CARSTEN BRZESKI, Chief Economist at ING-DiBa (Germany)

The Return of a Monster?The dark side of secular stagnation

November 2015www.ing-diba.de

Carsten BrzeskiChief Economist

Global cooling…

Quelle: Thomson Reuters Datastream, ING Economic Research

Global trade, six-month average, % change on a year earlier

2008 2009 2010 2011 2012 2013 2014 2015-20

-15

-10

-5

0

5

10

15

20

-20

-15

-10

-5

0

5

10

15

20

Volume Value

2

…has brought back recession fears

3

Chinese headaches

4

What you see is not always what you get


GDP and China Momentum IndicatorFour-quarter percentage changes

92 94 96 98 00 02 04 06 08 10 12 142

4

6

8

10

12

14

16

2

4

6

8

10

12

14

16

6,9

2,8

GDP China Momentum Indicator

5

And China is contagious for other emerging market economies

6

Source: Thomson Reuters Datastream, ING Economic Research

2011 2012 2013 2014 2015

-5

0

5

10

15

-5

0

5

10

15

Brazil RussiaIndia China

GDP-growth year-on-year %

US – To hike or not to hike?

7

Labour market still has some dark spots

8


US labour market details

1996 1998 2000 2002 2004 2006 2008 2010 2012 201462

63

64

65

66

67

68

200

400

600

800

1000

1200

1400

Participation rate (%, lhs)Not looking for a job, due to discouragement (rhs, 000)

US policy rate expectations

9

Eurozone balancing act continues

10

Credit growth remains lacklustre


Eurozone - Corporates' loans and deposits% YoY

2002 2004 2006 2008 2010 2012 2014-5

0

5

10

15

-5

0

5

10

15

20

Loans to corporates (lhs) Deposits of corporates (rhs)

11

Optimism and reality

12

-6

-4

-2

0

2

4

2007 2008 2009 2010 2011 2012 2013 2014 2015

Eurozone GDP growth rate (% yoy)

ECB forecast actual data

Car country Germany

14

But before the first run out of the room to get some happy pills…

15

…there are some rays of hope

16

Different Chinese growth model

17

Source: Thomson Reuters Datastream

2009 2010 2011 2012 2013 2014 201580

100

120

140

160

180

200

220

80

100

120

140

160

180

200

220

China Services China Manufacturing + Construction

x 1,000 x 1,000

Industry + Construction

Services

US labour market is strong…


US labour market

2000 2002 2004 2006 2008 2010 2012 2014

3

4

5

6

7

8

9

10134

136

138

140

142

144

146

148

150

Unemployment rate (lhs, rev, %) Employment (rhs, mio)

18

…and household finances are in much better shape


Household debtPer cent of income

94 96 98 00 02 04 06 08 10 12 1480

90

100

110

120

130

140

80

90

100

110

120

130

140

US

19

Eurozone confidence is still robust...

Quelle: Thomson Reuters Datastream

2006 2007 2008 2009 2010 2011 2012 2013 2014 201560

70

80

90

100

110

120

-6

-4

-2

0

2

4

ECONOMIC SENTIMENT INDICATOR (EA18) : Euro Zone1Y % change of GDP (EA19)(WDA)(ESA2010) : Euro Zone (RH Scale)

20

...with some Eurozone rebalancing…


Economic sentiment indicator (divergence from LT-average)

GR AT FI BE FR NL PT EMU DE ES IT-15

-10

-5

0

5

10

15

-15

-10

-5

0

5

10

15

1 YEAR AGO LATEST

21

…driven by external tailwinds…

22


2013 2014 2015-60

-50

-40

-30

-20

-10

0

10

-15

-10

-5

0

5

10

15

1Y % change of euro NEER (rhs) 1Y % change of oil price in EUR (lhs)

BUT…the secular stagnation and deleveraging issue

23

Low oil prices are not a blessing for everyone


2006 2007 2008 2009 2010 2011 2012 2013 2014 201520

40

60

80

100

120

140

160

0

500

1000

1500

2000

US ROTARY RIGS - OIL : United States (RH Scale) 4M lag of Crude Oil-Brent Cur. Month FOB U$/BBL

24

Debt – the ticking time bomb in China?

25

0

50

100

150

200

250

300

2000 2007 2014

China - Debt-to-GDP ratio (%)

Household Corporate Government Financial

Eurozone – the tough difference between change and level


Eurozone GDP per capita since 2007Rebased to zero at end-2007 (% change)

06 07 08 09 10 11 12 13 14 15 16-30

-25

-20

-15

-10

-5

0

5

10

-30

-25

-20

-15

-10

-5

0

5

10

1,5

9,2

-0,6

-9,4

0,9

8,4

-25,2

Germany: 9,2%Ireland: 8,4%France: 1,5%Portugal: 0,9%Spain: -0,6%Italy: -9,4%Greece: -25,2%

-27,2%

26

Pick-up in investment will be key…


Private domestic investment

2009 2010 2011 2012 2013 2014 201590

100

110

120

130

140

90

100

110

120

130

140

USA EUROZONE

27

28

…but leverage remains a crucial hurdle

50556065707580859095

100

2005

q120

05q4

2006

q320

07q2

2008

q120

08q4

2009

q320

10q2

2011

q120

11q4

2012

q320

13q2

2014

q120

14q4

2015

q3

Gross debt households in % GDP

United States

Japan

Euro area

100

110

120

130

140

150

160

170

2005

q120

05q4

2006

q320

07q2

2008

q120

08q4

2009

q320

10q2

2011

q120

11q4

2012

q320

13q2

2014

q120

14q4

2015

q3

Gross debt non-financial corporations in % GDP

United States

Japan

Euro area

Source OECD

It is time to get up…

29

The Eurozone’s structural problems

30

Diverging competitiveness…

31 01.05.23 Bitte Präsentationstitel über Menüpunkt "Ansicht", "Kopf- und Fußzeile" anpassen

Drivers of change

33

Autonomous driving: The autonomous driving biomobile

34

Source: Futureclick.

Autonomous driving: Brightest future for self-driving cars in US and China

35

Source: IHS Automotive 2014.

Autonomous driving: Autonomous driving in perfection

36

Smart cities

37

Source: Nationale Plattform Zukunftsstadt.

Robotics: The cook who knows 2,000 recipes by heart

38

Source: Computerbild.

Robotics: Change in competitiveness due to robotics

39

Source: BCG 2015.

Robotics: Labor-cost savings

40

Source: BCG 2015.

Robotics: The Robot Journalist

41

Source: TheGuardian; Getty Images.

Robotics: The Robots are already here

42

Source: IFR.

Big data

43

Source: Datafloq.

3d printing

44

But will there be a real economic impact?

45

Source: The Economist.

Potential economic impact of IoT

46

Monitoring and managing illness, improving wellness

Condition-based maintenance, reduced insurance

Operations optimization, equipment maintenance, health and safety, IoT-enabled R&D

Operations optimization, predictive maintenance, inventory optimization, health and safety

Organizational redesign and worker monitoring, augmented reality for training, energy monitoring, building security

Automated checkout, layout optimization, smart CRM, in-store personalized promotions, inventory shrinkage prevention

Energy management, safety and security, chore automation, usage-based design of appliances

Public safety and health, traffic control, resource management

Size in 2025. $ billion, adjusted to 2015 dollars.Source: McKinsey 2015.

Logistics routing, autonomous cars and trucks, navigation560-850

930-1,660

210-740

160-930

170-1,590

Developed vs developing world

47

Health-care spending in advanced economies is twice that in developing economies

Higher values in advanced economies outweighs higher number of emerging market households

Higher adoption and values in advanced economies, but large number of retail settings in developing markets

Higher costs and wages in advanced economies raises value of impact

Larger investments in automation in advanced economies, but large number of factories in emerging markets

Higher adoption in advanced economies outweighs larger number of developing economy deployments

Higher costs in advanced economies

More autonomous vehicles in advanced economies, but larger number of cities and populations in developing markets

Transportation/shipping spending higher in advanced economies

Source: McKinsey 2015.

Reasons for different levels of impact%

Industrials: a wide open opportunity

Energy efficiency, home comfort and security will be key areas of Industrial focus

IoT can help reduce home energy consumption by over 40% in various applications

48

Source: ABB; Goldman Sachs Global Investment Research.

What do we need?

Connectivity infrastructure builds the backbone of Industry 4.0

Source: Cisco VNI 2015; Cisco Global Cloud Index, 2014.

49

Are countries laying the right foundations?

50

NAC: National absorptive capacity, 55 indicators, e.g. banking and finance, education, governance, suppliers, R&D, technology skills. Rankings of countries‘ Industrial Internet of Things enabling factorsSource: Accenture; Frontier Economics.

NAC score

Don’t fear the monster but face the reality

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QUESTIONS?

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Disclosures Appendix

ANALYST CERTIFICATIONThe analyst(s) who prepared this report hereby certifies that the views expressed in this report accurately reflect his/her personal views about the subject securities or issuers and no part of his/her compensation was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this report.

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CARSTEN BRZESKI, Chief Economist at ING-DiBa (Germany)

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