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THE GLOBAL ECONOMY IN 2004. HOW ROBUST IS THE GROWTH?. LAST YEAR. INFLATION?. DEFLATION?. THE BIG DEBATE. INFLATION OR DEFLATION? A SUSTAINED RISE OR FALL IN THE OVERALL PRICE LEVEL. NOW. THE WORLD ECONOMY IS RECOVERING , AND THE TALK AMONG ECONOMISTS IS NOW MUCH MORE ABOUT INFLATION. - PowerPoint PPT Presentation
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Jonathan Bradley
THE GLOBAL ECONOMY IN 2004
HOW ROBUST IS THE GROWTH?
Jonathan Bradley
Jonathan Bradley
Jonathan Bradley
INFLATION OR DEFLATION? A SUSTAINED RISE OR FALL
IN THE OVERALL PRICE LEVEL
Jonathan Bradley
Jonathan Bradley
THE WORLD ECONOMY IS
RECOVERING, AND THE TALK AMONG
ECONOMISTS IS NOW MUCH MORE ABOUT
INFLATIONINFLATION
Jonathan Bradley
THE ECONOMIC AIM: A SAFE MIDDLE COURSE
Jonathan Bradley
WORLD GDP GROWTH 2003 AND 2004
00.5
11.5
22.5
33.5
44.5
5
UK GERMANY JAPAN USA
2003
2004
STRONGER!
Jonathan Bradley
JAPAN PUTS OUT THE FLAG
After more than a decade of stagnation, Japan looks as though it has turned the corner.
At last Japan has become more “normal”!
Jonathan Bradley
What is now driving the recovery?
Very low interest rates
Continued expansionary fiscal policy
Recovery in company finances
Buoyant consumer demand
Some stock market recovery
Jonathan Bradley
GLOBAL SHORT TERM INTEREST RATES
0
1
2
3
4
5
6
7
2000 2001 2002 2003 2004
USA
EURO
JAPAN
Source: IMF
Jonathan Bradley
BUDGET DEFICITS COMPARED 2004 (est)
-8
-7
-6
-5
-4
-3
-2
-1
0
% GDP
UK
JAPAN
USA
EURO
Jonathan Bradley
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2200
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2200
Source: Datastream
US: Equity pricesJan 1973=100
Technology MediaTelecoms (TMT)
US Market*
*Datastream market index
US Marketexcluding TMT
Jan 1973=100
Jonathan Bradley
Jonathan Bradley
OIL PRICE
Jonathan Bradley
Jonathan Bradley
The impact of a $10 pb rise in the world oil price % difference from base Year 1 Year 2 Long Run GDP UK -0.2 -0.5 -0.4 US -0.1 -0.5 -0.6 Eurozone -0.3 -0.4 -0.3 Japan -0.2 -0.5 -0.7 Inflation UK 0.2 0.5 0.0 US 0.4 0.4 0.0 Eurozone 0.2 0.4 0.0 Japan 0.3 0.4 0.0
Jonathan Bradley
Jonathan Bradley
-700
-600
-500
-400
-300
-200
-100
0
100
200
300
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
-700
-600
-500
-400
-300
-200
-100
0
100
200
300
Source: OEF
$ billion
US
Japan
World: Current account imbalances$ billion
Eurozone
Forecast
Asia
No.1
Jonathan Bradley
PRODUCER PRICES 2003/4
-3
-2
-1
0
1
2
3
4
5
UK GERMANY JAPAN USA
2003
yr to May
Source: Economist
No.2
Jonathan Bradley
THE MAIN ECONOMIES RIGHT NOW
STRONG GROWTH EVERYWHERE EXCEPT EURO AREA
ENERGY PRICES BEGINNINGS OF INFLATION??? MAJOR IMBALANCES WITH USA
Jonathan Bradley
Jonathan Bradley
Jonathan Bradley
DESPITE:
Jonathan Bradley
NOW ON THE WAY UP….
Jonathan Bradley
ALTHOUGH, INFLATION STILL OK
Jonathan Bradley
Jonathan Bradley
1: HOUSE PRICES IN BRITAIN
Are they “too high”? Is there a “bubble”? Will they fall? What will happen if
they do?
Jonathan Bradley
STOCK MARKETS AND LAND PRICES GO UP FAR TOO MUCH
BUBBLES!!BUBBLES!! WHEN THEY
BURST ECONOMIES SUFFER
Jonathan Bradley
Impact of 10% house price fall
4.7
3.6
3.3
5.0
5.0
4.5
5.0
5.0
4.5
5.0
5.0
4.5
2004Q4
2005Q4
2006Q4
Interest rates
1.5
1.3
0.8
1.5
1.1
0.6
1.5
1.5
1.0
1.5
1.7
1.7
2004Q4
2005Q4
2006Q4
CPIX inflation
3.0
1.9
2.4
3.0
1.2
0.7
3.1
2.2
1.6
3.1
2.8
2.3
2004
2005
2006
GDP growth
Wealth & confidence
Wealth effects
Wealth & confidence effects
with monetary response
No monetary responseOEF
central forecast
Source: Oxford Economic Forecasting
LOOK AT
THE RED
NUMBERS
Jonathan Bradley
2: HUGE CONSUMER 2: HUGE CONSUMER DEBTS!DEBTS!
Total UK, May 2004: £993 Total UK, May 2004: £993 BILLIONBILLION
Jonathan Bradley
SO, WHAT NOW?
In the world: Little danger of
deflation Growth generally
healthy Main threats from
energy prices and politics
In Britain: Still strongest growth
in Europe, BUT Highest interest rates
in Western Europe Main threats political
and from a housing asset price bubble
Jonathan Bradley
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