Connecting Massachusetts to the Global Economy Thank you to our sponsor #MassEconAC
Connecting Massachusetts to the Global Economy Michael Dolega Director & Senior Economist TD Economics June 2016
Global growth improving after rough patch, but risks remain Global growth is tepid, but accelerating y/y % chng. 5 Chinese economy slowing, as it rotates 2014 2015 4 EMEs adjusting to lower commodity prices 2016 2017 3 AEs continuing stimulative monetary policy 2 Trade to increase with economic activity – Would benefit from trade deals (TPP, TTIP) 1 – Rising protectionism remains a risk 0 GDP (U.S.) GDP (Adv. ex. GDP (EM/Dev.) GDP (World) Trade (World) U.S. growth robust in relative terms, lifting U.S.) dollar and weighing on exports Source: IMF, TD Economics 3
Goods exports weakened, but state less exposed Merchandise exports; Index (=100 in 2008) 130 Mass. goods exports not immune to recent slowdown, down 8% last year, but faring U.S. better recently up 6% in Q1 from a year ago 120 U.S. (Real) Mass. State exported $25.2bn in goods in 2015, or 110 6% of GDP and lower than 10.5% nationally 100 – Middlesex ($9.1bn), Essex ($6.4bn), and Norfolk ($4.0bn) account for more than 2/3 rd of all goods exports from the state 90 Forecast Mass. goods exports lagged during recovery 80 – Destination: Europe (40%) and Pacific Rim (30%) are top export markets 70 – Industries: low exposure to auto, oil, etc. – Price effects: gold, IT products, etc. Source: BEA, Census Bureau, TD Economics 4
Export outlook better for higher value-added goods Massachusetts goods exports Despite relatively small share, Mass. goods Other, exports hugely beneficial on high value-add 36.1% – High-tech: electronics and computers (30%) Electronics, – Health care: pharmaceuticals and medical 28.9% devices (17%) Chemicals U.S. goods exports – Machinery and chemicals (18%) ex. pharma, Medical devices, 12.6% 8.9% Medical Pharma, U.S., and Mass. in particular, tend to have devices, 8.1% Electronics, 2.2% 13.6% Machinery, competitive advantage in many high-value Pharma, 5.4% 3.9% added goods given human capital, strong IP protections, etc. Machinery, Other, 9.0% 62.1% Chemicals Outlook for higher value-added goods ex. pharma, 9.2% (pharma, electronics, machinery, aerospace) is bright and Mass. stands to capitalize Source: Census Bureau, TD 5
Service exports resilient and outlook very bright U.S. export volumes; index (=100 in 2014) 120 Unlike goods, services exports continued to expand despite the global slowdown and Total 115 sky-high U.S. dollar Goods 110 Services Value of service exports doubled since 2005 105 100 This is particularly important for Mass. which is highly-exposed to services exports 95 Forecast – Estimates suggest that Mass. exported more 90 than $25bn in services last year, exceeding value of int'l merchandise shipments 85 – Nationally, service exports make up only 1/3 rd 80 2010 2011 2012 2013 2014 2015 2016 2017 Outlook for services exports is especially bright, given the evolving global economy Source: BEA, TD Economics 6
Mass. stands to benefit from future trade agreements U.S. service exports; $ millions 800 Currently FTAs with 20 countries, covering Other Bus. Svc. 47% U.S. and 31% Mass. goods exports Finance & insurance 700 IP Charges – Exports to FTA countries outpacing those to Telecommunications 600 non-FTA nations Misc Transport & Travel 500 TTIP and TPP deals currently negotiated 400 could extend free market access to additional 15% of U.S. and 33% of Mass. 300 goods exports, removing sizeable tariffs 200 These trade agreements would also benefit 100 Mass. by removing barriers to services trade, improving regulation and setting standards 0 1999 2001 2003 2005 2007 2009 2011 2013 2015 for trade in services Source BEA, TD Economics 7
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Connecting Massachusetts to the Global Economy Thank you to our sponsor #MassEconAC
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