Stress Scenario Considering Chinese, the US, and

Stress Scenario Considering
Chinese, the US, and Japanese Economic Developments
Plausible Stress Scenarios to be considered
December 2015
Tsuyoshi Oyama
Deloitte Touche Tohmatsu LLC
China: Ultra hard landing scenario
2 Stress Scenario Considering Chinese and the US Economic Developments
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Chinese economy
Leading business indicators
■ Official manufacturing PMI, Leading economic indicators (CEMAC)
製造業PMI（国家統計局）
Official manufacturing PMI
景気先行指数
Leading econ indicators
58
108
56
106
54
104
52
102
50
100
48
98
46
96
09
10
11
12
13
■Caixin manufacturing PMI
14
15
Source: National Bureau of Statistics of China, China Economic Monitoring and Analysis Center (CEMAC), Caixin, Markit, Deloitte Touche Tohmatsu
LLC
3 Stress Scenario Considering Chinese and the US Economic Developments
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Chinese economy
Electricity consumption and trade
■Export, import, trade balance
■ Electricity consumption
(100
million KW)
(億KW)
6000
Electricity
電力消費量
consumption
Year-on-year
前年比（右軸）
(right axis)
(%)
20
5000
15
4000
10
3000
5
2000
0
1000
-5
11
12
13
14
15
Trade balance
貿易収支（右軸）
(right axis)
(%)
80
70
60
50
40
30
20
10
0
-10
-20
-30
-40
輸出
Export
輸入
Import
Billion USD
（10億ドル）
80
60
40
20
0
-20
-40
11
12
13
14
15
Source: National Energy Administration, General Administration of Customs of People’s Republic of China, Deloitte Touche Tohmatsu LLC
4 Stress Scenario Considering Chinese and the US Economic Developments
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Emerging economies
GDP growth rates
各国の実質GDP成長率の推移（前年比）
Real GDP Growth Rate (year-on-year)
（%）
CHN
中国
IND
インド
BRA
ブラジル
RUS
ロシア
IDN
インドネシア
S KOR
韓国
10.0
8.0
7.4
6.9
6.0
4.7
4.0
2.7
2.0
0.0
-2.0
-4.1
-4.0
-4.5
-6.0
2011Q1
2011Q3
2012Q1
2012Q3
2013Q1
2013Q3
2014Q1
2014Q3
2015Q1
2015Q3
Source: OECD, statistics of respective countries, etc. Deloitte Touche Tohmatsu LLC
5 Stress Scenario Considering Chinese and the US Economic Developments
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Emerging economies
Inflation rates
CPI in Emerging Countries (year-on-year)
エマージング諸国のCPIの推移（前年比）
(%)
中国
CHN
インド
IND
ブラジル
BRA
ロシア
RUS
インドネシア
IDN
18.0
16.716.9
16.4
16.0
15.0
15.8 15.615.8
15.7
15.3
15.6
14.0
12.0
10.0
8.0
6.0
4.0
2.0
11.4
11.2
10.9
10.610.8 10.4
10.4
10.3
10.2
9.9 9.910.09.7 9.8 9.9
9.9
9.9 9.6
9.8
9.5
9.4 9.3
9.4
8.8
8.8
8.6 8.8 8.4
8.3 8.4 8.4 8.2
9.6 9.5
9.5
8.9
8.5
9.9
9.1
8.4
8.3 8.6 8.3
8.3
8.1 8.2
8.0
8.0
7.8 8.0 7.6
7.8
7.7
7.7
7.6
7.6
7.5
7.4
7.4
7.4
7.3
7.3
7.3
7.27.3 7.3 7.2
7.1
7.1 7.3 7.0 7.2
7.0
6.9
6.9
6.8
6.8
6.7
6.7
6.7
6.6
6.6
6.6 6.5 6.5 6.5
6.6
6.5
6.5
6.5 6.5 6.5
6.5 6.5
6.4
6.3
6.3 6.4
6.3 6.1 6.1 6.3 6.5 6.5 6.1 6.2 6.2 6.3 6.4
6.3
6.2 6.4
6.2
6.2
5.9
5.9
5.9
5.9 5.8 5.8 5.9 5.6 5.7
5.8
5.8
5.6
5.4
5.6 5.5
5.5
5.5
5.4
5.4
5.0
5.3
5.3
5.2 5.1 5.0
5.2
5.2
5.0 5.1
5.0 4.9
4.9 5.2
4.9
4.8
4.6 4.6 4.3 4.6 4.3 4.3 4.6
4.5
4.5
4.5 4.5 4.5
4.4
4.4
4.3
4.1
4.0
3.8 3.7
3.7 4.0
4.5 3.6
3.7 3.6 3.6
3.7
3.2
3.6 3.4
3.2
3.0
2.2
1.8 2.0 1.9 1.7 2.0
2.5
2.0
2.1
2.4
2.1
2.7 2.7 2.6
3.1 3.2 3.0
2.5 2.5
2.0
2.4
1.8
2.5 2.3 2.3
1.6
2.0
1.6 1.6 1.4 1.5
0.0
12/1
12/4
12/7
12/10
13/1
13/4
13/7
13/10
14/1
14/4
14/7
14/10
0.8 1.4 1.4 1.5 1.2
15/1
15/4
2.0
1.4
1.6
1.3
15/7
15/10
Source: OECD, statistics of respective countries, etc. Deloitte Touche Tohmatsu LLC
6 Stress Scenario Considering Chinese and the US Economic Developments
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Emerging economies
Exchange rates
China (RMB / USD)
6.50
India (INR / USD)
70
6.40
65
6.30
60
6.20
55
6.10
50
Russia (RUB / USD)
80
70
60
6.00
12/7
13/1
13/7
14/1
14/7
15/1
15/7
Brazil (BRL / USD)
4.5
50
40
30
45
12/7
1,200
3.5
1,150
13/7
14/1
14/7
15/1
15/7
South Korea (KRW / USD)
1,250
4.0
13/1
20
12/7
13/1
13/7
14/1
14/7
15/1
15/7
Taiwan (TWD / USD)
34.0
33.0
32.0
31.0
3.0
1,100
30.0
2.5
1,050
29.0
2.0
1,000
1.5
12/7
13/1
13/7
14/1
14/7
15/1
Indonesia (IDR / USD)
15000
28.0
12/7
15/7
13/1
13/7
14/1
14/7
15/1
15/7
Malayasia (MYR / USD)
5.0
12/7
4.5
36
13000
4.0
34
3.5
32
3.0
30
11000
10000
9000
12/7
2.5
13/1
13/7
14/1
14/7
15/1
15/7
12/7
13/1
13/7
14/1
14/7
15/1
15/7
28
12/7
13/7
14/1
14/7
15/1
15/7
Thailand (THB / USD)
38
14000
12000
13/1
13/1
13/7
14/1
14/7
15/1
15/7
Note: as of November 30, 2015
Source: Bloomberg, Deloitte Touche Tohmatsu LLC
7 Stress Scenario Considering Chinese and the US Economic Developments
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Plausible scenarios
Baseline scenario
China
•
On the Chinese economy, capital stock adjustment will continue with modest speed while the effects of
economic stimulus measures and monetary easing will be limited. Thus, the economic growth will continue to
decelerate within 2015.
•
Monetary easing and various market intervention measures could temporary alleviate the panic declines of
asset prices that occur from time to time, and avoid the domino effect of firm defaults, but the imbalances to be
solved will remain in place.
•
Since the liberalization of the market also will be delayed, the efficiency of the economy or potential growth will
decline at a relatively fast pace, while the imbalances continue to widen.
Other emerging economies
•
Being exposed by currency depreciation pressures, many countries tighten their monetary and fiscal policies,
which will exert downward pressure on their economies.
•
Furthermore, as the Chinese economy continues to slow down, many emerging economies face downward
pressures due to declining exports to China, and falling crude oil and overall commodity prices.
•
Energy price fall will somewhat relax the economic conditions for net energy importers such as India, Turkey,
Thailand, the Philippines, while net exporters such as Russia, Brazil, South Africa, Indonesia, and Malaysia
face strong downward pressures.
8 Stress Scenario Considering Chinese and the US Economic Developments
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Plausible Stress scenario
Stress scenario : Slowdown in China
Imbalance
NPL・NPA
Increased
Asset Bubble
(Shadow Banking
Expand)
Current & Fiscal Acc.
Imbalance (Local. Gov’t
Fin. Shortage)
Trigger Event
Failure to Control
Asset Price, Capital
Outflow
Stress Scenario
Real Estate & Stock
Price Collapse
Financial Crisis
Local Gov’t Hidden
Debt Surfaced
Default Domino-effect,
Disposal of NPL
Accelerated
Investment Decline
due to Capital Stock
Adjustment
Labor Unrest
Triggered
Spread of Risk
China
Overseas
Sharp Growth Decline
Macroeconomic
Downturn・
Stock Price Decline
9 Stress Scenario Considering Chinese and the US Economic Developments
↓ Export /Tourist
Spending to/in CHN,
↓ Real Estate INV,
Widespread
Global Risk-off
Asia Emerging Econ.
Slump
JPN Econ. Major
Downward Pressure
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Likelihood of the stress scenario
Likelihood level of this scenario (Outlook within one year)
 Recent key economic indicators signal a further slowdown of the economy.
Consumer spending will be curbed, should labor adjustments start.
Level 2
 Policy measures such as increasing public investment, PBOC’s monetary easing,
mortgage market deregulation, and RMB devaluation are expected to underpin the
economy, stock market as well as the real estate market.
 The government has not yet seemingly resolved to embark on massive capital stock
and labor adjustments which will hurt the economy severely. This will help stop an
increase of the likelihood of significant slowdown in the near future but by contrast,
this will increase the likelihood of pushing down its potential growth rate and trigger a
massive adjustments with somewhat disorderly manner in the medium term.
(Outlook within three years)
 Although a soft landing continues thanks to fiscal / monetary policy measures, though
structural reforms will be postponed.
Level 3
 Imbalances (increasing NPLs and excessive capital stock and labor in some sectors,
hidden fiscal deficits) that are temporarily hidden by policy measures could gradually
begin to surface.
 Thus, the likelihood of ultra hard landing within three years have further increased.
10 Stress Scenario Considering Chinese and the US Economic Developments
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US: Economic slowdown scenario
11 Stress Scenario Considering Chinese and the US Economic Developments
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US economy
A rate hike implied in the futures market
Anticipated likelihood of an interest rate hike by FRB
100%
90%
80%
In December
12月利上げする確率
8/11：中国が人民元切り下げ
8/11: CHN devaluates RMB
In October
10月に利上げする確率
In September
9月に利上げする確率
9/17: FOMC statement
9/17：FOMC声明文公表
11/6: OCT employment
11/6：10月の雇用統計公表
statistics (above market
（市場予想を上回る内容）
expectations)
8/27: US GDP
8/27：米国GDP改定値
(revised up
公表（大幅上方修正）
substantially)
10/28：FOMC声明公表
10/28: FOMC statement
70%
10/2: SEPT employment
10/2：9月の雇用統計公表
statistics (below market
（市場予想を下回る内容）
expectations)
60%
50%
40%
30%
20%
10%
0%
8/3 8/10 8/17 8/24 8/31 9/7 9/14 9/21 9/28 10/5 10/1210/1910/26 11/2 11/9 11/1611/23
Source: Bloomberg, Deloitte Touche Tohmatsu LLC
12 Stress Scenario Considering Chinese and the US Economic Developments
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US economy
Leading business indicators and house price indicator
■S&P/Case-Shiller Home Price Indices（Composite-20）
■ ISM manufacturing, non-manufacturing index
ISM manufacturing
70
(2000/1=100)
ISM non-manufacturing
ISM製造業指数
index
ISM非製造業指数
index
220
65
200
60
180
55
160
50
140
45
120
40
100
35
80
30
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: ISM, Deloitte Touche Tohmatsu LLC
13 Stress Scenario Considering Chinese and the US Economic Developments
15
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: S&P, Deloitte Touche Tohmatsu LLC
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15
US economy
Labor market indicators
■Gap between U3 and U6 unemployment rate
■ Non-farming employment (MoM), unemployment
(1,000 people)
800
NFP Change (MoM)
Unemployment Rate(RS)
（%）
11
600
10
400
9
200
8
0
7
-200
6
-400
5
-600
4
-800
3
-1000
2
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
(%)
20
U6－U3
U6
U3
18
16
14
12
10
8
6
4
2
0
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: BLS, Deloitte Touche Tohmatsu LLC
14 Stress Scenario Considering Chinese and the US Economic Developments
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US economy
CPI
Consumer Price Index (excludes food and energy), core PCE Deflator
3.5
Core CPI (YoY)
コアCPI（前年比）
(%)
Core CPE Deflator (YoY)
コアPCEデフレータ（前年比）
3.0
2.5
1.9
2.0
1.5
1.3
1.0
0.5
0.0
05
06
07
08
09
10
11
12
13
14
15
Source: BLS, BEA, Deloitte Touche Tohmatsu LLC
15 Stress Scenario Considering Chinese and the US Economic Developments
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US economy
USD index
The major currencies index (Nominal USD index, monthly average)
<Against major currencies>
(1973/03=
100)
120
Against major
対主要通貨
currencies
(1973/03=100)
95
110
90
100
85
Against major
currencies
対主要通貨
93.9
80
90
75
80
70
70
65
60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
<Against all currencies>
《対全通貨》
140
(1997/01=
100)
Against all
対全通貨
currencies
130
120
110
100
(1997/01=100)
125
120
115
110
105
100
95
90
Against all
対全通貨
currencies
121.1
90
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: FRB, Deloitte Touche Tohmatsu LLC
16 Stress Scenario Considering Chinese and the US Economic Developments
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Plausible scenario
Baseline scenario
 The course of economic growth will slowdown gradually due to adverse effects of strong dollar,
which has been materialized due to an increasing gap of business condition between the US
and other economies.
 Unemployment rate is at a declining trend while the impact of strong dollar keeps low
inflationary pressure.
 Despite price stability, Fed is likely to increase its policy rate in December based on the labor
market tightness. This decision is likely to invite further the US dollar appreciation and put
another downward pressure on the US economy.
17 Stress Scenario Considering Chinese and the US Economic Developments
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Plausible Stress scenario
Stress scenario: US economic downturn scenario
Imbalance
Trigger Event
Asset Bubble from
Excessive
Money Supply
Stress Scenario
Strong USD
Early Monetary
Tightening
（Ahead of the curve）
Price Decline in Risk Asset
Market
Spread of Risk
US
Overseas
US Economic Downturn
Capital Outflow from
Emerging Economy
18 Stress Scenario Considering Chinese and the US Economic Developments
Overseas
Economic Downturn (Mainly
Emerging Economy)
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Likelihood of the stress scenario
Likelihood level of this scenario (Outlook within one year)
 FOMC continues to send strong signals of a policy rate hike within this year, at the
same time also indicates policy to cautiously raise the rate after the initial hike, to avoid
hasty rate hike and extreme lagging of the timing.
Level 1
 Recently, no signs of accelerating inflation trends on the backdrop of cheap crude oil
price and strong USD. The growth rate has slowed down from Q2 partly due to stock
adjustment and possibly the impacts of strong dollar.
 Anticipation of rate hike in December is increasing as results of an increasingly hawkish
stance of FOMC and the recent strong number of labor markets.
(Outlook within three years)
Level 2
 As indicated in the Chinese economy’s stress scenario, the possible negative impacts of
Chinese economy’s slow down could be quite significant and hence the downward
pressures on the US economy.
 Now that the policy rate hike in December is very likely, it might be difficult for the Fed to
change the direction of its monetary policy in a short period of time and hence more
chances of missing the timing of monetary loosening.
19 Stress Scenario Considering Chinese and the US Economic Developments
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Japan: Abenomics failure /Stagflation scenario
20 Stress Scenario Considering Chinese and the US Economic Developments
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Japanese economy
Inflation and employment indicators
■ CPI (YoY, excludes fresh food composite)
■ Unemployment rate, Active job opening ratio
（%）
4.0
3.0
Active job opening ratio
Unemployment rate
（%）
3.0
完全失業率（逆目盛）
(right axis)
（倍）
(Ratio)
有効求人倍率（右軸）
(left axis)
1.5
3.5
2.0
4.0
1.0
0.0
4.5
-1.0
5.0
1.0
0.5
-2.0
5.5
-3.0
6.0
-4.0
05
06
07
08
09
10
11
12
13
14
15
0.0
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
Source: Statistic Bureau MIC, Deloitte Touche Tohmatsu LLC
21 Stress Scenario Considering Chinese and the US Economic Developments
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Japanese economy
Inflation
■ Nikkei / UTokyo price index, Statistic Bureau MIC price index
Statistic Bureau MIC price
総務省公表物価指数（前年比）
index (YoY)
Nikkei / UTokyo
日経・東大物価指数（前年比）
price index (YoY)
2.0%
1.5%
■ BoJ ‘New prince index’
Composite
(excludes fresh food/energy)
Composite
(excludes food/energy)
総合（除く生鮮食品・エネルギー）
(YoY: %)
（前年比；％）
2.0
総合（除く食料・エネルギー）
1.5
1.0%
1.0
0.5%
2010年基準
2010 base
0.5
0.0%
0.0
-0.5%
-0.5
-1.0%
-1.0
-1.5%
-1.5
-2.0%
-2.0
-2.5%
-2.5
-3.0%
10/1
11/1
12/1
13/1
14/1
15/1
-3.0
07
08
09
10
11
12
13
14
(Year(年/月)
/ Month)
Note: as of November 7th, 2015
Source: UTkyo Daily Price Project, Statistic Bureau MIC, Deloitte
Touche Tohmatsu LLC
22 Stress Scenario Considering Chinese and the US Economic Developments
15
（年）
(Year)
Source: Bank of Japan, Deloitte Touche Tohmatsu LLC
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Japanese economy
Wages trends, private consumption
■ Real wage index (YoY)
（%）
6.0
■ Retail sales (dynamic statistics of commerce), real
consumer spending (household survey)
実質賃金指数（前年比）
Real wage index (YoY)
小売業販売額（前年比）
Retail sales (YoY)
（%）
実質消費支出（前年比）
Real consumer spending (YoY)
15.0
4.0
10.0
2.0
5.0
0.0
0.0
-2.0
-5.0
-4.0
-10.0
-6.0
-15.0
05
06
07
08
09
10
11
12
13
14
15
05
06
07
08
09
10
11
12
13
14
15
Source: Statistic Bureau MIC, METI, Deloitte Touche Tohmatsu LLC
23 Stress Scenario Considering Chinese and the US Economic Developments
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Japanese economy
Changes in current account and trade balance
■ Current account and trade balance (seasonally-adjusted value)
3.0
Secondary
第二次所得収支
income balance
（旧：経常移転収支）
Trade / services
貿易・サービス収支
2.5
account balance
(Trillion
JPY)
（兆円）
第一次所得収支
Primary
income balance
（旧：所得収支）
経常収支
Current account balance
(Trillion
JPY)
（兆円）
Export
輸出額
Import
輸入額
9.0
8.0
2.0
1.5
7.0
1.0
6.0
0.5
0.0
5.0
-0.5
4.0
-1.0
-1.5
3.0
-2.0
-2.5
2.0
03
04
05
06
07
08
09
10
11
12
13
14
15
03
04
05
06
07
08
09
10
11
12
13
14
15
Source: MOF, Deloitte Touche Tohmatsu LLC
24 Stress Scenario Considering Chinese and the US Economic Developments
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Plausible scenario
Baseline scenario
 The economy will continue to grow a little faster than its potential rate owing to modest recovery
in consumption and capital expenditure despite sluggish exports
 However, increasing uncertainties over structural and fiscal reforms under Abenomics will also
overshadow the domestic economy, which will see a gradual but constant decline in its potential
growth rate.
 Possible policy rate hike in the US in December would delay the BOJ’s decision to ease further
its QQE to next year.
25 Stress Scenario Considering Chinese and the US Economic Developments
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Plausible Stress scenario
Stress scenario : Abenomics failure / Stagflation scenario
Imbalance
Huge Budget Deficit
Asset Bubble by Extreme
Monetary Easing
Excessive Expectations
for Abenomics
Trigger Event
Stress Scenario
Slowing down of
Overseas Economies
Sharp Decline of
Stock Market
Declining Confidence
of Investor/Household
in Abenomics and JGB
downgrade
Increase in Capital
Outflow/Depreciation of
Yen
Accelerated Inflation
Spread of Risk
Essentially Japan Domestic Issues
Spread of Fear in the Financial
Surge in Long Term
System (Collapse of Small &
Interest Rate
Medium Sized Banks)
Macroeconomic
Downturn
Fiscal Collapse
Jump in Long Term
Interest Rate
Financial System Crisis
Further Macroeconomic Downturn by Fiscal Austerity
26 Stress Scenario Considering Chinese and the US Economic Developments
© 2015. For information, contact Deloitte Touche Tohmatsu LLC..
Likelihood of the stress scenario
Likelihood level of this scenario (Outlook within one year)
 While some important items of structural reform such as TPP and a reduction in
corporate tax are more likely to be materialized, new three arrows of Abenomics have
not yet regain a confidence of market in the structural reform of Japanese economy
and fiscal consolidation.
Level 2
 Although Chinese and emerging economies continue to show signs of slowing down,
the US and European economies remain resilient. Also, the economy shall enjoy the
benefits of cheap crude oil price for the time being.
 The bond market saw rising volatilities due to liquidity decline triggered by the BOJ’s
QQE and global regulations though the long term interest rate remains at a low level.
(Outlook within three years)
 The success of Abenomics to pick up the potential growth rate is still highly uncertain
while the size of various imbalances will constantly expand to be closer to their
thresholds, which are even falling due to unstoppable aging and declining population
and declining potential growth rates of emerging economies.
Level 3
 A fundamental measure to reduce spending is not likely to put forward until 2018, time
for the half-way appraisal of the mid-term fiscal consolidation plan. Therefore,
questions have been raised for the sustainability of public finances, should the
likelihood of failing to achieve the 2020 primary surplus target to increase.
 Core price indicators currently show the strong trend of consumer price index, which
might induce the discussion of QQE exit in 2017, when the second consumption tax
hike could dampen the economy.
27 Stress Scenario Considering Chinese and the US Economic Developments
© 2015. For information, contact Deloitte Touche Tohmatsu LLC..
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