Macq-ro insights：Global policy coordination dreams

Please refer to page 25 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. GLOBAL Why this issue matters to investors 1) Entitlement program promises are under pressure. Politicians and policymakers are looking to boost global growth 2) Global fiscal easing is highly unlikely to happen, such that the debate appears to have moved towards supporting global consumption 3) UNCTAD estimates that global growth could be boosted by 1% with full global macro coordination. Perhaps a tenth of that is currently possible 4) This report supports a focus on global consumption growth beneficiaries Our forecasts: Please see the 14 March 2016 The Global Macro Outlook: Post the deleveraging twister Online access to our global macro forecasts is available on request Analyst(s) Macquarie Capital Securities (Japan) Limited Peter Eadon-Clarke +81 3 3512 7850 peter.eadon-clarke@macquarie.com Nara Song +81 3 3512 7878 nara.song@macquarie.com Macquarie Capital (Europe) Limited Matthew Turner +44 20 3037 4340 matt.turner@macquarie.com 14 April 2016 Macq-ro insights Global policy coordination dreams The political consequences of ‘the long grinding cycle’ of 2.5-3.0% global real GDP growth, and 1.0-1.5% global inflation are intensifying. Entitlement program promises are under pressure. Politicians and policymakers are looking to boost global growth, somehow. The private sector is less robust beyond the US, suggesting the ongoing need for cyclical policy support. From fiscal stimulus to boosting consumption On 26-27 February 2016, the G20 finance ministers and central bankers met in Shanghai amid turbulent markets. The then preferred policy, global fiscal easing, is highly unlikely to happen, page 14. Subsequently, the debate appears to have moved towards supporting global consumption, pages 3-5. Global real private consumption growth, US$, YoY, 4Q moving average Source: Oxford Economics, Macquarie Research, April 2016 To make a substantial difference, policies would need to be almost revolutionary: upping the minimum wage rate, reducing the tax burden on households, introducing income redistributive policies and increasing the returns on savings (a reduction in financial repression). Whilst the probability of their adoption is low, they have long been advocated by UNCTAD, and the IMF is now recommending modest steps in this direction. UNCTAD estimates that global growth could be boosted by 1% with full global macro coordination, pages 7-9. Perhaps a tenth of that is currently possible. The G7 meets 26-27 May 2016 at Ise-Shima, Japan. With a developing global push to support consumption, it will be difficult for PM Abe and Japan, as hosts, to proceed with the consumption tax rate increase (from 8% to 10%) legislated for April 2017. A postponement is now in our best case, 6 April 2016 PEC’s Japan strategy; Grinding out minimal growth. This report supports a focus on global consumption growth beneficiaries. Suggested Macquarie research reports Laurent Vasilescu & Dan Isaacson Looking at the US consumer names through an international lens (PowerPoint) 8-04-2016 Daniele Gianera et al Global luxury goods – time to price in the new normal 8-12-2015 Viktor Shvets What caught my eye: Launching global portfolios 04-02-2016 Source: Macquarie Research, April 2016 -2-10123452006200720082009201020112012201320142015(%)World -Consumption Macquarie Research Macq-ro insights 14 April 2016 2 Fig 1 G20 real GDP growth softened over 3Q and 4Q 2015, YoY based on quarterly data 2011 2012 2013 2014 2015 2016 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 G20 4.8 4.3 3.8 3.5 3.4 3.2 3.0 2.7 2.7 2.8 3.2 3.6 3.5 3.4 3.3 3.2 3.2 3.3 3.1 3.0 NA Argentina 10.6 8.0 7.7 7.3 3.9 -1.1 0.0 0.6 1.5 4.9 3.4 1.8 0.5 0.7 0.0 0.6 2.2 1.9 3.5 0.9 Australia 2.0 2.5 3.1 3.1 4.4 3.9 3.2 2.7 1.8 2.1 2.0 2.3 3.0 2.7 2.6 2.2 2.2 2.0 2.7 3.0 Brazil 5.1 4.6 3.5 2.5 1.6 1.0 2.6 2.6 3.0 3.8 2.8 2.4 2.5 -0.3 -1.0 -0.7 -2.1 -2.9 -4.5 -6.0 Canada 3.1 2.8 3.5 3.1 2.4 2.6 1.4 0.7 1.7 1.8 2.3 3.1 2.2 2.7 2.5 2.4 2.1 1.0 1.1 0.5 China 10.2 9.9 9.4 8.7 8.0 7.5 7.4 8.0 7.8 7.5 7.9 7.6 7.3 7.4 7.1 7.2 7.0 7.0 6.9 6.8 France 2.9 2.2 1.8 1.5 0.4 0.2 0.3 0.0 0.1 1.1 0.8 1.0 0.7 -0.2 0.1 0.1 1.0 1.1 1.2 1.4 Germany 5.6 3.7 3.3 2.4 0.9 0.8 0.6 0.1 -0.5 0.3 0.5 1.3 2.3 1.4 1.2 1.5 1.1 1.6 1.7 1.3 India 10.1 9.3 5.0 4.4 3.9 3.8 6.8 6.1 5.9 6.0 6.6 7.0 6.9 7.2 7.4 7.1 7.4 7.4 7.3 7.5 Indonesia 6.3 6.2 6.2 6.0 6.1 6.1 6.0 5.9 5.7 5.6 5.5 5.4 5.2 5.1 5.0 4.8 4.8 4.7 4.8 4.9 Italy 2.0 1.5 0.5 -1.1 -2.3 -3.2 -3.2 -2.7 -2.6 -2.0 -1.4 -0.9 -0.2 -0.2 -0.4 -0.3 0.2 0.6 0.8 1.0 Japan 0.1 -1.6 -0.4 0.3 3.3 3.5 0.3 0.0 0.1 1.1 2.1 2.1 2.4 -0.4 -1.5 -0.9 -1.0 0.7 1.7 0.8 Korea 4.8 3.7 3.4 2.9 2.6 2.4 2.1 2.1 2.2 2.7 3.2 3.5 3.9 3.5 3.3 2.7 2.4 2.2 2.8 3.1 Mexico 4.2 3.6 4.2 4.2 4.0 4.5 3