Global Economic Outlook: Secular Trends and Emerging Risks Mark A. - - PowerPoint PPT Presentation

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Global Economic Outlook: Secular Trends and Emerging Risks Mark A. Wynne Vice President & Associate Director of Research Director, Globalization Institute Federal Reserve Bank of Dallas Presentation to Houston chapter NABE September 27,

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Global Economic Outlook: Secular Trends and Emerging Risks

Mark A. Wynne Vice President & Associate Director of Research Director, Globalization Institute Federal Reserve Bank of Dallas Presentation to Houston chapter NABE September 27, 2019

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Outline

  • Fundamental drivers of long run prosperity
  • Demographics
  • Productivity growth
  • Trade
  • Global outlook
  • Still on course to expand in 2019 and 2020
  • Risks
  • Debt
  • China
  • Europe: Brexit, Italy
  • Trade
  • Black swans
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Fundamental drivers

  • Demographics
  • Aging populations in many countries, shrinking populations in some
  • Productivity growth
  • Most important determinant of improvements in living standards over time
  • Globalization
  • Driven by policy (tariffs etc.) and technology (containerization etc.)
  • More economic activity now takes place in the so-called emerging market

economies than in the advanced economies

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Demographics

  • Aging populations in almost all advanced economies
  • Declining working age population
  • Declining total population
  • Strains on public finances
  • Implications for innovation and productivity growth
  • Implications for the “natural” rate of interest, r*
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A century and a half of world population growth

  • 2.5
  • 1.5
  • 0.5

0.5 1.5 2.5 3.5 4.5 5.5 1950s 1960s 1970s 1980s 1990s 2000s 2010s 2020s 2030s 2040s 2050s 2060s 2070s 2080s 2090s Percent 0-14 15-64 65+ NOTE: Data represent decade averages

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A tipping point…

Working age population (15-64) as share of total (world)

0.55 0.57 0.59 0.61 0.63 0.65 0.67 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Global peak: 2014 (0.66) Share

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More people over 65 than under 5!

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Over 65 Under 5 Billions

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Push versus pull…

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Push versus pull…

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Demography and economic activity

  • Productive capacity of a nation depends on three things:
  • Population
  • Capital stock, both physical & intangible
  • State of technology or productivity (“ideas”)
  • Contribution of population depends on
  • Size of population of working age
  • Participation rate
  • Hours worked
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Labor force participation rates for prime age workers in the G7

0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 U.S. Japan Germany U.K. Canada France Italy Share

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Participation rates for prime age U.S. males now among the lowest in the G7

0.82 0.84 0.86 0.88 0.90 0.92 0.94 0.96 0.98 1.00 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 U.S. Japan Germany U.K. Canada France Italy Share

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Gains by U.S. prime age women have now stalled

0.3 0.4 0.5 0.6 0.7 0.8 0.9 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 U.S. Japan Germany U.K. Canada France Italy Share

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25 30 35 40 45 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 U.S. Japan Germany U.K. Canada France Italy Average Hours Worked per Week

But when U.S. workers do participate they work more hours

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Stagnating productivity growth in the U.S.

(Utilization adjusted TFP growth)

  • 3
  • 2
  • 1

1 2 3 4 5 6 1948 1958 1968 1978 1988 1998 2008 2018 Percent 1948-73 avg.: 2.1 percent 1973-95 avg.: 0.6 percent 1995-2007 avg.: 1.5 percent 2007-18 avg.: 0.3 percent

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  • 3
  • 2
  • 1

1 2 3 1985 1990 1995 2000 2005 2010 2015

…and across the OECD

(Median TFP growth)

Percent 1985-2007 avg.: 1.1 percent 2007-2017 avg.: 0.1 percent

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New York Times July 17, 2019

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Disruption…

  • “We’re also testing the use of autonomous vehicles for delivery. I

believe…that the primary place that that’s going to start is in last mile delivery…[which is]…always the most challenging…I’m not sure I’m ready to put an 80,000-pound missile on the highways in Texas on I35 without a driver there.”

  • Craig Boyan speaking at TED 2.0
  • “…up in Frisco, we did an eight-month trial of autonomous vehicles to take
  • ur office tenants. We have 10,000 people that work in buildings that we

built and we owned … At the end of the eight months, I’d say that one of the learning lessons for us was that it was harder for the customer to adapt to it. It seemed weird to get into a vehicle with nobody there driving… So,

  • n the driverless car experiment, that’s still a big hurdle. This is still a big

psychological hurdle”

  • Craig Hall speaking at TED 2.0
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Globalization in reverse?

(Exports of goods and services as a share of global GDP)

10 15 20 25 30 35 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Percent Great trade stagnation precedes trade war Great trade boom Globalization 2.0 Berlin Wall comes down Great trade collapse

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Globalization in reverse?

(Average Tariff for All Imports, 1800-2019)

10 20 30 40 50 60 1800 1815 1830 1845 1860 1875 1890 1905 1920 1935 1950 1965 1980 1995 2010 Percent

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Globalization in reverse?

  • Recent votes in U.K, France, U.S. and elsewhere have heightened

awareness of the scale of discontent with open borders

  • Western democracies appear to have done a poor job at facilitating

movement from declining sectors into emerging sectors

  • Lingering after effects of the global financial crisis may also be playing into

this

  • Support for liberal international economic order more fragile than it

has been in a long time

  • Do recent trade actions by the U.S. signal a permanent change in

policy, or are they part of a broader based renegotiation of the rules

  • f the game?
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Where are we now?

(PMIs)

30 35 40 45 50 55 60 65 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 U.S. Global Purchasing Managers’ Indexes for Manufacturing provide our most timely read on the state of the U.S. and global economy Expansion: >50 Contraction: <50 Index

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Real GDP Growth Latest Observed 2019 Consensus Forecasts 2020 Consensus Forecasts 2017 2018 YoY QoQ Latest Latest United States 2.2 2.9 2.3 2.0 Q2 2.3 1.8 World (ex. U.S.) GDP-Weighted 4.3 4.0 3.2 3.3 Q2 3.4 3.5 World (ex. U.S.) Trade-Weighted 3.5 3.0 2.2 2.5 Q2 2.2 2.4 Advanced (ex. U.S.) GDP–Weighted 2.4 1.7 1.2 1.3 Q2 1.2 1.2 Advanced (ex. U.S.) Trade-Weighted 2.5 1.8 1.3 2.0 Q2 1.3 1.3 Emerging GDP–Weighted 5.3 5.2 4.2 4.2 Q2 4.4 4.7 Emerging Trade-Weighted 4.5 4.3 3.1 3.1 Q2 3.1 3.6

Consensus Forecasts for 2019 & 2020

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Real GDP Growth – Advanced Economies Latest Observed 2019 Consensus Forecasts 2020 Consensus Forecasts 2017 2018 YoY QoQ Latest Latest Advanced (ex. U.S.) GDP–Weighted 2.4 1.2 1.3 1.3 Q2 1.2 1.3 Advanced (ex. U.S.) Trade-Weighted 2.5 1.3 2.0 2.1 Q2 1.3 1.4 Euro Area 2.5 1.9 0.8 0.8 Q2 1.1 1.2 Japan 1.9 0.8 1.3 1.8 Q2 1.0 0.3 United Kingdom 1.8 1.4 1.2

  • 0.8

Q2 1.2 1.2 Canada 3.0 1.9 1.6 3.7 Q2 1.5 1.7

Consensus Forecasts for 2019 & 2020

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Real GDP Growth – Emerging Economies Latest Observed 2019 Consensus Forecasts 2020 Consensus Forecasts 2017 2018 YoY QoQ Latest Latest Emerging GDP–Weighted 5.3 5.2 4.2 4.2 Q2 4.4 4.7 Emerging Trade-Weighted 4.5 4.3 3.2 3.1 Q2 3.1 3.6 China 6.8 6.6 6.2 5.5 Q2 6.2 6.0 India 6.9 7.4 5.0 2.9 Q2 6.8 6.8* Russia 1.7 2.2 0.8 4.4 Q2 1.1 1.9 Brazil 1.1 1.1 1.0 1.8 Q2 0.9 2.1 Mexico 2.4 2.0 0.3 0.1 Q2 0.5 1.4 South Africa 1.4 0.8 1.0 3.1 Q2 0.5 1.7

Consensus Forecasts for 2019 & 2020

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The world has changed!

GDP based on PPP, share of world total

30 35 40 45 50 55 60 65 1992 1997 2002 2007 2012 2017 2022 Advanced Emerging Percent On the eve of the Global Financial Crisis there was about as much economic activity taking place in the emerging market economies as in the advanced economies of North America, Europe and Japan

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The world has really changed!

GDP based on PPP, share of world total

5 10 15 20 25 1992 1997 2002 2007 2012 2017 2022 U.S. China Percent By some measures China became the world’s largest economy in 2014

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Impact of China slowdown on U.S. in 2000….

  • 1.2
  • 1.0
  • 0.8
  • 0.6
  • 0.4
  • 0.2

0.0 0.2 1 2 3 4 5 6 7 8

10% - 90% confidence bounds China US

Percent, deviation from baseline

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…and today

  • 1.2
  • 1.0
  • 0.8
  • 0.6
  • 0.4
  • 0.2

0.0 0.2 1 2 3 4 5 6 7 8

10% - 90% confidence bounds China US

Percent, deviation from baseline

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Risks

  • Debt
  • Problematic in both private and public sectors
  • China
  • Rebalancing towards less dependence on debt fueled growth
  • Europe
  • BREXIT; Italy
  • Trade
  • Trade war or new rules?
  • Black swans
  • Geopolitical risks
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Economic policy uncertainty increased in the UK and EU after the BREXIT referendum

100 300 500 700 900 1100 1300 Jan '14 Jul '14 Jan '15 Jul '15 Jan '16 Jul '16 Jan '17 Jul '17 Jan '18 Jul '18 Jan '19 U.K. Europe Mean=100 Index based on news articles from two newspapers from each of the five largest European economies (FT & Times of London for the UK) BREXIT referendum

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Business investment in UK notably weaker since the referendum

  • 25
  • 20
  • 15
  • 10
  • 5

5 10 15 20 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Percent change, year over year Non-residential gross fixed capital formation BREXIT referendum

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It's not just the UK: Global economic policy uncertainty is at an all-time high

325.67 50 100 150 200 250 300 350 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

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Uncertainty is weighing on investment across the OECD

0.86

  • 14
  • 12
  • 10
  • 8
  • 6
  • 4
  • 2

2 4 6 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Percent, Y/Y Change Gross fixed capital formation: OECD aggregate

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Conclusions

  • Secular trends (demographics, productivity growth, slower growth in global

trade) suggest weaker trend growth in the near to medium term

  • Modal outlook among forecasters is for continued growth through 2019 & 2020
  • U.S. likely to continue to be one of the stronger performers among the advanced economies
  • U.S., China & Japan expected to grow slower next year
  • Other major advanced economies & EMs expected to grow faster
  • Risks:
  • Debt
  • China slowdown
  • Europe: BREXIT, Italy
  • Trade
  • Black swans