麥格里：中國引領全球通縮周期房地產非泡沫而是錯配 18/19年全球增長將放慢，日元會貶值，石油等商品會過剩

新聞 06-26

麥格里：中國引領全球通縮周期房地產非泡沫而是錯配 18/19年全球增長將放慢，日元會貶值，石油等過剩

The cycle rolls: we forecast 2018 and 2019 global real GDP growth (2.7% and 2.6% respectively) to slow versus 2017 (2.9%). Nonetheless, Global real GDP growth is forecast to remain in 「the long grinding cycle」 of 2.5-3.0% pa, below.

Demographic headwinds: With the high-frequency industrial sector data beginning to roll over, we believe it is time to focus back on two underlying trends: weak labour force growth in the leading economies and financial repression for decades as governments struggle to pay for rising entitlement spending. We forecast moderate trend growth and low real and nominal bond yields globally.

The three principal reasons why global real GDP growth is forecast to slow over2018-19 are:

1) A subdued global capex cycle, e.g. 12 June 2017 Fortress America: Yellow warning lights for the durable expansion

2) The gravitational pull of aging demographics working through both labour force growth and labour productivity, e.g. just 1.4% pa trend US real GDP growth

3) The ongoing growth fade in China

The investment rate and its quality is a key focus for estimating trend growth.

The 8 June 2017 Factory Asia』s 2018-20 outlook concluded that East Asia』s growth will continue to slow for three key reasons: deteriorating demographics, deteriorating quality of investment and the rising burden of maintenance capex,please see pages 7-8.

Short-term business-cycle judgements are more likely to succeed with a deep awareness of more medium- and longer-term issues. In global macroeconomics there are a considerable number of the latter. We examine 24 of them from page 32; topical issues investigated in our Macq-ro insights reports.

China中國引領全球通縮

China』s economic growth held up well in May but is set to slow down in 2H17. GDP growth is on track for 6.7% yoy in 2Q17 vs. 6.9% in 1Q17. As such, while the next few weeks remain a window for financial regulation, we expect that some time in 3Q17, the focus of policy will shift from financial regulation to supporting growth.

China leading the global disinflation cycle: The cyclical upturn since 1Q16 has been mainly driven by 3R (real estate, reflation and restocking). In year-on-year terms, PPI inflation turned positive in Sep 2016 and peaked in Feb 2017. Given a rising base and a slowing economy ahead in 2H17, we expect PPI inflation to drop to 0-2% toward the end of the year.

It also means that corporate earnings growth might have already peaked in 1Q17. In the past 18 months, China has been the major driver for global reflation, due to its impact on

commodity prices. This time, it might start leading the global disinflation cycle, which will pose significant headwinds for the EM space.

Steady production on strong external demand: Industrial production stayed flat at 6.5% yoy (consensus: 6.4%) in May, slightly lower than 6.8% in 1Q17, suggesting that the slowdown so far in 2Q17 has been very modest. One important contributor for steady production was external demand. The delivery value for exports by industrial companies, which is an alternative measure for exports, grew 10% yoy in Jan-May, compared with zero growth last year. Meanwhile, the consumption side of the economy has also done well, as retail sales growth came in flat at 10.7% yoy in May. However, power output growth slowed to 5.0% yoy in May, which is the slowest growth since last July. Steel and cement production also slowed from the previous month, suggesting the economy is decelerating, albeit modestly. Looking ahead, we expect GDP growth to slow to 6.6% in 3Q17.

Weaker investment in infrastructure and property: Fixed Asset Investment (FAI) growth slowed to 7.8% yoy in May from 8.1% in April. Regarding the three components of FAI, manufacturing FAI growth edged up on robust external demand, but both infrastructure and property FAI growth dropped to the lowest pace so far in 2017. We believe that property investment growth is set to slow further in 2H17, likely toward zero or negative at year-end.

Property heading to a down-cycle: Housing new starts growth slumped to 5.2% yoy in May from 10.1% in April, as developers are turning more cautious and facing more stringent

budget constraint. Sales growth edged up to 10.2% yoy from 7.7%, but it should be a blip, in our view. In the past couple of months, mortgage rates have been rising substantially due to tighter liquidity in the interbank market. While the benchmark mortgage rate remained unchanged at 4.9%, the prevailing market rates have changed from a 15% discount six months ago to a 10% premium or even more. As such, we expect property sales to see negative growth in 4Q17 and 2018. In our view, the property sector will be the biggest growth headwind for the next 18 months.

Looking ahead, manufacturing PMI surveys give a short look into the future. At present the level of these suggest some room to move higher, but they also suggest we might have reached an inflection point – especially if one looks at the Markit PMIs only (we use those for countries other than China, where we use the NBS PMI, and the US, where it is the ISM).

We forecast 2.7% full-year growth in global industrial production in 2017, with the YoY pace slowly decelerating. We calculate that YoY growth was 2.8% in 2012, 2.1% in 2013, 3.2% in 2014, 1.8% in 2015, and 1.9% in 2016.

With the high-frequency manufacturing sector data rolling over, we believe it is time to focus back on two underlying trends: weak labour force growth in the leading economies andfinancial repression for decades as governments struggle to pay for rising entitlement spending. We forecast moderate trend growth and low real and nominal bond yields globally.

The three principal reasons why global real GDP growth is forecast to slow over 2018-19 are:

1) A subdued global capex cycle

2) The gravitational pull of aging demographics working through both labour force growth and labour productivity, e.g. just 1.4% pa trend US real GDP growth

3) The ongoing growth fade in China

A subdued global capex cycle

This is the Macquarie bottom-up house view, Fig 4. Based on Macquarie』s global capex database of over 2,200 stocks with an aggregate of US$1.2tr in capex in 2017E, declines in global capital expenditures continue in 2016, abate in 2017, before mildly growing in 2018.

We agree that capex growth is a late 2017 and 2018 story, and as indicated below, even then nominal growth is unlikely to match global nominal GDP growth of ~4% pa (2.5% global real GDP growth, our 「The long grinding cycle」 thesis, and 1.5% from global inflation).

Following China』s December 2001 entry into the WTO, China was integrated in an East Asian export supply chain, otherwise known as Factory Asia.

Second, the progressive disengagement by MNCs is shown below: Their fading commitment to the countries of Factory Asia is a red flag.

Thirdly, the rising burden of maintenance capex, Fig.22, probably needs a little more explanation.

GDP is a gross (G) measure, so GDP gets a sugar rush as, for example, a long-life infrastructure project such as a the road is built, and GDP in future years includes all the maintenance expenditures.

However, in terms of capital deepening and labour productivity growth it is the capex beyond maintenance capex (depreciation) that matters. As shown below, just to stand still the US has to invest 15% of its GDP each year, Japan 18% and China 20%. Japan』s reconstruction and miracle growth investment overshot the US in 1996, China overshot in 2003.