Slide 1: Economic and Industry Outlook 2019
SERVI CI O DE ESTUDIOS Economic and Industry Outlook 2019 MAPFRE Economic Research Madrid, 21 de enero de 2019.
Slide 2: Economic and Industry Outlook 2019
SERVI CI O DE ECONOMIC AND INDUSTRY OUTLOOK 2019 ESTUDIOS MAPFRE Economic Research ECONOMIC AND INDUSTRY OUTLOOK 2019
Slide 3: Contents
SERVI CI O DE CONTENTS ESTUDIOS Contents General vision for 2019 Economic outlook Industry outlook
Slide 4: Contents: General vision 2019
SERVI CI O DE CONTENTS ESTUDIOS Contents General vision 2019
Slide 5: Outlook 2019: overview
Outlook 2019: overview The central vision of MAPFRE Economic Research with respect to economic performance is that 2018 was in essence an inflection point, and 2019 could see the start of a slowdown in economic activity and inflation. This is a scenario in which both growth and inflation fall off in
Slide 6: Main conclusions
Main conclusions The central scenario for 2019 is a change in cycle. • Moderate slowndown in demand (limited scope for economic policy). • Higher financing costs in line with monetary normalization (vulnerability of emerging markets). • The United States - China – Emerging markets triad is the main
Slide 7: Contents: Economic outlook
SERVI CI O DE CONTENTS ESTUDIOS Contents General vision 2019 Economic outlook
Slide 8: The global economic cycle exhausts
SERVI CI O DE THE GLOBAL ECONOMIC CYCLE PETERS OUT ESTUDIOS The global economic cycle exhausts • Global activity: 3.6% en 2018 (maximum) drops to 3.3% (trend) – Symptoms evident: (PMIs) | Industrial orders | Global trade • Similar traction (DMs and EMs) in growth composition but differing biases – D
Slide 9: The global economic cycle exhausts: forward-looking indicators
SERVI CI O DE THE GLOBAL ECONOMIC CYCLE PETERS OUT ESTUDIOS The global economic cycle exhausts • Global activity: 3.6% in 2018 (maximum) drops to 3.3% (trend) | Inflation slows down – Symptoms evident: (PMIs) | Industrial orders | Global trade GLOBAL: GROWTH AND INFLATION FORWARD-LOOKING INDICATORS
Slide 10: The global economic cycle exhausts: composition of global growth
SERVI CI O DE THE GLOBAL ECONOMIC CYCLE PETERS OUT ESTUDIOS The global economic cycle exhausts • Similar traction (DMs and EMs) in growth composition but differing biases – Developed: weaker tailwinds (monetary and fiscal policy, global activity, etc.) – Emerging: weaker headwinds (financial conditi
Slide 11: The global economic cycle exhausts: inflation and oil price
SERVI CI O DE THE GLOBAL ECONOMIC CYCLE PETERS OUT ESTUDIOS The global economic cycle exhausts • Inflation also loses steam (reflecting reduced global activity) modulating monetary policy transition – Correction of oil prices – Less traction in underlying inflation INFLATION AND OIL PRICE (BRENT) GL
Slide 12: The global economic cycle exhausts: fiscal stimulus and central bank balances
SERVI CI O DE THE GLOBAL ECONOMIC CYCLE PETERS OUT ESTUDIOS The global economic cycle exhausts • Sustained and smooth cycle change, given exhaustion of monetary and fiscal stimulus FISCAL STIMULUS CENTRAL BANK BALANCES (PROJECTED CHANGES IN FISCAL BALANCES) 30 90 50 0 (Billions of USD, 2016-2019) 20
Slide 13: Three characteristics will define this smooth cyclical transition
SERVI CI O DE A SLOWDOWN COMPRISING THREE CHARACTERISTICS ESTUDIOS Three characteristics will define this smooth cyclical transition The USA, China and Emerging Out of sync Fragility Markets take center stage Source: MAPFRE Economic Research
Slide 14: Three key elements
SERVI CI O DE A SLOWDOWN COMPRISING THREE CHARACTERISTICS ESTUDIOS Three key elements The USA, China China and Emerging Prevalencia de la 1 Markets take laxitud en la política monetaria United States centery liquidez stageglobal 2 Desconexión entre actividad económica e inflación 3 Emerging markets
Slide 15: Actors: USA
SERVI CI O DE A SLOWDOWN COMPRISING THREE CHARACTERISTICS ESTUDIOS Actors: USA Yield Curve (Price and activity expectations) Growth recorded in 2017 hides problems • Longest ever recorded expansionary cycle in modern history of the United States • Current economic policy stifles a trend that should
Slide 16: Actors: China
SERVI CI O DE A SLOWDOWN COMPRISING THREE CHARACTERISTICS ESTUDIOS Actors: China China New Export Orders PMI SA Growth stimulation generates imbalances USA ISM Manufacturing PMI SA (right axis) • The convergence effort needed a growth level only reachable by 6 12 creating imbalances • Potential impl
Slide 17: Actors: Emerging markets
SERVI CI O DE A SLOWDOWN COMPRISING THREE CHARACTERISTICS ESTUDIOS Actors: Emerging markets Excesses come home to roost SENTIX EM • Growth model based on excess liquidity (QE) generated vulnerabilites that fed into the real economy. 30 20 Three key facts 10 1. There is no contagion as yet, the marke
Slide 18: Cyclical heterogeneity and loss of synchronization in monetary policy momentum
SERVI CI O DE A SLOWDOWN COMPRISING THREE CHARACTERISTICS ESTUDIOS Cyclical heterogeneity and loss of synchronization in monetary policy momentum • Different cyclical momentums • Different monetary biases x. Out of sync • Diverging global financial conditions Desconexión entre actividad económica e
Slide 19: A slowdown comprising three characteristics
SERVI CI O DE A SLOWDOWN COMPRISING THREE CHARACTERISTICS ESTUDIOS GLOBAL CYCLICAL MOMENTUM RECOVERY EXPANSION CONTRACTION Eurozone United States China Japan Russia Brazil 2017 2018 Source: MAPFRE Economic Research
Slide 20: A slowdown comprising three characteristics
SERVI CI O DE A SLOWDOWN COMPRISING THREE CHARACTERISTICS ESTUDIOS GLOBAL CYCLICAL MOMENTUM RECOVERY EXPANSION CONTRACTION Eurozone Japan Russia United States Brazil China 2017 2018 Source: MAPFRE Economic Research
Slide 21: Global cyclical momentum: change in global economic cycle
SERVI CI O DE A SLOWDOWN COMPRISING THREE CHARACTERISTICS ESTUDIOS GLOBAL CYCLICAL MOMENTUM OUTPUT GAP BY COUNTRIES Change in global economic cycle • United States and China lead the cycle change and try to defer cyclical momentum with pro-cyclical policies. Characteristics of change • Momentum with
Slide 22: Global cyclical momentum: different monetary policy biases
SERVI CI O DE A SLOWDOWN COMPRISING THREE CHARACTERISTICS ESTUDIOS GLOBAL CYCLICAL MOMENTUM DIFFERENT MONETARY POLICY BIASES OUTPUT GAP BY COUNTRIES Source: MAPFRE Economic Research (own estimations with data from Haver)
Slide 23: Perverse combination among global risks
SERVI CI O DE A SLOWDOWN COMPRISING THREE CHARACTERISTICS ESTUDIOS Perverse combination among global risks – vulnerability and pro-cyclicality in some markets • More likely, interconnected and severe risk environment • Emerging vulnerabilities are shock catalyzers x. • Pro-cyclicality of economic po
Slide 24: Risk map is more valid than ever before
SERVI CI O DE A SLOWDOWN COMPRISING THREE CHARACTERISTICS ESTUDIOS RISK MAP IS MORE VALID THAN EVER BEFORE US economic policy (Not only trade) Chinese sovereign-financial crisis PROBABILITY OF RISK Eurozone governance Geopolitical crisis SEVERITY OF RISK Source: MAPFRE Economic Research
Slide 25: 2012-2018: pro-cyclicality and economic momentum
SERVI CI O DE A SLOWDOWN COMPRISING THREE CHARACTERISTICS ESTUDIOS 2012-2018: pro-cyclicality and economic momentum 2012 -2016 : Emerging markets import excesses • United States activates anti-cyclical policy to accommodate economic stimulation. Expansion of Federal Reserve QE and ultra- accommodati
Slide 26: 2012-2018: pro-cyclicality and economic momentum
SERVI CI O DE A SLOWDOWN COMPRISING THREE CHARACTERISTICS ESTUDIOS 2012-2018: pro-cyclicality and economic momentum 2017 -2018 : United States drives economic momentum. Emerging markets pay the price for their excesses. • United States normalizes its monetary policy, while accommodating an expansion
Slide 27: Risk profiles and estimations of Emerging Risk Index
SERVI CI O DE A SLOWDOWN COMPRISING THREE CHARACTERISTICS ESTUDIOS RISK PROFILES AND ESTIMATIONS OF EMERGING RISK INDEX (ERI)
Slide 28: Smooth and manageable adjustment vs. global recession
SERVI CI O DE SLOWDOWN VS. RECESSION ESTUDIOS Smooth and manageable adjustment with current economic PROBABILITY OF RECESSION policy scope vs. global recession (12 MONTHS OUT) US 12-month spread • Only USA could give rise to a global recession, but that is not the case. 50 • There are mitigating fac
Slide 29: USA: maintains steam but closes in on cycle change
SERVI CI O DE ECONOMIC OUTLOOK: UNITED STATES ESTUDIOS USA: maintains steam but closes in on cycle change 2.5% GDP in 2019 (YoY, average) • Envisaged that activity growth will slow down to 2.5% in 2019. 2.2% • Monetary policy will transition gradually toward Inflation in 2019 neutrality, keeping the
Slide 30: Eurozone: cyclical woes persist
SERVI CI O DE ECONOMIC OUTLOOK : EUROZONE ESTUDIOS 1.7% GDP in 2019 (YoY, average) Eurozone: cyclical woes persist 1.4% • Cyclical woes persist, provoking lower than possible Inflation in 2019 growth levels. (yoY, end of period) • Inflation, though below CEB target levels, is shaping the outlook. Mo
Slide 31: Spain: economic growth cools off
SERVI CI O DE ECONOMIC OUTLOOK : SPAIN ESTUDIOS Spain: economic growth cools off 2.3% GDP in 2019 • Spanish economic growth will slow down in line with (YoY, average) the external environment. 1.3% • Envisaged that GDP will grow 2.3% in 2019. Employment creation will reduce accordingly. Inflation in
Slide 32: China: reverse lower growth at all costs
SERVI CI O DE ECONOMIC OUTLOOK : CHINA ESTUDIOS China: reverse lower growth at all costs 6.2% • Growth will slow down to 6.2% in 2019, due to loss of GDP in 2019 dynamism in the world economy and the effects of (YoY, average) the trade war. • Lower growth with greater imbalances, but wiggle 2.1% roo
Slide 33: Brazil: Need to reform within new government framework
SERVI CI O DE ECONOMIC OUTLOOK : BRAZIL ESTUDIOS Brazil: Need to reform within new government framework 2.3% • Contribute to gaining traction in economic growth in GDP in 2019 Latin America in 2019. (YoY, average) • Global slowdown and US monetary reverberations will feed into Brazil monetary policy
Slide 34: Contents: Industry outlook
SERVI CI O DE CONTENTS ESTUDIOS Contents General vision 2019 Economic outlook Industry outlook
Slide 35: Non-life insurance business: 2018 growth estimates and 2019 forecasts
SERVI CI O DE NON-LIFE INSURANCE BUSINESS: 2018 GROWTH ESTIMATES AND 2019 FORECASTS ESTUDIOS • In Spain, the Non-Life insurance market will grow by around 4.1% in 2019, above the 2.9% growth forecast for the Eurozone as a whole. • The economic slowdown forecast for the United States and, to a lesser
Slide 36: Savings and pensions: interest rate environment
SERVI CI O DE SAVINGS AND PENSIONS: INTEREST RATE ENVIRONMENT ESTUDIOS RISK-FREE YIELD CURVE • In the Eurozone the environment of low interest rates will persist in 2019 and will continue to hinder the development of the Life insurance business linked to savings and life annuities. • In the United S
Slide 37: Savings and pensions: risk-free yield curves
SERVI CI O DE SAVINGS AND PENSIONS: INTEREST RATE ENVIRONMENT ESTUDIOS RISK-FREE YIELD CURVES Year UNITED STATES MEXICO Source: MAPFRE Economic Research (with data from EIOPA)
Slide 38: Savings and pensions: risk-free yield curves
SERVI CI O DE SAVINGS AND PENSIONS: INTEREST RATE ENVIRONMENT ESTUDIOS RISK-FREE YIELD CURVES BRAZIL TURKEY Fuente: Servicio de Estudios de MAPFRE (con datos de EIOPA)
Slide 39: Insurance markets: EIOPA stress tests - 2018
SERVI CI O DE INSURANCE MARKETS: EIOPA STRESS TESTS - 2018 ESTUDIOS Main risks • Sharp and significant change in the valuation of risk premiums in the financial markets (YCU) • Long-term extension of low interest rate environment combined with increased life expectancy (YDC) • Extreme scenario of na
Slide 40: Economic and Industry Outlook 2019
MAPFRE Economic Research ECONOMIC AND INDUSTRY OUTLOOK 2019 Madrid, Fundación MAPFRE, 2019. Download available at: www.fundacionmapfre.org
Slide 41: Economic and Industry Outlook 2019
SERVI CI O DE ESTUDIOS Economic and Industry Outlook 2019 MAPFRE Economic Research Madrid, 21 de enero de 2019.