The ‘long haul’ to recovery

The ‘long haul’ to recovery

Global Economic and Real Estate Outlook

Dr Richard Barkham MRICSNAREIM Executive Officers Meeting

October 2012

Forces acting on the global economy 1

America resurgent?

The labour market is slowly improving

19481951195419571960196319661969197219751978198119841987199019931996199920022005200820110

2

4

6

8

10

12Unemployment rate, percent

Source: IHS Global Insight

Broad Money growth is quite strong19

6019

61Q

219

62Q

319

63Q

419

6519

66Q

219

67Q

319

68Q

419

7019

71Q

219

72Q

319

73Q

419

7519

76Q

219

77Q

319

78Q

419

8019

81Q

219

82Q

319

83Q

419

8519

86Q

219

87Q

319

88Q

419

9019

91Q

219

92Q

319

93Q

419

9519

96Q

219

97Q

3

2000

2001

Q2

2002

Q3

2005

2006

Q2

2007

Q3

2008

Q4

2010

2011

Q2

2012

Q3

0

2

4

6

8

10

12

14

16

Long run average


Percent change, year-on-year

Real effective exchange rates are helping exports

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 201270

80

90

100

110

120

130

140


Trade weighted index

A manufacturing revival is underway 19

8719

87Q

419

88Q

319

89Q

219

9019

90Q

419

91Q

319

92Q

219

9319

93Q

419

94Q

319

95Q

219

9619

96Q

419

97Q

319

98Q

219

9919

99Q

420

00Q

320

01Q

220

0220

02Q

420

03Q

320

04Q

220

0520

05Q

420

06Q

320

07Q

220

0820

08Q

420

09Q

320

10Q

220

1120

11Q

4

60

65

70

75

80

85

90

95

100

105

110


Index of output

House prices have bottomed 19

8719

87Q

419

88Q

319

89Q

219

9019

90Q

419

91Q

319

92Q

219

9319

93Q

419

94Q

319

95Q

219

9619

96Q

419

97Q

319

98Q

219

9919

99Q

420

00Q

320

01Q

220

0220

02Q

420

03Q

320

04Q

220

0520

05Q

420

06Q

320

07Q

220

0820

08Q

420

09Q

320

10Q

220

1120

11Q

4

0

50

100

150

200

250

SourceIHS Global Insight

S&P/Case-Shiller National U.S. Home Price Index January 2000 = 100

Housing starts are ticking up19

9019

90M

719

9119

91M

719

9219

92M

719

9319

93M

719

9419

94M

719

9519

95M

719

9619

96M

719

9719

97M

719

9819

98M

719

9919

99M

720

0020

00M

720

0120

01M

720

0220

02M

720

0320

03M

720

0420

04M

720

0520

05M

720

0620

06M

720

0720

07M

720

0820

08M

720

0920

09M

720

1020

10M

720

1120

11M

720

1220

12M

7

0

500

1000

1500

2000

2500Housing starts, 000s


Consumption growth remains lacklustre


Quarterly percent change, year-on-year

1960

1961

Q2

1962

Q3

1963

Q4

1965

1966

Q2

1967

Q3

1970

1971

Q2

1972

Q3

1973

Q4

1975

1976

Q2

1977

Q3

1978

Q4

1980

1981

Q2

1982

Q3

1983

Q4

1985

1986

Q2

1987

Q3

1988

Q4

1990

1991

Q2

1992

Q3

1993

Q4

1995

1996

Q2

1997

Q3

1998

Q4

2000

2001

Q2

2002

Q3

2003

Q4

2005

2006

Q2

2007

Q3

2008

Q4

2010

2011

Q2

2012

Q3

-4

-2

0

2

4

6

8

10

Long run average

Capex is heading south


Non-defense capital goods exc. aircraft

Jan-

0620

06M

320

06M

5Ju

l-06

2006

M9

2006

M11

Jan-

0720

07M

320

07M

5Ju

l-07

2007

M9

2007

M11

Jan-

0820

08M

320

08M

5Ju

l-08

2008

M9

2008

M11

Jan-

0920

09M

320

09M

5Ju

l-09

2009

M9

2009

M11

Jan-

1020

10M

320

10M

5Ju

l-10

2010

M9

2010

M11

Jan-

1120

11M

320

11M

5Ju

l-11

2011

M9

2011

M11

Jan-

1220

12M

320

12M

5Ju

l-12

-40

-30

-20

-10

0

10

20

30

New orders growth, 3mth moving averageShipments growth, 3mth moving average

Whoever is elected has to enact fiscal tightening19

94

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-12

-10

-8

-6

-4

-2

0

2General government cyclically-adjusted balance as a percent of potential GDP

Source: OECD

Verdict

■ US recovery on track but expect further periods of weakness

■ The fiscal cliff ‘debate’ has the potential to be highly damaging but will be resolved

■ The real fiscal squeeze will not go away


Emerging markets

Emerging markets matter

US CH/RS/IN/BZ JN GE UK IT CD0.00

0.05

0.10

0.15

0.20

PPP impact on World GDP growth of 1% increase in National GDP (2011 data)

China drives the emerging markets

US CH/RS/IN/BZ JN GE UK IT CD0.00

0.05

0.10

0.15

0.20

PPP impact on World GDP growth of 1% increase in National GDP (2011 data)

China has been slowing for 14 months19

8819

88M

819

89M

319

89M

1019

90M

519

90M

1219

91M

719

92M

219

92M

919

93M

419

93M

1119

94M

619

9519

95M

819

96M

319

96M

1019

97M

519

97M

1219

98M

719

99M

219

99M

920

00M

420

00M

1120

01M

620

0220

02M

820

03M

320

03M

1020

04M

520

04M

1220

05M

720

06M

220

06M

920

07M

420

07M

1120

08M

620

0920

09M

820

10M

320

10M

1020

11M

520

11M

1220

12M

7

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0Grosvenor world economic activity indicator, 0 is trend growth

Source: IHS Global Insight, Grosvenor Research, Google

China’s inflation has fallen sharply19

99Q

1

1999

Q3

2000

Q1

2000

Q3

2001

Q1

2001

Q3

2002

Q1

2002

Q3

2003

Q1

2003

Q3

2004

Q1

2004

Q3

2005

Q1

2005

Q3

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3

2011

Q1

2011

Q3

2012

Q1

2012

Q3

-4

-2

0

2

4

6

8

10


Percent change, year on year

So monetary policy is being eased20

08 -1

033m

/yyy

y

3950

8 -1

033m

/yyy

y

3956

9 -1

033m

/yyy

y

3963

0 -1

033m

/yyy

y

3969

2 -1

033m

/yyy

y

3975

3 -1

033m

/yyy

y

2009

-103

3m/y

yyy

3987

3 -1

033m

/yyy

y

3993

4 -1

033m

/yyy

y

3999

5 -1

033m

/yyy

y

4005

7 -1

033m

/yyy

y

4011

8 -1

033m

/yyy

y

2010

-103

3m/y

yyy

4023

8 -1

033m

/yyy

y

4029

9 -1

033m

/yyy

y

4036

0 -1

033m

/yyy

y

4042

2 -1

033m

/yyy

y

4048

3 -1

033m

/yyy

y

2011

-103

3m/y

yyy

4060

3 -1

033m

/yyy

y

4066

4 -1

033m

/yyy

y

4072

5 -1

033m

/yyy

y

4078

7 -1

033m

/yyy

y

4084

8 -1

033m

/yyy

y

2012

-103

3m/y

yyy

4096

9 -1

033m

/yyy

y

4103

0 -1

033m

/yyy

y

4109

1 -1

033m

/yyy

y

4115

3 -1

033m

/yyy

y

0

5

10

15

20

25

Required reserve ratio, percent change

China’s secular growth trend is very robust19

8719

87Q

419

88Q

319

89Q

219

9019

90Q

419

91Q

319

92Q

219

9319

93Q

419

94Q

319

95Q

219

9619

96Q

419

97Q

319

98Q

219

9919

99Q

420

00Q

320

01Q

220

0220

02Q

420

03Q

320

04Q

220

0520

05Q

420

06Q

320

07Q

220

0820

08Q

420

09Q

320

10Q

220

1120

11Q

4

-10

0

10

20

30

40

50


Retail sales in China: percent change, year on year

Long term average

Driven by the emergence of a huge middle class

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2009 2020

Middle East & North AfricaSub-Saharan Africa

Asia PacificCentral and South AmericaEurope

North America

Global middle classMillions

Source: Oxford Economics

Household income of $10 to $100 dollars a day in PPP

The leadership change is key

■ The reshuffle at the top of the Party will take place at the Party Congress in late 2012

■ The new Cabinet will take over at the National People’s Congress in March 2013

Verdict

■ China continues to slow for the next 2 / 3 quarters

■ Stimulus boosts growth from Q2 2013 with benefits to the global economy


The euro zone crisis

Overall euro zone debt levels are sustainable

Source: Oxford Economics, Haver Analytics

Gross debt to GDP ratio, percent of GDP

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

0

50

100

150

200

250

US - grossEurozone - grossJapan - gross

The economic crisis destabilised government finances

-12

-10

-8

-6

-4

-2

0

2

4

Ireland Greece Spain Portugal France Italy Germany

20062011

General government fiscal balance as a % of GDP


Eurozone financing needs

Portugal Greece Spain Italy0

100

200

300

400

500

600

59

112

378

569€ billion 2012 Q4 to 2015

Total of maturing debt and forecast budget deficit

Source : Oxford Economics/Haver Analytics

The ECB’s Long Term Refinancing Operation has been effective

Percent


1990

M1

1990

M7

1991

M1

1991

M7

1992

M1

1992

M7

1993

M1

1993

M7

1994

M1

1994

M7

1995

M1

1995

M7

1996

M1

1996

M7

1997

M1

1997

M7

1998

M1

1998

M7

1999

M1

1999

M7

2000

M1

2000

M7

2001

M1

2001

M7

2002

M1

2002

M7

2003

M1

2003

M7

2004

M1

2004

M7

2005

M1

2005

M7

2006

M1

2006

M7

2007

M1

2007

M7

2008

M1

2008

M7

2009

M1

2009

M7

2010

M1

2010

M7

2011

M1

2011

M7

2012

M1

2012

M7

0

5

10

15

20

25

30

Germany Greece Italy Portugal Spain

It started with a consumption boom

Spain Portugal Greece Ireland France Germany0

1

2

3

4

5

6

7


Real total consumption, average percentage change 1999 to 2007

Driven by a housing boomJa

n-02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

-15

-10

-5

0

5

10

15

20

25Spain house price index, percent change year-on-year

Source: TINSA

Covering over a basic lack of competitiveness

-20 -10 0 10 20 30 40 50

Italy

Spain

Greece

Portugal

Ireland

Germany

% change in unit labour cost-based real exchange rate since joining Euro

Source: Oxford Economics / Haver Analytics

Austerity is the order of the day

Spain

Portugal

Ireland

Greece

Italy

Eurozone

France

Germany

0 2 4 6 8 10


Discretionary fiscal tightening, 2011-13% of GDP, total 2011-13

There’s a banking crisis as wellJa

n-07

Apr

-07

Jul-0

7

Oct

-07

Jan-

08

Apr

-08

Jul-0

8

Oct

-08

Jan-

09

Apr

-09

Jul-0

9

Oct

-09

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

0

100

200

300

400

500

600

700

IrelandPortugalSpainGreece

ECB lending to ‘peripheral Europe’ , € billion

Source: Oxford Economics/Haver Analytics

Even residents are deserting PIGS banksJa

n-08

Apr

-08

Jul-0

8

Oct

-08

Jan-

09

Apr

-09

Jul-0

9

Oct

-09

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

-25

-20

-15

-10

-5

0

5

10

15

20

25

Ireland Portugal Greece Spain

% of year

The bad debt problems is probably understated

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 20120

1

2

3

4

5

6

7

8

9

10

Source: Oxford Economics/Haver Analytics

Spain’s non performing loans - % loans outstanding

Eurozone banks’ exposure to debt crisis

German Banks French Banks European Bank0

100

200

300

400

500

600

700

800

900

1000

GreeceIrelandItalyPortugalSpain

US$ billion


Politics has driven the euro zone into recession

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Northern europeSouthern europe

Weighted average, percent change, year on year


Eurozone verdict

■ Recession in the peripheral countries – some growth in north due to loose monetary policy – overall very weak

■ Break up still a very real possibility:

– But some progress has been made

– Things will change after the German elections in 2013

– Will voters stay on-side whilst reforms work?

■ Eurozone remains a drag on world growth in 2012 / 2013

Middle classes still believe in the euro

Germany Italy France Spain0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

40%

27%

22%24%

42%

35%33%

30%

% responding yesUpper socio-professional groupLower socio-professional group

Would you like [COUNTRY] to leave the euro and return to [YOUR PREVIOUS CURRENCY]?Source: IFOP/Fiducial, ‘Regards européens sur la crise de la Zone Euro’, June 2012 Base: 4,000

But it is not the middle classes who go rioting


Monetary policy

Western consumers remain highly geared19

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

60

70

80

90

100

110

20

30

40

50

60

70

80

USUKEurozone (rhs)

Household debt to GDP ratios, percent

Source: OEF

As are western governments

Source: Oxford Economics, Haver Analytics


1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0

20

40

60

80

100

120

0

50

100

150

200

250US - grossEurozone - grossJapan - gross (rhs)


So central banks are printing ever more money

Jan 2

007

Apr 20

07

Jul 2

007

Oct 20

07

Jan 2

008

Apr 20

08

Jul 2

008

Oct 20

08

Jan 2

009

Apr 20

09

Jul 2

009

Oct 20

09

Jan 2

010

Apr 20

10

Jul 2

010

Oct 20

10

Jan 2

011

Apr 20

11

Jul 2

011

Oct 20

11

Jan 2

012

Apr 20

12

Jul 2

012

0

50

100

150

200

250

300

350

400

450

500US Fed Total AssetsBoE Total AssetsECB Total AssetsBoJ Monetary Base

Source: EcoWin, Bank of England, Bank of Japan, US Federal Reserve

Index, Jan 2007 = 100

Monetary policy verdict

■ Deleveraging is still a key economic ‘headwind’ in the OECD

■ Monetary policy settings are extreme and have had a positive effect, particularly on asset markets

■ But the policy is a giant economic experiment and no-one knows what the results will be

So where does all this leave us?

Summary of forces acting

Global recovery remains on a knife edge19

91

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

-8

-6

-4

-2

0

2

4

6

8

10

OECDEmerging MarketsEurozone

Real GDP, quarterly percent change, year-on-year


An EZ break up would mean a new global recession

-3

-2

-1

0

1

2

3

4

5

6

7

2005 2007 2009 2011 2013 2015 2017

World: GDP% year

Source : Oxford Economics/Haver Analytics

BaselineMultiple exits

Forecast

Deflationary conditions persist in the OECD19

94

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-5

-4

-3

-2

-1

0

1

2

3

4

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

OECD Output GapOECD Inflation (rhs)

Percent

Source: OECD, IHS Global Insight

Percent

Overall verdict

■ Weak growth, de-leveraging, low interest rates – it all sounds a bit like Japan

■ It is not as bad as Japan, but expect weak growth a poor employment creation for some time:

– US to lead growth

– Euro zone to be the main source of risk plus a drag on the world economy

Global Real Estate Markets

Summary of Return Projections

Vacancy rates are trending down……slowly20

07Q

1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2013

Q4

2014

Q4

2015

Q4

2016

Q4

0

2

4

6

8

10

12

14

16

18

Eurozone office London office Australia office US office

Vacancy %

Source: Brokers, Grosvenor Research, 2011

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

0

1

2

3

4

5

6

7

8

9

OfficeRetail

New supply is low by historic standardsNet additions to stock % - global


Long-run average

Long-run average

Rental growth likely to be subdued until the end of the period

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

-50

-40

-30

-20

-10

0

10

20

30

40

50New YorkLondonSydney

Percent


Prime office yields are close to their historic lows19

89Q

219

89Q

419

90Q

219

90Q

419

91Q

219

91Q

419

92Q

219

92Q

419

93Q

219

93Q

419

94Q

219

94Q

419

95Q

219

95Q

419

96Q

219

96Q

419

97Q

219

97Q

419

98Q

219

98Q

419

99Q

219

99Q

420

00Q

220

00Q

420

01Q

220

01Q

420

02Q

220

02Q

420

03Q

220

03Q

420

04Q

220

04Q

420

05Q

220

05Q

420

06Q

220

06Q

420

07Q

220

07Q

420

08Q

220

08Q

420

09Q

220

09Q

420

10Q

220

10Q

420

11Q

220

11 Q

420

12 Q

2

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

Office compositeAverage office compositeAverage office composite +1stdev Average office composite -1stdev

Source: Brokers, Grosvenor Research

Global office composite yield, percent

As are prime retail yields19

89Q

219

89Q

419

90Q

219

90Q

419

91Q

219

91Q

419

92Q

219

92Q

419

93Q

219

93Q

419

94Q

219

94Q

419

95Q

219

95Q

419

96Q

219

96Q

419

97Q

219

97Q

419

98Q

219

98Q

419

99Q

219

99Q

420

00Q

220

00Q

420

01Q

220

01Q

420

02Q

220

02Q

420

03Q

220

03Q

420

04Q

220

04Q

420

05Q

220

05Q

420

06Q

220

06Q

420

07Q

220

07Q

420

08Q

220

08Q

420

09Q

220

09Q

420

10Q

220

10Q

420

11Q

220

11Q

420

12 Q

2

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

Retail compositeAverage retail compositeAverage retail composite +1stdevAverage retail composite -1stdev

Source: Brokers, Grosvenor Research

Global retail composite yield, percent

Investment activity has weakenedQ

1 20

07

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

0

50

100

150

200

250

300

350

EMEAAsia PacAmericas

Source: RCAnalytics, Grosvenor Research, 2012

Global property turnover, US$ bn

Prime real estate pricing is perplexing

Pricing vs. historic expensive

Pricing vs. swap rates cheap

Rental pressure weak

Sentiment volatile

Pricing vs. equities expensive

Pricing vs. bonds cheap

Real estate – base case

Source: Grosvenor Research, 2012

% core real estate IRRs - 5 years p.a.

Sector US Canada CE UK Japan China Australia All 5 Yr Grth Start Yld Exit Yld

Office 8.1% 5.1% 4.1% 5.0% 6.2% 7.3% 8.4% 6.0% 2.7% 5.9% 6.0%

Retail 8.6% 6.3% 5.2% 4.8% - 7.3% 7.4% 6.6% 1.8% 6.3% 6.1%

Residential 6.2% - - 4.0% - 4.5% - 5.0% 3.7% 3.9% 4.2%

All 7.9% 5.7% 4.5% 4.7% 6.2% 6.4% 7.9% 6.1% 2.5% 5.8% 5.8%

5 Yr Rental Growth 3.8% 1.1% 1.0% 3.3% 3.2% 3.8% 2.8% 2.5%

Starting Yield 6.6% 6.0% 5.6% 4.4% 5.7% 5.1% 6.6% 5.8%

Exit Yield 6.6% 5.9% 5.7% 4.7% 5.5% 4.9% 6.3% 5.8%

Real estate – EZ break-up


% core real estate IRRs - 5 years p.a.

Sector US Canada CE UK Japan China Australia All 5 Yr Grth

Start Yld Exit Yld

Office 6.6% 3.8% 2.7% 3.8% 5.0% 6.4% 7.7% 4.7% 1.2% 5.9% 6.0%

Retail 8.1% 5.5% 4.4% 4.1% - 6.3% 7.0% 5.9% 1.0% 6.3% 6.1%

Residential 4.4% - - 2.8% - 4.1% - 3.7% 2.2% 3.9% 4.2%

All 6.6% 4.7% 3.3% 3.7% 5.0% 5.6% 7.4% 5.0% 1.3% 5.8% 5.8%

5 Yr Rental Growth 2.2% 0.0% -0.4% 2.1% 1.9% 2.9% 2.1% 1.3%

Starting Yield 6.6% 6.0% 5.6% 4.4% 5.7% 5.1% 6.6% 5.8%

Exit Yield 6.6% 5.9% 5.7% 4.7% 5.5% 4.9% 6.3% 5.8%

Returns vary significantly across regions

Eurozone London offices US Mainland China Australia0

1

2

3

4

5

6

7

8

9

10

base casedownside scenario


% - total returns - 5 years p.a.

The euro zone would become investible in 2014

2012 2013 2014 2015 2016-15

-10

-5

0

5

10

15

core countriesperipheral countries


% - total returns assuming a euro zone break up

Real estate hedges inflation – in the long run

1867 1874 1881 1888 1895 1902 1909 1916 1923 1930 1937 1944 1951 1958 1965 1972 1979 1986 1993 2000 20070

50

100

150

200

250

Source: Prof. S. Devaney (Aberdeen University), CBRE, IPD Grosvenor Research, 2011

London office rents in the long term, 1867=100

How did it all come to this?

Globalisation and real estate

The long decline in bond rates set the scene

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0

2

4

6

8

10

12

14

16

OECD long term interest rateOECD Inflation

Percent


Cheap Chinese goods penetrated OECD markets

US Chi Jap Ger UK Kor Fra Can Ind Esp Aus Tha Cze Sin Vie HK0

5

10

15

20

25

December 2000 December 2010

Percent of world manufacturing output

Source: EcoWin

Causing a build up in China’s foreign currency reserves19

95

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

OtherUS Bonds

Chinese foreign currency reserves, US$ mn

Source: IHS Global Insight, US department of the Treasury

OECD real interest rates pushed abnormally low19

81

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

-2

-1

0

1

2

3

4

5Percent


Leading to a huge build up in debt19

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

60

70

80

90

100

110

20

30

40

50

60

70

80

USUKEurozone (rhs)

Household debt to GDP ratios, percent

Source: OEF

Documents

The ‘long haul’ to recovery