Global Economic Outlook - IHS Markitfederal debt crowds out private investment. • Consumer spending continues to drive US growth, supported by rising employment, household wealth,

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

© 2017 IHS Markit. All Rights Reserved.

6-7 February 2018 | Frankfurt, Germany

Zbyszko Tabernacki, CFA

Senior Vice President, Economics and Country Risk

+1 (202) 481 9236; [email protected]

Global Economic Outlook:Fully Synchronized Expansion; How Long Will It Last?


Outline

• The best synchronized global expansion since 2010; almost too good to be true?

• Global context: economy, markets, commodities

• Focus on key regional markets: what to expect in 2018 and beyond

• US: Boost from the new tax law and deregulation

• Europe: Has growth peaked?

• China: Balancing competing priorities

• Other emerging markets: A mixed picture benefitting from global uplift

• Major risks: what can go wrong and when?

• Q&A

2


PMI™ indices confirming steady expansion

3

25

30

35

40

45

50

55

60

65

Dec-02 Dec-05 Dec-08 Dec-11 Dec-14 Dec-17

United States Eurozone Japan

Purchasing Managers’ Indexes for Manufacturing

Ind

ex,

over

50 i

nd

icate

s e

xp

an

sio

n

© 2017 IHS MarkitSource: IHS Markit

30

35

40

45

50

55

60

65

Dec-02 Dec-05 Dec-08 Dec-11 Dec-14 Dec-17

China Brazil Russia India

Purchasing Managers’ Indexes for Manufacturing

Ind

ex,

over

50 i

nd

icate

s e

xp

an

sio

n

© 2017 IHS MarkitSource: IHS Markit

Confidential. © 2017 IHS MarkitTM. All Rights Reserved. 4

Data “surprises” predominantly on the upside

Net output surprises for eight* major advanced economies

-150

-100

-50

0

50

100

150

200

-12

-9

-6

-3

0

3

6

9

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

We

ek

ly n

um

be

r o

f u

ps

ide

s

urp

ris

es

min

us

do

wn

sid

e

su

rpri

ses

Weekly score (Left scale, 4-week average) Cumulative score (Right scale)Note: 8 countries (G7 plus Australia)

Source: IHS Markit © 2017 IHS Markit


0

100

200

300

400

500

1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

5

Despite political upheavals, policy uncertainty is down

Source: “Measuring Economic Policy Uncertainty” by Scott Baker, Nicholas Bloom and Steven J. Davis at

www.PolicyUncertainty.com.

EPU Index - Europe

© 2017 IHS Markit

0

50

100

150

200

250

1985 1989 1993 1997 2001 2005 2009 2013 2017

Source: “Measuring Economic Policy Uncertainty” by Scott Baker, Nicholas Bloom and Steven J. Davis at

www.PolicyUncertainty.com. © 2017 IHS Markit

EPU Index – United States


0

1

2

3

4

5

2012 2013 2014 2015 2016 2017 2018 2019 2020

Pe

rce

nt

ch

an

ge

Real GDP Industrial production Real goods & services trade

Global trade and production accelerated in 2017

6

Global real GDP, industrial production, and real exports



-1

0

1

2

3

4

5

6

2007 2009 2011 2013 2015 2017 2019

Pe

rce

nt,

en

d o

f q

ua

rte

r

United States Eurozone Japan United Kingdom Canada

The US Federal Reserve is leading major central banks in raising interest

rates, but policy is still not tight

7

Policy interest rates



Industrial materials prices are rising

8

1

2

3

4

5

6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

All industrial materials Chemicals Nonferrous metals

IHS

Ma

rkit

wee

kly

in

de

xe

s, 2

00

2:1

=1

IHS Markit Materials Price Index



Crude oil prices increase rapidly in response to strong global demand

9

0

25

50

75

100

125

150

2000 2003 2006 2009 2012 2015 2018 2021 2024 2027

Do

lla

rs/b

arr

el

Current US dollars 2016 US dollars

Price of Dated Brent crude oil



Dollar weakness a surprise, or sign of a long-term trend

10

0,8

1,0

1,2

1,4

1,6

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020

Ind

ex

, 2

00

9 =

1.0

Major trading partners Other important trading partners

Real trade-weighted dollar index



United States: Tax cuts/deregulation will boost US economic growth in

2018‒21

• The US economy has solid momentum entering 2018. With the Tax Cuts and Jobs Act (TCJA) taking effect, annual

real GDP growth is projected to pick up from 2.3% in 2017 to 2.7% in 2018.

• The TCJA will boost US economic growth 0.1 percentage point in 2018, 0.2 point in 2019 and 2020, and 0.1 point in

2021. Its impact on growth is neutral in 2022‒25 and turns negative in 2026‒27, when provisions expire and rising

federal debt crowds out private investment.

• Consumer spending continues to drive US growth, supported by rising employment, household wealth, and real

incomes—all helped by tax cuts.

• Business fixed investment will benefit from expanding global markets, an easing of regulatory policies, and a more

internationally competitive tax environment.

• Increasing household formation by young adults, low supplies of homes for sale, and rising prices will encourage more

homebuilding.

• The Federal Reserve is expected to gradually raise the federal funds rate to a high near 3.5% in 2021, overshooting

its long-run equilibrium of 2.75%.

11


Business and international provisions of the US Tax Cuts and Jobs Act

• Reduce top statutory corporate tax rate from 35% to 21%

• Expensing of newly placed business equipment

• Expand Section 179 (small business) expensing

• Full expensing of other equipment through 2022, phased out by 2027

• Limit interest deduction to 30% of earnings (EBITDA)

• Repeal the corporate alternative minimum tax (AMT)

• Limit or repeal a variety of business deductions

• Repatriation tax holiday (eight-year; two-tier rate structure)

• Shift to a territorial tax

• Provisions permanent except equipment expensing and tax holiday

12


Individual provisions of the US Tax Cuts and Jobs Act

• Seven income-tax brackets with modified rates and income ranges; lower marginal rates for most but not

all; top rate is reduced from 39.6% to 37.0%

• Raise estate tax exemptions, expand child credit

• Allow 20% deduction for pass-through income

• Nearly double the standard deduction and repeal the personal exemption

• More limited application of the Alternative Minimum Tax (AMT)

• Cap deduction for mortgage interest at loan of USD750,000

• Cap state & local tax (SALT) deductions at USD10,000

• Index tax brackets for inflation using the chained consumer price index, implying somewhat smaller

adjustments

• Effectively repeal the Affordable Care Act (ACA)’s personal mandate in 2019

• Provisions expire in 2026 except for ACA mandate repeal and indexing

13


Impact of Republican Tax Cuts and Jobs Act

14

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

TCJA less baseline Baseline Tax Cuts & Jobs Act

Real GDP growth

Source: Macroeconomic Advisers by IHS Markit © 2017 IHS Markit

Perc

en

t ch

an

ge,

4th

qtr

to

4th

qtr

-1

0

1

2

3

4

5

6

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027


Unemployment rate


Perc

en

t

0,0

0,5

1,0

1,5

2,0

2,5

3,0

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027


Core PCE inflation

Source: Macroeconomic Advisers by IHS Markit

Perc

en

t ch

an

ge,

4th

qtr

to

4th

qtr

© 2017 IHS Markit

0

1

2

3

4

5

6

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027


Federal funds rate


Perc

en

t


Impact of Republican Tax Cuts and Jobs Act

15

-1.200

-1.000

-800

-600

-400

-200

0

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027


Current-account deficit


Billio

ns

0

5

10

15

20

25

30

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027


Federal debt


Tri

llio

ns

-2.000

-1.750

-1.500

-1.250

-1.000

-750

-500

-250

0

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027


Unified budget deficit


Billio

ns

-1

0

1

2

3

4

5

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027


10-year T-note yield


Perc

en

t


US federal revenues will decline to 16% of GDP in fiscal 2019‒25 as a result

of tax cuts

16

14

16

18

20

22

24

26

1970 1976 1982 1988 1994 2000 2006 2012 2018 2024

Pe

rce

nt

of

GD

P

Federal revenues Federal expenditures

Federal revenues and expenditures*

* Fiscal years, unified budget



0

5

10

15

20

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Unemployment Rates

Source: BLS

percent

U3

U6

0

2

4

6

8

10

58

60

62

64

66

68

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Above-Trend Growth Lifts Employment Ratio

H F

Source: Macroeconomic Advisers by IHS Markit, BLS

Percent of working age population

Participation rate (left)

Percent of labor force

Employment/population

ratio (left)

Unemployment

rate (right)

Coming at the time when the economy is already close to full employment


-1.5

-1.0

-0.5

0.0

0.5

1.0

2013 2014 2015 2016 2017 2018 2019 2020

Fiscal Stimulus (or Drag): Contributions to Real GDP Growth

The fiscal positions of federal and state & local governments switched from drag to stimulus,

adding one percent to 2015 GDP growth, but less in following years.

contributions to 4-qtr % change of real GDP

Total

Federal

Source: Macroeconomic Advisers by IHS Markit

State & Local

And supported by a fiscal boost


-2

0

2

4

6

-2

0

2

4

6

2004 2006 2008 2010 2012 2014 2016 2018 2020

Gradual Rise in Core Inflation & Overshoot in 2020

H FUnemployment gap

(right)Core PCE Inflation

(left)

Source: Macroeconomic Advisers by IHS Markit, BLS, Philadelphia Federal Reserve Survey of Professional Forecasters

Services

4-quarter percent change Percentage points

Inflation

Expectations

(left)

Adding to gradual pick up in inflation


US interest rates will rise more rapidly and yield curve will flatten

20

0

2

4

6

8

10

12

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Pe

rce

nt

Federal funds 10-year Treasury 30-year mortgage BAA corporate

Interest rates



Eurozone economy – Stabilizes at solid and broad-based growth trajectory

21

30

35

40

45

50

55

60

65

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

PMI Composite PMI Manufacturing PMI Services

The composite PMI reached a near-7 year high in December


50=

un

ch

an

ged

acti

vit

y

0

5.000

10.000

15.000

20.000

25.000

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

2012 2013 2014 2015 2016 2017

Number of Jobless (rhs) Unemployment Rate (lhs)

The jobless rate stands at a 9-year low

Source: Eurostat © 2018 IHS Markit

Perc

en

tag

e

Th

ou

san

ds o

f p

ers

on

s

-0,6

-0,4

-0,2

0,0

0,2

0,4

0,6

0,8

1,0

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

2012 2013 2014 2015 2016 2017

GDP q/q (rhs) GDP y/y (lhs)

Growth has gained significant momentum


Perc

en

tag

e C

han

ge

0

20

40

60

80

100

120

-35

-30

-25

-20

-15

-10

-5

0

5

2009 2010 2011 2012 2013 2014 2015 2016 2017

Consumer Confidence (lhs) Economic Sentiment (rhs)

Business and consumer confidence are trending upwards


Ind

ex

Ind

ex


European GDP forecasts (Preliminary February 2018)

22

2016 2017 2018 2019 2016 2017 2018 2019

Austria 1.5 3.0 3.1 2.0 Norway 1.0 2.2 1.9 1.9

Belgium 1.5 1.7 1.6 1.5 Portugal 1.5 2.6 2.0 1.7

Denmark 2.0 1.9 1.6 1.7 Slovakia 3.3 3.2 3.3 4.0

Finland 1.9 3.0 2.7 1.8 Slovenia 3.3 4.7 3.8 2.7

France 1.1 1.9 2.1 1.8 Spain 3.3 3.1 2.3 1.8

Germany 1.9 2.5 2.8 2.0 Sweden 3.0 2.6 2.4 2.0

Greece -0.3 1.5 2.4 2.0 Switzerland 1.4 1.1 2.5 1.8

Ireland 5.2 6.5 4.5 3.7 UK 1.8 1.5 1.4 1.5

Italy 1.1 1.5 1.5 1.3 Eurozone 1.8 2.5 2.4 1.9

Source: IHS Markit © Markit


Monetary stimulus, pent-up demand, and mild inflation lift Eurozone growth

Accommodative monetary policy

Reviving lending to private sector

Neutral/slightly stimulative fiscal stances

Competitive euro

Falling unemployment/ rising employment

Improved confidence levels

Falling real wages in some countries

Inflation set to rise in 2018/19

Political uncertainty in Italy and Spain

Brexit negotiations

Weak Eurozone banking sector

Structural barriers to growth


Latest Eurozone sentiment data point to bright 2018H1

• Eurozone economy grew by 0.6% Q/Q in the final quarter of 2017 after a 0.7%

Q/Q gain in the third quarter.

• Survey data suggest the economy will enjoy solid start to 2018.

• Eurozone PMI composite output index rose to an 82-month high at end-2017.

• Eurozone economic sentiment rose for 7 straight month to stand at 17-year

high of 116.0 in December 2017, well above its long-term average of 100.0.

• Confidence is elevated across most of the business sectors in December 2017.

Positively, industry sentiment has climbed to a new series high (since 1985)

• Sentiment amid service providers has improved for a seventh successive

month to stand at best level since 2007.

• Employment expectations are above historical norms, while manufacturing

capacity utilization stood 83.8% at end-2017, above survey average of 81.0%.

• Consumer confidence across the Eurozone rose for a 5 straight month in

December 2017 to stand at its strongest level since January 2001.

• Robust survey indicators suggest Eurozone real GDP quarterly growth to be at

least 0.6% q/q during the first half of 2018.

24


Potential for upside growth surprises beyond 2018

• Growth is set to slow gradually from 2019.

1. Brexit, an agreement yes, but impact on confidence and activity inevitable.

2. Slower employment growth and higher inflation stifles real household

income growth.

3. Diminishing pent-up demand for capital and consumer goods.

• Could growth surprise on the upside in 2019?

1. Inflation remains below ECB target over a prolonged period, and very

supportive monetary policy pillars remain intact.

2. Oil prices display renewed fragility well into the medium-term.

3. ECB cheap money continues to elevate private sector credit growth.

4. Italian general election passes off painlessly, and Brexit and Catalonia

evolve positively.

5. Impact of reforms and improved sentiment may be stronger than projected.

6. Improved competitiveness at the periphery continue to drive export revival.


-1

0

1

2

3

4

5

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Pe

rce

nt

CPI inflation ECB policy rate

The European Central Bank will keep its policy rate near zero until late 2018

26

Consumer price inflation and the policy interest rate



Brexit-related uncertainty is holding back UK growth

• Economic growth is expected to slow in 2018 as uncertainty about the Brexit restrains business and

household spending.

• Consumer spending is projected to decelerate as above-trend inflation and a weakening job market limit

real income growth.

• Manufacturing remains a bright spot for the UK economy, buoyed by a weak pound sterling and firmer

demand in key export markets across Europe.

• The Bank of England is expected to keep policy on hold in the face of tepid economic growth. The next

policy rate increase is expected in late 2019.

• As trading relationships are clarified, sterling will gradually recover and inflation will subside. A lengthy

transition period is expected after the end of Brexit negotiations in March 2019.

27


Japan’s economy is achieving more consistent growth

• Led by an acceleration in exports, Japan’s real GDP grew an estimated 1.8% in 2017, its best

performance since 2013.

• The Bank of Japan’s Tankan (survey of enterprises) rated business conditions at a 26-year high

in December.

• A strengthening global economy and solid increases in corporate profits will fuel moderate

growth in capital expenditures.

• With the unemployment rate below 3%, wages should accelerate, supporting moderate growth

in consumer spending.

• The consumption tax will increase from 8% to 10% in October 2019, leading to buy-in-advance

behavior.

• A declining, aging population limits growth potential. High government debt may become a

serious challenge.

28


Japan’s outlook summary

29

*Annual average, **Billions of US dollars

0

50

100

150

200

250

2012 2014 2016 2018 2020 2022

60

80

100

120

140

2012 2014 2016 2018 2020 2022

-1

0

1

2

3

2012 2014 2016 2018 2020 2022-1

0

1

2

3

2012 2014 2016 2018 2020 2022

Real GDP growth (%)

Exchange rate per US dollar*

Consumer price inflation (%)

Current-account balance**

Source: IHS Markit © 2018 IHS Markit Source: IHS Markit © 2018 IHS Markit

Source: IHS Markit © 2018 IHS Markit Source: IHS Markit © 2018 IHS Markit


Forces that restrained emerging markets’ growth and conditions leading to

improved performance

30

Restraints on growth

• Excess capacity after

investment booms

• Slowdown in world trade

• Low commodity prices

• Capital flight and downward

pressure on currencies

• Debt accumulation

Turnaround conditions

• Rising consumer demand

• Strengthening exports

• Recoveries in commodity prices

and stock markets

• Return of risk capital

• Market and fiscal reforms to

improve resource allocation


China’s economic growth will slow gradually

• Real GDP growth edged up to 6.9% in 2017, led by strong overseas demand and a buoyant services

sector. The economy grew 6.8% y/y in the final two quarters of 2017.

• Efforts to reduce excess industrial capacity, an antipollution campaign, and a housing-market correction

will slow real GDP growth to 6.7% in 2018 and 6.4% in 2019.

• Policymakers aim to reduce leverage in the economy through tighter financial supervision and regulation,

including a crackdown on shadow banking.

• The yuan is expected to depreciate gradually against the US dollar through 2020. Capital controls may be

imposed to prevent large capital outflows.

• Under China’s 13th five-year plan, services will account for 70% of incremental growth in 2016–20, up

from about 60% in 2011–15.

31


2017 improvement driven by exports

-10-8-6-4-202468

1012

IndustrialProduction

Fixed AssetInvestment

Retail Sales Exports

2017 2016

(Percent change)

32


Fixed asset investment supported by government

0

5

10

15

20

25

30

Ja

n-1

5

Fe

b-1

5

Ma

r-15

Apr-

15

Ma

y-1

5

Ju

n-1

5

Ju

l-1

5

Aug

-15

Sep

-15

Oct-

15

Nov-1

5

Dec-1

5

Ja

n-1

6

Fe

b-1

6

Ma

r-16

Apr-

16

Ma

y-1

6

Ju

n-1

6

Ju

l-1

6

Aug

-16

Sep

-16

Oct-

16

Nov-1

6

Dec-1

6

Ja

n-1

7

Fe

b-1

7

Ma

r-17

Apr-

17

Ma

y-1

7

Ju

n-1

7

Ju

l-1

7

Aug

-17

Sep

-17

Oct-

17

Nov-1

7

Dec-1

7

Total FAI SOE FAI Infrastructure FAI

33

(Percent change y/y)


Housing will drag on economy in short-term, but falling

inventory positive for long-term

150

200

250

300

350

400

450

500

-25

-15

-5

5

15

25

35

45Ja

n-1

5

Fe

b-1

5

Ma

r-15

Apr-

15

Ma

y-1

5

Ju

n-1

5

Ju

l-1

5

Aug

-15

Sep

-15

Oct-

15

Nov-1

5

Dec-1

5

Ja

n-1

6

Fe

b-1

6

Ma

r-16

Apr-

16

Ma

y-1

6

Ju

n-1

6

Ju

l-1

6

Aug

-16

Sep

-16

Oct-

16

Nov-1

6

Dec-1

6

Ja

n-1

7

Fe

b-1

7

Ma

r-17

Apr-

17

Ma

y-1

7

Ju

n-1

7

Ju

l-1

7

Aug

-17

Sep

-17

Oct-

17

Nov-1

7

Dec-1

7

Starts Sales of new housing New housing inventory (right scale)

34

(Percent change y/y) (Million sq. meters)


Government’s regulatory crackdown on shadow banking

taking effect in 2017

0

5

10

15

20

25

30

35

Total Social Financing(TSF)

Bank loans Non-loan TSF

2017 2016

(Percent change y/y)

35


Corporate debt unusually high for China’s level of

development

36

Argentina

AustraliaAustria

Belgium

Brazil

CanadaChile

China

Colombia

Czech Republic

DenmarkEurozoneFinland

France

GermanyGreece

Hong Kong

Hungary

India

Indonesia

Ireland

IsraelItaly

Japan

Luxembourg

Malaysia

Mexico

Netherlands

New Zealand

Norway

Poland

Portugal

Russia Saudi Arabia

Singapore

South Africa

South KoreaSpain

Sweden

Switzerland

ThailandTurkey

United Kingdom United StatesAdvanced economies

Developing CountriesWorld

0

50

100

150

200

250

300

350

400

0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 110000

Corporate debt v GDP per capita (2016)

Source: BIS, IHS Markit © 2017 IHS Markit

GDP per capita (US$)

Co

rpo

rate

de

bt

(% G

DP

)


China long term economic prospects depend on reform

induced productivity growth

4,4

6,5

4,4

6,0

3,5

1,4

2,0

0,6

0,2

0,2

-0,3 -0,3

3,0

3,3

6,1 2,2

2,5

1,0

-2

0

2

4

6

8

10

12

1981-1990 1991-2000 2001-2008 2009-2015 2021-2040High TFP

2021-2040 LowTFP

Capital Stock Labor Total Factor Productivity

Real GDP growth decomposition, average percent change

9.310.5 10.7

8.5

Avg. GDP growth

5.7

2.1

37

1980-2008 average TFP

growth = 4.0%

Source: IHS Markit Economics


India’s economy underperformed in 2017

• The government’s advance estimate calls for 6.5% real GDP growth in the fiscal year ending 31

March, down from 7.1% in the previous year.

• The unified goods and services tax (GST), introduced in July 2017, caused temporary

disruptions but should improve competitiveness.

• Led by strengthening domestic and external demand, industrial production surged 8.4% y/y in

November.

• The government’s plans to increase capital injections into public-sector banks should expedite

credit and investment recoveries.

• With inflation picking up, no further interest rate cuts are expected. The next central bank move

will be a rate hike in September 2018.

• Policy reforms will slowly move forward. Much remains to be done to open markets, upgrade

infrastructure, and raise productivity.

38


Brazil: The recession is over

39

-3

-2

-2

-1

-1

0

1

1

2

2

3

2013-Q1 2013-Q3 2014-Q1 2014-Q3 2015-Q1 2015-Q3 2016-Q1 2016-Q3 2017-Q1 2017-Q3

Brazil: GDP growth

Notes: Seasonally adjusted data

Pe

rce

nt:

qu

art

er

on

qu

art

er,

no

t a

nn

uali

ze

d


Low inflation allows central bank to cut rates aggressively

40

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17

Policy rate Inflation

© 2017 IHS Markit

Brazil: inlfation and monetary policy

%

Source: BCB, IBGE


Public finances in dire straits

41

-4

-3

-2

-1

0

1

2

3

4

5

2007 2009 2011 2013 2015 2017

Brazil: fiscal primary balance (% of

GDP)

Source: IHS Markit

-12

-10

-8

-6

-4

-2

0

2007 2009 2011 2013 2015 2017

Brazil Fiscal balance (%of GDP)

Source: IHS Markit

© 2017 IHS Markit © 2017 IHS Markit


Russia: Timid recovery underway

• The real GDP expanded by 0.5% y/y in Q1, and 2.5% y/y in Q2 but

recovery lost steam in Q3 2017, growth slowing to 1.8%.

• The economy contracted by 0.4% by 2016 after 2.8% decline in

2015.

• On the production side, enterprises have somewhat adapted to the

new conditions.

• Still, industrial production expanded only 1.0% in 2017, down from

1.3% in 2016.

• Weaker ruble has improved competitiveness of manufacturers.

• Import substitution has gained traction.

• Labor costs have been reined in.

• Depreciation of the currency has helped profitability where costs

are in rubles and revenues are in dollars or euro.

42

PA-30560069


What could go wrong and when?

• The usual suspects are low-level threats for the moment…

• Monetary (over) tightening

• Oil shocks

• Bursting asset bubbles

• …And not all shocks cause recessions…

• … But policy mistakes are possibly the biggest threat now

• A central bank mistakes

• Fiscal debacle

• Trade war

• Geopolitical threats (North Korea, Syria, Ukraine etc.) are low probability but potentially high

impact events.

43

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Presentation Name / Month 2017


Questions to the audience/survey

• Which year do you expect the global economy enter the next recession: (1) 2019, (2) 2020, (3)

later?

• What is the biggest risk to the global economic growth: (1) monetary policy mistake, (2) trade war,

(3) a political shock/crisis/military war

• What will happen to the US dollar against key currencies by the end of 2018: (1) weaken from

current levels, (2) stay the same, (3) strengthen

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Documents

Global Economic Outlook - IHS Markitfederal debt crowds out private investment. • Consumer spending continues to drive US growth, supported by rising employment, household wealth,