Looking ahead: Oil, Brexit and China. Dr. Cyrus de la Rubia ECONOMICS & RESEARCH ISTANBUL MAY 24, 2016

Transcription

1 Looking ahead: Dr. Cyrus de la Rubia ECONOMICS & RESEARCH ISTANBUL MAY 24, 216

2 Agenda 1. State of the world economy 2. Oil: did we reach the bottom? 3. China: Repercussions of the slow down for the bulk market 4. Brexit: how big is the risk for the world economy? 5. Contact/Disclaimer

3 State of the world economy GDP growth forecast 216 according to HSH Nordbank/IMF Source: HSH Nordbank Economics & Research, IMF

4 State of the world economy GDP growth forecast 216 according to HSH Nordbank/IMF USA Euro area Japan China Latin America and the Caribbean Africa and Middle East Emerging Asia ex China World Source: HSH Nordbank Economics & Research, IMF

5 Commodity markets Oil - up again? Source: Common licence

6 Commodity markets Did we reach the bottom? Crude price (Arab light, USD/barrel) and industry metal prices (index) Source: HSH Nordbank Economics & Research, Bloomberg

7 Commodity producers have cut their investment activity in 215 and may continue to do so this year to protect their cash flow Capital expenditures of top 15 oil service providers and of top 15 oil explorers in mn USD Capital expenditures of coal producers in mn USD (top 3 producers of different regions) Capital expenditures of iron ore producers in mn USD , 45, , 12, 1, 8, 6, 4, 2, 4, 35, 3, 25, 2, 15, 1, 5, Oil explorers, lhs Oil service providers, rhs USA China Europe Other BHP Fortescue Vale Total Source: HSH Nordbank Economics & Research, Bloomberg

8 Commodity markets - crude It seems like the market bottomed out Interpretation: (1)Taking Brazil as an example, the chart states that on average Brazil s projects produce with a negative cash flow, if the oil price falls below 2 USD/barrel. (2)Global onshore output amounts to 8 mn barrels/day. Projects with output of some 7 mn b/d produce with a positive cash flow as long as the oil price is above 2 USD/barrel. (3)This means: If the oil price approaches the 2 USD-level, oil projects of 1 million barrels/day would drop out immediately. (4)The bottom seems to be around of 3 to 35 USD/barrel So called cash costs of onshore oil production, 215, USD/Barrel Source: Economist, HSH Nordbank Economics & Research

9 Commodity markets what is going to happen in Brazil? GDP and capital spending, change in comparison to year before, in % Mar 1Mar 4Feb 7 Jan 1 Jan 13 Dec 15 GDP Brazil Capital spending Exchange rate (BRL/US-Dollar) Political mile stones 4,5 4 3,5 3 2,5 2 1,5 1, May 216: President Rousseff removed from office for up to 18 days May 216: Takeover by former vice president Temer July 216: First reforms are expected before the summer break. Otherwise it would be a sign of weakness. Aug Nov 216: Rousseff will probably be removed from office permanently Oct 216: Municipal elections Oct 218: Presidential elections Ongoing: Investigations into key policital players due to another corruption scandal Source: HSH Nordbank Economics & Research, Bloomberg

10 China Risk for the world economy? Source: FT

11 China The well known problem of overcapacity

12 China Three forces are under way: Less growth, increasing significance of services and less trade intensity Average yearly GDP change in % 12, Industrial sector and services sector in % of GDP 5 Imports in % of GDP 35 1, , , 4, , , Value added in the industrial sector/gdp Value added in the services sector/gdp Source: HSH Nordbank Economics & Research, ADB

13 China s slowdown is felt mostly in coal imports, less so in iron ore imports, while crude imports are strong China coal imports in 1 metric tonnes China iron ore imports in 1 metric tonnes China crude imports in 1 metric tonnes Total, -22,6% Significantly down 1 Total, 3,2% Moderately up 35 3 Total, 1,3% Strongly up Austral., 6,7% Austral., -21,6% Indone., -28,2% Canada, -2,8% Apr Mar 215 Apr Mar Brazil, 18,9% Apr Mar 215 Apr Mar 216 South Africa, 3,6% Russia, Saudi 34,6% Iraq, Arabia, 13,4% 3,5% Iran, -4% Venezu., 2,4% Apr Mar 215 Apr Mar 216 Source: HSH Nordbank Economics & Research, Bloomberg

14 Brexit What if? Source: FT

15 Brexit What if? Starting point Polls show that a Brexit is a distinct possibility. Negotiations about the Brexit would be very tough for Britain as EU members as Germany and France are not interested making the leave option attractive. Short term impact Market turbulences are probable, especially in 217 when negotiations might be stuck without any compromise in sight. EU and euro area may get into trouble, too, given the presidential elections in France in April /June 217. A recession in UK and euro area is highly likely in 217. Real estate prices will go down significantly in London. Long term impact Depending on election outcome in France and political changes in other countries the unity of the EU could be in danger. Growth potential of UK would be lower, depending on the final new institutional settings. Growth potential of EU would suffer much less than UK s growth potential under the condition that the rest of EU will remain stable. London as a financial hub should survive, but parts of the business would be absorbed by Frankfurt and Paris

16 Contact Dr. Cyrus de la Rubia Chief economist of HSH Nordbank and Head of Research Tel: +49 () HSH Nordbank AG Gerhart-Hauptmann-Platz Hamburg Germany

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