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Global economy watch – June 2013
The rising tide of service exports
Key messages:
At a glance
1. Eurozone GDP contracted for the sixth
consecutive quarter. In contrast, US
GDP expanded by 0.6% and is now
around 3% above its 2008 level.
• Eurozone output contracted in the first three months of 2013, marking the sixth
consecutive quarter of negative growth. Although this was not a surprise for the
peripheral economies, the slowdown has spread to the core. France, the second
largest economy in the bloc, has now slipped into recession. In light of the new
data, we have revised down our 2013 Eurozone main scenario growth projection
from -0
0.4% to -0.6 %.
2. Our in-house index indicates global
consumption is growing by 1.8% per
annum, which is below long term
trends.
• By contrast the US recovery has consistently outpaced that in the Eurozone since
mid-2011
2011. US output is now above its pre-crisis level standing around 3% higher
than its 2008 peak (see Figure 1). We project the US economy to grow by around
2% in 2013 led by private sector domestic demand.
3. 2010 marked the first year when
services imports by emerging
economies exceeded those of the G7
economies. Service sector companies
in advanced economies should be the
main beneficiaries.
• Our latest monthly Global Consumer Index (see page 2) shows that, at a global
level, consumption is expanding at a rate of around 1.8% per annum, some way
below its long run trend rate.
• One area that could contribute to business growth is the booming trade in
services Global services imports were worth around 3.9 trillion dollars in 2011
services.
(roughly equivalent to the size of the German economy). Although still smaller
than goods imports, the growth potential of services trade is tremendous.
• Specifically, 2010 marked the first year since reliable records began during which
the value of services imported by emerging economies exceeded that imported by
the G7 economies.
economies
• As emerging markets become bigger and wealthier, demand for services is likely
to increase further. Figure 2 shows that the value of services imported by the
largest emerging economies (the E7) grew three times as fast as that for the G7.
• Advanced economies such as the US and the UK should benefit most from this
trend as they have relatively large, sophisticated and efficient services sectors.
• Our heat map on page 3 shows that services imports of the E7 economies were
greatest in the transport, financial services and insurance and travel (or outbound
tourism) sectors.
Charts of the month
Figure 1- The gap in economic recovery between the US and
the Eurozone has been widening since late 2011
Five year compound annual growth rate
(CAGR) of service imports in nominal terms
(2006-2011)
104
103
102
101
100
99
98
97
96
95
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Eurozone
Q4 2012
Q2 2012
Q4 2011
Q2 2011
Q4 2010
Q2 2010
Q4 2009
Q2 2009
Q4 2008
Q2 2008
94
Q4 2007
GDP Index (2007Q4: 100)
Figure 2- In the five years to 2011, the value of services imported
by the E7 economies grew three times as fast as that of the G7
US
Sources: Thomson Datastream, PwC analysis
Visit our blog for periodic updates at:
pwc.blogs.com/economics_in_business
E7
World
G7
Sources: PwC analysis, IMF
‘E7’ countries are Brazil, Russia, India, China, Mexico, Indonesia, Turkey
‘G7’ countries are US, UK, France, Germany, Italy, Canada Japan
Global economy watch – June 2013
Economic update: A jumble of growth figures
Italy
Spain
Portugal
Eurozone
France
Netherlands
Germany
2013 Q1 Real GDP growth rate (%)
Eurozone falling behind
Figure 3– The Eurozone has entered its sixth consecutive
quarter of negative GDP growth
GDP data for the first quarter of 2013 showed that the Eurozone continues to be in the
slow lane of global growth.
0.1
Specifically, Eurozone output declined by 0.2% in the first quarter, entering a sixth
consecutive quarter of contraction with few signs of abating. France, a key ‘core’
0.0
Eurozone economy, fell into recession in the first quarter of 2013 (-0.2%)
0.2%) while Germany
posted minimal growth (0.1%) after falling sharply in the fourth quarter of 2012.
-0.1
Meanwhile, the majority of southern European economies continued to contract, with
Italy shrinking the most after Cyprus (see Figure 3).
-0.2
Ahead of the 2013 Q1 GDP release, the European Central Bank (ECB) cut its main
refinancing rate by 25 basis points to a record low of 0.5%. We anticipate, however, that
any positive effect of the rate cut will likely be offset by ongoing private and public sector
-0.3
balance sheet correction and so will have a minimal net impact on Eurozone output
growth this year.
-0.4
In view of this we have revised our growth projection for the Eurozone to -0.6%
0.6% in 2013,
with risks to growth still being weighted to the downside.
-0.5
US firmly on track
-0.6
The story in the US is quite different. Figure 1 shows that, US output is now above its
pre-crisis
crisis levels; in fact it now stands around 3% higher than its 2007 peak. In terms of
growth, advanced estimates for the first quarter of 2013 showed that GDP rose by 0.6%,
suggesting the recovery is well under-way.
In the past year, over two million non-farm
farm payroll jobs were created in the US.
Unemployment in April was at its lowest level since December 2008 (7.5%). A rosy
Source: Eurostat, PwC analysis
labour market situation and lower household indebtedness has encouraged a higher level
of domestic consumption since 2010.
Positive start from Japan
A more robust growth picture has helped the US private and public sector deleverage
Japan started the first quarter of the year on a positive
faster. The latter is expected to pay down a portion of its national debt (c.US$ 35bn) this
note, growing by 0.9%. This was driven by a rebound on
year for the first time since 2007, thanks to higher tax receipts from the improving
exports, because of a weaker yen, and steady external
economy and automatic spending cuts were implemented in March. And households
demand. But investment appetite remained weak
have seen their debt to income ratio fall by 18 percentage points, which gives more
(partly because of spare capacity in the economy) and
breathing space for them to either spend or save.
there has been a recent correction in the previously very
We project the US is on track to achieve a growth rate of around 2% in 2013. This is a
strong stock market.
modest recovery by historic standards, but not bad in the current post-crisis
crisis ‘new
We have revised our 2013 growth projections for Japan
normal’ environment.
upwards to 1.5%, in line with the stronger performance
in Q1, but remain cautious about how far stronger
growth can be sustained in the medium term.
PwC Global Consumer Index (GCI) quarterly update: Keep calm and carry on
Figure 4– Our monthly updated GCI shows global consumption is
set to grow by 1.8%
Baltic dry index
• The PwC Global Consumer Index is a forward-looking barometer that
provides an early steer on consumer spending and growth prospects in
the world’s 20 largest economies. It combines an array of key leading
indicators of consumer spending into a single global index, including
equity market performance, consumer and business confidence, credit
markets and commodity prices.
• Figure 4 shows how the main constituents of the GCI have fared. On
balance the picture is positive. The two main confidence measures
(business and consumer confidence) remain in negative territory.
Geographically, the crisis-hit Eurozone does worst in terms of consumer
confidence. This is in contrast to the US consumer confidence figures
which soared to a five-year high in May.
Commodity prices
Global consumer confidence
Global business confidence
• On a more positive note, the recently announced monetary easing in
Japan and the rate cuts in Australia and the Eurozone have increased
money supply growth rates above their long-term average. On the back of
this, global equity markets, continue to record impressive growth rates
which is projected to have a favourable impact on consumption.
GCI
Global industrial production
• Overall, the growth in the May GCI is holding steady at 1.8%
year-on-year. However, momentum has eased back, suggesting that the
acceleration earlier this year did not signal a more prolonged upturn.
OECD money supply
Global equity markets index
-15
-10
-5
0
5
Y-on-Y growth (%)
10
15
Watch our latest GCI video and get more information on the methodology
used to compile the index on:
http://www.pwc.co.uk/economic-services/publications/pwc-global-con
sumer-indicator/index.jhtml
Global economy watch – June 2013
Special focus: It’s services, stupid!
In 2010,, for the first time, the value of services imported by emerging
markets exceeded that of the G7 (see Figure 5)
In 2011, the international market for services imports was worth around $3.9 trillion. By
comparison, the international market for imported goods was worth $18.4 trillion
1.5
(roughly 4.5
4 times as large). In terms of absolute size, the goods market is therefore still
much more important to global trade, but as emerging economies continue to grow in
1.3
size and wealth, trade in services may narrow this gap.
1.1
There is a growing appetite for services in emerging economies
0.9
As shown in Figure 2, over the period 2006-2011, total global services imports grew by
0.7
around 8%
% per annum (in nominal cash terms). However, there is a clear divergence
0.5
between strong import growth in the E7 leading emerging markets (18% p.a.) and much
0.3
more modest growth in the G7 leading developed markets (5% p.a.). The past three years
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
of post-crisis
crisis growth have seen an even greater divergence emerge.
Emerging markets
G7
The BRIC economies have been the key drivers of growth in emerging markets. Between
Source: ITC, PwC analysis
2006 and 2011, the BRICs almost doubled their import market share, growing from 7.3%
Figure 6- Developing economies still lack the size of developed of the international market to 13.3% (equivalent to $528bn).
economies, but they are growing at far quicker rates
Recent rapid growth in the value of imported services reflects the fact that, although
emerging economies have developed significantly over the past growth cycle, their
Value of 2011
25%
= service imports
domestic services sectors still lag behind demand.
BRIC
($billion)
528
Facilitating this strong growth has been the increasing ability of international businesses
20%
to get access to emerging markets. Setting up a business in the BRIC economies, for
E7
example, takes around one month less now compared to 2004 (Source: Ease of Doing
612
15%
Business Index, World Bank). Reducing red tape, improving governance conditions and
World
removal of trade barriers have all been (and will continue to be) important contributing
factors to this trend. One country where this effect has been particularly noticeable is
G7
3,963
10%
India (see Figure 8 below) where the effects of recent progress is apparent, particularly
1,480
in financial and business related services, although there is still a long way to go before
5%
doing business there can be considered easy given its legacy of red tape.
Rising demand in the services sector is a natural consequence of rising wealth within
0%
emerging markets. Consumers and businesses are moving away from a focus on natural
10,000 20,000 30,000 40,000 50,000
resources and manufacturing. Figure 6 shows that there is still a long way to go before
GDP per capita (2011 PPP $)
the E7 reach wealth levels similar to developed economies. This convergence is likely to
Source: ITC, IMF, PwC analysis be a key theme of the next global growth phase.
What’s ‘hot’...and
‘hot’
what’s not
Figure 7: Growth in financial services import in the BRIC
Our
heat
map
(Figure
8) shows the pattern of imported services growth across segments
economies has been faster than in any other area of the world
and key geographies.
geographies As we have already shown, the BRIC economies are “hot” growth
600
areas and India is the “hottest” of those four countries in terms of services trade growth.
One of the fastest growing areas for all of the BRIC economies has been financial
500
services and insurance (see Figure 7 on the left). As these markets develop, there will be
a growing need for financial deepening to support increasingly sophisticated economies.
400
A similar story can be seen in the import growth of “other” business services
(accountancy, technical services), which are necessary to support a well functioning, and
300
increasingly demanding, local business community.
Meanwhile, outbound tourism from economies like China and Brazil is booming. This is
200
due to a combination of higher personal disposable incomes and better integration of
100
the local transport network with the rest of the world. In 2011 alone, the number of
Chinese tourists travelling abroad increased by more than 20% to 70 million people.
This trend is set to continue.
Businesses like high-end retailers and those in the hospitality and culture sectors in
advanced economies are set to benefit from this trend in tourism. More generally,
BRIC
E7
World
G7
however, the growing appetite for services from the emerging world should be the focus
Source: ITC, PwC analysis
of investment promotion agencies of advanced economies as these economies generally
Figure 8: Percentage point difference of imports growth
have large, more advanced and more internationally competitive service sectors than the
relative to global average growth over the 2006-2011 period
emerging economies.
Index of financial services imports
(2002: 100)
5 year compound annual growth
rate (CAGR) of service imports
Value of imported services ($ tr)
Figure 5- Since the financial crisis, emerging markets have
become the largest importers of services
Overall
Transport
Travel
Communications
Construction
Financial
services
& Insurance
‘Other’ business*
Licenses
G7
-3%
-4%
-4%
-2%
2%
3%
-1%
-13%
-10%
E7
10%
13%
12%
7%
-2%
13%
5%
-4%
Emerging
Markets
5%
6%
5%
7%
-2%
5%
10%
2%
Brazil
13%
17%
14%
10%
-2%
9%
6%
4%
Russia
7%
10%
6%
15%
-2%
6%
9%
20%
India
17%
39%
9%
11%
4%
31%
28%
-18%
China
11%
11%
18%
-1%
1%
7%
9%
-10%
6%
Source: ITC, PwC calculations
*’Other’ business relates to professional services (legal, accountancy) and other technical services
Projections
Share of world GDP
PPP*
MER*
1 9.1 %
1 4.3%
5.6%
2.9%
1 4.2%
2.8%
3.9%
0.4%
0.2%
2.3%
0.9%
0.3%
1.8%
1.0%
3.0%
1.4%
1.2%
5.7 %
1.4%
2.0%
0.9%
2.9%
1.8%
2.1%
0.7 %
0.9%
21.7 %
10.5%
8.4%
3.5%
18.8%
4.0%
5.1 %
0.4%
0.3%
3.2%
1 .2%
0.3%
2.1 %
0.7 %
2.7 %
1 .1 %
2.1 %
2.4%
1 .2%
1 .6%
0.6%
3.6%
2.5%
1 .7 %
0.6%
0.8%
Global (market exchange rates)
Global (PPP rates)
United States
China
Japan
United Kingdom
Eurozone
France
Germany
Greece
Ireland
Italy
Netherlands
Portugal
Spain
Poland
Russia
Turkey
Australia
India
Indonesia
South Korea
Argentina
Brazil
Canada
Mex ico
South Africa
Saudi Arabia
2012
2.4
3.0
Real GDP growth
2013p
2014p 2015-9p
2.5
3.2
3.1
3.2
3.7
3.7
2012
4.7
2.2
7 .8
2.0
0.3
-0.6
0.0
0.9
-6.4
0.9
-2.4
-1.0
-3.2
-1.4
2.3
3.6
2.2
3.6
5.1
6.2
2.0
2.0
0.2
1.8
3.9
2.5
6.8
2.2
7 .8
1 .5
1 .0
-0.6
-0.1
0.3
-4.2
0.9
-1 .5
-0.8
-2.0
-1 .4
1 .2
3.0
3.6
2.5
5.8
6.2
2.7
2.5
3.0
1 .6
3.8
2.7
4.4
2.1
2.7
-0.0
2.8
2.4
2.2
2.1
1.0
1.9
3.3
2.8
2.8
2.4
3.7
5.1
8.9
2.4
7 .5
4.3
2.2
1 0.0
5.4
1.5
4.1
5.7
2.9
2.8
7 .9
1.3
2.0
0.9
0.9
1.3
-1.0
2.0
0.8
1.0
0.8
0.4
2.4
3.5
4.8
3.0
6.6
6.3
3.2
2.4
3.9
2.5
4.0
3.5
4.2
2.4
7 .0
1.0
2.4
1.5
1.6
1.5
2.5
2.7
0.8
1.6
1.8
2.0
3.9
3.8
5.3
3.0
7 .0
6.3
3.8
3.3
4.0
2.2
3.6
3.8
4.3
Inflation
2013p 2014p 2015-9p
4.8
5.0
4.6
2.0
3.2
0.2
2.6
1 .7
1 .4
1 .6
-0.3
1 .1
2.0
2.6
0.8
1 .9
1 .4
5.9
6.9
2.5
5.5
5.5
2.3
1 0.9
5.6
1 .4
3.8
5.9
4.0
2.1
3.5
1.4
2.3
1.7
1.6
1.8
-0.5
1.2
1.8
2.0
1.2
2.0
2.3
5.8
6.4
2.8
6.0
5.1
2.7
1 1 .0
5.2
1.8
3.8
5.7
4.6
1 .9
3.4
1 .5
2.0
1 .9
2.0
2.0
1 .0
1 .7
1 .7
2.1
1 .5
1 .9
2.5
5.6
4.8
2.7
6.0
5.1
2.9
9.7
4.8
2.1
3.6
4.8
4.0
Interest rate outlook of major economies
Current state (Last change)
Expectation
Next meeting
0-0.25% (December 2008)
On hold to 2015
18-19 June
European Central Bank
0.5% (May 2013)
On hold until 2014
6 June
Bank of England
0.5% (March 2009)
On hold at least until end of 2013
5 and 6 June
Federal Reserve
Sources: PwC analysis, National statistical authorities, Thomson Datastream and IMF. All inflation indicators relate to the CPI, with the exception
of the Indian indicator which refers to the WPI. Note that the tables above form our main scenario projections and are therefore subject to
considerable uncertainties. We recommend our clients look at a range of alternative scenarios, particularly for the Eurozone. *Note that PPP refers
to Purchasing Power Parity and MER refers to market exchange rates.
Richard Boxshall
T: +44 (0) 20 7213 2079
E: [email protected]
PwC Global Consumer Index – May 2013
Growth in the GCI is holding steady at 1.8% growth year-on-year.
year
This means consumer
spending growth will remain stable over the coming months – even if below long-term growth.
This is in keeping with the ‘New Normal’ environment of weaker global economic performance.
Long term trend
4.0%
T: +44 (0) 20 7212 2750
E: [email protected]
Barret Kupelian
T: + 44 (0) 20 7213 1579
E: [email protected]
Momentum
William Zimmern
February 13
3.0%
Long term trend
April 13
2.0%
March 13
May 13
1.0% December 12
0.0%
1.0%
1.5%
January 13
2.0%
2.5%
3.0%
3.5%
Growth
The Global Consumer Index is a leading indicator of global consumer spending, it is based on a series of
economic and market indicators, including equity market performance, consumer and business confidence,
credit markets and commodity prices. For additional commentary on our methodology please visit:
http://www.pwc.co.uk/economic
http://www.pwc.co.uk/economic-services/publications/pwc-global-consumer-indicator/index.jhtml
Growth refers to the year-on
on-year change. Momentum is calculated as the 3 month annualised growth rate.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice.. You should not act upon the information contained
in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers
Pri
LLP, its members, employees
and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting,
ng, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
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