Macroeconomic Assumptions

Transcription

1 Macroeconomic Assumptions

2 A major factor affecting the global economy this year continues to be weakness in Chinese financial markets and the resulting fallout affecting trading partners dependent on the Chinese markets as economic growth from that country has slowed. In addition, markets around the world are intertwined with Chinese financial markets, and many have taken large blows in late 2015 and early The risks of a bursting financial bubble have increased in recent months. Many oil exporters are seeing their economies slow considerably from the precipitous drop in petroleum prices. Since the middle of 2014, tanking petroleum prices have put the Russian economy on shaky ground. The European Union is suffering because of the dependence on trade with Russia. The U.S. economy is expected to expand at rates near long-term potential in On the other hand, Canada is seeing lower economic growth with lower energy prices, which provide vital export earnings. Japan s expansion will again be modest, although exceed the performance of last year. Developing regions are expected to accelerate in 2016, but not reach pre-recession rates of growth. The slowing in population growth rates will persist in all global regions in the long term. Annual global population expansion will fall below 1% within the next 10 years, although individual nations growth rates will vary considerably. Population growth ticked up in 2015 and is expected to be somewhat higher again in The Middle East unrest has pushed many refugees from their homelands and a large proportion of those people are heading for developed countries, especially in Europe and North America. There are political issues surrounding the settlement of refugees which will ultimately impact regional population shifts. Developing and emerging economies are projected to exhibit significant slowing in population growth. However, even with economic and geo-political issues, developing nations overall will still have by far the highest growth rates. Emerging nations will experience slower than average population growth. With high overall income growth, this group of nations will enjoy robust per capita income increases, substantially increasing purchasing power, especially once the economies of China and Russia regain strength. Despite high total GDP growth in developing countries, rapid increases in population dilute per capita income expansion and constrain improvements in standards of living. Food and feed demand will increase primarily as a result of population growth in many of the poorest nations until income thresholds are reached that enable improved diets and increased demand for consumer goods. Some of the poorest nations have incomes below the developing nation average of $2,100, and those populations often live on subsistence agriculture, without much ability to purchase additional food.

3

4 The U.S. dollar strengthened relative to a global basket of currencies last year and is expected to continue to appreciate in 2016 then settle somewhat in the following year before stabilizing thereafter. The broad strengthening of the dollar will reduce competitiveness of U.S. goods in the short to medium term. The currencies of Japan, Russia, and the European Union weakened substantially against the dollar in All will continue to weaken, although at a slower rate this year. In addition, the currencies of Argentina and Brazil will weaken significantly against the dollar in Overall, developing country currencies will weaken the most relative to the dollar. Depreciation of local currencies is expected to occur widely in Africa and Latin America. While depreciation of currencies, especially steep and rapid weakening causes reduced ability to purchase goods in the short and medium term, often longer-term effects are mitigated by adjustment in the relative price levels of the importing vis-à-vis the exporting country. As such, longer-term real purchasing power is expected to eventually return to similar levels as those prior to the recent currency adjustments. Emerging countries real exchange rates are actually expected to appreciate after 2016, led by the stabilization and eventual strengthening of the Chinese yuan. Developed and developing nation currencies are expected to strengthen for a few years after 2016 before stabilizing for the remainder of the projection period. The overall long-term picture is for one of fairly consistent purchasing power relative to the dollar to return before 2020, and be maintained for the remainder of the outlook. As such, U.S. goods should regain competitiveness on world markets. The Chinese yuan will stabilize relative to the dollar from 2017 through 2020, as that country s financial system regains firmer footing. At that point it will appreciate in the second half of the projection period. This is a significantly weaker view of the yuan in the sort to medium term than in previous baseline projections and could impact trade with the U.S. The Euro is currently facing challenges that are resulting in weakening against the dollar. As the Eurozone countries are projected to get their fiscal situations back on track and emerge successfully from the current financial crisis after 2016, the Euro will appreciate slowly against the dollar.

5

6 The outlook for crude oil prices is for the recent slide to end this year, with an average below $50 per barrel. In recent weeks, petroleum prices have fallen below $40, and have even dipped temporarily below $30. Steady, yet moderate price increases are projected thereafter but staying below $90 per barrel by Oil price outlooks always have substantial risk around them, however, this year the uncertainty seems to be even greater. Factors including the still slow growth of the global economy, the pace of Saudi production, the war against ISIS in Syria and Iraq with consequences for Iraqi production and deliveries, excess production capacity resulting from recent exploration and development, and sizeable reserves existing in various production region around the world all suggest that volatility could increase in petroleum markets. In the past several years, extended periods of high prices induced substantial exploration and expansion of production capacity that is beyond current demand. As a result, some of this capacity has been idled with current low prices. However, as prices strengthen, this capacity could come back on line in a relatively short time. This presents a downward risk for crude oil prices in the short to medium term. In addition, recent lower prices have resulted in a steep drop in exploration activity. Global rotary rig counts are only around half of what they were two years ago. As developed production capacity becomes utilized over time, exploration and development activity will again increase. Without additional geo-political shocks, the petroleum price increases should be able to induce drilling at a pace to prevent steep price spikes. The drop in distillate prices resulting from the lowest crude oil prices since 2005 will provide a boost to consumers and the economies of oil importing nations in the next few years. Oil exporters are facing substantial declines in export earnings. The combination of economic sanctions and lower crude oil prices is severely hampering the economy of Russia. Agriculture will benefit from lower fuel prices in terms of lower production and transportation costs. Lower fuel costs not only make it less expensive to operate machinery, but will also reduce costs for purchased inputs.

7

8 Macroeconomic Indicators Real GDP World Algeria Argentina Australia Bangladesh Brazil Canada China Egypt Ethiopia EU India Indonesia Iran Japan Kazakhstan Malaysia Mexico Morocco Nigeria Pakistan Paraguay Philippines Russia Saudi Arabia South Korea Sudan Thailand Turkey Ukraine Uzbekistan United States Rest of world Wheat Rice Corn Barley Sorghum Soybeans Rapeseed Sunflowerseed Palm oil Cotton

9 Macroeconomic Indicators Real GDP World Algeria Argentina Australia Bangladesh Brazil Canada China Egypt Ethiopia EU India Indonesia Iran Japan Kazakhstan Malaysia Mexico Morocco Nigeria Pakistan Paraguay Philippines Russia Saudi Arabia South Korea Sudan Thailand Turkey Ukraine Uzbekistan United States Rest of world Wheat Rice Corn Barley Sorghum Soybeans Rapeseed Sunflowerseed Palm oil Cotton

10 GDP Deflator Algeria Argentina Australia Bangladesh Brazil Canada China Egypt Ethiopia EU India Indonesia Iran Japan Kazakhstan Malaysia Mexico Morocco Nigeria Pakistan Paraguay Philippines Russia Saudi Arabia South Africa South Korea Sudan Thailand Turkey Ukraine Uzbekistan United States

11 GDP Deflator Algeria Argentina Australia Bangladesh Brazil Canada China Egypt Ethiopia EU India Indonesia Iran Japan Kazakhstan Malaysia Mexico Morocco Nigeria Pakistan Paraguay Philippines Russia Saudi Arabia South Africa South Korea Sudan Thailand Turkey Ukraine Uzbekistan United States

12 Exchange Rate Algeria Argentina Australia Bangladesh Brazil Canada China Egypt Ethiopia EU India Indonesia Iran Japan Kazakhstan Malaysia Mexico Morocco Nigeria Pakistan Paraguay Philippines Russia Saudi Arabia South Africa South Korea Sudan Thailand Turkey Ukraine Uzbekistan United States, trd wtd

13 Exchange Rate Algeria Argentina Australia Bangladesh Brazil Canada China Egypt Ethiopia EU India Indonesia Iran Japan Kazakhstan Malaysia Mexico Morocco Nigeria Pakistan Paraguay Philippines Russia Saudi Arabia South Africa South Korea Sudan Thailand Turkey Ukraine Uzbekistan United States, trd wtd

14 Population World Algeria Argentina Australia Bangladesh Brazil Canada China Egypt Ethiopia EU India Indonesia Iran Japan Kazakhstan Malaysia Mexico Morocco Nigeria Pakistan Paraguay Philippines Russia Saudi Arabia South Africa South Korea Sudan Thailand Turkey Ukraine Uzbekistan United States Rest of world Wheat Rice Corn Barley Sorghum Soybeans Rapeseed Sunflowerseed Palm oil Cotton

15 Population World Algeria Argentina Australia Bangladesh Brazil Canada China Egypt Ethiopia EU India Indonesia Iran Japan Kazakhstan Malaysia Mexico Morocco Nigeria Pakistan Paraguay Philippines Russia Saudi Arabia South Africa South Korea Sudan Thailand Turkey Ukraine Uzbekistan United States Rest of world Wheat Rice Corn Barley Sorghum Soybeans Rapeseed Sunflowerseed Palm oil Cotton