Global Economic Environment

M 2- 1

Global Economic Environment

•Increasing Interdependency Among Economies •Emerging Markets •Global Focus of Nations •FX Market – Tail Wagging the Dog •Types of Economic Systems •Market Allocation •Command Allocation •Mixed Allocation

© Warren Keegan Associates, Inc.

M 2- 2

The Asian Flu annual average % Real GDP growth estimates, 1997

1998*

1998**

China

8.8#

8.8

7.5

Hong Kong

5.4

3.9

2.5

Indonesia

6.3

3.2

2.1

Japan

0.0#

1.3

1.0

Korea

5.8

3.4

2.2

Malaysia

7.4

3.1

2.1

Philippines

4.9

3.9

2.5

Singapore

7.4

5.3

3.2

Taiwan

6.6

6.2

3.5

Thailand

0.9

-1.7

-2.0

USA 2.5 *Data Sources: Merrill Lynch, ING Barings, and Morgan Stanley Dean Witter # = actual performance

3.7%

2.3

** W K A, Inc.

© Warren Keegan Associates, Inc.

M 2- 3

Measures of Economic Performance 1950 - 1987 Averages Real Compound Annual Growth in GDP Per Capita

Overall Labor Productivity Growth

Net National Investment

Japan

6.2%

Japan

5.9%

Japan

17.6%

Korea

5.7%

Korea

5.8%

South Korea 14.7%

Germany

4.0%

Italy

4.4%

Switzerland 13.7%

Italy

3.9%

Germany 3.8%

Germany 11.8%

Denmark

2.7%

Denmark 2.4%

Denmark 11.6%

Sweden

2.6%

Sweden 2.3%

Sweden 11.6%

Switzerland 2.2%

U.K.

2.2%

Italy

10.9%

U.K.

2.2%

Switzerland 1.2%

U.K.

7.7%

United States 1.9%

United States 1.4%

United States 7.1%

© Warren Keegan Associates, Inc.

M 2- 4

World GNP Top 10 - 1995 In Billions

Japan: $4,247

Germany: $1,999 France: $1,352 Italy: $1,183

United States: $6,659

U.K.: $1,076

26%

China: $677 Rest of World: $6,255 24%

Canada: $595 Spain: $570 Brazil: $484 © Warren Keegan Associates, Inc.

M 2- 5

World GNP Top 10 - 2020 In Billions

Japan: $10,037

China: $4,126

Germany: $3,707 France: $2,446 Korea: $2,184

United States: $11,195

Rest of World: $15,474

Italy: $1,989 Taiwan: $1,825 U.K.: $1,601 Spain: $1,283

© Warren Keegan Associates, Inc.

M 2- 6

Free Economies 1. 2. 3. 4. 5.

Hong Kong Singapore Bahrain New Zealand Switzerland

6. United States 7. Ireland 8. Luxembourg 9. Taiwan 10. United Kingdom

© Warren Keegan Associates, Inc.

M 2- 7

Mostly Unfree Economies 73. 74. 76. 79. 81. 86. 91. 96. 97. 99.

Lithuania Saudi Arabia Kenya Slovak Rep. Colombia Mexico Brazil Romania Cambodia Egypt

103. 105. 107. 109. 110. 116. 120. 121. 125. 127.

Pakistan Venezuela Bulgaria Madagascar Russia Croatia Ethiopia India China Ukraine © Warren Keegan Associates, Inc.

M 2- 8

Mostly Free Economies 11. 12. 13. 14. 16. 17. 25. 28. 33. 34.

Bahamas Japan Czech Rep. Australia Canada U.A.E Germany South Korea Sweden Argentina

35. 36. 37. 49. 56. 58. 62. 63. 64. 70.

France Italy Spain Guatemala Israel Turkey Greece Hungary South Africa Poland © Warren Keegan Associates, Inc.

M 2- 9

Country Income Segmentation + $9,385 High

Income (Advanced Countries) - Triad - Others

+ $3,036Upper + $765 Lower < $765 Low

Middle Income (NIC's) Middle Income (DC's)

Income (LDC's)

Basket Cases (BC's) © Warren Keegan Associates, Inc.

M 2- 10

GNP per Capita: 1995 & 2020 Top Ten Countries

1995 Luxembourg

2020 $37,800

Singapore

$75,200

Switzerland

36,900

Luxembourg

73,600

Japan

33,700

Japan

72,400

Denmark

27,100

Hong Kong

71,900

Norway

26,600

Switzerland

44,000

U.S.

25,300

Austria

40,500

Sweden

24,900

Belgium

40,200

Germany

24,500

Germany

39,200

Austria

24,100

Korea

38,400

Kuwait

23,700

Cyprus

38,000

© Warren Keegan Associates, Inc.

M 2- 11

The Expanding Triad

1997 figures

N. American Free Trade Area U.S., Canada, Mexico

GNP (billion)

$ 8,354

393

30%

7%

$ 5,638

284

21%

5%

$ 8,293

374

30%

7%

% of World:

Japan and the Tigers % of World: Hong Kong, Japan, Malaysia, Singapore, South Korea, Taiwan, Thailand European Economic Area

Population (million)

% of World: EU: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, U.K.

GNP Per Capita

$ 21,248

$ 19,831

$ 22,134

EFTA: Iceland, Switzerland

© Warren Keegan Associates, Inc.

M 2- 12

GLOBAL GLOBALINCOME INCOMEAND ANDPOPULATION: POPULATION:1995 1995

Market

GNP (billion)

World (Total) $25,097 Triad (Total) 19,119 North America* 7,253 Japan 4,247 EU 7,619 Other High Income 844 Upper Middle Income 2,239 Lower Middle Income 2,403 Low Income 491 Unavailable Data N/A

GNP Per Capita

$4,678 24,203 24,903 33,748 20,435 34,415 4,397 1,001 300 N/A

% of % of World Population World GNP (million) Population

100 76 29 17 30 3 9 10 2 N/A

5,815 790 291 126 373 25 509 2,401 1,640 450

100 14 5 2 6 <1 9 41 28 8

*Not including Mexico

© Warren Keegan Associates, Inc.

M 2- 13

Why do nations trade with one another? •Theory of Absolute Advantage

•Theory of Comparative Advantage

© Warren Keegan Associates, Inc.

World Trade Flows (in billions of dollars)

160

WESTERN EUROPE Intra-Trade:1,230 Exports: 481 Imports: 473

170

128

162 143

AMERICAS Intra-Trade: 221 Exports: 364 Imports: 455

ASIA Intra-Trade: 394 Exports: 491 Imports: 360

253 160 191

40

44 REST OF WORLD Intra-Trade: 57 Exports: 255 Imports: 303

Sources: International Trade Statistics General Agreement on Tariffs and Trade Geneva 1993

M 2- 14

72 68

1992 © Warren Keegan Associates, Inc.

M 2- 15

Balance of Payments Current Account Merchandise Trade Services Travel Income On Investments Military Expenditure Aid and Gifts

Official Reserves

Capital Account Short Term Long Term - Direct Investment - Portfolio Investment

Errors and Omissions

© Warren Keegan Associates, Inc.

M 2- 16

International Product Trade Cycle Model

production

High Income Countries Export

consumption

Import

Q u a n t i t y

1

2

3

4

5

6

7

8

9

10

11

12

13

Medium Income Countries

14

15

Export

Import 1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

Low Income Countries Export Import 1

2

3

4

New Product

5

6

7

8

9

Maturing Product

10

11

12

13

14

15

Standardized Product

Time

Stages of Production Development © Warren Keegan Associates, Inc.