Presentation by Mr. Martin Schulz; IMF Seminar, … · “Net” Investors show the Way: ......

16
Abenomics…and Opportunities for Sustainable Growth Fujitsu Research Institute Dr. Martin Schulz [email protected] 2013.02.07

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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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

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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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Global Export by Main Products (2000=100)

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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

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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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Net Asset Growth (3 year average; left scale) Return on Equity (ROE)

Return on Investment (ROI)

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

Copyright 2013 FUJITSU RESEARCH INSTITUTE 15