EU 2018 From Risks to Opportunity? - Fujitsu · 2018-02-08 · EU 2018 – From Risks to...
Transcript of EU 2018 From Risks to Opportunity? - Fujitsu · 2018-02-08 · EU 2018 – From Risks to...
EU 2018 – From Risks to Opportunity?
Fujitsu Research Institute
Dr. Martin Schulz 2018.02.07
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EU 2018 – From Risks to Opportunity?
Copyright 2018 FUJITSU RESEARCH INSTITUTE
End of easy money – Europe at risk again?
EU market recovery – opportunities or more shocks?
Japan and Europe – trade and investment
Copyright 2010 FUJITSU RESEARCH INSTITUTE 2 Copyright 2018 FUJITSU RESEARCH INSTITUTE
Domestic Credit to the Private Sector (% GDP)
Financial Bubbles: Back to Normal?
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World 1980-1993 China 1980-2003
World 1960-2015
World 1960-2015 China 1980-2015
Source: Data from World Bank 2017.
Japan
Thailand
USA
China
Spain
Financial Deepening World Credit Trend
UK
World Trend
1980-2000
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2002 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2017
Central Bank Assets Drove Asset Bubbles
Source: Bloomberg 2017.
G4 (US, ECB, JP, CH) Central Bank Balance Sheets (% World GDP)
& MSCI ACWI Stock Index
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%GDP
Central Bank Assets (left scale)
MSCI Stocks
MSCI
Index
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FED Rate Taylor Rule Estimate
All Rights Reserved, Copyright Fujitsu Research Institute 2010 4
Monetary Tightening: Europe Behind the US
Source: Data from Bloomberg. Copyright 2018 FUJITSU RESEARCH INSTITUTE 4
Taylor Rule Estimate EU: Policy Rate = Neutral Rate 1.5% + Inflation + α (Inflation – Target 2%) + β (Nairu 8.5% – Unemp)
ECB Policy Rate vs Taylor Rules for US & EMU
US
3 Years
Taylor Rule: Policy Rate = Interest Ratelong-term + 0.5 (Inflation Gap) + 0.5 (Employment Gap)
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ECB Rate Taylor Rule Estimate
EMU
3 Years?
ECB follows FED with a 2-year time lag
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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
ECB Rate Taylor Rule Estimate Taylor Rule Estimate Taylor Rule Estimate Taylor Rule Estimate
All Rights Reserved, Copyright Fujitsu Research Institute 2010 5
Restructuring: EU Recovering, Germany Booming
Source: Data from Bloomberg. Copyright 2018 FUJITSU RESEARCH INSTITUTE 5
Taylor Rule Estimate: Policy Rate = Neutral Rate 1.5% + Inflation + α (Inflation – Target 2%) + β (Nairu 8.5% – Unemp)
Spain=15%
ECB Policy Rate vs Taylor Rules for EMU, Italy, Spain
Spain
Germany
Italy
EMU
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EU Outlook
Copyright 2018 FUJITSU RESEARCH INSTITUTE
EU market recovery – opportunities or more shocks?
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EU Outlook
Copyright 2018 FUJITSU RESEARCH INSTITUTE
US EU EMU East
Europe DE UK SP JP
2017 2.3 2.4 2.4 3.8 2.2 1.8 3.1 1.7
2018 2.5 (2.6)
2.7 (2.2)
2.9 (2.2)
3.1 (3.0)
3.0 (2.3)
2.0 (1.4)
3.0 (2.6)
1.6 (1.3)
2019 1.8 (2.2)
2.2 (1.9)
2.3 (1.8)
2.9 (2.9)
2.3 (1.9)
1.9 (1.5)
2.3 (2.2)
1.2 (1.0)
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2018 Growth Forecasts
Recovery in the EU pushes growth beyond the US
Note: Growth Forecasts by JP Morgan on Feb 2, 2018; (Bloomberg consensus forecasts in brackets )
Source: Data from Bloomberg.
German Economy Gains from EU Restructuring
Source: Data from IMD (2017, …).
IMD Competitiveness: Macro Economy
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0Economy
Governm.
Business
Infrastr.
2017 US
Germany
Japan
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10Economy
Governm.
Business
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Trade
InvestmentEmployment
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Trade
InvestmentEmployment
Prices
Market Reforms had a Significant Impact
Source: Data from IMD (2017, …).
IMD Competitiveness: Economic Performance
Germany 1999
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2009
2017
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2017
Spain
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0Economy
Trade
InvestmentEmployment
Prices
Poland
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2017
Competitiveness has recovered in most regions
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Big Restructuring Impact on Real Incomes
Restructuring resulted in growth and imbalances
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Switzerland
Germany
UK
Japan
Note: Based on purchasing power parities (PPP) calculated as IMF “international” dollars.
Real GDP per Capita Difference Relative to the EU (EU Level = 0 from 1991) 1000
Int.$
Source: Data from IMF-WEO; UK Government
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EU Mid-Size Companies Gained from EU Integration
Source: Data from Bloomberg (2018.02.06).
Major Stock Indices (JPY Base) Mid-Caps (JPY Base)
Germany
US
Japan
US
Japan
Germany
UK
EU
Italy
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Hong Kong
EU
Note: SP500, Dax, Hang Seng, Stoxx, Nikkei country indices.
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EU Regional Potentials
Real Disposable Income Net Operating Surplus Labor Productivity
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Germany
Source: Data from AMECO Database (2017).
UK
Japan EU
Spain
Germany
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Germany
UK Japan
Note: 2008=100. 2010 prices. Based on local currencies.
Swiss
Swiss
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EU of “many speeds” emerging
EU Council has become the de-facto executive institution, enforcing national reforms from banking to security
National (reform) policies lead to different national levels of integration with a stronger focus on trade, industrial policy, competition
EU integration policies are challenged by national agendas
Macron plan
EU Finance Minister & Budget for integration policies
EU Investment Initiatives (Fonds) for regional growth
Protecting the “core” EU with stronger institutions & representation
Macron/Merkel/Schulz (France-Germany) negotiations
European Monetary Fund (EMF) with EU finance minister
Finalizing banking union, stabilizing fiscal policies
Support investment at the national level, financing EU investment funds
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EU Reform Plans
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EU Outlook
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Japan and Europe – trade and investment
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US
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Asia
Source: Data from CEIC (2017).
Japan’s Regional Income Balance (Billion Yen)
Note: Current Account, Primary Income, Net Balance.
Japan’s Foreign Income: Europe remains Attractive
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EU Trade – Japan Remains Below Potential
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US (248 Bn)
Japan (60 Bn)
China (350 Bn) (right scale)
Source: Data from CEIC (2017).
EU Import (1999=100; (Euro Bn))
Thai (20 Bn)
Note: Korea, Thai imports as 6-month averages
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JEFTA/JEEPA: The ‘Cars for Cheese’ Trade Agreement
Top 5 Bilateral Export Gains by Industry (% share of total increase)
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Source: EU Commission (2016) - Trade Sustainability Impact Assessment of the Free Trade Agreement between the European Union and Japan.
GDP impact +0.2% for Japan and +0.1% for EU
Only +5% EU and +1% Japan service export gains!
EU 28 Winning Sectors Japan Winning Sectors
Food, feed, processed foods (55%) Motor vehicles (47%)
Other manufacturing (14%) Other machineries (21%)
Chemicals (incl. pharmaceuticals) (12%) Electrical machinery (10%)
Business services (4%) Chemicals (incl. pharmaceuticals) (8%)
Motor vehicles (3%) Other transport equipment (7%)
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十億
Investment has become the Most Important Driver
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US
Cases
EMEA
Cases
Source: Data from from Bloomberg (2017).
Japan’s M&A
(Cases; Bn USD)
Note: All initiated crossborder cases, including canceled deals. Amounts as 5-quarter averages
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十億
China’s M&A
(Cases; Bn USD)
US
Cases
EMEA
Cases
Amount
Amount
Japan & Germany have Similar Investment Preferences
Japanese & German M&A Cases in EMEA (2013-2018)
Top Sectors Japan
%
Germany
% Communications (Media, Advertisement, Internet)
11 10
Consumer, Cyclical (Auto Parts, Retail)
11 11
Consumer, Non-cyclical (Biotechnology, Commercial Services,
Pharmaceuticals)
19 17
Energy (Alternative Sources)
6 5
Industrial (Electrical Comp., Electronics,
Transportation)
20 17
Technology (Software)
15 12
Source: Data from Bloomberg (2018.02.06) Copyright 2018 FUJITSU RESEARCH INSTITUTE 19
Almost identical investment preferences in JP & DE
Chinese M&A: Investing in Technology & Trade Barriers
Copyright 2010 FUJITSU RESEARCH INSTITUTE 20 Copyright 2018 FUJITSU RESEARCH INSTITUTE Source: Data from Bloomberg (2017).
Note: All initiated crossborder cases, including canceled deals.
China’s EMEA and US M&A by Sector (Cases; EMEA %)
US EMEA UK Germany Holland
Total Cases 1000 905 16.13% 17.20% 7.18%
Industrial 10.60% 21.44% 8.25% 27.84% 6.19%
Consumer, Cyclical 11.40% 17.35% 19.11% 21.66% 7.64%
Consumer, Non-cyclical 23.50% 15.14% 16.79% 10.95% 10.22%
Financial 7.80% 10.39% 28.72% 11.70% 7.45%
Energy 4.30% 9.17% 15.66% 12.05% 6.02%
Technology 20.40% 8.29% 14.67% 6.67% 12.00%
Basic Materials 2.30% 7.18% 12.31% 12.31% 4.62%
Communications 14.30% 5.08% 30.43% 15.22% 2.17%
Utilities 0.60% 1.99% 16.67% 5.56% 0.00%
Diversified 0.70% 1.66% 6.67% 53.33% 13.33%
Trade Barriers?
Technology
Technology
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JEFTA/JEEPA: 21st Century Issues
Strong potential for EU Standards and regulations - if aligned with Japan’s Asian investment
Investor State Dispute Settlement (ISDS) Agreements - could not be advanced in Asia - new mechanisms necessary, EU Multilateral Court unlikely
E-Commerce has become the most important economic issue - more than standards, governance will be key
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Brexit Challenges: UK Innovation Center at Risk?
Note: EU indices exclude UK stocks.
MSCI Stock Market Indices for the UK and EU (ex UK) (2003=100)
Source: Data from Bloomberg.
UK Stocks
EU Stocks
EU IT Stocks
UK IT Stocks
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2003 2005 2007 2009 2011 2013 2015 2017
UK government estimates of Brexit costs:
“Hard Brexit”: -8% lower GDP in 2030 (WTO Tariffs)
“EU FTA”: -5% lower GDP
“Soft Brexit”: -2% when joining the general European Economic Area (EEA)
UK’s dynamic service, R&D and universities profited from EU
Finance, mobility and machinery technology might be at risk
Brexit Challenges: Japan’s “Smart” Services in the UK
Japanese M&A Cases in the UK and Germany (2011-2016)
U.K. No. Germany No.
Commercial Services 13 Chemicals 11
Internet 10 Electronics 11
Food 9 Computers 9
Holding Companies 9 Machinery-Diversified 9
Computers 7 Auto Parts & Equip. 8
Alt. Energy 7 Commercial Services 5
Advertising 6 Misc. Mfg 4
Software 6 Pharmaceuticals 4
Entertainment 4 Biotechnology 3
Misc. Mfg 4 Hand/Machine Tools 3
Total 139 Total 109
Source: Data from Bloomberg (2017)
UK Investment
Services
HQs, R&D
German Investment
Mfg, Sales
R&D
Copyright 2018 FUJITSU RESEARCH INSTITUTE 23
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Brexit Challenges: China’s Supply Chain Focus on UK
Copyright 2010 FUJITSU RESEARCH INSTITUTE 24 Copyright 2018 FUJITSU RESEARCH INSTITUTE Source: Data from CEIC (2018).
EU Import (1999=100; (Euro Bn))
UK Import (1998=100) GER Import (2000=100)
US (3.5 Bn)
Japan (0.9)
China (4.0 Bn) (right scale)
US (5.4 Bn)
Japan (1.9 Bn)
China (9.5 Bn)
(right scale)
“Real” growth remains strong well into 2019
Reform plans are “uninspiring” but “doable,” Brexit impact is limited, policy challenges remain at the regional level
EU competitiveness has improved, investment opportunities seem stronger than trade opportunities
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EU 2018 – From Risks to Opportunity?
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