Presentation by Mr. Martin Schulz; IMF Seminar, … · “Net” Investors show the Way: ......
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Transcript of Presentation by Mr. Martin Schulz; IMF Seminar, … · “Net” Investors show the Way: ......
“Abenomics” …and Opportunities for Sustainable Growth
Fujitsu Research Institute
Dr. Martin Schulz [email protected]
2013.02.07
Outline
Deregulation & Globalization on the Backburner “We all know what to do, we just don't know how to get re-elected after we've done it.”
(Jean-Claude Juncker)
Abenomics: Monetary & Fiscal Policy first, Deregulation later
Traditional instruments: exchange rate & public investment
Growth in Ageing Societies: Export, FDI, Services
Overseas investment and profitable services
Copyright 2013 FUJITSU RESEARCH INSTITUTE 1
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“Abenomics“ – Contributions to Growth
Source: © FRI 2013. Data from Cabinet Office, CEIC.
Contribution to GDP Growth % GDP
Exports
GDP Growth Growth Drivers
Exports -> Exchange Rate
Investment ->Structural Reforms Investment
Households
Government
Import
Growth Drivers
Government -> Infrastructure
Imports ->Nuclear Restart
Copyright 2013 FUJITSU RESEARCH INSTITUTE 2
Note: On basis of
2005 market prices.
Copyright 2013 FUJITSU RESEARCH INSTITUTE 3
“Abenomics” and Sustainable Growth
It’s the Economy…
About half of Japan’s GDP growth comes from export industries
Fiscal spending and infrastructure stimulate domestic growth
Long-term stagnation on negative demographic trends require disruptive reforms
Policy: monetary & fiscal instruments
“Talking down” the yen, kick-starting the economy
Monetary expansion to finance fiscal spending, lowering the yen, end deflation
Infrastructure spending to stimulate growth and wages
Structural Reform: taxes & government, markets later
Corporate & investment taxes down, VAT up
Public Sector: effective infrastructure investment, energy reform, TPP talks?
Private Sector: service & energy & agriculture deregulation, health & finance privatization??
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80
90
100
110
120
130
140
150
160
170
All Rights Reserved, Copyright Fujitsu Research Institute 2010 4
“Abenomics” & the Yen: Overvaluation or High Prices?
Source: © FRI 2013. Data from CEIC, IMF, OECD, Bloomberg.
Yen/USD and Real Exchange Rates
Yen/USD
Copyright 2013 FUJITSU RESEARCH INSTITUTE 4
BigMac Index
Producer
Prices
Yen in line with
Producer Prices
Asian
Currency Peg
Underv
alu
atio
n
Overv
alu
ation
…and the BigMac Index
Note: Absolute OECD Purchasing Power Parities (PPP), and relative Producer Price PPP (base period 1982-2008).
EURO/USD PPP (=1.15)
Overvalued Yen
or
High Prices?
Undervalued Yen
because of
“Cost Cutting”
Consumer Prices (OECD PPP)
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Real Exchange
All Mfg
All Rights Reserved, Copyright Fujitsu Research Institute 2010 5
Hidden by a Weak Yen: Companies lost Profit Potential
Source: © FRI 2013. Data from CEIC, IMF, Cabinet Office.
Competitiveness and Profit Potential (2003=100)
Copyright 2013 FUJITSU RESEARCH INSTITUTE 5
Note: REER left scale, Profit Potential right scale. Export and Producer Prices rebased from 2005 to 2003=100.
Office Machines only from 2005.
Profit Potential
=𝐸𝑥𝑝𝑜𝑟𝑡 𝑃𝑟𝑖𝑐𝑒
𝑃𝑟𝑜𝑑𝑢𝑐𝑒𝑟 𝑃𝑟𝑖𝑐𝑒
Competitiveness (Real Exchange Rate)
Pro
fit
Pote
ntial
Com
petitiveness
(weak y
en)
(hig
h p
rice)
Asian
Currency Peg
50
60
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Real Exchange
Metal Prod.
Chemicals
Machinery
Automobile
All Mfg
Office Machines
All Rights Reserved, Copyright Fujitsu Research Institute 2010 6
Japan’s Exporters: There are Winners and Losers now
Source: © FRI 2013. Data from CEIC, IMF, Cabinet Office. Copyright 2013 FUJITSU RESEARCH INSTITUTE 6
Profit Potential
=𝐸𝑥𝑝𝑜𝑟𝑡 𝑃𝑟𝑖𝑐𝑒
𝑃𝑟𝑜𝑑𝑢𝑐𝑒𝑟 𝑃𝑟𝑖𝑐𝑒
Competitiveness and Profit Potential (2003=100)
Competitiveness (Real Exchange Rate)
Pro
fit
Pote
ntial
Com
petitiveness
(weak y
en)
(hig
h p
rice)
Note: REER left scale, Profit Potential right scale. Export and Producer Prices rebased from 2005 to 2003=100.
Office Machines only from 2005.
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2000 2002 2004 2006 2008 2010
Global Export by Main Products (2000=100)
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2000 2002 2004 2006 2008 2010
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2000 2002 2004 2006 2008 2010
Exporters have been Underperforming for long
Source: © FRI 2013. Data from WTO (2013).
Cars Office & Telecom Equipment 2000=100
Copyright 2013 FUJITSU RESEARCH INSTITUTE 7
Chemicals Pharmaceuticals
Germany
Korea
Japan
World
Germany
Korea
Japan
World
Germany
Korea
Japan
Germany
Japan
8
Japan can Grow again IF (!) Investment recovers
Why has Japan been Stuck for so long?
From “over-investment” to restructuring
Ageing and Adjustment
Why have Companies lost Profit Potential?
“Cost cutting” took precedence over new products and markets
“Net” (new) investment is key to recovery and growth
What can be Done?
Start with potentials: exports & services
Copyright 2013 FUJITSU RESEARCH INSTITUTE
Copyright 2013 FUJITSU RESEARCH INSTITUTE
Investment is Japan‘s true „Engine of Growth“
Source: © FRI 2011. Data: KLEMS (2011)
Contribution to VA Growth (Japan 1980-2006)
45% Non-ICT Investment
Contributions to growth: 65% investment, 15% labor, 20% innovation
In the US: 50% investment, 40% labor, and 10% innovation
Investment is key in “ageing” societies
20% ICT Investment
20% TFP Innovation
15% Labor
Note: Inputs are based on Factor Compensation in JPY.
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Copyright 2013 FUJITSU RESEARCH INSTITUTE
From “Over-Investment” to Restructuring
Source: © FRI 2013. Data: World Bank (2012), CEIC 2013.
“Over-”Investment: Gross Investment Rates (% GDP)
High investment rates up to 30% pushed growth until the 1980s
Deleveraging resulted in depression and deflation
Note: Ratio of Gross Fixed Capital Formation over GDP. In year to 2000 prices. The dotted line is a 6-year moving average of the GDP growth rate.
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USA
Japan
Japan GDP Growth (right scale)
Restructuring Problem: “Net” (New) Investment falls more
Source: © FRI 2012. Data: KLEMS (2011)
Real Fixed Investment (%GDP)
During structural change, depreciation can over-shoot lastingly
Restructuring of capital stock (cost cutting) becomes the engine of growth
“Maintenance” of an ageing capital stock dominates “future” investment
Germany Japan USA
Note: Investment as Real Gross Fixed Capital Formation (RGFCF). Deflated by 1995 asset prices.
Capital Cons.
Gross Investment
Capital Cons.
Net Investment
Capital Cons.
Gross Investment Gross Investment
Net Investment Net Investment
11 Copyright 2013 FUJITSU RESEARCH INSTITUTE
Investment Cycle: Where are we now?
Source: © FRI 2012. Data: KLEMS (2011), CEIC 2011.
Key to Growth: Real Net-Investment (% GDP)
Japan
Germany
USA
Note: Investment data are estimates for real net fixed capital formation. Forecasts from 2007 (J: 2006), based on GDP Statistics.
“Level Correction”
in Japan, Germany
“IT Bubble”
“Undershooting”
in Japan
Strong Depreciation
Pressure in Japan
- Capital investment
deceleration from
“high growth”
- Bubbles
- “Bottom Out” at
5%?
ICT Boom in US
& Germany
12 Copyright 2013 FUJITSU RESEARCH INSTITUTE
Copyright 2013 FUJITSU RESEARCH INSTITUTE 13
“Net” Investors show the Way: Services & Export Specialties
Source: © FRI 2012. Data from Bloomberg.
Note: Topix Top 350, ranked by Net Asset Growth (CAGR) over the last three years. (2012.03.09)
Topix – Net Asset Growth, ROE and ROI
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Copyright 2013 FUJITSU RESEARCH INSTITUTE 14
Bottom Line
In ageing Japan, growth comes from exports; but even exporters have lost competitiveness
Decades of “cost cutting” and restructuring in closed markets have taken their toll
Ending deflation through “Abenomics” can be a start if higher prices are matched by more opportunity
Growth requires a revival of “new” investment into overseas markets and dynamic services
The success of “Abenomics” and the revival of growth will depend on better integrating Japan in the Asian growth process, and deregulating dormant service markets