011:
2012:
(Percent change)
-1 0 .7 %
1 2 .7 %
6 .9 %
3 .8 %
8
3
-2
-7
IMF Forecasts
World trade volume
-12
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Source: IMF, av. Annual growth rates, last update Jan 24 2012, WEO (2011 & 2012 Forecast).
1/30/2012
23
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