Benhackett

May 2004Copyright © 2004 Global Insight, Inc.

Where Are We on the Road to

Global Economic Recovery?

Trans-Atlantic Maritime ConferenceNew Jersey

May 17, 2004

BEN HACKETTExecutive Managing Director


2

Program

World Macroeconomic Outlook

Forecast of Cargo

Growing Importance of China

Conclusions


3

Key Issues and Risks

Has growth peaked?

Will high oil prices derail the recovery and/or trigger higher inflation?

Will rising inflation in the “super-dollar-bloc” result in much higher interest rates?

Divergent monetary policies are symptomatic of uneven world growth

A weaker dollar has not hurt export growth in other parts of the world, including Europe

The world economy will be more vulnerable to shocks if (as U.S. domestic demand shows) domestic demand in the rest of the world does not pick up the slack


4

0

1

2

3

4

5

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Recovery in the World Economy

(Percent change in real GDP)

The world economy is in recession when real GDP growth is below 2%.


5

U.S. – Sustained, Strong Recovery

Growth is more diversified (thanks to stronger exports, capital spending and inventories) and, therefore, more sustainable

The jobs picture is improving – offshore outsourcing has only been a small part of the problem

Inflation will move up gradually

The Fed will begin hiking rates later this year

Whoever is in the White House next year will raise taxes

After a brief period of strength, the dollar will continue to slide

Domestic demand growth will slow next year – will the rest of the world pick up the slack?

Despite a low savings rate, the U.S. has managed to engineer strong productivity growth


6

Growth – United States

(Percent change from a year earlier)

-3.0

-1.5

0.0

1.5

3.0

4.5

6.0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Domestic Demand GDP


7

Europe – Lagging Once Again

Not only is trend growth in Europe low, but the output gap is also rising

Is Germany headed for a “triple-dip”?

Domestic demand growth has fallen short of GDP growth for much of the last decade

Fiscal and monetary policies still remain too tight, given the current cyclical weakness

Concerns about an “overvalued” euro have been overblown

Progress on reforms is still too slow

Offshore outsourcing will soon become a big issue in Europe

Because of weak growth, Europe is more vulnerable to a terrorist attack than the U.S.

Will it take a crisis (deep, painful and prolonged) to shake Europe out of its complacency?


8

Growth – European Union

(Percent change from a year earlier)

-3.0

-1.5

0.0

1.5

3.0

4.5

6.0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Domestic Demand GDP


9

Real GDP Growth in Emerging Europe

012345678

Russia Poland CzechRepublic

Hungary Romania

2002 2003 2004 2005 2006

(Percent change)


One World – Two Perspectivesor

Which is the Bigger Threat to the Global Economy:The U.S. or Europe?


11

Threats to the Global Economy

European Perspective

High and rising U.S. private debt is one of the biggest threats to the global economy

American Perspective

U.S. debt levels are not that high by G7 standards

Low European growth is one of the root causes of global imbalances


12

0 30 60 90 120 150

Italy

France

Germany

United States

Canada

United Kingdom

Japan

1991 2002

G7 Household Debt

(Percent of disposable income)

Source: OECD


13

Fiscal Policy and Public Debt


The ballooning U.S. fiscal deficit will eventually derail the U.S. recovery and hurt the world economy


The U.S. deficit and public debt are manageable problems and not high by G7 standards


14

Fiscal Balances

-12

-10

-8

-6

-4

-2

0

2

4

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

United States Eurpean Union Japan Asia excl. Japan

(Percent of GDP)


15

The “Twin Deficits”

-6.0

-4.5

-3.0

-1.5

0.0

1.5

3.0

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

U.S. Federal Deficit to GDP Current Account Deficit as % of GDP


16

Current Account and Exchange Rates


The U.S. current account deficit is unsustainable

By allowing the dollar to plummet, the U.S. is growing at the expense of other parts of the world – especially Europe

The U.S. is absorbing too much of the World’s savings

U.S. Perspective

The U.S. current account is unsustainable but need not lead to a crisis

The dollar is not undervalued, nor is the euro overvalued

Strong U.S. growth has helped the rest of the world


17

Current Account Balance

-6

-4

-2

0

2

4

6

1990 1995 2000 2005 2010 2015

United States Eurpean Union Japan Asia excl. Japan

(Percent of GDP)


18

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006

Industrial Countries Developing Countries

The U.S. Dollar: Not Undervalued

(Real trade-weighted dollar index, 1996=1.0)


19

Growth


Americans are obsessed with growth

Europe’s growth has been more “balanced”


Europe’s resignation to low growth is a big problem given global imbalances, looming pensions crisis and high unemployment rates (low employment rates)

Europe’s “balance” has come at a high price


20

Unemployment Rate

3.0

4.5

6.0

7.5

9.0

10.5

12.0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

United States European Union


21

Can Global Insight’s forecasts be relied upon?London Times Forecasters’ Survey*

Poll of 43 forecasters

RanksGlobal Insight 4thOECD 7thEIU 17thIMF 26thOxford 33rd

Earlier 10-year survey showed us as #1!

*2002 Survey*2002 Survey


22

Program


Forecast of Cargo


Conclusions


23

Container Trade Grows Faster Than the World Economy

0

2

4

6

8

10

12

14

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

WORLD TEUs

2004:GDP 4.0%TEUs 8.9%

World GDP: 3% thru 2012


24

North American Exports to the EU (15)(Millions of Tonnes)

116

118

120

122

124

126

128

130

132

134

136

138

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0

2

4

6

8

10

12

14

16

18

Seaborne Container

6% drop in trade

4% increase

11%


25

North American Imports from the EU (15)Slow Growth this year and next due to $/Euro rate.

23 2324 24

2526

2829

30

0

20

40

60

80

100

120

140

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0

5

10

15

20

25

30

35

Seaborne Container

Millions of TonnesMillions of Tonnes


26

North American Exports are dominated by Bulk Goods

Top Seaborne CommoditiesCoal

Ores and Scrap

Petroleum Refineries

Residual Petroleum Products

Crude Petroleum

Animal Feed

Oil Seeds

Pulp

Grain

Organic Chemicals

Paper and Paperboard andProducts

Top 10 Commodities represent 83% of TotalTop 10 Commodities represent 83% of Total


27

North American Exports of Containerized Traffic is a mixed bag of goods.

Represent 56% of the TotalRepresent 56% of the Total

Top 10 Containerized CommoditiesSynthetic Resins

Pulp


Vegetables and Fruits - non-Refrigerated

Organic Chemicals

Parts of Motor Vehicles

Vegetables, Fruits and Eggs -req Refrigeration

Cork and Wood

Beverages

Machinery and Equipment, nec.


28

North America Imports are dominated by bulks.


Top 10 Seaborne ImportsCrude Petroleum

Petroleum Refineries

Non-Metallic Products, nec.

Iron and Steel

Beverages


Stone, Clay and OtherCrude Minerals

Organic Chemicals

Motor Vehicles

Synthetic Resins


29

North American Container imports from the EU are led by beverages.


Top 10 Containerized ImportsBeverages

Non-Metallic Products, nec.


Synthetic Resins

Machinery and Equipment,nec.

Parts of Motor Vehicles

Other Food

Iron and Steel

Wood Products

OtherMeat/Dairy/Fish/Fruit/Vegetables

16%16%


30

The industry continues to consolidate as long haul routes continue to expand.

19%28% 27% 30%

41%

57% 60%64%

5.96.8

8.8

10.8

0%

10%

20%

30%

40%

50%

60%

70%

Nov-96 Sep-98 Nov-01 Oct-03

0

2

4

6

8

10

12

Mil

lio

ns

of

TE

Us

Top 5 Top 20 Total TEUs

Source: Containerisation International

Bigger, but fewer Liner OperatorsBigger, but fewer Liner OperatorsTotal capacity in service or on orderTotal capacity in service or on order


31

Program


Forecast of Cargo


Conclusions


32

Country Ranking By GDP

(2003 Billions of U.S. Dollars)

2000 2010 2020 2030 2040 2050

U.S. U.S. U.S. U.S. U.S. ChinaJapan Japan China China China U.S.

Germany Germany Japan Japan India India

U.K. U.K. Germany India Japan Japan

France China U.K. Russia Russia Brazil

Italy France India U.K. Brazil Russia

China Italy France Germany U.K. U.K.

Brazil India Russia France Germany Germany

India Russia Italy Brazil France France

Russia Brazil Brazil Italy Italy Italy


33

0.7 0.92.2

3.64.8

0

3

6

9

1980 1990 1995 2000 2005

China* Hong Kong* Taiwan*

* Export totals from China, Hong Kong and Taiwan exclude trade with each other. Source: Global Insight World Industry Service

(Percent share of world manufacturing exports)

Greater China’s Expanding Role in World Trade


34

0 2 4 6 8 10 12 14 16 18

China

Brazil

Mexico

Taiwan

Korea

Singapore

Europe

United States

Japan

(Manufacturing wages, $ per hour, 2001)

Sources: U.S. Bureau of Labor Statistics, China’s National Bureau of Statistics

United States: $16.14

China: $0.61

China’s Manufacturing Wage Competitiveness


35

Bottom Line

The world recovery is likely to be sustained but uneven

The current world imbalances have as much to do with weak growth in Europe as U.S. debt levels

If domestic demand growth in the rest of the world does not pick up, then the adjustment will continue to occur via exchange rates, which is both more painful and more inefficient/distorting

The North Atlantic trade will not be spectacular compared with Asian based trade.

U.S. East Coast ports will however continue to benefit from the growth in volumes and services on the All Water Asia routes at the expense of the West Coast.


Thank You

Questions?

May 2004

Ben Hackett

(202) 481-9218 / (202) 481-9301 (fax)

[email protected]

www.globalinsight.com

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