Download Developed Countries Demographic Challenge

The Global Economy:
Challenges & Prospects
Dr. Jacob A. Frenkel
STRICTLY PRIVATE AND CONFIDENTIAL
Chairman, JPMorgan Chase International
Chairman, Group of Thirty (G30)
Former Governor, Bank of Israel
IV ASTANA Economic Forum
Astana, Kazakhstan
May 3-4, 2011
J.P.Morgan Chase
Six Global Challenges
• Financial Markets
• The Global Economy
• Global Trade and Imbalances
• Monetary and Fiscal Policies
• The Euro-zone Crisis
• Long-term Demographic Challenges
4/14/2011
2
Global Financial Markets
• Equity Markets
• Revival of International Flows
4/14/2011
3
Global Equity Markets: Emerging
Markets and Developed indices
160
(price-Usd, indexed: Sep 2008 = 100)
Emerging,
Apr 1 3, 11:
1 3 8.6
140
120
100
D eveloped,
Apr 1 3, 11:
1 0 4.3
80
60
Developed Market MSCI Equity index
40
Jun-07
Emerging Market MSCI Equity Index
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Source: Morgan Stanley Capital International, Last Observation: 13 Apr, 2011
4/14/2011
4
J.P.Morgan Chase
Net Inward Equity Portfolio Flows to
Emerging Markets
IIF Projections:
2 0 0 9 : $ 1 5 3 .3 B
2 0 1 0 : $ 1 9 9 .4 B
2 0 1 1 : $ 1 8 1 .4 B
(Bill. $)
200
150
100
50
0
-50
IIF Forecasts
Capital Flows to Emerging Economies, Net Inward Portfolio Flows
-100
1995
1997
1999
2001
2003
2005
2007
2009
2011
Source: IIF, Last Update: Jan 2011 (2009 estimate, 2010 & 2011 Forecasts)
4/14/2011
5
J.P.Morgan Chase
The Global Economic System
• Global Growth Projections
• The Rise of Developing Countries
4/14/2011
6
Global GDP Growth (%)
6
IMF Projections:
2 0 0 9 : -0 .5 %
2 0 1 0 : 5 .0 %
2 0 1 1 : 4 .4 %
(Percent change)
5
4
3
2
1
0
IMF Forecasts
World Growth
-1
1995
1997
1999
2001
2003
2005
2007
2009
2011
Source: IMF, av. Annual growth rates, last update Apr 03 2011, WEO (2010 & 2011 Forecast)
4/14/2011
7
J.P.Morgan Chase
Real GDP Growth (%) World Economy
GDP Growth
(Avg Annual Growth Rate, Constant Prices)
Country
2000
2005
2007
2008
2009
2010
2011
World
4.8
4.6
5.4
2.9
-0.5
5.0
4.4
Industrial Countries
4.2
2.7
2.7
0.2
-3.4
3.0
2.4
Developing Countries
5.8
7.3
8.8
6.1
2.7
7.3
6.5
Source: IMF, av. Annual growth rates, last update Apr 03 2011, WEO (2010 & 2011 Forecast)
4/14/2011
8
J.P.Morgan Chase
Real GDP Growth (%) Industrial
Countries
10
(Annual % Change)
8
Asia NICs,
2 0 11:
4 .9 %
6
4
US, 2 011:
2 .8 %
2
Euro Area,
2 0 11:
1 .6 %
0
Japan,
2 0 11:
1 .4 %
-2
-4
-6
IMF Forecasts
Euro Area, GDP Growth
Asia NICs, GDP Growth
US, GDP Growth
Japan, GDP Growth
-8
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: IMF, av. Annual growth rates, last update Apr 03 2011, WEO (2010 & 2011 Forecast)
4/14/2011
9
J.P.Morgan Chase
Real GDP Growth (%) Developing
Countries
14
(Annual % change)
Developing Asia,
2011: 8.4%
12
10
Su b-Saharan
Af rica, 2011:
5.5%
8
6
R u ssia,
2011:
4.8%
4
2
Cen tral &
E. Europe,
2011: 3.7%
0
La tin
America,
2011: 4.7%
-2
-4
-6
-8
-10
2000
IMF Forecasts
Russia, GDP Growth
Developing Asia, GDP Growth
2001
2002
2003
2004
Sub-Saharan, GDP Growth
Latin America, GDP Growth
Central & Eastern Europe, GDP Growth
2005
2006
2007
2008
2009
2010
2011
2012
Source: IMF, av. Annual growth rates, last update Apr 03 2011, WEO (2010 & 2011 Forecast)
4/14/2011
10
J.P.Morgan Chase
Global GDP Shares
2010 IMF Forecast
1990
Other
Advanced
Economies
Latin
America
India, 3%
9%
8%
Other
Emerging
Economies
China, 4%
Other
Advanced
Economies
Latin
America
Other
Emerging
Economies
8%
India, 5%
9%
17%
18%
China
14%
27%
23%
EU-27
9%
20%
United
States
United
States
20%
EU-27
Japan
Japan, 6%
Source: IMF, WEO Database, last update Apr 3 2011, WEO (2010 Forecast)
4/14/2011
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J.P.Morgan Chase
Global Trade, China and Imbalances
•
The Volume of World Trade
• China and the Trading System
• Current Account Imbalances
• International Reserves
• Savings Imbalances
4/14/2011
12
World Trade Volume
13
IMF Projections:
2 0 0 9 : -1 0 .9 %
2 0 1 0 : 1 2 .4 %
2 0 1 1 : 7 .4 %
(Percent change)
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 Apr 03 2011, WEO (2010 & 2011 Forecast)
4/14/2011
13
J.P.Morgan Chase
China’s Role in Global Trade (bill. Usd)
Exports
$801
Asia
Imports
Exports
$299
People’s
Republic of
China
Imports
$644
$920
U.S.
&
EU
Source: National Bureau of Statistics of China, 12-months through February 2011
4/14/2011
14
J.P.Morgan Chase
European Union Exports by Destination
2000
2010
Asia ex
China,
41%
Asia ex
China,
38%
US, 39%
US, 57%
China,
20%
China,
5%
Source: Eurostat, Last Observation: Dec 2010
4/14/2011
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J.P.Morgan Chase
U.S. Exports by Destination
2010
2000
Asia ex
China,
43%
Asia ex
China,
49%
EU, 40%
EU, 48%
China,
17%
China,
3%
Source: US Department of Commerce, Last Observation: Feb 2011
4/14/2011
16
J.P.Morgan Chase
Current Account of Balance of Payments
(U.S. dollars, bill.)
$630
600
US$ billions, 2011
$462
Of Which:
China $325
Japan $133
300
0
-$37
-$79
-300
-$494
-600
United States
Latin America and
the Caribbean
European Union
Middle East, N.
Africa, & Russia
Asia
Source: IMF, last update Apr 03 2011, WEO (2011 Forecast)
4/14/2011
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J.P.Morgan Chase
Current Account of Balance of Payments
700
(U.S. dollars, bill.)
Asia,
2011:
$508B
Asia & Oil Exporters Save
500
M iddle East,
N. Africa, &
R u ssia,
2011:
$462B
300
100
EU, 2011:
-$ 3 7B
-100
Europe Balances
-300
US Spends
-500
-700
-900
2000
IMF Forecasts
European Union
United States
Middle East, N. Africa, & Russia
Asia
2001
2002
2003
2004
US, 2 011:
-$ 4 94B
2005
2006
2007
2008
2009
2010
2011
2012
Source: IMF, last update Apr 03 2011, WEO (2010 & 2011 Forecast)
4/14/2011
18
J.P.Morgan Chase
Accumulation of Foreign Exchange
Reserves (Bill. Usd)
($B)
3,500
3,000
3,250
$3,045
3,000
Stock
2,750
March
2,500
($B)
Flow
(2005 – 2010)
$2,421
2,750
2,250
2,500
2,250
2,000
2,000
1,750
1,750
1,500
1,500
1,250
1,250
$1,041
1,000
1,000
750
750
$454
500
$393
500
$299
250
250
0
0
China
Japan
Russia
Taiwan
$350
$220
China
Korea
Japan
Russia
$150
$99
Taiwan
Korea
Source: Nat'l Statistical Institutes, Foreign-Exchange Reserves ex. Gold, Last Observation: 3/11
4/14/2011
19
J.P.Morgan Chase
Gross National Savings as a % of GDP,
2009
(% of GDP)
52
50
40
34
30
23
19
20
11
10
0
China
India
Japan
Euro Area
United States
Source: IIF (last update: China - Dec 2010; India - Sep 2010), JPMorgan, IMF-IFS (last Update: Oct 2010)
4/14/2011
20
J.P.Morgan Chase
Challenges to Macro Policies
• Global Interest Rates
• Central Bank’s Balance Sheets
• Fiscal Deficits and Public Debt
4/14/2011
21
Coordinated Global Rate Cuts
6
(%)
5
4
3
EUR,
1 .25%
2
1
C anada,
1 .0%
UK 0.5%
US
0 .25%
0
United Kingdom
Japan
Eurozone
2006
2007
2008
Canada
Japan
0 .1%
United States
-1
2005
2009
2010
2011
Source: Bloomberg Market Data, Last observation: 14 Apr, 2011
4/14/2011
22
J.P.Morgan Chase
Total Assets of Key Central Banks
(indexed levels)
400
(indexed, end of June 2007 = 100)
350
F ed: 305
300
BoE: 304
250
200
EC B: 155
150
100
50
Jun-07
BoE
Dec-07
ECB
Jun-08
Federal Reserve
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Source: NSI's, Last Observation: ECB (Apr 8, 2011); Fed, BoE (Apr 6, 2011)
4/14/2011
23
J.P.Morgan Chase
Fiscal Positions: General Government
Balance
2
(Percent of GDP)
0
-2
Euro Area,
2 0 11:
-4 .4%
-4
-6
Japan,
2 0 11:
-1 0 .0%
-8
-10
US, 2 011:
-1 0 .8%
-12
IMF Forecasts
United States
Euro Area
Japan
-14
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: IMF, WEO Database, last update Apr 3 2011, WEO (2009 Estimate, 2010 & 2011 Forecast)
4/14/2011
24
J.P.Morgan Chase
Fiscal Positions: Net Debt
140
(Percent of GDP)
120
Japan,
2 0 11:
1 2 7.8%
100
US, 2 011:
7 2 .4%
80
Euro Area,
2 0 11:
6 6 .9%
60
40
20
2000
IMF Forecasts
Euro Area
2001
2002
United States
Japan
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: IMF, WEO Database, last update Apr 3 2011, WEO (2009 Estimate, 2010 & 2011 Forecast)
4/14/2011
25
J.P.Morgan Chase
The Euro-Zone Crisis
• Unemployment & Productivity
• Budget Deficits and Public Debt
• Savings & Payment Imbalances
• Yield Spreads
• “Bad Zones” and the Crisis
4/14/2011
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Unemployment Rate (%): Selected Euro
Area Countries
22
Sp ain:
20.5%
(% of Labor Force)
20
Germany
Spain
Greece
Portugal
Ireland
18
G reece:
15.1%
16
14
Ireland:
14.7%
12
10
Portugal:
11.1%
8
6
G ermany:
7.1%
4
2
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: Eurostat, Last Observation: Ireland, Germany (3/11); Portugal, Spain (2/11); Greece (1/11)
4/14/2011
27
J.P.Morgan Chase
Relative Unit Labor Costs,
Manufacturing Sector
150
(index, Q1 2001 = 100)
Ita ly:
133
140
Sp ain:
123
130
Eu ro
Area:
121
120
110
G reece:
112
100
Euro
adoption
90
G ermany:
98
80
Stage 2
EMU
70
US:
59
60
Germany
Greece
Italy
Spain
United States
Euro Area
50
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: OECD December 2010, Last observation: Q4/2010
4/14/2011
28
J.P.Morgan Chase
Fiscal Position: General Government Balance
– Select Euro Area Economies
4
(Percent of GDP)
G ermany,
2011:
Portugal,
2011:
-5.6%
Sp ain,
2011:
-6.2%
-6
G reece,
2011:
-7.4%
-16
Ireland,
2011:
-10.8%
-26
IMF Forecast
Germany
2001
2003
Greece
Ireland
Spain
Portugal
-36
2000
2002
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: IMF, WEO Database, last update Apr 3 2011, WEO (2009 Estimate, 2010 & 2011 Forecast)
4/14/2011
29
J.P.Morgan Chase
Fiscal Positions: Net Debt – Select Euro
Area Economies
(Percent of GDP)
G reece,
2011:
152.3%
160
140
120
Ireland, 2011:
95.2%
100
Portugal,
2011:
86.3%
80
60
Sp ain,
2011:
52.6%
40
G ermany,
2011:
54.7%
20
0
2000
IMF Forecast
Ireland
2001
2002
Germany
Spain
2003
2004
Greece
Portugal
2005
2006
2007
2008
2009
2010
2011
2012
Source: IMF, WEO Database, last update Apr 3 2011, WEO (2009 Estimate, 2010 & 2011 Forecast)
4/14/2011
30
J.P.Morgan Chase
Change in Gross National Saving Rate:
Select European Counties (2000 – 2010)
4
(Difference, in % between 2000 & 2010 in Saving Rate)
2.4
2
0
-2
-2.9
-4
-4.6
-6
-5.7
-8
-8.5
-10
-9.1
-8.6
-12
-13.1
-14
Germany
UK
Italy
Spain
France
Ireland
Greece
Portugal
Source: Eurostat, Last Update: March 11, 2011
4/14/2011
31
J.P.Morgan Chase
Euro Area Current Account
Balance (% of GDP)
8
(Percent of GDP)
G ermany,
2011: 5.1%
6
4
2
0
-2
-4
-6
G IPS, 2011:
-5.2%
-8
-10
IMF Forecast
Germany
Ireland, Spain, Greece, & Portugal
-12
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: IMF, WEO Database, last update Apr 3 2011, WEO (2009 Estimate, 2010 & 2011 Forecast)
4/14/2011
32
J.P.Morgan Chase
10yr Government Bond Yield Spread
1,000
(spread over German Bunds, bps)
G reece:
985bp
900
800
Ireland:
591bp
700
Portugal:
545bp
600
500
400
300
200
100
Sp ain: 189bp
Greece
Spain
Portugal
Ireland
0
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Source: Bloomberg Market Data, Last Observation: Apr 14, 2011
4/14/2011
33
J.P.Morgan Chase
Gross Government Debt and Budget
Deficit (% of GDP 2011)
Gross General Government Debt (% of GDP), 2011
180
Greece
160
140
Japan
120
"Bad" - Zone"
Italy
100
Portugal
Belgium
Ireland
80
UK
France
Hungary
Austria
60
Germany
40
US
Euro Area
Netherlands
Spain
20
Bulgaria
0
Czech
Sweden
-20
-40
6
4
2
0
-2
-4
-6
-8
-10
-12
General Government Balance (% of GDP), 2011
Source: IMF, last update Apr 03 2011, WEO (2010 Forecast)
4/14/2011
34
J.P.Morgan Chase
Current Account Balance and Budget
Deficit (% of GDP 2011)
10
Current Account Balance (% of GDP), 2011
Netherlands
8
6
Sweden
Germany
Austria
4
Hungary
2
Japan
Belgium
0
Bulgaria
Ireland
Euro Area
France
-2
UK
Czech
-4
US
Italy
Spain
-6
Portugal
-8
Greece
"Bad" - Zone"
-10
-12
6
4
2
0
-2
-4
-6
-8
-10
-12
General Government Balance (% of GDP), 2011
Source: IMF, last update Apr 03 2011, WEO (2011 Forecast)
4/14/2011
35
J.P.Morgan Chase
Gross National Saving Rate and Budget
Deficit (% of GDP 2011)
Gross National Saving Rate (% of GDP), 2011
30
Austria
Sweden
25
Belgium
Slovak Republic
Japan
Germany
Hungary
20
Czech
Euro Area
France
Italy
15
Ireland
Spain
UK
US
Portugal
10
"Bad" - Zone"
Greece
5
Bulgaria
0
6
4
2
0
-2
-4
-6
-8
-10
-12
General Government Balance (% of GDP), 2011
Source: IMF, last update Apr 03 2011, WEO (2011 Forecast); Eurostat (2011 forecast, EA13)
4/14/2011
36
J.P.Morgan Chase
Long-term Demographic
Challenges
• The World
• Developing Countries
• Developed Countries
• US, Europe, Japan
• China, India, Africa
4/14/2011
37
World Demographic Challenge
Change in Population between 2010 - 2030 (in millions)
350
300
250
200
150
100
50
0
-50
0-9
10-19
20-29
30-39
40-49
50-59
Projected Change in Population
from 2010 - 2030:
Source: United Nations Populations Division, Last update 2009
4/14/2011
38
60-69
+1400.2M
70-79
80+
2010 Level:
6909M
2030 Level:
8309M
J.P.Morgan Chase
Developing Countries Demographic
Challenge
Change in Population between 2010 - 2030 (in millions)
300
250
200
150
100
50
0
-50
0-9
10-19
20-29
30-39
40-49
50-59
Projected Change in Population
from 2010 - 2030:
Source: United Nations Populations Division, Last update 2009
4/14/2011
39
60-69
+1355.8M
70-79
80+
2010 Level:
5671M
2030 Level:
7027M
J.P.Morgan Chase
Developed Countries Demographic
Challenge
Change in Population between 2010 - 2030 (in millions)
40
30
20
10
0
-10
-20
-30
0-9
10-19
20-29
30-39
40-49
50-59
Projected Change in
Population from 2010 - 2030:
Source: United Nations Populations Division, Last update 2009
4/14/2011
40
60-69
+44.4M
70-79
80+
2010 Level:
2030 Level:
1237M
1282M
J.P.Morgan Chase
U.S. Demographic Challenge
Change in Population between 2010 - 2030 (in millions)
18
16
14
12
10
8
6
4
2
0
-2
0-9
10-19
20-29
30-39
Source: United Nations Populations Division, Last update 2009
4/14/2011
40-49
50-59
60-69
Projected Change in
Population from 2010 - 2030:
41
+52.3M
70-79
80+
2010 Level:
2030 Level:
318M
370M
J.P.Morgan Chase
Europe Demographic Challenge
Change in Population between 2010 - 2030 (in millions)
25
20
15
10
5
0
-5
-10
-15
-20
-25
0-9
10-19
20-29
30-39
40-49
50-59
60-69
Projected Change in Population
Source: United Nations Populations Division, Last update 2009from 2010 - 2030:
4/14/2011
42
-9.4M
70-79
80+
2010 Level:
2030 Level:
733M
723M
J.P.Morgan Chase
Japan Demographic Challenge
Change in Population between 2010 - 2030 (in millions)
8
6
4
2
0
-2
-4
-6
-8
0-9
10-19
20-29
30-39
Source: United Nations Populations Division, Last update 2009
4/14/2011
40-49
50-59
60-69
Projected Change in
Population from 2010 - 2030:
43
-9.6M
70-79
80+
2010 Level:
2030 Level:
127M
117M
J.P.Morgan Chase
China Demographic Challenge
Change in Population between 2010 - 2030 (in millions)
100
80
60
40
20
0
-20
-40
-60
0-9
10-19
20-29
30-39
Source: United Nations Populations Division, Last update 2009
4/14/2011
40-49
50-59
60-69
Projected Change in
Population from 2010 - 2030:
44
70-79
+108.3M
80+
2010 Level:
2030 Level:
1354M
1462M
J.P.Morgan Chase
India Demographic Challenge
Change in Population between 2010 - 2030 (in millions)
70
60
50
40
30
20
10
0
-10
-20
-30
-40
0-9
10-19
20-29
30-39
40-49
50-59
60-69
Projected Change in Population
Source: United Nations Populations Division, Last update 2009 from 2010 - 2030:
4/14/2011
45
+270.1M
70-79
2010 Level:
2030 Level:
80+
1214M
1485M
J.P.Morgan Chase
Africa Demographic Challenge
Change in Population between 2010 - 2030 (in millions)
100
90
80
70
60
50
40
30
20
10
0
0-9
10-19
20-29
30-39
Source: United Nations Populations Division, Last update 2009
4/14/2011
40-49
50-59
60-69
Projected Change in
Population from 2010 - 2030:
46
70-79
+491.1M
80+
2010 Level:
2030 Level:
1033M
1524M
J.P.Morgan Chase