1. Dougie Adams
Oxford Economics

2. A Two-speed Global Economy
Dougie Adams
January 2011

3. Key points 2010 saw a marked global recovery
Expect continued corporate-driven recovery in 2011 but there are major uncertainties, including
New pressures emerging from inflation and austerity
Global imbalances
Eurozone debt crisis
Production levels remain below peak levels with some slackening of momentum evident
Forecast 25% growth in USMTC orders in 2011 after nearly 80% growth in 2010
2011 orders still 10-12% below 2007 and 2008 levels

4. World growth – better than expected
Growth has been better than expected at a world level – perhaps +1% compared with expectations a year ago
Developed world lagging; US recovery too weak to make real inroads to unemployment
Emerging markets growing fast, though took a hit through the recession
Worries – there are always plenty – include trade tensions; the impact of US policy – QE – on the $ and money flows to the emerging markets. Many emerging markets with fixed exchange rates to the $ effectively adopt US monetary policy. Too loose for them sparking inflation / tightening fears
Forecast growth contingent on a path through the European sovereign debt crisis and further out a rebalancing of trade and the US economy.

5. Revisions to Oxford Economics forecasts
(GDP; percentage changes)
2010
2011
2012
January 2010
USA
3.2
3.0
3.2
Eurozone
1.1
1.5
2.1
China
9.5
9.0
9.0
January 2011
USA
2.9
3.2
3.5
Eurozone
1.7
1.5
1.7
China
10.1
9.2
9.1
Differences
USA
-0.3
0.2
0.3
Eurozone
0.6
-0.4
China
0.6
0.2
0.1

6. 2010 growth beating earlier expectations…
C:\my documents\ICT\NewICTcharts.xls

7. Paced by emerging markets

8. Emergers – post recession bounce giving way to sustained growth
E:\oefcom\On-Line Services\CountrySpecific\Emerging\Macro\SecureArea\emweekly\

9. Subdued recovery for the developed economies

10. US a lacklustre recovery

11. Japan – suffering from yen appreciation
From Adam

12. German economic renaissance

13. The major uncertainties
Commodity prices and emerging market inflation?
Too much fiscal tightness in Europe?
Too much fiscal ease in the US?
The bursting of the Chinese bubble?
Persistent imbalances
What will happen to the Euro?
What will happen to the US-China relationship?

14. Two-speed world economy…
D:\NewChart\One Offs\World Trade.xls

15. …impacting commodity prices
Andy Goodwin Item charts

16. …leading to food price pressures in the emergers
E:\oefcom\On-Line Services\CountrySpecific\Emerging\Macro\SecureArea\emweekly\food prices1.xls

17. The imbalances story times two
US running current account deficit of over $450billion
China running current account surplus of over $300 billion
Intervention by central bank leading to reserves rising on average by over $300 billion per annum in last five years
No sign of any change in next few years?
France, PIGS current account deficit of over $300 billion
Germany Netherlands current account surplus of $250 billion
Banks were lending to Greek government, Spanish companies and Irish banks as offset to the above imbalances
ECB/EU governments will now fill the gap?

18. …Yuan is expected to slowly appreciate against $
ChinaForecastCharts ‘RXD & RSH’

19. Worrying that trade imbalances widening again
World Forecast charts BCU - US,Jap,EU,china,OPEC

20. Eurozone – PIGS under pressure
From Paolo

21. Tough to keep up with the Germans
Euro
From Adam

22. What if the unthinkable happens in the Eurozone?

23. Recovery – the pluses and minuses
Corporates cash rich
Employment gains
Confidence rebuilding
Recovering household wealth
Interest rates remain low
Low levels of investment through crisis
Strength of emergers
Access to finance still an issue
High unemployment
Consumer confidence still low
Rising commodity prices and taxes
Fiscal retrenchment ex-US
Excess capacity o
Tightening policy & rising exchange rates in emergers
= Continuing modest recovery for developed economies

24. Corporates have hoarded cash
WHC

25. The beginnings of employment recovery
D:\NewChart\World\Forecast\WorldForecastCharts.xls ‘World Unemployment (UPILO)

26. Consumers still burdened with debt

27. …with a long period of austerity to come for many…

28. …but rates remain very low

29. Bigger than usual investment bust over recession
JNJUNPPT.xls and OverhistoricalChartsjn.xls

30. Oxford Economics forecast

31. Marked cyclical rebound underway across sectors…
C:\my documents\ICT\NewICTcharts.xls

32. …but production still well below peak levels…
C:\my documents\ICT\NewICTcharts.xls

33. Growth slowed in latest quarter
D:\IIS_Presn\Presentations\June10\jnjun10ptt.xls “recent history broad2”

34. …as this recovery proves lengthier than in earlier cycles…
C:\my documents\ICT\NewICTcharts.xls

35. Car production matching sales in recent months
D:\IIS_Chart\Cars\Historical\carshistoricalcharts (move on manually)

36. Customer sectors continue to grow globally

37. …and across sectors

38. Growth mostly quicker in US customer sectors

39. Orders are picking up
D:\IIS_Presn\Presentations\June10\jnjun10ptt.xls “Capital goods orders 3mma”

40. Short term outlook for investment goods
D:\IIS_Presn\Presentations\June10\jnjun10ptt.xls “Investment Goods ST”

41. Forecast for the US Machine tools sales
E:\Projects\AMT\Charts & Tables\Forecastcharts.xls
Machine tools sales

42. Forecast for Japan Machine tools sales
E:\Projects\AMT\Charts & Tables\Forecastcharts.xls
Machine tools sales

43. Forecast for Germany Machine tools sales
E:\Projects\AMT\Charts & Tables\Forecastcharts.xls
Machine tools sales

44. Forecast for China Machine tools sales
E:\Projects\AMT\Charts & Tables\Forecastcharts.xls
Machine tools sales

45. Quarterly USMTC orders forecast…
US orders

46. More growth to come in 2010 across the regions

47. Forming returning to generalised growth too

48. Long term outlook for investment goods
D:\IIS_Presn\Presentations\June10\jnjun10ptt.xls “Investment Goods LT”

49. Conclusions
Policy stimulus, turn in inventory cycle and rebound in world trade drove strong recovery
Global economic recovery should continue but there are growing downside risks
Machine tool orders up sharply from lows. Sales have so far been more subdued but these should now start to pick up.
MT sales are forecast to rebound sharply over the next few years in both developed and emerging markets
Strong rebound in developed economy markets follows very deep recession but focus of global MT market still increasingly moving toward emerging economies

50. End of presentation
Thank you