Is the global recovery stalling?

1. Is the global recovery stalling? Adrian Cooper acooper@oxfordeconomics.com October 2010

2. Oxford Economics • Founded in 1981 as a joint venture with Templeton College in Oxford University, Oxford Economics has since grown into one of the world’s foremost independent providers of global economic research and consulting • The rigor of our analysis, calibre of staff and links with Oxford University make us the most trusted resource for decision makers seeking independent thinking and evidence-based research. • Over 60 in-house economists. • Extensive experience in industry and public-sector analysis. • Access to over 100 economic research groups through the UN's project link. • Links to Oxford University and other leading research institutes. 2

3. Our track record

4. Global growth better than expected in 2010

5. World trade has bounced back very strongly

6. Two key points • There is still a very high level of uncertainty about the outlook, especially in the US and Europe • The recession was driven by the corporate sector and the shape of the recovery will depend on how corporates react in different countries

7. US weaker than Europe in Q2…

8. …although Europe still lagging US recovery

9. Why has the US recovery slowed? • Q2 pulled down by surging imports and easing of restocking cycle • Domestic demand was still strong • And many recent indicators encouraging • Two main areas of worry: • Housing sector is still a mess • Jobs recovery disappointing

10. Why has the US recovery slowed? • Q2 pulled down by surging imports and easing of restocking cycle • Domestic demand was still strong • And many recent indicators encouraging • Two main areas of worry: • Housing sector is still a mess • Jobs recovery disappointing

11. US domestic demand still strong in Q2

12. Why has the US recovery slowed? • Q2 pulled down by surging imports and easing of restocking cycle • Domestic demand was still strong • And many recent indicators encouraging • Two main areas of worry: • Housing sector is still a mess • Jobs recovery disappointing

13. ISM points to sustained healthy growth

14. Why has the US recovery slowed? • Q2 pulled down by surging imports and easing of restocking cycle • Domestic demand was still strong • And many recent indicators encouraging • Two main areas of worry: • Housing sector is still a mess • Jobs recovery disappointing

15. Why has the US recovery slowed? • Q2 pulled down by surging imports and easing of restocking cycle • Domestic demand was still strong • And many recent indicators encouraging • Two main areas of worry: • Housing sector is still a mess • Jobs recovery disappointing

16. Why has the US recovery slowed? • Q2 pulled down by surging imports and easing of restocking cycle • Domestic demand was still strong • And many recent indicators encouraging • Two main areas of worry: • Housing sector is still a mess • Jobs recovery disappointing

17. But corporates are still not hiring in the US…

18. Strong productivity promised jobs rebound…

19. …given US productivity level very high

20. Why aren’t companies hiring in the US? • Long-term unemployment encouraged by more generous benefits? • Job losses concentrated in construction and outlook in this sector is bleak • Regional mismatch between labour demand and supply • Uncertainty

21. Why aren’t companies hiring in the US? • Long-term unemployment encouraged by more generous benefits? • Job losses concentrated in construction • Regional mismatch between labour demand and supply • Uncertainty

22. Why aren’t companies hiring in the US? • Long-term unemployment encouraged by more generous benefits? • Job losses concentrated in construction • Regional mismatch between labour demand and supply • Uncertainty

23. Changes in US unemployment - worst & best

24. Why aren’t companies hiring in the US? • Long-term unemployment encouraged by more generous benefits? • Job losses concentrated in construction • Regional mismatch between labour demand and supply • Uncertainty

25. Bernanke on uncertainty Statement to Senate Banking Committee, 22 July: "Even as the Federal Reserve continues prudent planning for the ultimate withdrawal of monetary policy accommodation, we also recognise that the economic outlook remains unusually uncertain.“ Keynote speech at Jackson Hole, Wyoming, 27 August: “…macroeconomic projections are inherently uncertain, and the economy remains vulnerable to unexpected developments.”

26. The recession wasn’t consumer driven in US…

27. …and even less so in Germany

28. Nor were bank job cuts as bad as feared

29. Corporates have driven the cycle – in the US…

30. …and globally, then magnified through trade

31. Corporate sector now running big surpluses

32. Partly that is banks…

33. …but critically it is also non-financials

34. Government retrenchment intensifying…

35. …amid threat of Eurozone sovereign debt crisis

36. And households constrained not only by debt… Eurozone

37. …but also the weak labour market…

38. …and squeeze on real wages as well as higher taxes

39. Financial surpluses here for extended period

40. So consumers will lag rather than lead recovery

41. Corporate surpluses normally get spent in US…

42. …and elsewhere

43. We are seeing some recovery in M&A

44. What might hold companies back this time? • Unusual uncertainty • Excess capacity • Debt • Credit constraints

45. What might hold companies back this time? • Unusual uncertainty • Excess capacity • Debt • Credit constraints

46. Excess capacity holding back investment Eurozone: Capacity utilisation and real non-residential investment US: Capacity utilisation and real non-residential investment

47. What might hold companies back this time? • Unusual uncertainty • Excess capacity • Debt • Credit constraints

48. Companies seeking to pay down debt

49. What might hold companies back this time? • Unusual uncertainty • Excess capacity • Debt • Credit constraints

50. Corporate lending very weak