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The Global Economic Outlook
Jay H. Bryson, Managing Director and Global Economist
February 2014
Real GDP Forecast
U.S. Real GDP
Bars = CAGR
Line = Yr/Yr Percent Change
10%
10%
GDP - CAGR: Q4 @ 3.2%
8%
GDP - Yr/Yr Percent Change: Q4 @ 2.7%
6%
6%
Forecast
4%
Our forecast looks for growth to
slowly strengthen over the next
two years
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
-8%
-8%
-10%
2000
-10%
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
8%
2
2012
2014
Real PCE Forecast
Real Personal Consumption Expenditures
Bars = CAGR
Line = Yr/Yr Percent Change
8%
8%
6%
6%
Forecast
4%
Growth in consumer spending,
which has been relatively weak,
should slowly ramp up
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-8%
2000
-6%
PCE - CAGR: Q4 @ 3.3%
PCE - Yr/Yr Percent Change: Q4 @ 2.3%
-8%
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
4%
3
2012
2014
Consumer Balance Sheet
Household Debt - Consumer & Mortgage
As a Percent of Disposable Personal Income
Consumer leverage is moving in
the right direction, but it
remains elevated
130%
130%
120%
120%
110%
110%
100%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
50%
Household Debt: Q3 @ 98.8%
40%
40%
60
65
70
75
80
85
90
95
00
05
Source: Federal Reserve Board, U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
4
10
Consumer Balance Sheet
Real Per Capita Household Net Worth
Thousands of Dollars, Savings as a Percent of Disposable Income (Inverted)
$250
$220
0%
Real Per Capita Net Worth: Q3 @ $228,303
Saving/Disposable Income: Q3 @ 4.9% (Inverted)
2%
4%
$190
6%
Until real per capita wealth fully
recovers, the savings rate likely
won’t fall much
$160
8%
$130
10%
$100
12%
$70
$40
1959
14%
16%
1965
1972
1979
1986
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Economics
5
1992
1999
2006
2013
Government Purchases Forecast
Real Government Purchases
Bars = CAGR
Line = Yr/Yr Percent Change
10%
Federal government spending
likely will exert some mild
headwinds on growth in 2014
10%
8%
8%
6%
6%
4%
4%
2%
Forecast
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
Government Purchases-CAGR: Q4 @ -4.9%
-6%
Government Purchases-Yr/Yr: Q4 @ -2.3%
-8%
2000
-8%
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
6
2012
2014
Business Fixed Investment Forecast
Real Business Fixed Investment
Bars = CAGR
Line = Yr/Yr Percent Change
30%
30%
20%
20%
Forecast
10%
Business fixed investment
spending should continue to
grow at a solid pace, as it usually
does at this point in the cycle
0%
10%
0%
-10%
-10%
-20%
-20%
-30%
-30%
Non-Res Fixed Invest - CAGR: Q4 @ 3.8%
Non-Res Fixed Invest - Yr/Yr Percent Change: Q4 @ 2.1%
-40%
2000
-40%
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
7
2012
2014
U.S. Housing Market
Housing Starts
2.4
2.1
2.1
Forecast
1.8
Although housing starts are still
at low levels, they are trending
in the right direction
2.4
Multifamily Starts
Multifamily Forecast
Single-family Starts
Single-family Forecast
1.5
1.5
1.2
1.2
0.9
0.9
0.6
0.6
0.3
0.3
0.0
0.0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
1.8
8
Thousands
Millions of Units
Employment Growth
Nonfarm Employment Growth
Yr/Yr Percent Change vs. 3-Month Annualized Rate
Employment is growing at a
decent pace, but even faster
growth would be desirable
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-1%
-2%
-2%
-3%
-3%
-4%
-4%
-5%
-5%
3-Month Annualized Rate: Dec @ 1.5%
-6%
-6%
Nonfarm Employment: Dec @ 1.6%
-7%
-7%
91
93
95
97
99
01
03
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
9
05
07
09
11
13
PCE Inflation
PCE Deflator vs. "Core" PCE Deflator
Year-over-Year Percent Change
5%
PCE inflation is just not a
problem at present
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-1%
PCE Deflator: Dec @ 1.1%
"Core" PCE Deflator: Dec @ 1.2%
-2%
-2%
96
98
00
02
04
06
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
10
08
10
12
14
U.S. Unemployment Rate
Unemployment Measures
18%
18%
Unemployment Rate: Dec @ 6.7%
U-6 Unemployment Rate: Dec @ 13.1%
16%
The Fed is clearly concerned
about the weak state of the labor
market
16%
14%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
94
96
98
00
02
04
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
11
06
08
10
12
U.S. Interest Rates
10-Year Treasury & Fed Funds Target
Yield
21%
21%
10-Year Treasury Yield: Jan @ 2.75%
Fed Funds Target: Jan @ 0.25%
18%
The Fed has said it will be on
hold until the unemployment
rate falls to 6-1/2 percent or
inflation is forecasted to exceed
2-1/2 percent
15%
15%
12%
12%
9%
9%
6%
6%
3%
3%
0%
1971
0%
1976
1981
1986
1991
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
18%
12
1996
2002
2007
2012
Global Forecast
Wells Fargo International Economic Forecast
(Year-over-Year Percent C hange)
GDP
2014
2015
2013
2014
2015
3.0%
2.6%
3.6%
3.0%
3.8%
3.3%
4.0%
n/a
4.2%
n/a
4.3%
n/a
Advanced Economies 1
United States
Eurozone
United Kingdom
Japan
Korea
Canada
1.3%
1.9%
-0.4%
1.8%
1.7%
2.8%
1.7%
2.3%
2.8%
1.2%
2.3%
1.8%
3.7%
2.1%
2.6%
3.0%
1.9%
2.6%
1.6%
3.5%
2.6%
1.3%
1.5%
1.4%
2.6%
0.3%
1.3%
0.9%
1.5%
1.6%
1.1%
2.1%
1.8%
2.4%
1.5%
1.7%
2.1%
1.4%
2.3%
1.1%
3.0%
2.0%
Developing Economies 1
China
India
Mexico
Brazil
Russia
4.6%
7.7%
4.9%
1.1%
2.3%
1.3%
4.8%
7.4%
5.2%
2.3%
2.4%
2.2%
5.0%
7.1%
5.5%
3.6%
2.7%
3.2%
6.7%
2.6%
10.3%
3.8%
6.2%
6.8%
6.8%
2.6%
11.8%
4.3%
5.4%
5.7%
6.7%
2.9%
10.2%
4.4%
6.0%
5.7%
Global (PPP weights)
Global (Market Exchange Rates)
The global economy should
grow close to its long-run
average in 2014 and 2015
Forecast as of: January 15, 2013
1
Aggregated Using PPP Weights
Source: Wells Fargo Securities, LLC
Economics
CPI
2013
13
Federal Budget Balance
Federal Budget Surplus or Deficit
12-Month Moving Sum in Billions of Dollars
$400
$400
$200
$200
$0
The federal budget deficit,
although much smaller than a
few years ago, is the largest
imbalance in the U.S. economy
at present
$0
-$200
-$200
-$400
-$400
-$600
-$600
-$800
-$800
-$1,000
-$1,000
-$1,200
-$1,200
-$1,400
-$1,400
Surplus or Deficit: Nov @ -$615 Billion
-$1,600
-$1,600
00
01
02
03
04
05
06
07
08
09
Source: U.S. Department of the Treasury and Wells Fargo Securities, LLC
Economics
14
10
11
12
13
Government Bond Yields in the Euro Area
10-Year Government Bond Yields
Percent
Financial market tensions in
Europe have eased, but Europe
is not “fixed” yet
8.0%
8.0%
6.0%
6.0%
4.0%
4.0%
2.0%
2.0%
Italy: Jan 31 @ 3.8%
Spain: Jan 31 @ 3.7%
Germany: Jan 31 @ 1.6%
0.0%
0.0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
15
Outstanding Government Debt
Outstanding Government Debt
Billions of Euros, 2012
€ 2,200
The outstanding debt of the
Spanish and Italian
governments swamps the others
€ 2,200
€ 2,000
€ 2,000
€ 1,800
€ 1,800
€ 1,600
€ 1,600
€ 1,400
€ 1,400
€ 1,200
€ 1,200
€ 1,000
€ 1,000
€ 800
€ 800
€ 600
€ 600
€ 400
€ 400
€ 200
€ 200
€0
€0
Irish
Gov't Debt
Portuguese
Gov't Debt
Greek
Gov't Debt
Source: IHS Global Insight Wells Fargo Securities, LLC
Economics
16
Spanish
Gov't Debt
Italian
Gov't Debt
Spanish Government Debt Held by Spanish Financial Institutions
Domestic Ownership of Spanish Government Debt
Billions of Euros
€ 900
€ 900
Other Financial Institutions
€ 800
The Spanish financial system
has become more exposed to
Spanish government debt
€ 800
Banks
€ 700
€ 700
€ 600
€ 600
€ 500
€ 500
€ 400
€ 400
€ 300
€ 300
€ 200
€ 200
€ 100
€ 100
€0
€0
2007
2008
2009
2010
Source: Bank of Spain and Wells Fargo Securities, LLC
Economics
17
2011
2012
2013
Libor Rate
3-Month LIBOR
Rate
6.0%
6.0%
Dollar LIBOR: Jan-31 @ 0.24%
LIBOR could spike if Europe
were to “blow up”
5.0%
5.0%
4.0%
4.0%
3.0%
3.0%
2.0%
2.0%
1.0%
1.0%
0.0%
2006
0.0%
2007
2008
2009
Source: Bloomberg LP and Wells Fargo Securities, LLC
Economics
18
2010
2011
2012
2013
2014
Developing World – Financial Markets
Turkish Exchange Rate
TRY per USD (Inverted Axis)
0.4
Financial markets in many
developing economies have
experienced volatility recently
0.4
0.6
0.6
0.8
0.8
1.0
1.0
1.2
1.2
1.4
1.4
1.6
1.6
1.8
1.8
2.0
2.0
2.2
2.2
TRY per USD: Jan @ 2.18
2.4
2000
2.4
2002
2004
2006
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
19
2008
2010
2012
Developing World – Current Account
Developing Economies Current Account
Percent of GDP
Economic fundamentals in the
developing world have
deteriorated at the margin in
recent years
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-1%
-2%
-2%
-3%
-3%
All Developing Economies: 2013 @ 0.8%
-4%
-4%
Excluding MENA and China: 2013 @ -1.9%
-5%
-5%
91
93
95
97
99
01
03
05
Source: International Monetary Fund and Wells Fargo Securities, LLC
Economics
20
07
09
11
13 (P)
Developing Economies
Developing Countries Debt
Percent of GDP
Economic fundamentals in
developing economies generally
are not as weak today as they
were in the mid-90s
55%
55%
50%
50%
45%
45%
40%
40%
35%
35%
30%
30%
25%
25%
External Debt: 2012 @ 24.0%
General Government Debt: 2012 @ 35.5%
20%
20%
90
92
94
96
98
00
02
04
Source: International Monetary Fund and Wells Fargo Securities, LLC
Economics
21
06
08
10
12
Debt Outstanding
Debt Outstanding by Sector
Percent of GDP, 2012
250%
250%
Central Government
Non-Financial Corporate
Household
200%
If there is a leverage issue in the
Chinese economy it resides in
the non-financial corporate
sector
150%
150%
100%
100%
50%
50%
0%
0%
U.S.
China
Source: CEIC, BIS, U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
200%
22
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Client/Prospect Name
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