The Global Economy and Unconventional Policies Economic... · 4/19/2016 2 Global Economic and Financial Trends •Growth in the Global Economy •Global Trade •Monetary Policies

J.P.Morgan Chase

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The Global Economy and

Unconventional Policies

Dr. Jacob A. Frenkel Chairman, JPMorgan Chase International

Chairman of the Board of Trustees,

Group of Thirty (G30)

SIPA, Columbia University New York, April 19, 2016

4/19/2016 2

Global Economic and Financial Trends

• Growth in the Global Economy

• Global Trade

• Monetary Policies & Financial

Markets

• China: Adjustments & Spillovers

• Long-term Demographic Trends

4/19/2016 3

•Global Growth Projections •Developed and Emerging Markets • Investment as a Share of GDP •Corporate Profit Margins

Growth in the Global Economy

4 J.P.Morgan Chase 4/19/2016

Global GDP Growth

3.3

3.94.1

2.5

3.6

4.8

2.5

2.9

4.3

5.4

4.9

5.55.7

3.0

0.0

5.4

4.2

3.53.3

3.4

3.1 3.2

3.5

-1

0

1

2

3

4

5

6

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

(Percent change)

World Growth

Source: IMF, last update Apr 12 2016, WEO (2015, & 2016 Forecast)


Real GDP Growth, Select Countries

-6

-4

-2

0

2

4

6

8

10

12

14

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

(Annual % Change)

US, GDP Growth Euro Area, GDP Growth

Japan, GDP Growth China, GDP growth

India, GDP growth

China,

2017:

6 .2%

Japan,

2017: -

0.1%Euro Area,

2017:1.8%

US, 2017:

2.0%

India,

2017:

7.5%

Source: IMF, last update Apr 12 2016, WEO (2015 & 2016 forecast); For US and Euro area, 2015 & 2016 are JPM forecast,

last update April 8, 2016.


Global GDP Shares

United

States

Japan, 4%

EU-27

China

India, 7%

Latin

America

Other

Advanced

EconomiesOther

Emerging

Economies

2016 IMF Forecast

16%

23%

7%

8%

18%

17%

United

States

Japan

EU-27

China, 4%

India, 4%

Latin

America

Other

Advanced

EconomiesOther

Emerging

Economies

1990

22%

9%

28%

10%

16%

7%

Source: IMF, WEO Database, last update Apr 12 2016, WEO 17


Real GDP Growth, Developed and Emerging countries

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

2000 2002 2004 2006 2008 2010 2012 2014 2016

Developed Countries

Emerging Countries

(Percent over a year ago)

Source: IMF. 2016 i s IMF forecast.


Investment as a Share of GDP

Source: IMF, last update Apr 12 2016, WEO (2015, & 2016 forecast).

18

20

22

24

26

28

30

32

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

(% of GDP)

World

Emerging

Developed

Developed:

20.8%

Emerging:

31.5%

World:

24.9%


Corporate Profit Margins, Developed and Emerging countries

3

4

5

6

7

8

9

10

11

12

13

2000 2002 2004 2006 2008 2010 2012 2014

Developed Countries

Emerging Countries

(Profit as a percent of revenue)

Emergingcountries

Developedcountries

Source: J.P. Morgan. Last observation 2015 Q3.

4/19/2016 10

•The Volume of World Trade

•China and the Trading System

•Current Accounts Imbalances

Global Trade and Balance of Payments


World Trade Volume

4.3

6.5

8.98.3

6.9

5.35.6

2.9

9.49.8

7.1

10.0

4.8 4.9

12.3

0.3

3.8

5.7

11.4

7.7

9.3

8.0

3.0

-10.5

12.4

7.1

2.83.4 3.5

2.8 3.13.8

-12

-7

-2

3

8

13

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

(Percent change)

World trade volume

Source: IMF, av. Annual growth rates, last update Apr 12 2016, WEO (2015, & 2016 forecast).


China’s Role in Global Trade (bill. Usd)

U.S.

&

EU

People’s

Republic of

China

Exports

Imports

Imports

Exports

Asia

$1,197

$992 $804

$372

Source: National Bureau of Statistics of China, 12-months through February 2016

http://www.cia.gov/cia/publications/factbook/flags/ch-flag.html


U.S. Exports by Destination

EU, 45.1%

China, 22.6%

Asia ex

China, 32.3%

2016

EU, 48.1%

China, 7.6%

Asia ex

China, 44.3%

2000

Source: US Department of Commerce, Last Observation: Feb 2016

EU,

47.4%

China,

16.1%

Asia ex China,

36.5%

2007


European Union Exports by Destination

US, 56.6%

China,

5.2%

Asia ex

China,

38.2%

2000

US, 41.0%

China,

20.4%

Asia ex

China,

38.6%

2015

Source: Eurostat, Last Observation: Dec 2015

US, 48.9%

China,

12.6%

Asia ex

China,

38.4%

2007


Current Account of Balance of Payments

-6

-4

-2

0

2

4

6

2000 2002 2004 2006 2008 2010 2012 2014 2016

(% of GDP)

Euro area

United States

Asia

Asia,

2016: 2.7%

Euro

area, 2016:

3.0%

US, 2016:

-3.0%

Source: IMF, last update Oct 07 2015, WEO (2015, & 2016 forecast)

4/19/2016 16

•Unemployment: US & Euro area •Central Bank Policy Rates •Central Bank Balance Sheets •Sectoral Leverage and Deleverage •Forward Guidance •Financial/Real Markets Disconnect

Unemployment, Monetary Policies, and Financial Markets


Unemployment Rate: US and Euro Area

3.5

4.5

5.5

6.5

7.5

8.5

9.5

10.5

11.5

12.5

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(%)

United States Euro area

United

States: 5.0%

Euro area :

10.3%

Source: Eurostat and BLS; Last observation for Euro area February 2016, For US, March 2016


Unemployment rates: Euro area

3

6

9

12

15

18

21

24

27

30

2005 2007 2009 2011 2013 2015

(% of Labor Force)

Euro area Germany Ireland

Series4 Series5 Italy

Portugal

Spain: 20.4%

Portugal: 12.3%

Greece: 24.0%

Ireland: 8.8%

Germany: 4.3%

Italy: 11.7%

Euro area: 10.4%

Source: Eurostat. *Latest for Greece is December 2015, for all others is February 2015.


Central Bank Policy Interest Rate

-1

0

1

2

3

4

5

6

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(%)

United Kingdom Japan Eurozone Canada United States

EUR

Canada

Japan

US

UK

Source: Bloomberg Market Data, Last observation: 6 Apr, 2016

Latest observation (%):

6 Apr 2016

US 0.50

UK 0.50

Japan 0.10

EUR 0.00

Canada 0.50


Total Assets of Key Central Banks (indexed levels)

Source: Bloomberg; Last Observation: Fed: Mar 30, 2016; ECB: Apr 1, 2016; BoJ: Mar 20, 2016.

50

100

150

200

250

300

350

400

450

500

Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16

(indexed, end of June 2007 = 100)

BoJ ECB Federal ReserveFed: 510

ECB: 247

BoJ: 411

QE2

QE3

LTROs

LTRO repayments

PM Abe assumes

off ice

Current Assets

% of GDP

Fed 24.0%

ECB 29.3%

BoJ 81.3%

Current Assets

Billions of $

Total 11,517

Of Which:

Fed 4,483

ECB 3,351

BoJ 3,683


Total Assets of Key Central Banks as a

Share of GDP

5

15

25

35

45

55

65

75

85


(% of GDP)

Federal Reserve ECB Federal Reserve

BoJ,

81.3%

Fed,

24.0%

ECB,

29.3%

Source: Bloomberg; Last Observation: Fed: Mar 30, 2016; ECB: Apr 1, 2016; BoJ: Mar 20, 2016.


Composition of Federal Reserve Assets

0

20

40

60

80

100

Jun 2007 Jun 2010 Mar 2016

(% of total assets)

Other

Treasuries

Treasuries

Treasuries

OtherOther

MBS

MBS

Agencies

Source: Federal Reserve, Bloomberg, Last Observation: March 30, 2016.


Composition of ECB Liquidity Facilities

0

20

40

60

80

100

Jun 2007 Mar 2012 Apr 2016

(% of total liquidity measures)

Long-term

ref ioperations

( LTROs), maturity

btw 3mo

and 36mo

Main refi

operations, maturity of

1mo or less

Main refi

operations

LTROsLTROs

Note: March 2012 follows two rounds of 36-month LTRO auctions that occurred December 21, 2011 and February 29, 2012.

Source: ECB, Last Observation: April 1, 2016


Composition of BoJ Assets

0

10

20

30

40

50

60

70

80

90

100

Jun 07 Dec 12 Mar 16

(% of total assets)

Gov't

securitiesGov't

securitiesGov't

securities

Loans &

repos

Loans &

repos

Loans &

repos

OtherOther

Other

securities(stocks / ETFs

/ J-REITs / corp bonds /

CP

Other

securities

Note: Prime Minister Abe assumed office in December 2012

Source: BoJ, Last Observation: March 2016


Household Debt to Disposable Income

Source: Haver analytics; last observation Dec 15 (US), Sep 15 (Euro area), Mar 15 (Japan).

80

90

100

110

120

130

140

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(% of disposable personal income)

Japan

United States

Euro Area

Japan:

124.4%

U.S.:

104.7%

Euro

Area :

103.8%


US: Gross Debt Outstanding by Sector

Source: Haver analytics; last observation Q4 2015.

50

60

70

80

90

100

110

120

130

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(% of GDP)

Domestic financial

Government

Household

Nonfinancial corp

Fin:

83.9%

Govt:

99.9%

Hhold:

78.3%

Nonfin

corp:

70.4%

4Q15 Total:

332.5%Peak Total

(1Q09): 373%


Euro Area: Gross Debt Outstanding by Sector

Source: Eurostat; last observation Q3 2015.

50

75

100

125

150

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(% of GDP)

Domestic financial

Government

Household

Nonfinancial corp

Fin:

141.9%

Nonfin

corp:

131.5%

Hhold:

65.3%

Govt:

113.3%

4Q15 Total: 452.0%


Japan: Gross Debt Outstanding by Sector

Source: Haver analytics; last observation Q3 2015.

70

90

110

130

150

170

190

210

230

250

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(% of GDP)

Domestic financial

Government

Household

Nonfinancial corp

Fin:

160.7%

Govt:

236.4%

Hhold:

77.4%

Nonfin

corp:

140.7%

4Q15 Total: 615.3%


FEDERAL RESERVE’s Forward Guidance “In determining whether it will be appropriate to raise the target range at its next

meeting, the Committee will assess progress--both realized and expected--toward

its objectives of maximum employment and 2 percent inflation…The Committee

currently anticipates that, even after employment and inflation are near mandate-

consistent levels, economic conditions may, for some time, warrant keeping the

target federal funds rate below levels the Committee views as normal in the longer

run. ”

October 28, 2015

“In determining the timing and size of future adjustments to the target range for

the federal funds rate, the Committee will assess realized and expected economic

conditions relative to its objectives of maximum employment and 2 percent

inflation…In light of the current shortfall of inflation from 2 percent, the Committee

will carefully monitor actual and expected progress toward its inflation goal. The

Committee expects that economic conditions will evolve in a manner that will

warrant only gradual increases in the federal funds rate; the federal funds rate is

likely to remain, for some time, below levels that are expected to prevail in the

longer run.”

FOMC statement, March 16, 2016


Bank of England’s Forward Guidance

“The MPC sets policy to achieve the 2% inflation target, and, subject to that, to

support the Government’s economic policies, including those for growth and

employment. Despite the sharp fall in unemployment, there remains scope to absorb

spare capacity further before raising Bank Rate. When Bank Rate does begin to rise,

the appropriate path so as to eliminate slack over the next two to three years and

keep inflation close to the target is expected to be gradual.”

-Minutes of the MPC meeting 6 February 2016, released February 19, 2016

“…Returning inflation to the 2% target requires balancing the drag from external

factors against increases in domestic cost growth. Fully offsetting that drag over

the short run would, in the MPC’s judgement, involve too rapid an acceleration in

domestic costs, one that would risk being unsustainable and would lead to

undesirable volatility in output and employment. Given these considerations, the

MPC intends to set monetary policy to ensure that growth is sufficient to return

inflation to the target in around two years and keep it there in the absence of further

shocks.…”

-Minutes of the MPC meeting March 17, 2016


ECB’s and BoJ’s Forward Guidance ECB “…looking ahead, taking into account the current outlook for price stability, the

Governing Council expects the key ECB interest rates to remain at present or lower levels

for an extended period of time, and well past the horizon of our net asset purchases...

Adding to the measures taken since June 2014, with today’s comprehensive package of

monetary policy decisions we are providing substantial monetary stimulus to counteract

heightened risks to the ECB’s price stability objective. While very low or even negative

inflation rates are unavoidable over the next few months, as a result of movements in oil

prices, it is crucial to avoid second-round effects by securing the return of inflation to

levels below, but close to, 2% without undue delay.”

-ECB President Mario Draghi, Introductory statement, March 10, 2016 --------------------

BOJ

“The Bank will continue with "Quantitative and Qualitative Monetary Easing (QQE) with a

Negative Interest Rate," aiming to achieve the price stability target of 2 percent, as long as

it is necessary for maintaining that target in a stable manner. It will examine risks to

economic activity and prices, and take additional easing measures in terms of three

dimensions -- quantity, quality, and the interest rate -- if it is judged necessary for

achieving the price stability target.”

-Statement of Monetary Policy, March 15, 2016


World Real GDP Growth & Financial Markets

Source: Bloomberg and IMF. Real GDP growth: 2016 is IMF forecast. MSCI: Last observation Apr i l 18, 2016.

0

50

100

150

200

250

300

350

400

450

500

-1

0

1

2

3

4

5

6

7

2004 2006 2008 2010 2012 2014 2016

(Percent over a year ago) (Index, Dec 1, 1987 = 100)

World real

GDP growth

All World

MSCI


Developed Countries Real GDP Growth & Financial Markets


200

400

600

800

1000

1200

1400

1600

1800

-5

-4

-3

-2

-1

0

1

2

3

4

5

2004 2006 2008 2010 2012 2014 2016


Developed

countries, real

GDP growth

Developed

countries,

MSCI


Emerging Countries Real GDP Growth & Financial Markets


0

250

500

750

1000

1250

1500

1750

2

3

4

5

6

7

8

9

10

2004 2006 2008 2010 2012 2014 2016


Emerging

countries, real

GDP growth

Emerging

countries,

MSCI


Global Equity Markets

40

60

80

100

120

140

160


(price-Usd, indexed: Sep 2008 = 100)

Developed Market MSCI Equity index

Emerging Market MSCI Equity Index

Emerging,

Apr 5, 16:

95.0

Developed,

Apr 5, 16:

126.1

Source: Morgan Stanley Capital International, Last Observation: 5 Apr, 2016


China: Adjustments & Spillovers

• Real GDP Growth

• Real Investment

• Commodity Prices

• Emerging Markets Growth, Profit Margins & Capital Flows


China: Real GDP Growth

6

7

8

9

10

11

12

13

14

15

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percent change over a year

Source: SSB. Last obervation: 2016 1Q.


China: Fixed investment by sector

0

10

20

30

40

50

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(%yoy)

Infrastructure

Manufacturing

Real Estate

Series4

Infrastructure:

15.7%

Manufacturing:

6.4%

Real Estate:

8.2%

Total FAI:

10.3%

Source: National Bureau of Statistics China, Last Observation: Mar 2016


Price of Brent Oil

30

45

60

75

90

105

120

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

$/bbl

Source: Platts. Last observation March 2016.


Metals prices

100

150

200

250

300

350

400

450

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Index, December 1989 = 100

Industrial metals

Precious metals

Source: J.P. Morgan. Last observation March 2016.


Food prices

90

105

120

135

150

165

180

195

210

225

240

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Index, 2005 = 100

Source: The Economist. Last observation March 2016.


Emerging markets real GDP growth

-9

-6

-3

0

3

6

9

12

2005 2007 2009 2011 2013 2015

Emerging markets (EM)

Emerging Asia

Emerging Latin America

Emerging Europe, Middle East andAfrica (EMEA)

(Percent over a year ago) (Percent over a year ago)

EMEA EM: 0.5%

EM Latam: -1.4%

EM Asia: 5.9%

EM: 3.4%

Source: J.P. Morgan. Last observation: 2015Q4


Corporate profit margins, select regions

Source: J.P. Morgan. Last observation: 2015Q2

5

6

7

8

9

10

11

12

13

14

15

16

2005 2007 2009 2011 2013 2015

Emerging Markets

Emerging Asia

Emerging Latin America

Emerging Europe and MENA

(Profit as a percent of revenue)

EMEA EM: 9.3%

EM Latam: 5.3%

EM Asia: 10.8%

EM: 9.4%


Emerging Markets: Net Capital Inflows

Source: IIF, Last Update: Jan 2016 (2015 is IIF estimate)

-1000

-500

0

500

1000

1500

2005 2007 2009 2011 2013 2015

Non-resident inflows Resident outflows Net capital inflows

bn USD, resident outflows exclude reserves; 2015 is IIF estimate


Emerging Markets: Equity Markets

30

50

70

90

110

130

150

170

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(price-Usd, Sep-08 = 100)

MSCI EM Latin America USD MSCI Emerging Europe MSCI EM Asia USD

Latin

America, Apr 5, 16:

58.5

EM Europe,

Apr 5, 16: 53.

EM Asia,

Apr 5, 16: 122.4

Sep '08 = 100

Source: Morgan Stanley Capital International, Last Observation: 5 Apr, 2016

4/12/2016 46

•Growing Population in Developing Countries

•Aging Population in Developed Countries

Long-Term Demographic Trends


World Demographic Challenge

0

50

100

150

200

250

300

350

0-9 10-19 20-29 30-39 40-49 50-59 60-69 70-79 80+

Age

Change in population, 2010-2030 (millions)

Source: UN Populations Division, last update 2010 Projected change in population 2010: 7001M

from 2010 - 2030: 1516M 2030: 8517M


Developing Countries Demographic

Challenge

0

50

100

150

200

250

300

0-9 10-19 20-29 30-39 40-49 50-59 60-69 70-79 80+

Age



from 2010 - 2030: 1426M 2030: 7138M


Developed Countries Demographic

Challenge

- 30

- 20

- 10

0

10

20

30

40

50

0-9 10-19 20-29 30-39 40-49 50-59 60-69 70-79 80+

Age



from 2010 - 2030: 90M 2030: 1379M

Documents

The Global Economy and Unconventional Policies Economic... · 4/19/2016 2 Global Economic and Financial Trends •Growth in the Global Economy •Global Trade •Monetary Policies