Global Economic Outlook Mark A. Wynne Vice President & Associate Director of Research Director, Globalization & Monetary Policy Institute Federal Reserve Bank of Dallas Presentation to Austin Financial Planning Association Austin, May 2018 The views expressed are those of the author and do not necessarily reflect the views of the Federal Reserve Bank of Dallas or the Federal Reserve System
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Global Economic OutlookMark A. Wynne
Vice President & Associate Director of Research
Director, Globalization & Monetary Policy Institute
Federal Reserve Bank of Dallas
Presentation to Austin Financial Planning Association
Austin, May 2018The views expressed are those of the author and do not necessarily reflect the views of the Federal Reserve Bank of Dallas or the Federal Reserve System
Europe North America Africa Asia Latin America OceaniaShare
Immigrants key to U.S. labor force growth
0
20
40
60
80
100
120
140
160
180
200
1965 1975 1985 1995 2005 2015 2025 2035
Millions
Working age population (25-64)
With projected 2015-35immigration
Without projected 2015-35immigration
Projections for foreign-born working-age adults are based on current rates of immigration, combining lawful and unauthorized. They assume that two-thirds of immigrants arriving through 2035 will be ages 25 to 64, as is true of today’s new immigrants.
• Recent votes in U.K, France, Italy, U.S. and elsewhere have heightened awareness of the scale of discontent with open borders
• Western democracies appear to have done a poor job at facilitating movement from declining sectors into emerging sectors
• Lingering after effects of the global financial crisis may also be playing into this
• Support for liberal international economic order more fragile than it has been in a long time
• But…to date, despite strong rhetoric, (relatively) few policy actions have been taken to undo globalization
• Although…
Disruption
• UBS: electric vehicles “….the most disruptive car category since the Model T”
• Truer of driverless cars?
• Service sector: Amazon, AirBnB, Uber, Lyft,….• But…why no surge in productivity growth?• Innovation in older “physical” businesses (which still make up a sizable
share of the economy) held back by regulation?• Why are profit margins (in the U.S.) at historic highs?
• Debt fueled growth has historically proven difficult to sustain• Busts that follow debt fueled booms often more painful and protracted• Reinhart & Rogoff (2011) This Time Is Different: Eight Centuries of Financial
Folly
• Diminished capacity for fiscal stimulus in response to future crises
A tale of four credit bubbles?...(Credit to the private nonfinancial sector)
10-year government bond yields no longer flirting with negative territory
-1.0-0.50.00.51.01.52.02.53.03.54.0
2012 2013 2014 2015 2016 2017 2018
U.S.U.K.GermanyJapan
Percent
U.S. election
BREXIT vote
Headwinds, tailwinds and CAT
• Tailwinds• Lower oil prices• Monetary policy still quite accommodative in many countries
• Headwinds• Europe
• How disruptive will BREXIT be?• Slowdown in China
• How manageable?
• Clear air turbulence?• Monetary policy normalization in the United States
• Liftoff from zero occurred at end 2015; is the rest of the world prepared for higher U.S. rates?
• Known unknowns• Geopolitical risks
The world has changed! GDP based on PPP, share of world total
30
35
40
45
50
55
60
65
1992 1997 2002 2007 2012 2017 2022
Advanced Emerging
Percent
On the eve of the Global Financial Crisis there was about as much economic activity taking place in the emerging market economies as in the advanced economies of North America, Europe and Japan
The world has really changed!GDP based on PPP, share of world total
0
5
10
15
20
25
1992 1997 2002 2007 2012 2017 2022
U.S. China
Percent
By some measures China becamethe world’s largest economy in 2014
• Modal outlook is for synchronized expansion in 2018 & 2019• U.S. likely to continue to be one of the stronger performers among the advanced economies• Expansion gathering momentum in Europe, Japan• Almost all emerging markets now growing
• Monetary policies of major central banks diverging• Fed: normalization began December 2015; BoE also normalizing• ECB, BoJ: still easing; but ECB may taper soon• PBOC: shift to concerns about financial stability
• Risks:• Overshooting in the U.S.• Europe: BREXIT• China slowdown• Trade conflicts?