Global Economic Outlook and Risks Is Growth Shifting

Global Economic Outlook and Risks Is Growth Shifting from Emerging to Advanced Economies? Emilio Rossi erossi@oxfordeconomics. com November 25 th, 2013

World GDP Growth by Region 2

One Major Cloud Over the Horizon U. S. INTEREST RATES 3 Assuming that America sorts out its fiscal problems… …US interest rates are bound to rise over coming months and years. For the US this would reflect a strengthening economy. Elsewhere, however, it may be less welcome. Unhappy response to some very mild US policy pronouncements earlier this year. The Oxford Economics forecast builds in a gradual rise in US bond yields (to 4 per cent by end-2016), with no financial market shocks.

From the Strongest to the Weakest The BRICs Is slowdown inevitable ? The USA Will it surge again ? Japan Some hope of growth ? The Euro Zone (and the UK) Little hope of growth ? 4

BRICs - Overall risk fairly stable at 2013 levels 5

BRIC’s Short-term Interest Rates Brazil 12 India 9 Russia 6 China 3 0 6 2010 2011 2012 2013

EM : Middle class still growing 7

EM - Labor costs remain low 8

BRIC: Gross Fixed Investment (in per cent of GDP; 3 year moving average) China 40 India 30 Russia 20 Brazil 9 10 1993 1996 1999 2002 2005 2008 2011

EM to account for larger share of global BM output Source: Oxford Economics Industry Service

BRIC Competitiveness being eroded 11

From the Strongest to the Weakest The BRICs Is slowdown inevitable ? The USA Will it surge again ? Japan Some hope of growth ? The Euro Zone (and the UK) Little hope of growth ? 12

US House Prices* US Debt/GDP Ratios Households (2000 = 100) 170 160 90 150 140 Corporate Sector* 130 70 120 110 100 90 50 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 * Non-financial corporations. 2000 2002 * In real terms. 2004 2006 2008 2010 2012

US construction activity strengthening 14

Shale boom helping US competitiveness Source: BP 15

US manufacturing recovering nicely 16

From the Strongest to the Weakest The BRICs Is slowdown inevitable ? The USA Will it surge again ? Japan Some hope of growth ? The Euro Zone (and the UK) Little hope of growth ? 17

Japan’s New Economic Policy Main thrust (Three Arrows) double the monetary base in two years provide a large fiscal stimulus enact significant reforms Main aims raise inflationary expectations restore economic growth raise equity prices lower the exchange rate Main risks 18 higher government bond yields (though the Bo. J will buy massive amounts of long-term bonds) raising the consumption tax in 2014

Monetary Base UK (January 2007 = 100) 550 450 United States 350 250 Euro Zone 150 Japan 50 2007 19 2008 2009 2010 2011 2012 2013 2014

Monetary Base UK (January 2007 = 100) 550 450 United States 350 250 Euro Zone 150 Japan 50 2007 20 2008 2009 2010 2011 2012 2013 2014

Global Growth supports World Trade 21

From the Strongest to the Weakest The BRICs Slowdown is inevitable but still high growth The USA It will surge again if it sorts out its fiscal problems Japan Some hope of (slow) growth but challenging experiment The Euro Zone (and the UK) Little hope of growth ? 22