Global Macro View
Group Economics
Macro Research
Here comes investment
17 April 2014
Companies in the driving seat: The global economic recovery has lost some momentum recently, reflecting
bad weather and an inventory correction in the US and a bumpy transition period in China, where the authorities
are moving to a new growth model. We expect the global economy to pick up speed as the temporary drags
fade. In addition, the corporate sector in the advanced economies looks ready to expand, with investment and
hiring set to strengthen. Corporate balance sheets have improved sharply and net assets are above historical
averages. Profits have risen strongly in the US and Japan and have turned the corner and likely to rise further in
the eurozone. Meanwhile, the risks of a re-escalation of Europe’s sovereign debt crisis and of a fiscal stalemate
in the US have eased, which means that the outlook is less uncertain. This positive conjunction of factors
suggests that companies are likely to step up investment and hiring going forward. Emerging markets should
benefit from high exports to the developed world, which will over time also feed through in higher capital
spending. In addition, some countries – noticeably China – are stepping up infrastructure investment.
Global disinflation should end later this year: We expect recent disinflationary trends to continue in the near
term, but inflation should stabilise in the second half of the year and start to slowly move up again by the end of
the year. The most important factor behind this view is the US-led global economic recovery. In the US,
unemployment has fallen to levels that is triggering a gradual rise in wage growth. Currently, it is still not
significantly exceeding productivity growth, which means that unit labour costs are still flat. However, wage
growth should increase as the labour market gains strength during the course of this year. A turn in the global
manufacturing and trade cycle should also start to reduce disinflationary pressures. In addition, the US should
start to export inflation elsewhere as the dollar appreciates broadly, but especially against the euro and the yen.
Thirdly, the impact of commodity prices on inflation should become more neutral later in the year.
Monetary policy divergence: On a global level, low inflation is not necessarily a bad thing as it gives central
bankers the possibility to set monetary policy that is supportive to economic growth. In the eurozone and Japan,
the situation is more worrying as core inflation is particularly low and economic growth is more moderate. As
long as the economic recovery in both countries continues and their currencies decline versus the dollar,
deflation should be a avoided. However, in case of a negative economic shock, risks of deflation in the
eurozone and a return to deflation in Japan would be large. A pro-active approach by the BoJ and ECB makes
sense to manage these risks. The ECB could well introduce a modest asset purchase programme based on
asset backed securities, while a small rate cut is also a possibility. Meanwhile, the BoJ will likely further step up
its stimulus. In contrast, in the US, we think inflation will move towards the Fed’s goal next year, while the
economy and labour market will strengthen noticeably. As such, the central bank will likely continue to gradually
taper its asset purchases in coming months, before raising rates at around the middle of next year.
1
Global Macro View - Here comes investment - 17 April 2014
Table of contents
Global Economy: Here comes investment
2
Eurozone: Inflation melting away
5
US: Spring is in the air!
7
Japan: Tax increase finally passed
9
China: Tide set to turn
11
Tables
13
2
Global Macro View – April 2014
Nick Kounis, tel +31 20 343 5616
Global Economy: Here comes investment
The global economic recovery has lost some momentum
recently reflecting bad weather in the US, an inventory
correction and a bumpy transition period in China, where
the authorities are moving to a new growth model. We
expect the global economy to pick up speed as the
temporary drags fade. In addition, the corporate sector in
the advanced economies looks ready to expand, with
investment and hiring set to strengthen. Emerging
markets should benefit from high exports to the
developed world, which will over time also feed through in
to higher capital spending. In addition, some countries –
noticeably China – are stepping up infrastructure
investment. Meanwhile, inflation has continued to fall
across the world in coming months. We expect global
disinflation to continue near term, but inflation should turn
up modestly later in the year.
Global economic growth loses some steam
After gaining strength last summer, the pace of global
economic expansion eased towards the end of last year and
start of this year at rates close to historical averages. This
reflects exceptionally cold and snowy weather in the US and
Japan. You don’t buy a car in a snowstorm after all.
Constructing a house can also prove difficult. Second, there
was an inventory correction in the manufacturing sector,
especially in the US, as output growth exceeded demand
earlier in the year, and hence a rebalancing was necessary.
Third, China’s economy slowed more sharply than expected as
the authorities try to shift the economy away from credit-fuelled
investment in real estate and heavy industry towards
consumer spending and infrastructure investment. This is not a
smooth process, and default of a corporate bond and neardefault of a trust fund affect sentiment. Finally, a number of
emerging markets, such as Russia, and Turkey, have faced a
negative cocktail of political uncertainty, capital outflows,
financial market instability and monetary tightening.
Global GDP growth
% qoq annualised rate
7
5
3
World economy to gain momentum
We expect the pace of global GDP growth to accelerate in the
coming quarters, to rates above long-term averages.
Temporary factors should fade. For instance, work that we
have done looking at the impact of past instances of bad
weather on economic growth suggests that there can be a
substantial impact but that economic data tend to rebound
within a couple of months of the event. There are already signs
of this in the US, with a number of key economic reports
improving in March. In addition, monthly data suggest that the
inventory correction is behind us.
Corporate balance sheets
Net financial assets of companies, % GDP
200
100
180
80
160
60
140
40
120
20
100
99
01
03
05
07
Eurozone (lhs)
09
11
13
US (rhs)
Source: ABN AMRO Group Economics
Corporate sector ready for expansion
Advanced economy fundamentals have clearly improved, with
fiscal consolidation having faded, and the corporate sector
looking ready to pick up the baton to drive economic growth. In
both the US and Europe, corporate balance sheets have
improved sharply and net assets are above historical
averages. In the US, operating profits are at their highest level
since 1950Q4, while they have risen strongly in Japan. While,
profitability has lagged behind in the eurozone it has turned the
corner and is likely to rise further in the coming quarters.
Meanwhile, the risks of a re-escalation of Europe’s sovereign
debt crisis and of a fiscal stalemate in the US have eased,
which means that the outlook is less uncertain. This positive
conjunction of factors suggests that companies are likely to
pick up investment and hiring going forward.
1
-1
-3
-5
-7
07
08
09
Actual
10
11
12
Long-run average
Source: ABN AMRO Group Economics
13
The coming capex upswing
Data relating to investment in various big advanced economies
hint at a rise in business investment going forward. For
instance, fixed investment spending started to grow in the
eurozone in the second half of last year. There are signs this
continued into 2014, as the production of capital goods in the
eurozone rose by 5.8% yoy in January, which was the highest
rate since 2011. In the UK, business investment growth has
3
Global Macro View – April 2014
been gaining momentum, and was up by 8.7% yoy in Q4.
Meanwhile, Japan’s capital investment was up by 4% yoy in
that quarter, while machine orders at the start of this year point
to a further strengthening going forward. Finally, US equipment
investment was also expanding robustly at the end of last year,
with quarterly annualised rates close to 11% in Q4. Recent
capital goods orders and shipments data – through to
February – have been disappointing, though the bad weather
may have played an important role. Overall, the improving
background of investment spending is exactly what is needed
to take the economic recovery into a stronger and more
sustainable phase.
well below the government’s target of 3.5% for this year.
Japan’s inflation rate ticked up to 1.5% in February from 1.4%
in January. Ex-food inflation came in at 1.3%, while ex-food
and energy it was at 0.8%. Japanese inflation has steadily
climbed out of negative territory over recent months, but it
remains below the BoJ’s 2% target for the ex-food measure.
Consumer prices
% yoy
% yoy
4
8
6
3
Emerging markets should benefit from export upturn
Emerging markets are further behind in the capital spending
cycle. However, they should benefit from high exports to the
advanced economies, which will over time also feed through
into higher capital spending, in particular in the manufacturing
sector. In addition, some emerging markets are planning
significant investment in infrastructure. For instance, China’s
authorities have the acceleration of construction of railways
and low cost housing. This ‘mini stimulus’ should help China’s
economy meeting the growth target of 7.5% this year.
OECD demand and EM exports
4
2
2
0
1
-2
-4
0
10
11
US (lhs)
12
Eurozone (lhs)
13
14
China (rhs)
Source: Thomson Reuters Datastream
Factors driving inflation lower
% yoy
% yoy
20
6
15
4
10
2
5
0
0
-2
-5
-4
-10
-6
1996 1998 2000 2002 2004 2006 2008 2010 2012
A number of factors have been driving inflation lower globally.
First of all, global growth has been modest over recent years,
and has been below trend in many advanced economies. This
means that the high levels of economic slack that built up
during the crisis have not been absorbed very quickly. Of
course there are differences between economies, with
unemployment still high and hardly having come down at all in
the eurozone, but having dropped significantly in the US.
Within the eurozone, there are large differences as well, with
Southern European countries generally having much larger
Emerging market exports (lhs)
OECD domestic demand (rhs)
amounts of slack that their northern counterparts. Meanwhile,
in China, the investment boom over recent years has created
Source: ABN AMRO Group Economics
excess capacity in a number of industrial sectors. China’s
producer prices were down 2% yoy in February. Finally,
Global disinflation.
commodity prices have generally trended lower, reflecting
Meanwhile, the latest round of reports around the world show
moderate economic growth and increasing supply in many
that inflation remains subdued and well below central bank
markets. The above factors have seen global manufactured
targets. US inflation has been moving roughly sideways at
goods prices falling in both 2012 and 2013. The pace of global
around 1.5% in recent months, while core inflation stood at
manufactured goods price deflation remains significant. Prices
1.7% in March. The personal consumption deflator – the
fell by 2.9% in the year to December.
alternative measure of inflation that the Federal Reserve is
focused on – stood at 0.9% in February, with the core at 1.1%.
End of disinflation later this year
This is below the Fed’s inflation goal of 2%. Eurozone inflation
We expect the disinflationary trends to continue in the near
fell to 0.5% in March from 0.7% in February, leaving it well
term, but inflation should stabilise in the second half of the
below the price stability goal of close to but below 2%. The
year and start to slowly move up again by the end of the year.
decline in inflation may at least in part be to the change in the
The most important factor behind this view is the US-led global
timing of Easter, but the trend over recent months is clear. In
economic recovery. In the US, unemployment has fallen to
China, the inflation rate stood at 2.4% in February, leaving it
levels that is triggering a gradual rise in wage growth.
4
Global Macro View – April 2014
Currently, it is still not significantly exceeding productivity
appears worried about being seen to finance governments. A
growth, which means that unit labour costs are still flat.
sharper increase in deflationary risks would likely be
However, this should increasingly happen as the labour market
necessary for the ECB to feel forced to break this taboo.
gains strength during the course of this year. A turn in the
global manufacturing and trade cycle should also start to
Monetary policy divergence in 2015
reduce disinflationary pressures. In addition, the US should
Although the Federal Reserve is currently reducing the pace of
start to export inflation elsewhere as the dollar strengthens
its asset purchases, low inflation gives it plenty of room before
broadly, but especially against the euro and the yen. Thirdly,
hiking its policy rates. We expect it to raise interest rates at
the impact of commodity prices on inflation should become
around the middle of next year. This means that next year, will
more neutral later in the year. On the one hand, we expect oil
likely be the year of monetary policy divergence, given that the
prices to decline. On the other hand, wholesale food prices,
ECB and BoJ will likely keep policy accommodative. Over
which feed through to retail food prices with a lag, have
time, this should see US Treasury yields rising by more than
rebounded recently.
their Eurozone and Japanese counterparts. In addition, the
dollar should strengthen versus the euro, yen and most
Global manufactured goods prices
emerging market currencies.
% yoy
15
10
5
0
-5
-10
-15
00
02
04
06
08
10
12
14
Source: Thomson Reuters Datastream; CPB
Concerns about low inflation in eurozone and Japan
On a global level, low inflation is not necessarily a bad thing as
it gives central bankers the possibility to set monetary policy
that is supportive to economic growth. In the US, we think
inflation will move towards the Fed’s goal next year. In the
eurozone and Japan, the situation is more worrying as core
inflation is particularly low and economic growth is more
moderate. As long as the economic recovery in both countries
continues and currencies fall back versus the dollar, deflation
should be a avoided. However, in case of a negative economic
shock, risks of deflation in the eurozone and a return to
deflation in Japan would be large. A pro-active approach by
these economies’ respective central banks makes sense to
manage these risks. The BoJ is already expanding its balance
sheet aggressively and stands ready to act if this month’s
sales tax hike undermines the recovery. The ECB has also
signalled it is ready to move, and has sounded more open to a
quantitative easing programme. We think that a relatively small
programme – focused on securities backed by bank loans – is
the most likely action, perhaps coupled with a modest
reduction in policy rates. A large-scale QE programme would
need to include government securities and the central bank
5
Global Macro View – April 2014
Aline Schuiling, tel +31 20 343 5606
Eurozone: Inflation melting away
Eurozone GDP expanded by a modest of 0.2% qoq in the
final quarter of 2013. We expect growth to pick up a touch
this year and gather some further momentum in 2015.
Overall, the pace of the recovery should remain modest,
though. A number of drags that weighed on domestic
demand in the past few years will gradually diminish, but
should still prevent the economy from accelerating
rapidly. Meanwhile, exports should benefit from a
strengthening world economy, but the strong euro should
limit the pace of expansion this year. The inflation rate has
come down rapidly. We expect it to remain at very low
levels throughout this year and also remain well below the
ECB’s target next year. This keeps the door to further ECB
policy easing open and should keep German ten-year
yields close to their current levels in the coming months.
We expect yields to start moving higher gradually as from
around the middle of the year. Still, low short-term rates,
low inflation and moderate economic growth should limit
the magnitude of the rise. The euro is expected to fall
against the US dollar during our forecasting period.
GDP growth
% yoy
6
3
4
2
2
1
0
0
-2
-1
-4
-2
-3
-6
01 02 03 04 05 06 07 08 09 10 11 12 13 14
Difference between eurozone and periphery (rhs)
Eurozone (lhs)
Periphery (weighted avg. IT, ES, PT, GR, lhs)
that the year-on-year contraction in GDP slowed down from 6.0% in Q1 to -2.3% in Q4 of last year. Greek industrial
production has been positive on a yoy-basis since the start of
2014. GDP growth in Italy, which has not implemented radical
reforms yet, lagged behind, contracting in Q2 and Q3 of last
year and growing by only 0.1% qoq in Q4.
Economy to gain some traction in 2014-2015
Monthly economic data suggests that growth picked up in Q1.
Part of this was due to the exceptionally mild winter, although
the upward impact this had on the construction sector was to
some extent offset by drops in energy production. For
instance, in Germany, construction grew by 5% 3m-o-3m in
February, while energy production fell by 3.4%. After the first
quarter, we expect growth to settle down at levels of around
0.2-0.4% qoq during the rest of this year, before gaining some
traction in 2015, when it should grow at around 1.8% during
the year as a whole. Fixed investment should continue to be a
main pillar behind growth. It benefits from ebbing uncertainty
related to the eurozone crisis, healthy corporate balance
sheets, improving profitability and historically low debt
servicing costs. Tight bank lending conditions, on the other
hand should limit the pace of investment growth. Private
consumption is expected to be somewhat more sluggish, as
wage growth remains moderate on the back of high
unemployment, while housing market conditions remain weak
in some countries, and the majority of countries still has to
implement some fiscal austerity measures, albeit much less
than during the past few years. Export growth will benefit from
accelerating world trade growth this year and next, although,
this year it will be weighed down by the strong euro. Since we
expect the euro to depreciate going forward, exports should
accelerate more sharply in 2015.
Profit margins and fixed investment
Source: Thomson Reuters Datastream
Modest growth continues
Following six consecutive quarters of contraction, the
eurozone economy grew by 0.2% on average in the final three
quarters of last year. Private consumption expanded by 0.1%
qoq in each of the three quarters, while private fixed
investment was more buoyant and grew by 1.7% in total
between Q1 and Q4 of last year. Meanwhile, government
consumption remained unchanged and net exports and stock
building combined contributed 0.2 percentage point to total
GDP growth. Zooming in on the individual countries, the most
remarkable development was that growth in the countries in
the periphery bounced back, after years of deep and long
recessions and in some cases radical economic reforms.
Portugal and Ireland have grown the most since the first
quarter of last year, but the Spanish economy also expanded.
Greece only publishes non-seasonally adjusted data, showing
% yoy
2.5
10
5
0
0.0
-5
E
-2.5
-10
-15
-20
-5.0
96
98
00
02
04
06
Profit margins (lhs)
08
10
12
14
Fixed investment (rhs)
Source: ABN AMRO Group Economics
Inflation is melting away
Inflation has dropped sharply during recent months, reaching
0.5% yoy in March. Most countries in the periphery have had
6
Global Macro View – April 2014
negative inflation rates or inflation rate close to zero during the
past few months. Although inflation will probably temporarily
pick up somewhat in April due to differences in the timing of
Easter in 2013 and 2014, it is expected to return to very low
levels in the coming months. There is downward momentum
stemming from the strong euro and a large amount of
economic slack, while food and energy inflation will probably
fall somewhat further as well. Next year, inflation should rise
somewhat due on the back of a weaker euro and slowly
waning economic slack. It should stay well below the ECB’s
target for price stability, though.
Inflation selected countries
% yoy
4
3
2
Interest rates to remain at low levels, euro to depreciate
3M euribor has risen somewhat since the end of November, as
excess liquidity in the money market diminished due to banks
repaying ECB loans. Given our expectations for monetary
policy, we see the 3M euribor rate staying close to current
levels in the coming months. German 10Y government bond
yields have moved within a range of 1.55-1.75% since the
middle of January. Upward pressure from a global economic
recovery and rising yields in the US was offset by low inflation
and dovish ECB language in the eurozone. We expect
German yields to remain close to these levels in the coming
months. Thereafter, further improvement of global economic
conditions should put upward pressure on German yields. Still,
the rise should continue to be limited by subdued inflation,
accommodative monetary policy and moderate economic
growth. We expect German 10-year yields to be 2.20% at the
end of 2014 and 2.70% at the end of 2015, with the spread
between the US and Germany rising.
1
0
-1
-2
-3
Jul-12
GR
Jan-13
Eurozone
Jul-13
NL
PT
Jan-14
ES
ECB target
The EUR/USD fell a bit after the dovish language by Mr Draghi
in early April. We expect the euro to weaken more significantly
against the dollar this year and next, largely because the US
economy is expected to perform better than the eurozone
economy and because monetary policy is expected to be
tightened earlier in the US than in the eurozone.
Excess liquidity and short-term interest rates
Source: Thomson Reuters Datastream
%
ECB keeps door open for further policy easing
Following the cut in the refi rate in November, the ECB has
kept monetary policy unchanged. Still, it has strengthened its
forward guidance and ramped up its dovish rhetoric. In April,
ECB president Mario Draghi said the ECB was resolute in its
determination to maintain a high degree of monetary
accommodation and that the ECB stands ready to implement
further conventional or non-conventional policy easing. He
even included the possibility of a quantitative easing (QE)
programme, if inflation remained too low for too long. Mr
Draghi hinted that such a QE programme could be focused on
private sector loans. Indeed, a small asset purchase
programme –based on securities backed by loans- is a distinct
possibility going forward. In addition, the risks for a (small) cut
in the refi rate and the deposit rate have risen, though our
base case is no change.
800
60
40
600
20
0
400
-20
-40
200
-60
0
-80
09
10
11
3m euribor minus refi rate (lhs)
12
13
14
Excess liquidity (EURbn, rhs)
Source: Thomson Reuters Datastream
Key forecasts for the eurozone economy
GDP (% qoq)
CPI inflation (% yoy)
Unemployment rate (%)
Official policy rate (eop)
3M interbank rate (eop)
10Y gov. bond yield (eop)
EUR/USD (eop)
13Q2
0.3
1.4
12.1
13Q3
0.1
1.3
12.0
13Q4
0.2
0.8
11.9
14Q1
0.4
0.7
11.9
14Q2
0.3
0.5
11.9
0.50
0.2
1.7
1.30
0.50
0.225
1.8
1.35
0.25
0.287
1.9
1.38
0.25
0.3
1.7
1.37
0.25
0.3
1.7
1.35
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
GDP
Private consumption
Total fixed investment
Total domestic demand
Export of goods and services
Import of goods and services
CPI inflation
Unemployment rate (%)
Budget balance (% GDP)
Current account (% GDP)
(% yoy unless stated otherwise)
2013
2014
2015
-0.4
1.3
1.8
-0.7
0.6
1.0
-2.9
2.5
3.4
-0.8
0.4
0.4
1.3
4.4
5.9
0.0
3.4
5.5
1.4
12.0
-3.1
2.5
0.5
11.9
-2.6
2.7
0.8
11.5
-2.0
2.8
7
Global Macro View – April 2014
Peter de Bruin, tel. +31 20 343 5619
US: Spring is in the air!
The economy struggled with the especially adverse winter
weather in the first quarter, but we should see substantial
payback from the winter slump in the second quarter.
Moreover, fundamentals are becoming increasingly
healthy. The pace of fiscal consolidation has fallen
sharply, which together with a strengthening labour
market and improved household balance sheets explains
why we expect consumer spending to accelerate sharply.
Meanwhile, profit margins are at historical high levels,
implying a sound investment outlook, while residential
investment needs to increase to facilitate a growing
population. Against this background, the Fed will continue
to gradually unwind its QE-programmes, though we
continue to think that it underestimates the strength of the
recovery. That is why we see slightly more rate hikes from
the middle of next year onwards than what the Fed
currently communicates and markets price in, suggesting
that Treasury yields will move higher.
Economy struggled with the bad winter weather in Q1…
Incoming data suggests that the economy struggled with the
unseasonably cold winter weather in the first quarter. Indeed,
although spending on services held up relatively well, partly
helped by higher energy-related expenditures, both durable
and non-durable goods consumption declined. As a result, we
estimate that total real consumer spending grew by just 2.0%
qoq saar, substantially less than the 3.3% recorded in the
fourth quarter. Meanwhile, activity in the construction sector
was also seriously hampered by the poor winter weather.
Housing starts fell by more than 11% in January, and failed to
recover meaningfully in February and March, implying that
residential investment was a drag on growth in the first quarter.
Furthermore, according to capital shipment data, investment in
durable equipment was also soft. Again, the weather is to
blame, but this is just part of the story. At the end of last year,
rules that allowed companies to depreciate their investment at
an accelerated pace were ended. This gave a boost to
investment in the final quarter of last year, and we are now
seeing some payback for this. Finally, monthly trade data
suggest that net trade contributed negatively to growth, after it
provided a significant lift to growth in the final quarter of last
year. Bringing everything together, we think that the economy
grew by around 1.5% in the first quarter substantially less than
the 2.6% in the final quarter of last year.
…but we should see payback in the spring
However, we think that the economy will bounce back sharply
in the second quarter as we are likely to see substantial
payback for the weather-related weakness. Indeed, vehicle
sales rose by almost 7% in March, following three months of
weak sales. Moreover, the ISM non-manufacturing index
bounced back sharply from its February dip, while its
manufacturing counterpart was up for the second month in a
row. Finally, the winter weather’s grip on the labour market
loosened substantially in February and March. Indeed,
nonfarm payrolls growth fell to 84K in December, but has
steadily rebounded reaching 192K in March. All this suggests
that the economy at the end of the first quarter was already
picking up steam again, and that it will enter the second
quarter on a much stronger footing.
Sound fundamentals should support consumption…
Apart from better weather, the recovery should be underpinned
by healthy fundamentals. First and foremost, the pace of fiscal
consolidation has fallen from 1.8% of GDP in 2013 to around
0.5% in 2014. This should primarily underpin consumer
spending, though there are more reasons behind our view that
consumption growth will accelerate strongly in coming
quarters. As noted above, the labour market recovery is
gathering momentum again and we expect job growth to
continue to strengthen, pushing down the unemployment rate.
This, in turn, should start to exert modest upward pressure on
wages, which so far have been growing at a relatively
unimpressive 2.1% in year-on-year terms. But households’
balance sheets are also in good shape. Indeed, due to strongly
rising stock and house prices, households’ net worth (assets
minus liabilities) rose by almost $10 trillion dollar in 2013,
greatly reducing the necessity of households to save.
Monthly growth in nonfarm payrolls
thousands
300
250
200
150
100
50
0
Jan 13
Jul 13
Jan 14
Source: Thomson Reuters Datastream
…as well as investment in durable equipment
The fundamentals for investment are also healthy. Profits grew
by 2.1% (qoq non-annualised) in the fourth quarter of last year,
bringing the share of profits in GDP to 12.7%, the highest level
since 1950Q4! Moreover, the economic outlook is substantially
healthier than a year ago, while uncertainty on the fiscal front
has been greatly reduced. As such, we expect investment in
durable equipment to accelerate sharply following the poor
performance in the first quarter.
8
Global Macro View – April 2014
Housing sector to remain supportive to economy
The housing market should also remain a support to the
economy, despite the sector struggling with the rise in
mortgage rates that we saw last year. Although in February,
existing home sales were 7.1% lower compared to a year ago,
it still takes just 5.2 months to clear the stock of existing
homes. This is well below the eight month threshold, below
which house prices, historically, tend to increase. As such,
house prices should continue to rise, though the pace is likely
to be more subdued after last year’s 13% surge in prices. We
are also optimistic about construction activity, as it needs to
increase in order to facilitate a growing population. Indeed,
according to the Census Bureau, the population is set to grow
by 2.5 million persons per year in the coming decade. Given
that the average size per household is currently 2.5 persons,
and will most likely fall a bit as the recovery gains traction, and
that on average 300 thousand homes per year are
demolished, housing starts need to rise from their current level
of 946K to around 1.3 – 1.4 million in coming years.
Sustained period of above trend growth ahead
All in all, we see growth rebounding sharply in the second
quarter as the economy benefits from payback from the winter
slump, and, as all the cyclical drivers discussed above will
increasingly come to the fore. This should allow the economy
to grow above its trend growth rate for a considerable amount
of time and we only see the recovery losing some steam at the
end of 2015 as financial conditions tighten due to the Fed
starting to remove its ultra-accommodative policy.
Core inflation to gradually rise
Meanwhile, a stronger recovery should help inflation to
gradually bounce back in the course of the year. Headline
inflation rose from 1.1% to 1.5% in March. Meanwhile, core
inflation seems to have reached an inflexion point as it edged
up from 1.6% to 1.7%. We think that core inflation will move
gradually higher during the course of the year. Core inflation
had trended downwards since May of 2012, reflecting that a
rise in shelter inflation has been offset by falling core goods
prices and lower services inflation. However, judging by
producer prices, declines in core goods prices should soon
start to moderate. Meanwhile, a stronger labour market
recovery should gradually start to push up labour costs and
hence services inflation. Although rent inflation should
ultimately come down when construction activity picks up, on
balance there will be upward pressure on core inflation going
forward.
Fed set to continue tapering
As was widely expected, the Fed continued to taper its QEprogrammes during its March meeting, trimming the size of
monthly purchases by $10 billion to $55 billion. Meanwhile,
FOMC members generally became more optimistic about the
strength of the labour market recovery. As such, they raised
their forecasts for the federal funds rate for the end of 2015
from 0.75% to 1.0%. What is more, during the press
conference, Chair Yellen said that the time lag between the
end of the QE programmes and the first rate hike would be
‘something on the order of around six months’. Although the
minutes of the March meeting provided no evidence of an
explicit discussion when rates should be raised for the first
time, we doubt Ms. Yellen’s remark was a slip of the tongue.
As the economy is set to accelerate sharply in coming months,
a gradual tapering should continue, with the programmes
coming to a halt in October. Given our forecasts for the
unemployment rate and inflation, we see the first rate hike at
around the middle of next year, which is not too far away from
Ms. Yellen’s implied timing. Still, as we see a stronger
recovery and a sharper fall in the unemployment rate than the
Fed, it should raise the federal funds rate to 1.5% at the end of
next year, a sharper pace than it is currently communicating.
Treasury yields set to rise
This is also a stronger pace of rate hikes than what financial
markets are currently pricing in and, hence, explains why we
think that 10-Y yields will rise later in 2014 and in 2015.
Although the softness in the data flow due the adverse winter
weather and the release of the more-dovish-than-expected
March meeting minutes has so far kept a lid on interest rates,
they rose after the FOMC raised its path of expected rate hikes
for 2015. With the recovery set to accelerate sharply, we think
this process has further to go. That is why we expect 10-Y
yields to rise, in particular in the second half of 2014 and in
2015 when rate hike expectations should increasingly start to
build.
Key forecasts for the US economy
GDP (% qoq, annualised)
CPI inflation (% yoy)
Unemployment rate (%)
13Q2
2.5
1.4
7.5
13Q3
4.1
1.5
7.3
13Q4
2.6
1.2
7.0
14Q1
1.6
1.4
6.7
14Q2
4.5
1.7
6.6
Official policy rate (eop)
3M interbank rate (eop)
10Y gov. bond yield (eop)
EUR/USD (eop)
USD/JPY (eop)
GBP/USD (eop)
0.25
0.3
1.9
1.30
100
1.53
0.25
0.3
2.6
1.35
99
1.61
0.25
0.3
3.0
1.38
103
1.66
0.25
0.3
2.9
1.37
105
1.65
0.25
0.3
3.0
1.35
106
1.65
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
GDP
Private consumption
Total fixed investment
Total domestic demand
Export of goods and services
Import of goods and services
CPI inflation
Unemployment rate (%)
Budget balance (% GDP)
Current account (% GDP)
(% yoy unless stated otherwise)
2013
2014
2015
1.9
3.3
3.9
2.0
3.0
3.7
2.9
5.3
9.0
1.7
3.0
4.2
2.7
3.6
5.2
1.4
2.7
7.3
1.5
7.4
-4.1
-2.3
1.6
6.5
-2.6
-2.2
2.0
5.5
-2.4
-2.5
9
Global Macro View – April 2014
Philip Bokeloh, tel +31 20 383 2657
Japan: Tax increase finally passed
Japan took an important step in starting the long process
of repairing its government finances by increasing the
sales tax rate at the beginning of April. In the run-up to the
increase, domestic demand boomed. It is therefore
expected that demand will fall temporarily in the second
quarter. Profits are high and access to bank credit has
been eased for companies. The elevated investment
activity will lead to a further improvement in the labour
market. This props up disposable income, despite the
increased price pressures. The Bank of Japan (BoJ) is
making progress in turning the deflationary tide. Yet, a
stepping up of monetary easing is likely. Exceptionally
loose monetary policy will keep interest rates low and put
pressure on the yen.
maintenance. Consumption will probably drop temporarily in
the second quarter due to the increased sales tax rate, all the
more so as households brought forward purchases. However,
in the third quarter consumption growth may again record a
small gain.
A foreshadowing of the temporary spending dip is clear from
the recent decline in consumer confidence. After hitting a high
in September, consumer sentiment has continuously fallen. An
important cause is the rise in inflation. Consumers are
increasingly convinced that inflation will continue to increase.
The rise in the output gap, which measures the differential
between actual and potential production, confirms their belief.
Inflation expectations have increased
Milestone in history
Japan took an important step to restore order to its
government finances. As of April, the sales tax rate increased
from 5% to 8%. The next adjustment, to 10%, is planned for
October next year. The OECD estimates that each increase of
1 percentage point generates 0.5% of GDP tax revenue.
Hence, the planned adjustment to 10% will help structurally
improve the budget by 2.5 percentage points.
The adjustment of the sales tax rate marks a milestone. The
sales tax has been an agenda item since the 1970s, but tariff
increases have continuously been postponed. Back in 1997,
policymakers actually did agree to raise the tariff. However,
their timing couldn’t have been worse as it coincided with
spending cuts, the Asian financial crisis and a domestic
banking crisis. The ensuing recession was so deep that plans
to raise the sales tax rate were shelved for a long time.
On this occasion, history will likely not repeat itself. The
international environment is far more favourable for Japan than
in 1997 and the domestic economy is far stronger. GDP growth
reached 2.5% in the final quarter of last year. The growth was
completely due to domestic demand. The most important
contributions were made by consumption and investment,
which respectively added 1.3 and 1.2 percentage points to
growth. The government made a positive contribution of 0.4
percentage points. Meanwhile, the external sector and stocks
reduced output growth by 0.2 and 0.1 percentage points,
respectively.
Consumption rising in run-up to tax increase
As mentioned above, the strong rise in consumption is partly
related to the increase in the sales tax. In anticipation of the
rise, households brought forward purchases of durable goods.
For example, the number of car registrations rose by 20% yoy
and flat screen TV sales have gone up. Apart from these
purchases, households also spent more on home
Index
4
3
2
1
0
04
06
08
10
12
14
Inflation expectations
Source: Thomson Reuters Datastream
The increased price pressure, and expectation that inflation will
continue to increase, are actually positive developments and
evidence that the Bank of Japan’s aim to turn the deflationary
tide is succeeding. Inflation is currently at 1.5%, a major
change compared to the beginning of 2013, when prices were
still declining. It should be noted, however, that the increase in
inflation is mainly the result of the lower exchange rate of the
yen and the increase in energy prices. To ultimately quell
deflation, the BoJ will have to step up its aggressive stance
with an extension of its asset purchase programme. This will
keep capital market interest rates low and pressure the yen
even further.
Wages continue to rise
An opposite development to the loss in purchasing power as a
result of higher inflation, is the improvement in the labour
market. Last year, employment rose by 0.7%, while the labour
force only increased by 0.3%. As a result, unemployment
declined from 4.2% of the labour force in January 2013 to
3.6% in February 2014. The ratio between vacancies and job
seekers has reached the level of 2007, when the economy was
at full steam. The low unemployment rate increases
10
Global Macro View – April 2014
employees’ negotiation power in wage settlements. This is
confirmed by the fact that wages are rising again. Last year,
wages increased by 0.2% after having declined by 0.6% in the
year before This helped to prop up disposable income, which
rose by 0.3%.
Current account temporarily in deficit
Yen tln
20
3
10
2
0
1
-10
0
-20
-1
00
02
04
06
08
Trade account (lhs)
10
12
14
Current account (rhs)
Source: Thomson Reuters Datastream
Wages are also set to rise in 2014, not least because many
major employers have responded to the government’s call to
compensate their employees for the increased tax burden.
Employers have room to do so, as company profitability has
improved strongly. Corporate profits increased in 2013 by
20%. The 1.9% increase in productivity helped lower unit
labour costs as well as boost profits.
The improvement in profitability gives companies the scope to
invest. Extra financial means are available now that credit
conditions have become more lenient and banks are keener to
extend credit. Outstanding credit increased last year by 1.8%.
The more favourable credit conditions are related to the BoJ’s
massive bond-buying scheme. The resulting liquidity is
increasingly being used by banks to extend credit.
Producer sentiment high
Producer sentiment has improved considerably thanks to the
favourable profitability trend and more lenient financing
conditions. The PMI indices of both the services sector and the
manufacturing industry are far above 50, which hints at a
further increase in activity. The All Industries Index is
approaching the record level of 2007 and the Tankan Survey is
at its highest point since 1992. In this leading survey,
entrepreneurs have indicated that they are more optimistic
about the future. Domestic demand and profitability are
perceived as encouraging. And companies are indicating that
they plan to hire more workers in the future, although they are
somewhat hesitant on the outlook for the second quarter.
The restraint regarding the prospects for the second quarter
are also reflected in the Economic Watchers Survey, which
declined sharply last month. The outcome for February was a
first signal that industrial production growth will temporarily fall
back. Production increased that month by 7% yoy, which is
rather good, but much lower than in January when production
reached its peak with an increase of 10.4%. The extra
production of cars and construction materials accounted for the
increase. In anticipation of a temporary recoil in demand,
companies are using their stocks.
Meanwhile, the corporate sector needs to improve its
competitiveness. While Japan ranks 9th on the Global
Competitiveness Index of the World Economic Forum, its
companies increasingly have difficulty competing with their
foreign peers. The continued deterioration of the terms of trade
might be a sign of a lack of innovation. Even the strong
depreciation of the yen hasn’t turned the tide. As a
consequence, export growth lags import growth and the deficit
on the trade account is continuing to increase. The current
account also turned negative in the first two months of 2014.
However, this outcome is related to the temporary rise in
domestic demand. Soon the current account will be in positive
territory again.
Key forecasts for the Japanese economy
GDP (% qoq)
CPI inflation (% yoy)
Unemployment rate (%)
Official policy rate (eop)
3M interbank rate (eop)
10Y gov. bond yield (eop)
EUR/JPY (eop)
USD/JPY (eop)
13Q2
0.3
-0.3
4.0
13Q3
0.6
0.9
4.0
13Q4
0.6
1.4
3.9
14Q1
1.2
2.0
3.9
14Q2
-0.2
2.3
3.9
0.10
0.2
0.8
131
100
0.10
0.2
0.7
130
99
0.10
0.1
0.6
139
103
0.10
0.14
0.6
135
105
0.10
0.15
0.7
135
106
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
GDP
Private consumption
Total fixed investment
Total domestic demand
Export of goods and services
Import of goods and services
CPI inflation
Unemployment rate (%)
Budget balance (% GDP)
Current account (% GDP)
(% yoy unless stated otherwise)
2013
2014
2015
1.5
1.6
1.4
1.9
0.7
0.6
2.7
3.3
1.3
1.8
1.7
1.0
1.6
4.6
3.7
3.3
5.1
1.4
0.4
4.0
-10.0
0.7
2.3
3.9
-8.5
0.7
1.7
3.8
-6.5
0.9
11
Global Macro View – April 2014
Maritza Cabezas, tel +31 20 343 5618
China: Tide set to turn
Dark clouds have been hanging over China in the past few
months, but the situation seems to be improving.
Normally, we are cautious in drawing strong conclusions
from the economic data reported in the first quarter of the
year, as it is to some extent distorted by the Chinese
Lunar Year. Still, it clear that China’s economy has lost
momentum. Efforts to curb shadow banking and to reduce
high debt have hurt sentiment and are weighing on
economic activity. Even fears of a hard landing, which
return now and again when China’s economy slows, have
resurfaced. We think that these fears are overstated.
Indeed, authorities remain committed to maintaining a
growth target of around 7.5%, unchanged from 2013. We
think that this target will be achieved, albeit with the
support of some stimulus. Meanwhile, in early April
authorities opted to speed up certain projects which were
positively embraced by investors. We maintain our growth
forecast of 7.5% in 2014 and 7% in 2015.
A bumpy start to 2014, but GDP growth will be defended
Most of the high frequency indicators in the first quarter of the
year, including fixed investment and industrial production, have
shown a slower pace of growth compared to the first quarter of
2013, while price pressure continues to be absent. GDP
growth in the first quarter of 2014 was 7.4% yoy compared to
7.7% the previous quarter. We think that weaker domestic
activity reflects the negative impact of stricter reforms,
including measures to contain high debt, cut overcapacity,
control pollution and rein in corruption. But despite this
eagerness to rebalance the economy, the government
announced during the 12th National People’s Congress that it
wants to maintain the target of GDP growth at 7.5% in 2014.
But it has also become clear that the GDP growth target is not
the only priority. Environmental issues and deleveraging (the
reduction of debt/GDP) are part of the ambitious agenda.
Reform momentum is accelerating…
China’s leaders have proven to be hard-line reformists. During
November’s Third Plenum, a comprehensive reform agenda
was presented that was more ambitious than expected, while
the Report on the 12th National People’s Congress in March
highlighted more details surrounding the reforms. In the
context of financial reforms, deleveraging is taking the lead,
complemented by actions that should smoothen the process,
including the deposit insurance schemes, which are to be
established before the end of the year, the widening of the FX
band, increased accountability regarding the budget and local
government, tax breaks for SMEs as well as lowering the
barriers for State-Owned Enterprises (SOE). Premier Li also
called for orderly progress on urbanisation and cautiously
pushed for pilot land reform.
In our view, the pace of reforms has accelerated in the past
few months. Announcements are now turning into actions. The
fragilities of the financial system are forcing authorities to give
solid signals that all is going as planned. For instance,
SINOPEC, the Chinese refining giant, is now allowing private
capital, while China National Petroleum Corp has raised capital
through joint ventures. Moreover, the FX band widened in
March, a move that gives the currency more flexibility in
preparation for greater openness in the capital account. This
should reduce the speculative capital that was in search of a
strong currency, but it should also favour export growth.
Another reform, the “New-Type Urbanisation Plan” announced
in March is likely seen as a way to speed up infrastructure
investment. This could reverse the negative sentiment and
support the economy, but it could also push authorities back
into the habit of relying on investment projects for achieving
higher growth.
FX band widening
level
GDP growth
6.5
% yoy
6.4
15
14
13
12
11
10
9
8
7
6
Forecast
6.3
6.2
6.1
6
2011
2012
Market rate
1991
1995
1999
2003
2007
2011
2015
Source: Bloomberg
Source: Thomson Reuters Datastream
2013
Trading band
Series3
12
Global Macro View – April 2014
In the past decade, urbanisation policies encouraged wasteful
investments funded by large debts. We therefore agree that
the focus should be on a different type of investment in
urbanisation. This should include greater involvement of the
private sector in funding large projects and higher incomes for
migrants to stimulate consumption, while enhancing growth
quality. Another set of measures reported by the state media
suggest that several Chinese cities may relax restrictions on
home purchases that have been used to rein the property
prices.
…while a new round of “mini” stimulus is on the way
The uncertainty mainly surrounding deleveraging has impacted
investor sentiment and concerns of a hard landing have
increased. Most analysts assumed that support was needed to
ensure that the economy was on track. After the urbanisation
plan was announced, during a State Council meeting in early
April, Premier Li mentioned that the Cabinet would accelerate
construction of railways in the central and western parts of the
country and support the financing of low-cost housing through
the China development bank. This “mini” stimulus seems like a
repeat of last year’s support, small in scope but sufficient to
shift market confidence. Indeed, last year’s investment in the
railways was complemented by tax breaks, which was enough
to put the economy on firmer footing. So far, markets have
responded with optimism to the measures announced by the
authorities.
The outlook: no hard landing
Although the reform process, particularly deleveraging, has
increased the downside risks to our 7.5% growth forecast,
China has certain special characteristics that make it an
unlikely candidate for a hard landing. First, the role of the
government is so embedded that if economic conditions
deteriorate, the government can oblige banks to lend and
state-owned enterprises to invest. Second, the government
has sufficient firepower. Spending is possible because the
government has both current account and fiscal surpluses, and
debt and inflation are low. Third, the economy is going through
a rebalancing process that favours consumption in which there
is plenty of room for other sectors to grow, including the
service sector (health industry), which could mitigate the
impact of sectors that are downsizing (manufacturing). Fourth,
China’s financial system has an extraordinary buffer in the
form of a high savings ratio, which was around 50% in 2013.
Given the limited alternatives for investment, including controls
on capital outflows, this source of funding seems rather stable.
As for monetary tools, the People’s Bank of China has room
for manoeuvre. Reserve requirement ratios and interest rates
are high. Aside from these characteristics, advanced
economies have shown a steady pace of recovery. The US
and eurozone are important trading partners for China and the
growth in their external demand should support China’s export
growth. We expect GDP growth to gradually increase through
the rest of the year. Investment growth will continue to pick up
somewhat in the second half, while exports and consumption
will help the economy maintain its dynamism and avoid
escalation of the deleveraging process.
Risks to the outlook: deleveraging and the property
market
Although we have incorporated the impact of some reformrelated volatility in our growth forecast for this year, there is
always the risk that sentiment could deteriorate abruptly during
the deleveraging process. At around 170% of GDP, China’s
corporate debt is among the highest in the world. The
corporate sector includes state-owned enterprises and real
estate investors. In the case of the former, many are facing
overcapacity and it is unclear whether their earnings will be
sufficient to service their debt. Many SOEs, at least those that
are strategic, benefit from strong implicit government support,
which suggests that the process of deleveraging could be
orderly. Meanwhile tightening of credit growth has made the
future of real estate developers more uncertain. Indeed,
property investments have been weak in the first quarter of the
year. Moreover, many companies in the property sector are
financed by trust funds, a segment of shadow banking.
Shadow banking is shrinking and this could affect the supply of
loans for the sector or possible rollovers. The question that
surrounds the property market now is twofold: how profitable
have investments been in the past and will property demand
continue to grow this year, thus avoiding an oversupply
problem. Construction accounts for around 7% of GDP, while
the indirect contribution of the property market to GDP has
been estimated at around 16% of GDP. Given the linkages
within the economy, this could have broad spillover effects if
the deleveraging process is disorderly.
All in all, China’s leaders have the potential to exercise policy
flexibility and the means to support the economy, but in this
process authorities must not forget their search for better
quality growth. Otherwise, they will simply be postponing
dealing with a situation that is only becoming more
complicated to solve.
Key forecasts for the economy of China
2011
2012
2013
2014e
2015e
GDP (% yoy)
9.3
7.7
7.7
7.5
7.0
CPI inflation (% yoy)
5.5
2.6
2.6
2.8
3.2
-2.0
Budget balance (% GDP)
-1.1
-1.6
-1.8
-2.0
Government debt (% GDP)
15
15
16
20
18
Current account (% GDP)
2.0
2.5
2.1
1.5
1.0
Gross fixed investment (% GDP)
45.6
45.7
47.0
46.5
46.3
Gross national savings (% GDP)
50.2
50.1
50.2
49.3
48.2
USD/CNY (eop)
6.30
6.3
6.1
6.1
6.2
EUR/CNY (eop)
8.18
8.3
7.3
6.7
7.1
Budget b alance, current acc. for 2014 and 2015 are rounded figures
Source: EIU, ABN AMRO Group Economics
13
Global Macro View – April 2014
KEY ECONOMIC FORECASTS
17/04/2014
GDP (% yoy)
Inflation (% yoy)
Unemployment (%)
2012
2013
2014E
2015E
2012
2013
2014E
2015E
2012
2013
2014E
US
2.8
1.9
3.3
3.9
2.1
1.5
1.6
2.0
8.1
7.4
6.5
5.5
Japan
1.4
1.5
1.6
1.4
-0.1
0.4
2.3
1.7
4.3
4.0
3.9
3.8
11.5
Eurozone
2015E
-0.6
-0.4
1.3
1.8
2.5
1.4
0.5
0.8
11.4
12.0
11.9
Germany
0.9
0.5
2.0
2.3
2.0
1.5
1.0
1.3
6.8
6.9
6.7
6.4
France
0.0
0.3
1.0
1.3
2.0
0.9
0.7
0.9
9.8
10.3
10.5
10.2
Italy
-2.4
-1.8
0.5
0.8
3.3
1.3
0.3
0.1
10.7
12.2
13.5
13.8
Spain
-1.6
-1.2
1.1
1.7
2.5
1.4
0.1
0.7
25.1
26.4
25.3
24.0
The Netherlands
-1.3
-0.8
1.2
1.3
2.8
2.6
0.9
1.3
5.3
6.7
7.3
7.1
Belgium
-0.1
0.2
1.3
1.6
2.6
1.2
1.2
1.4
7.6
8.4
8.5
8.3
Austria
0.7
0.4
1.6
1.8
2.6
2.1
1.8
1.9
4.4
4.9
4.9
4.8
Finland
-1.0
-1.4
0.6
1.7
3.2
2.2
1.2
1.4
7.7
8.2
8.6
8.3
Greece
-7.0
-3.9
0.3
3.0
1.0
-0.9
-2.1
-0.9
24.1
27.2
26.2
25.2
Portugal
-3.2
-1.4
1.3
1.7
2.8
0.3
-0.2
0.5
15.9
16.5
15.0
14.5
11.0
0.2
-0.3
1.9
2.5
2.0
0.5
0.1
0.3
14.7
13.1
11.6
UK
Ireland
0.3
1.9
3.0
2.8
2.8
2.5
1.6
1.7
8.0
7.5
6.7
6.0
Sweden
1.3
1.3
2.6
2.8
1.6
0.2
0.8
2.2
8.0
8.2
7.8
7.6
Denmark
-0.4
0.4
0.9
1.6
2.4
0.8
1.4
1.8
6.0
5.7
5.7
5.5
1.0
1.7
2.0
2.2
-0.7
-0.2
0.5
0.8
2.9
3.2
3.1
3.0
Switzerland
Norway
3.3
2.0
2.3
2.5
0.6
2.0
2.0
2.3
3.1
3.5
3.5
3.5
Canada
1.8
1.7
2.4
2.8
1.6
1.3
1.3
2.4
7.2
7.0
6.8
6.5
Australia
3.6
2.5
2.8
2.9
1.8
2.1
2.6
2.7
5.4
6.0
6.2
6.0
New Zealand
2.5
2.7
3.4
3.2
1.0
1.2
2.0
2.0
7.3
6.2
5.0
4.9
3.4
3.5
3.6
3.5
2015E
World
World trade
3.0
2.8
3.3
3.5
1.9
2.3
6.0
6.0
Current account (% GDP)
Budget balance (% GDP)
Government debt (% GDP)
2012
2013
2014E
2015E
2012
2013
2014E
2015E
2012
2013
2014E
-2.7
-2.3
-2.2
-2.5
-6.8
-4.1
-2.6
-2.4
70
72
73
73
Japan
1.1
0.7
0.7
0.9
-9.5
-10.0
-8.5
-6.5
214
224
230
233
Eurozone
1.3
2.5
2.7
2.8
-3.7
-3.1
-2.6
-2.0
91
97
97
96
7.0
7.0
6.7
6.4
0.1
0.0
0.1
0.3
81
78
76
73
France
-2.2
-2.2
-2.1
-2.0
-4.9
-4.3
-3.8
-3.0
90
94
96
96
Italy
-0.4
0.8
1.2
1.5
-3.4
-3.0
-3.0
-2.5
127
133
134
133
Spain
-1.2
1.0
1.8
2.2
-10.6
-6.6
-5.8
-4.5
86
94
98
102
9.5
10.4
10.7
10.7
-4.1
-2.5
-2.8
-2.4
71
74
74
74
-1.9
-1.6
-1.0
-0.7
-4.0
-2.7
-2.4
-2.2
100
101
101
101
US
Germany
The Netherlands
Belgium
Austria
2.4
2.7
2.9
2.9
-2.6
-1.5
-2.6
-1.5
74
75
76
75
Finland
-1.4
-1.1
-0.5
-0.3
-1.8
-2.2
-2.4
-2.1
54
57
61
63
Greece
-2.4
0.7
1.1
0.6
-9.0
-13.5
-2.0
-1.1
157
176
176
172
Portugal
-2.0
0.5
1.1
1.3
-6.4
-4.9
-4.2
-3.0
124
128
128
127
* 2014 and 2015 f
UK
4.4
6.6
6.2
5.9
-8.2
-7.2
-4.8
-3.0
117
123
119
117
-3.2
-2.1
-2.4
-2.5
-6.1
-6.4
-5.3
-4.3
89
95
97
99
Source: Thomson Reuters Datastream, EIU, ABN AMRO Group Economics
14
Global Macro View – April 2014
17/04/2014
GDP (% yoy)
Inflation (% yoy)
2012
2013
2014E
2015E
2012
2013
2014E
Emerging Asia
5.8
6.1
6.1
5.9
4.3
4.3
4.3
2015E
4.5
Emerging Europe
2.1
1.7
1.6
2.7
6.4
5.2
4.9
4.6
Latin America
2.9
2.4
2.8
3.1
7.8
8.5
11.6
9.0
Middle East / North
Africa
1.8
1.5
3.2
3.7
8.2
13.0
8.6
7.9
EM Total
4.4
4.4
4.6
4.8
5.5
6.0
6.0
5.6
Eurozone
-0.6
-0.4
1.3
1.8
2.5
1.4
0.5
0.5
US
2.8
1.9
3.3
3.9
2.1
1.5
1.6
1.6
World
3.0
2.8
3.3
3.5
3.4
3.5
3.6
3.5
China
7.7
7.7
7.5
7.0
2.6
2.6
2.8
3.2
India
3.3
4.5
5.0
5.5
9.7
10.1
8.0
7.5
Turkey
2.2
4.0
3.0
4.0
8.9
7.5
8.0
7.0
Russia
3.5
1.3
1.0
2.0
5.1
6.8
5.5
5.0
Brazil
1.0
2.5
2.5
3.0
5.4
6.2
6.0
5.9
2015E
Current account (% GDP)
Budget balance (% GDP)
2012
2013
2014E
2015E
2012
2013
2014E
1.1
1.5
1.0
1.0
-2.4
-2.5
-2.5
-2.5
Emerging Europe
-0.9
-1.5
-1.0
-1.5
-1.7
-2.0
-1.0
-2.0
Latin America
-1.6
-2.5
-2.5
-2.5
-2.6
-3.0
-3.5
-3.0
9.4
6.5
5.0
4.5
2.5
0.0
-1.0
-1.0
Emerging Asia
Middle East / North
Africa
Eurozone
US
1.3
2.5
2.7
2.8
-3.7
-3.1
-2.6
-2.0
-2.7
-2.3
-2.2
-2.5
-6.8
-4.1
-2.6
-2.4
Emerging economies*
China
2.5
2.0
1.5
1.0
-1.6
-2.0
-2.0
-2.0
India
-5.0
-3.0
-2.5
-3.0
-4.9
-5.0
-5.0
-4.5
Turkey
-6.2
-8.0
-6.0
-6.0
-2.1
-1.0
-2.5
-3.0
Russia
3.6
2.5
2.0
1.0
-0.1
-0.5
-0.5
-0.5
-2.4
-3.5
-3.5
-3.5
-2.4
-3.0
-4.0
-3.5
Brazil
* 2014 and 2015 for current account and b udget deficit are rounded figures
Source: Thomson Reuters Datastream, EIU, ABN AMRO Group Economics
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15
Global Macro View – April 2014
KEY RATES FORECASTS
17/04/2014
Official policy rate (%, eop)
3m interbank rate (%, eop)
2012
2013
2014E
2015E
2012
2013
2014E
US
0.25
0.25
0.25
1.50
0.3
0.3
0.3
2015E
1.7
Japan
0.10
0.10
0.10
0.10
0.2
0.1
0.2
0.2
0.4
Eurozone
0.75
0.25
0.25
0.25
0.2
0.3
0.3
UK
0.50
0.50
0.50
2.00
0.5
0.6
0.6
2.2
Sweden
1.00
0.75
0.75
1.50
1.3
0.8
1.0
1.8
Denmark
0.20
0.20
0.20
1.20
0.2
0.2
0.5
0.5
Switzerland
0.00
0.00
0.00
0.00
0.1
0.0
0.1
0.1
Norway
1.50
1.50
1.75
2.50
1.8
1.5
2.0
2.8
Canada
1.00
1.00
1.00
1.50
1.0
1.1
1.2
1.7
Australia
3.00
2.50
2.50
3.00
3.2
2.4
2.7
3.2
New Zealand
2.50
2.50
3.75
4.75
2.7
2.7
4.0
4.9
10y government bond yields (%, eop)
Spread versus Bunds (% points)
2012
2013
2014E
2015E
2012
2013
2014E
US
1.6
3.0
3.5
4.1
0.7
0.5
0.4
0.3
France
Japan
0.8
0.6
0.9
1.1
3.2
2.3
1.8
1.5
Italy
Eurozone (Bunds)
1.3
1.9
2.2
2.7
4.0
2.2
1.6
1.2
Spain
UK
1.8
3.0
3.4
4.0
0.2
0.3
0.2
0.2
The Netherlands
Sweden
1.5
2.5
2.5
3.0
0.7
0.6
0.5
0.4
Belgium
Denmark
1.4
2.1
2.9
2.9
0.4
0.3
0.3
0.2
Austria
Switzerland
0.5
1.0
1.2
1.4
0.2
0.2
0.2
0.2
Finland
Norway
2.1
3.0
3.3
4.0
10.6
6.5
5.5
5.0
Greece
Canada
1.8
2.5
3.0
3.5
5.7
4.1
3.0
2.5
Portugal
Australia
3.3
4.2
4.5
5.0
3.3
1.7
1.5
1.0
Ireland
New Zealand
3.5
4.7
5.8
7.0
Exchange rates (versus USD, eop)*
2012
2013
2014E
Exchange rates (versus EUR, eop)*
2015E
USD
USD/JPY
2015E
2012
2013
2014E
2015E
1.32
1.38
1.30
1.20
EUR/USD
107
139
143
144
EUR/JPY
EUR/GBP
78
98
110
120
USD/EUR
0.76
0.73
0.77
0.83
GBP/USD
1.63
1.66
1.63
1.60
0.81
0.83
0.80
0.75
USD/SEK
6.50
6.3
6.3
6.7
8.58
8.8
8.3
8.0
EUR/SEK
USD/DKK
5.66
5.4
5.9
5.9
7.46
7.3
7.1
6.8
EUR/DKK
USD/CHF
0.91
0.9
1.0
1.1
1.21
1.3
1.3
1.3
EUR/CHF
USD/NOK
5.77
5.9
6.0
6.3
7.34
8.1
7.8
7.5
EUR/NOK
USD/CAD
0.99
1.1
1.2
1.2
1.31
1.5
1.5
1.4
EUR/CAD
AUD/USD
1.04
0.9
0.9
0.8
1.27
1.5
1.5
1.6
EUR/AUD
NZD/USD
0.82
0.8
0.8
0.8
1.61
1.7
1.6
1.5
EUR/NZD
USD/CNY
6.3
6.1
6.1
6.2
8.3
7.3
6.7
7.1
EUR/CNY
USD/INR
53
54
65
68
70
73
78
78
EUR/INR
* 2014 and 2015 for
1.8
2.1
2.2
2.2
2.3
2.9
2.9
2.6
EUR/TRY
USD/RUB
30
32
36
36
40
44
47
43
EUR/RUB
USD/BRL
2.0
2.3
2.5
2.5
2.7
3.2
3.3
3.0
EUR/BRL
*2014 and 2015 are rounded figures
Source: Thomson Reuters Datastream, EIU, ABN AMRO Group Economics
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