Fed Forum Outlook for the Global Economy Matthew Higgins Economist - - PowerPoint PPT Presentation

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Fed Forum Outlook for the Global Economy Matthew Higgins Economist - - PowerPoint PPT Presentation

Aug 20, 2023 319 likes •643 views

Fed Forum Outlook for the Global Economy Matthew Higgins Economist and Assistant Vice President Federal Reserve Bank of New York March 13, 2008 In collaboration with the World Trade Center Buffalo Niagara Largely Supportive Global Environment

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Fed Forum

Outlook for the Global Economy

Matthew Higgins

Economist and Assistant Vice President Federal Reserve Bank of New York March 13, 2008 In collaboration with the World Trade Center Buffalo Niagara

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  • Growth slowing outside U.S., but global recovery

expected to remain on track

  • Inflationary pressures building in some countries--central

banks reluctant to ease

  • U.S. slowdown and rate cuts have led to weaker dollar,

stabilizing current account deficit

  • Key question: Can foreign economies shake off U.S.

slowdown, global credit crunch?

Largely Supportive Global Environment

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SLIDE 3

Foreign growth expected to slow, but not drastically

Sources: National sources for 2007, Blue Chip economics for 2008 and 2009.

Growth Forecast, Major Foreign Economies

( percent y/y ) 2007 2008F 2009F Euro Zone 2.6 1.7 2.0 Japan 1.9 1.3 1.9 United Kingdom 3.0 1.9 2.2 Canada 2.6 1.9 2.6 China 11.3 9.8 9.4 NIEs 5.5 4.7 5.0 Brazil 4.6 4.6 4.3 Mexico 3.0 2.8 3.6 Memo: U.S. 2.2 1.5 2.3

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SLIDE 4

EMs now about one-third of global GDP

Global GDP ($U.S. trn.) Global Total $53.6 United States 13.9 Other Advanced 23.2 Emerging 16.5

Other Advanced 43 Emerging 31 United States 26 Percentage Distribution*

Note: Figures are estimates for 2007 * At current exchange rates

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… and more than 40 percent of non-U.S. GDP

Global GDP ($U.S. trn.) Global Total $53.6 United States 13.8 Other Advanced 23.2 Emerging 16.5

Other Advanced 58 Emerging 42 Percentage Distribution*

Note: Figures are estimates for 2007 * At current exchange rates

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SLIDE 6

EMs contributing two-thirds of foreign growth

1 2 3 4 5 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08F

Sources: FRBNY and IMF forecasts using dollar GDP weights.

Foreign real GDP: percent growth and contributions

Emerging Contribution Advanced Contribution

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80 90 100 110 120 130 1973 1978 1983 1988 1993 1998 2003 2008

Dollar near bottom of historical range

Real trade-weighted U.S. dollar. Index, average = 100

February 89

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70 90 110 130 150 170 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

$U.S. weakness = big gain in U.S. competitiveness

Export Prices for Capital Goods in $U.S. Terms

Index, 2001 = 100 November 161 February 101

Euro zone United States

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SLIDE 9

Exports Supporting Growth

3 6 9 12 15 2000 2001 2002 2003 2004 2005 2006 2007 2008 3 6 9 12 15 Residential Investment Exports Percent of GDP 2007Q4 4.1 2007Q4 12.3

Source: Bureau of Economic Analysis

Percent of GDP

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U.S. export growth strongest to EMs

5 10 15 20 25 2004 2005 2006 2007

Advanced Emerging Percent change from year ago

Source: U.S. Department of Commerce, Bureau of Economic Analysis

North America

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SLIDE 11

U.S. core import prices still close to flat

Index, 2000=100

20 60 100 140 180 220 260 300 340 1985 1990 1995 2000 2005

Index, 2000=100

20 60 100 140 180 220 260 300 340 1985 1990 1995 2000 2005

Core Goods Industrial Supplies

Core goods includes capital goods, autos, and consumer goods

Oil

Feb 100 160 323

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Three Key Questions

Can foreign economies shake off U.S. slowdown, global credit market tightening? Could China see a hard landing?

  • Stalls adjustment of global imbalances

Might foreign investors shift away from dollar assets?

  • Weaker dollar, higher interest rates
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SLIDE 13

40 50 60 99 00 01 02 03 04 05 06 07 08

ISM indexes. Indexes above 50 signals expansion

Manufacturing Services

New U.S. recession may be underway

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SLIDE 14

Global stress in the inter-bank market

United States

  • 20

20 40 60 80 100 120 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08

Euro Area and UK

  • 20

20 40 60 80 100 120 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08

Source: Bloomberg

Spread of LIBOR Rate over expected average overnight rates (3 Month)

United Kingdom Euro Area Spread (Basis Points) Spread (Basis Points)

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  • 20

20 40 60 90 93 96 99 02 05 08

  • 30
  • 15

15 30 45 60 Balance Tightening, SA Balance Tightening

Euro Zone United States

Banks tightening business lending standards

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SLIDE 16

Percent

Euro Zone: Slowing growth, rising inflation

Diffusion indexes, boom/bust line = 50 40 45 50 55 60 65 99 00 01 02 03 04 05 06 07 08

PMI Manufacturing

PMI Services 0.5 1 1.5 2 2.5 3 3.5 99 00 01 02 03 04 05 06 07 08 Core Headline Jan 3.2 Jan 1.7

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EMU monetary policy on hold for now

3.7 3.8 3.9 4.0 4.1 4.2 4.3 4.4 Jul-07 Oct-07 Jan-08 Apr-08

Source: Bloomberg

Expected Average Overnight Rate Over the Next Six Months (Swap Rate) Swap Rate Refi Rate

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Percent change, SAAR

Japan: Falling confidence, mixed data—slowdown ahead?

Diffusion Index: Source: Shoko Chukin Bank

35 40 45 50 55 99 00 01 02 03 04 05 06 07 08

  • 40
  • 30
  • 20
  • 10

10 20 30 40 00 01 02 03 04 05 06 07 08

  • 20
  • 15
  • 10
  • 5

5 10 15 20 Real Exports Industrial Production

Note: Dots show METI survey for Feb., March

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SLIDE 19

Japanese monetary policy also on hold

0.3 0.4 0.5 0.6 0.7 0.8 Jul-07 Oct-07 Jan-08 Apr-08

Source: Bloomberg

Expected Average Overnight Rate Over the Next Six Months (Swap Rate) Swap Rate Policy Rate

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  • 15
  • 10
  • 5

5 10 15 20 25 99 00 01 02 03 04 05 06 07 08

  • 10
  • 5

5 10 15

NIE+ Real Exports and G7 Real Imports, % growth Q/Q-4

NIE+ Exports

  • G7. Real Imports

EM Asia export growth tied to advanced cycle

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Mexico: Outlook tied to U.S. growth, oil prices

  • 4
  • 2

2 4 6 8 10 2004 2005 2006 2007

Real GDP Growth, SA

3.0

2.5 3 3.5 4 4.5 5 5.5 2004 2005 2006 2007 2008

Consumer Prices, percent change (y/y)

Headline Core Upper bound Inflation target

2 4 6 8 10 12 2004 2005 2006 2007 2008

Monetary Policy Rate, percent

0.6 Mexican policy rate Fed Funds target 7.5 3.0 4.0 3.7 Blue Chip 2008: 3.8 Blue Chip 2008: 2.8

Mexico U.S.

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Brazil: Outlook tied to commodity prices

  • 4
  • 2

2 4 6 8 10 12 2004 2005 2006 2007

Real GDP Growth, SA

6.9

2 4 6 8 10 12 2004 2005 2006 2007 2008

Consumer Prices, percent change (y/y)

Headline Core Upper bound Inflation target

10 12 14 16 18 20 22 2004 2005 2006 2007 2008

Monetary Policy Rate, percent

11.25 Blue Chip 2008: 4.6 Blue Chip 2008: 4.1 4.6

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Chinese growth: beginning to moderate?

6 7 8 9 10 11 12 13 14 15 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

GDP growth, percent change from year-ago quarter

Forecast

Q4 11.2

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SLIDE 24

Inflationary pressure building in China?

  • 6
  • 4
  • 2

2 4 6 8 10 12 2000 2001 2002 2003 2004 2005 2006 2007 2008

Corporate goods prices, percent change (y/y)

Consumer Goods Investment Goods 8.2 8.9

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Asia $640 billion $465 billion

U.S. current account deficit absorbs bulk of foreign current account surpluses

Oil Exporters

United States (-755 billion) Other and Unallocated (-350 billion)

Figures are data or estimates for 2007

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SLIDE 26

Sources: October 2007 IMF WEO, staff and market estimates

Official investors direct bulk of global surpluses

Reserves and Other Official Investments

( $U.S. billions ) 2005 2006 2007E EM Oil Exporters 329 429 430 China 215 260 420 Other Emerging Asia 87 103 185 Other Emerging 103 116 190 Total 734 908 1,225 Memo: U.S. Current Acount Deficit 755 811 756

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5 10 15 20 25 Mutual funds Pension funds Insurance assets Central bank FX reserves Sovereign wealth funds Hedge funds Private equity

Major Global Investment Pools, by Type

$U.S. trillions

Source: McKinsey Global Institute, market estimates. Figures refer variously to end-2006 and end-2007.

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Reference Slides

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There are four trillion dollar EM economies

Note: Figures are for 2007

887 1,205 1,155 987 3,223 1,317

500 1,000 1,500 2,000 2,500 3,000 3,500 China Brazil Russia India Korea Mexico

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80 90 100 110 120 130 140 1973 1978 1983 1988 1993 1998 2003 2008

Dollar near bottom of historical range

Real trade-weighted U.S. dollar. Index, average = 100

Feb. 85 Feb. 95

  • vs. advanced economy currencies
  • vs. EM currencies