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The Outlook for the U.S. and Global Economies April 2013 Dan North Euler Hermes Chief Economist, North America 1 2012 | © Copyright Euler Hermes The Outlook April, 2013 • • • • • • • Cautious optimism, but still weak growth, lots of risks Global Growth 2.5% in 2013, 3.2% in 2014, most coming from emerging markets, China, India, Latin America Europe in recession, severe in some countries due to debt crisis. Risk of disorderly default or exit from EMU low. U.S. growth an anemic 2% in 2013, 2.5% in 2014, due in part to our debt crisis • Forces and measures • Government responses U.S. manufacturing rebirth Conclusions Gross Domestic Product (GDP): Everything produced by the economy. It’s the “size” of the economy. Use it to measure the “size” of other big numbers like budget deficit/debt. $16T, 3.3% ave. growth. Broadest measure of economic health. Euro 2013 | © Copyright Euler Hermes 2 European Debt Crisis Uncertainty • • This started 3 yrs ago. Issue is possible default of government bonds and commercial banks. Latest plan: ECB says it will buy Spanish, Italian bonds to keep interest rates down… “whatever it takes to preserve the euro” Taxpayer bailouts, debt restructuring 9 changes in government, 10 downgrades,17 countries, ECB, IMF, EU. Problem is UNCERTAINTY! • • • • • Possible effects on US: Exports <2% of our GDP Financial contagion Fear hurting consumption Combination is a small drag for now • • • US debt 2013 | © Copyright Euler Hermes 3 U.S. Debt Uncertainty • • • • • • U.S. debt problem is different. In contrast to Europe, U.S. will never have to default because we can do what no one else can – print U.S. dollars. U.S. problem is government has no plan to reduce debt that’s so high it hurts the economy. Deficits continue and debt/GDP at 100% for next 10 years. No entitlement reforms in place. Moody’s warned of credit rating cut because no plan Congress still stuck… budget battles, debt ceiling in May… uncertainty Uncertainty over taxes, regulation hurting growth. DoddFrank unfinished and unknown. Costs of Obamacare unknown. 2013 | © Copyright Euler Hermes 4 The four forces which started and ended the recession can help forecast the outlook: • • • • Oil Housing Fed policies Fear in financial markets 2013 | © Copyright Euler Hermes 5 Oil Price Shocks and the Economy 400% 10% Real Crude Prices (average of Brent, Dubai, WTI spot prices), Y/Y% growth 290% 300% Real GDP, Y/Y% growth 32% 200% 140% 5% 28% 1% 100% 21% 56% 38% 28% 36% 0% 0% -36% -100% oil price shocks often contribute to recessions 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 -5% 1972 -200% Source: Dept. of Commerce, Dept. of Labor, World Bank, EHACI More oil 2013 | © Copyright Euler Hermes 6 Oil Price Shocks and the Economy 400% 10% Real Crude Prices (average of Brent, Dubai, WTI spot prices), Y/Y% growth 290% 300% Real GDP, Y/Y% growth 32% 200% 140% 5% 28% 1% 100% 21% 56% 38% 28% 36% 0% 0% -36% -100% no headwind in 2013 oil price shocks often contribute to recessions 2012 2010 2008 2006 2004 -5% 2002 2000 1998 1996 1994 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1992 …with a lag… -200% Source: Dept. of Commerce, Dept. of Labor, World Bank, EHACI housng 2013 | © Copyright Euler Hermes 7 Housing U.S. Housing Market housing price (right axis) bubble bursts 2006, leads recession... 5% 4% ...recovery ...but recovers in 2009, helping us out... 3% 20% 15% 10% 2% 5% 1% 0% -1% 0% Real GDP growth (left axis) -2% ...then slowed us down again... -3% -10% -15% -4% -5% -5% sources: S&P Case Shiller, Census -20% housng 2013 | © Copyright Euler Hermes 8 Housing U.S. Housing Market 2,500 Fundamental Measures, Seasonally Adjusted Annualized Rates 7,000 6,000 2,000 Existing Sales; +9% y/y, -31% from peak Starts; +28%, -60% 1,500 5,000 4,000 3,000 1,000 Permits; +33%, -59% 2,000 500 1,000 sources: National Association of Realtors, Census 2013 | © Copyright Euler Hermes 0 Feb-13 Feb-12 Feb-10 Feb-09 Feb-08 Feb-07 Feb-06 Feb-05 Feb-04 Feb-03 0 Feb-11 New Sales; +12%, -70% Yld crve 9 Fed Policy The Treasury Yield Spread (Curve) vs. GDP 10% 8% 500 Yield spread: 10yr-3 mo Treasuries (bps) 400 6% 300 4% 200 2% 100 0% 0 -2% -100 -4% -200 -6% -300 Federal Reserve, BEA 2013source: | © Copyright Euler Hermes 10 Fed Policy The Treasury Yield Spread (Curve) vs. GDP 10% 8% 500 Real GDP Growth, Y/Y % Change Yield spread: 10yr-3 mo Treasuries (bps) 400 6% 300 4% 200 2% 100 0% 0 -2% -100 -4% -200 -6% -300 lending Federal Reserve, BEA 2013source: | © Copyright Euler Hermes 11 Banks lending to best credits, but risk aversion (fear) still makes credit for small businesses tough Commercial and Industrial Loans quarterly annualized % change 40% Lending resumed 30% 20% 10% 0% -10% one reason this recovery has taken so long compared to others -20% source: Federal Reserve 2013 | © Copyright Euler Hermes 3-13 1-11 11-08 9-06 7-04 5-02 3-00 1-98 11-95 9-93 7-91 5-89 3-87 1-85 11-82 9-80 7-78 5-76 3-74 -30% recap 12 Recap • • • • • • Four forces caused/ended recession Oil has been a drag but improving Housing recovering nicely but small Yield curve positive Lending OK So things are looking up, but… taxes 2013 | © Copyright Euler Hermes 13 Recap • • • • • • • Four forces caused/ended recession Oil has been a drag but improving Housing recovering nicely but small Yield curve positive Lending OK So things are looking up, but… New headwind in town – taxes. Higher rates on the rich, capital gains, dividends, Medicare, and 77% hit w/ increase in Soc. Sec. tax $1,000 per family • Total $160 B, 1% of GDP when growth only 2% • Taxes, Debt and Uncertainty are drags • So what do the measures of the economy say? GDP 2013 | © Copyright Euler Hermes 14 GDP weak Real Gross Domestic Product (GDP) annualized quarterly growth rate 10% 8% 6% 4% 2% 0% -2% -4% still < 3.3% ave -6% -8% -10% even after explanations, still weak source: BEA pce 2013 | © Copyright Euler Hermes 15 The Consumer doing ok, not great Personal Consumption Expenditures (PCE) & Disposable Personal Income (DPI) real % growth rate, 3 mos. annualized 10% temporary leap in income to avoid taxes, will reverse 5% average 0% consumption <3.3% average -5% -10% source: BEA Corp prof 2013 | © Copyright Euler Hermes 16 Industry doing ok, profits growing faster than GDP Real Corporate Profits (pre tax w/IVA and CCadj) 30% 20% 10% 7.4% full year 4.7% 0% quarterly annualized -10% 12/12 9/12 6/12 3/12 12/11 9/11 6/11 3/11 source: BEA 12/10 -20% employ 2013 | © Copyright Euler Hermes 17 Jobs Created and the Unemployment Rate 600 400 10% Non-Farm Payroll Jobs Created (000's) (left scale) 9% 200 8% 0 -200 7% -400 6% -600 -800 Unemployment Rate (right axis) -1,000 5% 4% source: Labor Department emplyment 2013 | © Copyright Euler Hermes 18 Jobs Created and the Unemployment Rate 600 400 10% Non-Farm Payroll Jobs Created (000's) (left scale) 9% 200 8% 0 -200 7% -400 6% -600 -800 Unemployment Rate (right axis) -1,000 5 yrs. later, only 68% recovered, 3M fewer jobs 5% 4% source: Labor Department recap 2013 | © Copyright Euler Hermes 19 Recap • • • • • • Four forces caused/ended recession Oil has been a drag but improving Housing recovering but small Yield curve positive Lending OK Taxes, Debt and Uncertainty are drags • GDP anemic, consumer and industry OK • Employment situation still terrible • To fix it, the government has been causing two big problems: Debt & Potential Inflation 2013 | © Copyright Euler Hermes 20 FISCAL POLICY Congress, Administration Spending, taxing, borrowing deficits/debt, budgets… math 2013 | © Copyright Euler Hermes 21 Budget Math in Washington • Year 1: spent $80 • Original budget for year 2: spend $110 • Final budget for year 2: spend $90 • In most places spending $10 more the second year would be an increase in spending. • Not in Washington. This is what they call a $20 “cut”; they wanted to spend $110 but only get to spend $90. • Both sides do this every time. Dfct crtd 2013 | © Copyright Euler Hermes 22 Spending, Deficits and Debt Gov’t spends $10 Gov’t gets tax revenue $7 Deficit $3 Treas. gets loan, issues $3 notes/bonds More def 2013 | © Copyright Euler Hermes 23 Spending, Deficits and Debt Gov’t spends $10 Gov’t gets tax revenue $7 Deficit $3 Treas. gets loan, issues $3 notes/bonds This $3 is a TAX our kids will have to pay (and we’re not paying enough tax?) How big is $3T? Don’t know - measure against size of the economy - GDP debt 2013 | © Copyright Euler Hermes 24 Accumulated deficits become debt… Federal Debt as a % of GDP 120% 110% 1991-2007 U.S. 63% Italy 110% Germ. 58% UK 42% 100% 90% 80% 70% 60% 50% 40% 30% 2013 | © Copyright Euler Hermes 2022 2018 2014 2010 2006 2002 1998 1994 1990 1986 1982 1978 1974 1970 1966 1962 20% 25 Accumulated deficits become debt… Federal Debt as a % of GDP 120% 110% Debt>90% = -1% GDP 1991-2007 U.S. 63% Italy 110% Germ. 58% UK 42% 100% 90% 80% 70% 60% 50% 40% 30% 2022 2018 2014 2010 2006 2002 1998 1994 1990 1986 1982 1978 1974 1970 1966 1962 20% Smp Bwls 2013 | © Copyright Euler Hermes 26 The Simpson - Bowles Deficit Reduction Commission finally said it out loud: We must touch the “third rails” of • Social Security, Medicare, entitlements If we don’t we will never be able to balance the budget - entitlements will become the entire budget The rest is whistling past the graveyard… 2013 | © Copyright Euler Hermes 27 2012 Outlays, $3.5T HUD, Labor, Edu. Ag., State, Justice, Trans. , Energy, Homeland Sec, Treasury, Commerce, Interior, EPA Discretionary, 14% Health, 23% Defense, 19% Social Security, 22% Interest, 6% Income Security, 15% defct 2013 | © Copyright Euler Hermes 28 2012 Outlays, $3.5T HUD, Labor, Edu. Ag., State, Justice, Trans. , Energy, Homeland Sec, Treasury, Commerce, Interior, EPA Discretionary, 14% Health, 23% deficit Defense, 19% Social Security, 22% Interest, 6% Income Security, 15% seqstr 2013 | © Copyright Euler Hermes 29 2012 Outlays, $3.5T HUD, Labor, Edu. Ag., State, Justice, Trans. , Energy, Homeland Sec, Treasury, Commerce, Interior, EPA Discretionary, 14% Health, 23% sequester Defense, 19% Social Security, 22% Interest, 6% Income Security, 15% Even w/sequester, total outlays still rise: 2012 = 3.54, 2013 = 3.55, 2014 = 3.62 entltmts 2013 | © Copyright Euler Hermes 30 Entitlements • Entitlement spending, particularly Medicare or some other form of national healthcare, will be the issue for our time. • One generation will not be getting the benefits they think are owed. • Another generation will be taxed to exhaustion to try to provide them. • 2024 Medicare fund exhausted, can only pay 87% of costs. • 2033 Social Security trust fund exhausted, can only pay 75% of benefits. • But it is not hopeless, the math is simple, legal immigration could help. • No political will to fix it. 2013 | © Copyright Euler Hermes Bdgt comps 31 Budget Comparison current policy/baseline is what will happen if no change Source: Washington Post Bdgt comps 2013 | © Copyright Euler Hermes 32 Budget Comparison 2023 in $T Baseline President House as % of GDP Baseline President House vs. Baseline President House vs. 2012 President House Spending Revenue $5.9 $5.0 $5.7 $5.2 $5.0 $5.0 Deficit $0.9 $0.4 $0.0 Debt $19.9 $19.0 $14.0 19% 20% 19% 4% 2% 0% 77% 73% 54% Annual growth $5.9 $5.0 -0.4% 0.4% -1.6% -0.1% $0.9 -6.3% -100% $19.9 -0.4% -3.2% $1.1 -8.0% -100% $11.3 4.8% 2.0% 23% 22% 19% $3.5 4.5% 3.2% $2.4 7.3% 6.8% President: $1T in new taxes, small entitlement reforms, undoes sequester, ramps up spending and deficits in '14 and '15 and gets savings late House: bigger entitlement reforms, sharp cuts to discretionary spending, no review new taxes, balances budget in 10 years 2013 | © Copyright Euler Hermes 33 Fiscal Policy Review • We need CLARITY, CERTAINTY, a plan, instead we have: • No budget in 2011, ’12, ‘13 and probably not ‘14. Budget Control Act of 2011 (sequester) did nothing to reduce debt, did nothing to reform Medicare and Social Security. • Upcoming ugly battles over budget and debt ceiling. • Moody’s threatens rating downgrade - no plan. • Borrowing more every day - 11:30 am $45,000,000,000, yesterday $65,000,000,000, - this week $176,000,000,000 • Would you spend a lot more than you have and then stick your kids with the bill? It’s not politics, it’s just bad policy to burden the next generation with debt that’s not even theirs. Mon pol 2013 | © Copyright Euler Hermes 34 MONETARY POLICY The Federal Reserve Bank, Ben Bernanke Fed fnds 2013 | © Copyright Euler Hermes 35 MONETARY POLICY • Lowering the short term Fed Funds interest rate usually works Need QE 2013 | © Copyright Euler Hermes 36 MONETARY POLICY • • • • • • • • • • • Lowering the short term Fed Funds interest rate usually works But this time needed an extra boost, lowering long term interest rates. Quantitative easing: Fed prints new $ bills Buys Treasury/MBS bonds in open market Raises bond prices, lowering interest rates (they move in opposite directions) Puts $ into financial system And creates inflationary pressures QE3 in Sept: unlimited purchases $40B MBS/mo. QE4 in Dec: unlimited purchases $45B treasuries/mo. Likely to have limited effect. Rates near record lows, plenty of excess reserves - banks don’t want to lend. Did wrk? 2013 | © Copyright Euler Hermes 37 Did QE2 work? Yield on 10 year Treasury Note 4.0% 3.5% 3.0% 2.5% Jackson Hole '10 QE2 hoped for this 2.0% 1.5% 4/13 1/13 11/12 9/12 7/12 5/12 2/12 12/11 10/11 8/11 6/11 3/11 1/11 11/10 9/10 7/10 source: Federal Reserve 4/10 1.0% Qe wrk? 2013 | © Copyright Euler Hermes 38 Did QE2 work? Yield on 10 year Treasury Note 4.0% 3.5% but got this: record rate of increase, inflationary expectations 3.0% 2.5% Jackson Hole '10 QE2 2.0% 1.5% 4/13 1/13 11/12 9/12 7/12 5/12 2/12 12/11 10/11 8/11 6/11 3/11 1/11 11/10 9/10 7/10 source: Federal Reserve 4/10 1.0% Qe wrk? 2013 | © Copyright Euler Hermes 39 Did QE2 work? Yield on 10 year Treasury Note 4.0% Arab Spring Japan 3.5% euro worries QE2 ends... did it work? 3.0% 2.5% Jackson Hole '10 oil prices, weak data, US & euro worries QE2 2.0% 1.5% 4/13 1/13 11/12 9/12 7/12 5/12 2/12 12/11 10/11 8/11 6/11 3/11 1/11 11/10 9/10 7/10 source: Federal Reserve 4/10 1.0% risk aversion QE not wrk 2013 | © Copyright Euler Hermes 40 Did QE2 work? Yield on 10 year Treasury Note 4.0% Arab Spring Japan 3.5% euro worries QE2 ends... did it work? 3.0% 2.5% Jackson Hole '10 oil prices, weak data, US & euro worries QE2 J. Hole '12 mrtgs +6 bps QE4 +16 bps 2.0% 1.5% QE doesn't work QE does not work, does not address problem – already have huge excess reserves and record low rates. Banks are risk-averse due to uncertainty 2013 | © Copyright Euler Hermes 4/13 1/13 11/12 9/12 7/12 5/12 2/12 12/11 10/11 8/11 6/11 3/11 1/11 11/10 9/10 7/10 source: Federal Reserve 4/10 1.0% risk aversion No infl? 41 Fed says there’s no inflation Really? How about asset inflation? Since QE1: • Gold • Silver +91% +178% Since QE2: • Oil • Commodities (GSCI) • S&P 500, annualized +42% +25% +14.7% (ave +7.4%) • Y/Y mean new home +15% (ave +6.7%) All same 2013 | © Copyright Euler Hermes 42 QE2/3/4 = Inflation = Printing money = Dollar devaluation They are all the same thing. Example; suppose today there is • one loaf of bread priced at $1, up for auction • two hungry people, each with a printing press • to out-bid the other, each runs his press as fast as possible until one breaks • by then, the price of the bread is $1M 2013 | © Copyright Euler Hermes 43 QE2/3/4 = Inflation = Printing money = Dollar devaluation They are all the same thing. Example; suppose today there is • one loaf of bread priced at $1, up for auction • two hungry people, each with a printing press • to out-bid the other, each runs his press as fast as possible until one breaks • by then, the price of the bread is $1M • printing money created inflation; price from $1 to $1M • printing money devalued each $1 bill; each $1 bill used to be worth one loaf of bread, but now is worth 1 millionth of a loaf of bread • Money was printed (QE) • Inflation was created • The dollar was devalued 2013 | © Copyright Euler Hermes 44 $ Devalued, QE at Work 10% Value of the USD from June 1, 2010 ¥ +6% 0% $C -3% £ -4% € -6% -10% C¥ -9% -20% $A -19% SF-19% -30% Apr-13 Feb-13 Dec-12 Oct-12 Aug-12 Jun-12 Apr-12 Feb-12 Dec-11 Oct-11 Aug-11 Jun-11 Apr-11 Jan-11 Dec-10 Oct-10 Aug-10 source: Federal Reserve Bank of New York Jun-10 -40% $US weakening debt 2013 | © Copyright Euler Hermes 45 $ Devalued, QE at Work $ Devalued = Debt Devalued Simple example Today: Lend $1 @10%. Loaf of Bread costs $1 Inflation goes to 20% A Year later: Creditor gets $1.10 back. But now loaf of bread costs $1.20. Creditors lose with inflation. Debtors, like the U.S. government, win. The U.S. government is ok with inflation. The U.S. government is ok with a weaker dollar. May be only way out of $16T in debt. review 2013 | © Copyright Euler Hermes 46 MONETARY POLICY REVIEW • Lowering the short term Fed Funds interest rate usually works. • But this time needed an extra boost to lower long term interest rates, Quantitative Easing. • Fed prints new money, pumps it into financial system. • Also causes $ and debt devaluation – huge incentive to print money. • QE3/4 unlikely to help. Risk of consumer inflation in long term. Asset inflation is here now. Mon fisc 2013 | © Copyright Euler Hermes 47 Monetary & Fiscal Policy Less debt, faster recovery. Debt kills. 10% 9% # is debt/GDP line is central bank rate 8% Ind 45% 7% 6% Chn 15% 5% Chl 10% Col 30% 4% 3% S.K. 30% 2% 1% 1/12 3/11 5/10 7/09 9/08 11/12 2013 | © Copyright Euler Hermes 11/07 source: central banks, national stat. offices 1/07 0% Eur 70% UK 75% US 100% Jpn 200% 48 Monetary & Fiscal Policy Less debt, faster recovery. Debt kills. European politicians get it, but can’t fix it. U.S. politicians don’t even get it. 10% 9% # is debt/GDP line is central bank rate 8% Ind 45% 7% 6% Chn 15% 5% Chl 10% Col 30% 4% 3% S.K. 30% 2% 1% 1/12 3/11 5/10 7/09 9/08 11/12 2013 | © Copyright Euler Hermes 11/07 source: central banks, national stat. offices 1/07 0% Eur 70% UK 75% US 100% Jpn 200% recap 49 RECAP • Monetary policy impotent w/ huge inflation risk. • Fiscal policy a mess but can be fixed… crushing debt load. • Neither fixing structural unemployment caused by mis-matched skills, low mobility (underwater houses), incentives not to work. • But despite headwinds, consumer, housing, yield curve and corporate profits indicate continued (slow) growth. • More good news! Rebirth of U.S. manufacturing, on-shoring. ULC 2013 | © Copyright Euler Hermes 50 Unit Labor Cost (ULC): labor cost to make one widget Hourly wage Hrs. to make one widget (productivity) Unit labor cost U.S. Country X $20 $15 1 2 $20 $30 ULC 2013 | © Copyright Euler Hermes 51 U.S. Manufacturing Very Competitive; low wage growth+high productivity=low ULC Unit Labor Costs 200 Italy Canada 150 Germany Korea 100 Japan U.S. Taiwan source: BLS 50 China gap 2013 | © Copyright Euler Hermes 52 The ULC Gap with China is Closing Effective Manufacturing Wage Gap $30 U.S. $25 $7 $20 China $15 $17 $10 $5 assumptions: wages and yuan grow at historical rate 2006-19 U.S. worker 3.4x as productive $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 offset 2013 | © Copyright Euler Hermes 53 The ULC Gap with China is Closing Effective Manufacturing Wage Gap $30 U.S. $25 $7 $20 $15 $10 The $7 benefit maybe not enough to offset: • Quality • Lower trans. cost China • Lower inventory cost $17 • Time to market • Keeping technology $5 assumptions: wages and yuan grow at historical rate 2006-19 U.S. worker 3.4x as productive $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 energy 2013 | © Copyright Euler Hermes 54 Big Advantage, Cheap Energy Oil Prices, $/bbl 140 130 120 Global: Brent 110 $109 100 $93 90 80 U.S.: West Texas Intermediate (WTI) 70 60 50 40 2013 | © Copyright Euler Hermes Mar-13 Dec-12 Sep-12 Jun-12 Mar-12 Dec-11 Sep-11 Jun-11 Mar-11 Dec-10 Sep-10 Jun-10 Mar-10 Dec-09 Sep-09 Jun-09 Mar-09 Dec-08 Sep-08 Jun-08 source: World Bank Mar-08 30 energy 55 0 2013 | © Copyright Euler Hermes 16 Mar-2013 Dec-2012 Sep-2012 Jun-2012 Mar-2012 Dec-2011 Sep-2011 Jun-2011 Mar-2011 Dec-2010 Sep-2010 Jun-2010 Mar-2010 Dec-2009 Sep-2009 Jun-2009 Mar-2009 Dec-2008 Sep-2008 Jun-2008 Mar-2008 Dec-2007 Sep-2007 Jun-2007 Mar-2007 Big Advantage, Cheap Energy Price of Natural Gas, $/MMBtu 20 18 Japan 14 12 Korea China U.K. 10 Germ. 8 6 4 U.S. 2 source; Energy Intelligence nergy flow 56 ng cars 2013 | © Copyright Euler Hermes 57 Nat Gas cars represent huge potential. Only two Nat Gas passenger cars available in US; Honda Civic, Chrysler Ram Pickup Natural Gas Country Vehicles Iran 3,300,000 Pakistan 3,100,000 Argentina 2,183,487 Brazil 1,733,469 China 1,500,000 India 1,500,000 Italy 746,470 Ukraine 388,000 Colombia 387,250 Thailand 352,652 Uzbekistan 310,000 Armenia 244,000 Bolivia 207,405 Egypt 178,000 Peru 136,662 U.S. 112,000 Others 671,357 Total 17,050,752 2013 | © Copyright Euler Hermes %of Refuelling total stations 19% 1,960 18% 3,330 13% 1,921 10% 1,793 9% 2,800 9% 724 4% 909 2% 324 2% 676 2% 481 2% 175 1% 345 1% 156 1% 160 1% 189 1% 1,035 4% 4,408 100% 21,386 %of total 9% 16% 9% 8% 13% 3% 4% 2% 3% 2% 1% 2% 1% 1% 1% 5% 21% 100% US change 58 Concl glbl 2013 | © Copyright Euler Hermes 59 Conclusions, Global Global GDP growth: • 2.5% in 2013, 3.2% in 2014 • most coming from China, India, Latin America, emerging mkts • Europe: • recession, severe in some countries • risk of exits or disorderly defaults low • EMU probably holds, but will need: • a lot of time • fiscal unity, ECB, ESM, IMF/others US concl 2013 | © Copyright Euler Hermes 60 Conclusions, U.S. Positives Negatives •Super stimulative monetary policy will eventually help •Yield curve positive •Housing market firming •Bank lending •Consumer debt improved •Auto Sales •Dollar falling •Global economy growing •Manufacturing re-birth •Energy •Uncertainty from WDC, Europe •Taxes •Debt drag •Personal consumption, income, confidence weak •Housing market small •High unemployment •Future inflation risk GDP growth anemic 2% in 2013, 2.5% in 2014… not doomsday, not great 2013 | © Copyright Euler Hermes 61 Thank you for your attention.