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