Global Databank

Indicator Definition , value-added output, real, Value-added output is a measure of the LCU/US$ value of all of the and services produced in a sector or industry, excluding the value of intermediate . Real value-added is expressed in constant (adjusted for inflation and exchange rate movements). The value is available in either local currency (LCU) or US dollars (US$) terms. Production, value-added output, real, Value-added output expressed as an index index 2010 = 100. Sales, , real, LCU/US$ Gross output is equal to value-added plus intermediate consumption. It is a measure of all of the goods and services produced in a sector or industry including the value of all intermediate goods and services. Real gross output is expressed in constant prices in either local currency (LCU) or US dollar (US$) terms. Sales, gross output, nominal, LCU/US$ Nominal gross output is expressed in current terms (that is, not adjusted for inflation). Nominal gross output can be used to approximate total sales or size. Profits, gross operating surplus, Gross operating surplus is equal to GVA nominal, LCU/US$ less compensation of employees less net on production. As such it is seen as a broad measure of profits. The closest financial accounting measure is EBITDA. Profits data are available in nominal LCU and US dollar terms. Investment total, real/nominal LCU Investment spending by all firms in a sector. This measures the acquisition of fixed assets minus the disposals of fixed assets. Financial investments are excluded, as is repair and maintenance. Employment Number of workers employed by sector. Output prices Index of the output price of goods and services by sector. Macro drivers Key macroeconomic variables underpinning the industry forecasts. These include the expenditure components of GDP, industrial production, consumer prices, producer prices, commodity prices and exchange rates. Miscellaneous Other industry related forecasts. Includes unit production/registration of cars/trucks, unit crude steel output, construction of residential and non-residential buildings and civil projects, and extra employment and output variables available in the UK. NB1: The deflators used to create nominal sales data in Asia all begin in 2005. Asian countries are included in regional aggregates, so there is a jump in the nominal growth rates in several regions in 2005. We have decided to include data pre-2005 in the regions to provide clients with as much information as possible. NB2: Full Eurostat NACE -code definitions are available here

Africa: Algeria, Angola, Egypt, Morocco, Nigeria, South Africa, Tunisia

EU Eastern Europe: Bulgaria, Croatia, Czech, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, Ukraine.

EU: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, UK.

EUROZONE: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, Spain.

EUROPE: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, UK.

Latin America & Caribbean: Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Uruguay, Venezuela.

OPEC: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Nigeria, Qatar, Saudi Arabia, U.A.E, Venezuela.

Triad: Belgium, France, Germany, Italy, Japan, Netherlands, Spain, Sweden, UK, United States.

Western Europe: Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK.

NAFTA: United States, Canada, Mexico.

Asia: China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Pakistan, Philippines, Singapore, Taiwan, Thailand, Vietnam.

Middle East: Bahrain, Iran, Iraq, Israel, Kuwait, Oman, Qatar, Saudi Arabia, UAE.

Advanced Economies: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, UK, US.

Emerging: Algeria, Angola, Argentina, Bahrain, Brazil, Bulgaria, Chile, China, Colombia, Cyprus, Czech Republic, Ecuador, Egypt, Estonia, Hong Kong, Hungary, India, Indonesia, Iran, Iraq, Israel Korea, Kuwait, Latvia, Lithuania, Malaysia, Malta, Mexico, Morocco, Nigeria, Oman, Pakistan, Philippines, Poland, Qatar, Romania, Russia, Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, Taiwan, Thailand, Tunisia, Turkey, United Arab Emirates, Ukraine, Uruguay, Venezuela, Vietnam.

Section Description SIC SIC2003/NAC Model mnemonics 2007 2003 rev 2 codes rev 1 codes IIS model Macro model A A+B Agriculture, forestry & fisheries 01+02+03 01+02+05 xA xxxAGR

B C Extraction 05+06+07+08+09 10 to 14 xE xxxMIN Oil & natural gas extraction 06 11 xOIL Extraction (excl. oil), & related svs. 05+07+08+09 10, 12 to 14 xEXOIL Coal & lignite 05 10 xCOAL Metals mining, quarry & related svs. 07+08+09 12 to 14 xOTHE C D Manufacturing 10 to 33 15 to 37 xM xxxMAN Food, beverages & tobacco 10+11+12 15+16 xFDBVT Food & beverages 10+11 15 xFDBV Food 10 15 less 15.9 xFD Beverages 11 159 xBV Tobacco 12 16 xTOBC Textiles, leather & clothing 13+14+15 17+18+19 xTEXT Textiles 13 17 xTETEX Wearing apparel & furs 14 18 xTECLO Leather goods 15 19 xTELEA Wood & wood products 16 20 xWOOD Paper & printing 17+18 21+22 xPAPR Pulp & paper 17 21 xPAPB Printing & recorded media 18 22.2+22.3 xPAPT Fuel, chemicals, rubber & plastic 19+20+21+22 23+24+25 xFCHR Coke & refined petroleum products 19 23 xFUEL Chemicals & phamaceuticals 20+21 24 xCHEM Chemicals 20 24 less 244 xCHXPHA Basic chemicals & fertilisers 20.1 241 xCHBAS Pesticides & agrochemicals 20.2 242 xCHAGR Paints, varnishes, coatings & ink 20.3 243 xCHPNT Soaps, polishing & detergents 20.4 245 xCHSOP Explosives, glues & photographic 20.5 246 xCHOTH Man-made fibres 20.6 247 xCHMMF Pharmaceuticals 21 244 xCHPHA Rubber & plastics 22 25 xRUBP Section Description SIC SIC2003/NAC Model mnemonics 2007 2003 rev 2 codes rev 1 codes IIS model Macro model Non-metallic minerals 23 26 xMINL Glass 23.1 261 xMLGL Ceramic, clay & refractory products 23.2+23.3+23.4 262 xMLCER Cement, plaster, abrasives & masonry 23.5 to 23.9 263 to 268 xMLCSN Basic metals & metal products 24+25 27+28 xBMETP Basic metals 24 27 xBMET Iron & steel 24.1+24.2+24.3 271 to 273 xBMIST Non-ferrous metals 24.4 274 xBMNFR Casting 24.5 275 xBMCST Structural metal incl. tanks, boilers & weapons 25 28+29.6 xMETP High-tech goods 26 30,32,33 xELC Computers & office equipment 26.2 30 xCOMP Electronic engineering 26.1 + 26.3 + 26.4 32 xELEC32 Electric components & boards 26.1 (includes electronic boards) 321 xELCMP Telecommunication equipment 26.3 322 xELTEL Consumer electronics 26.4 323 xELCSM Precision & optical instruments 26.5+26.6+26.7+26.8 33 xPREC Medical & surgical equipment 26.6 331 xPRMED Measuring, testing, navigation & optical 26.5+26.7+26.8 332 to 335 xPROTH Electrical machinery & apparatus 27 31 xELEC31 Motors, generators & transformers 27.1 311 xELPWR Electric fittings 27.2+27.3+27.4 312 to 315 xELDIS Domestic appliances 27.5 297 xMEDOM Batteries & fuel cells, capacitors & resistors 27.9 316 xELOTH Mechanical engineering 28 29 xMECH General purpose machinery 28.1+28.2 291 + 292 xMEGPM Turbines, engines, fluidics, pumps & gears 28.1 291 xMEPWR Ovens, lift/handling, HVAC & power tools 28.2 292 xMEOGN Special purpose machinery 28.3+28.4+28.9 xMESPM Agricultural machinery 28.3 293 xMEAGR Machine tools 28.4 294 xMEMAC Equip. for mining, food & other industries 28.9 295 xMEOTH Machines for mining & construction 28.92 29.52 xMEOTHMIN Section Description SIC SIC2003/NAC Model mnemonics 2007 2003 rev 2 codes rev 1 codes IIS model Macro model Transport equipment 29+30 34 + 35 xMOTRA Motor vehicles & parts 29 34 xMOTR Motor vehicles 29.1 341 xMOVEH Motor vehicle bodies & parts 29.2+29.3 342+343 xMOPRT Air, space, rail, ships & other transport equipment 30 35 xOTRA Aerospace 30.3 353 xOTAER Ships, rails, motorcycle & military vehicles 30 less 30.3 35 less 353 xOTNES Furniture manufacturing 31 361 xOTHF Medical/dental, jewellery, music & games 32 36 less 36.1 xOTHM Repair & installation of machinery 33 xREPAIR D+E E Utilities 35+36+37+38+39 40 + 41 xU xxxU D Electricity, gas & air conditioning 35 40.1+40.2 xUEGAS Electric power generation & 35.1 40.1 xELECTR Gas, steam, cooling, ice manufacture & distribution 35.2+35.3 40.2 xUGAS E Water, sewerage & waste management 36+37+38+39 40.3+41 xUWSWM Industrial production (ex. Construction) 05 to 39 10 to 41 xP xxxIND F F Construction 41 to 43 45 xC xxxCON Construction of buildings xCB Residential building 41.20/2+part of 41.1+part 43 xCRB Non-residential building 41.20/1+part of 41.1+part 43 xCNRB Civil engineering & related specialisations 42+part 43 xCCV Total production industries (incl. construction) 05 to 43 10 to 45 xT

Distribution, transport, storage & communications 50-64 xDTRC xxxTRD Distribution, accommodtion & catering 50-55 xDIS xxxDIS G G & wholesale distribution 45,46,47 50-52 xDISTR xxxDISTR I H Accommodation & catering 55,56 55 xHOTL xxxHOTL I Transport, storage & communications 49+50+51+52+53+58 to 63 60-64 xTRACOM xxxTRACOM H Transport & storage 49+50+51+52+53 60-63+64.1 xTRA xxxTRA J Information & communications 58 to 63 64.2 (telecoms)+72 xCOM xxxCOM Financial & business services 64 to 82 65 to 74 ex. 72 xFIBU xxxFINB K J 64 to 66 65 to 67 xFIN xxxFIN K Business services 68 to 82 70,71,73,74 (72 now in info) xBUS xxxBUS L Real estate activities 68 70 xREAL M,N R&D, leasing, legal, professional & maintenance 69-82 71,73,74 xBUSOTH Government & community services 84-99 75-99 excluding 90 xOTH xxxNMKT Public services 84 to 88 75 to 85 xPUBLIC xxxPUB O L Public admin, defence & social security 84 75 xPAD xxxGOV P M 85 80 xEDUC xxxEDU Q N Health care & social work 86 to 88 85 xHEAL xxxHEAL R,S,T,U O,P,Q Arts, recreation, unions, personal svs. 90 to 99 91 to 99 xOTHS xxxOTHS Services 45-99 50-99 xS Section Description SIC SIC2003/NAC Model mnemonics 2007 2003 rev 2 codes rev 1 codes IIS model Macro model less FISIM (financial intermediation services indirectly measured) equals GROSS VALUE ADDED at basic prices 01 TO 99 01 TO 99 xGVA GVA plus Net taxes on products & subsidies (incl. stat. discrep.) xNIT equals at market prices GDP GDP

Constructed Aggregates Consumer goods xCON FDBVT+TEXT+PAPT+CHPHA+C FDBVT+TEXT+PAPT+CHPHA+ Consumer non-durables HSOP CHSOP xCONN Consumer durables MEDOM+ELCSM+OTHM+OTHF MEDOM+ELCSM+OTHM xCOND

WOOD+PAPB+FUEL+CHBAS+C WOOD+PAPB+FUEL+CHBAS+ HAGR+CHPNT+CHOTH+CHMM CHAGR+CHPNT+CHOTH+CH F+RUBP+MINL+BMET+ELDIS+ MMF+RUBP+MINL+BMET+EL Intermediate goods ELOTH+ELCMP+REPAIR DIS+ELOTH+ELCMP xINT

METP+MEPWR+MEOGN+MEA METP+MEPWR+MEOGN+MEA GR+MEMAC+MEOTH+MEWEP GR+MEMAC+MEOTH+COMP+E +COMP+ELPWR+ELTEL+PRE Investment goods LPWR+ELTEL+PREC+MOTRA C+MOTRA xINV Engineering & metal goods 25+28+27 28+29+31 xENG Electrical engineering 27+ 26.1 + 26.3 + 26.4 31+32 xELEC Electrical, optical & high-tech 26+27 30+31+32+33 xELO

Other IIS variables Crude steel production (mn tonnes) STEEL Car production (units) PNC Car sales (units) RNC CV production (units) PNT CV sales (units) RNT Car parc (units) SNC Global Scenarios – Q2 2018 The near-term outlook for the global economy has deteriorated since our previous report. Over the past three months, our baseline forecast has edged lower and businesses have become significantly more pessimistic about growth prospects. The risk of a trade war persists, while concerns have also increased over a faltering in synchronised global growth. At the same time, oil prices have surged higher.

• Baseline (GSS weight=50%): Global growth remains strong in the near term by post- global financial crisis standards, albeit a little weaker than anticipated earlier in the year.

• Trade war hits global growth (GSS weight=10%): Trade tensions escalate dramatically, as the Trump administration hikes tariffs on key Asian trading partners and ends US NAFTA participation.

• Synchronised global slowdown (GSS weight=10%): Recent slowing in the Eurozone and US is followed by broader global slowdown, as oil prices surge to $100 per barrel, trade policy uncertainty weighs on demand and tighter monetary conditions expose pockets of vulnerability.

• Market turmoil amid late-cycle policy tightening (GSS weight=10%): Advanced economies bring forward the withdrawal of monetary stimulus amid rising inflationary pressures, prompting bond market sell-off and a return of equities to more sustainable levels.

• Central bank tightening delayed amid subdued inflationary pressures (GSS weight=20%): Subdued inflation persists, resulting in a delay to advanced economy policy normalisation, even more stretched asset valuations and a step-up in global growth.

US Trade war hits global growth

Summary In this scenario, we assume that current trade policy tensions increase dramatically. President Trump pushes through highly protectionist measures, initiating a trade war with Asia and pulling the US out of NAFTA. The recovery in world trade grinds to a halt and the global economy is badly shaken. Markets become anxious about the implications of more protectionist US trade policy. US equities are hit and Treasury yields also fall. The global revival falters, with growth of 2.4% in 2019 (2.9% in the baseline). The countries at the heart of the trade war suffer most, as confidence hits investment, higher prices impact consumption, and fall below baseline on the back of higher tariffs and slowing global demand. Mexico is most-affected but there are also significant impacts on the US and China. We assign a GSS weight of 10%.

Key Assumptions • From Q3 2018, we assume that the US imposes 25% tariffs on Chinese merchandise goods – and then, as US consumers switch away from higher-priced Chinese imports, the US introduces 10% tariffs on imports from South Korea and Taiwan. • China, South Korea, and Taiwan all retaliate with matching tariffs on imports from the US. • By mid-2018, the US announces its planned exit from NAFTA at the start of 2019, triggering the required 6-month notice. The US is obliged to raise tariffs on Mexican imports of goods to applied Most Favoured Nation (MFN) rates to remain compliant with WTO rules; these rates are 3% on average. Likewise, Mexico has to raise tariffs on US imports of goods to applied MFN rates; these rates are 8% on average. • In addition, sector-specific tariff rates are raised between the two countries on sensitive sectors. The US decides to impose punitive tariffs on sensitive sectors such as Motor Vehicles & Parts and Iron & Steel. Tariffs are raised to 20% on the former as it is a key source of the US bilateral trade deficit with Mexico; tariffs on the latter are raised to 15% to match Mexico’s current 15% MFN tariff rate on steel (imposed in 2015 and assumed to remain intact). Mexico retaliates by raising tariff lines to the bound MFN rates on key US agricultural imports. • Financial markets react immediately to the US imposition of import tariffs on Asian trading partners and announcement of NAFTA departure. • Amid some modest flight to safe havens, and an expectation of low policy rates for longer, bond yields fall in the US, Germany, Japan and the UK. • The US dollar appreciates against emerging market currencies, for which risk premia pick up initially, but the dollar depreciates against the euro and yen relative to the baseline over the course of 2018 and 2019. • Confidence deteriorates more broadly, undermining consumer and investment spending. : Bea Tanjangco, Economist | +65 6850 0125 | e-mail: [email protected] 1 Synchronised global slowdown

Summary Against the backdrop of rising oil prices, the sizeable and broad-based nature of recent falls in survey indicators has prompted considerable discussion about whether the global expansion is running out of steam. In this scenario, weaker activity in the eurozone and US is followed by a broader slowdown amid trade policy uncertainty and tighter monetary conditions. Oil market developments exacerbate the slowdown, causing oil prices surge to a level of $100 per barrel. The result is significant global economic and market disruption. The global economy slows as a result, growth eases to 2.2% in 2019, 0.7ppts below baseline. In financial markets, equities suffer losses, with the S&P 500 falling more than 10% below baseline by early 2019 and US Treasury yields drop back. We assign a GSS weight of 10%. Key Assumptions • Following the US decision to pull out of the Iran nuclear agreement, other international parties such as the EU, Russia and China also agree to impose severe sanctions on Iran. Iran oil production falls, settling at 2.6mb/d for the next two years. Crisis in Venezuela leads to a continued decline in oil production, falling roughly 60% by the end of 2018, and supply constraints in the US lead to more modest growth in oil production than assumed in our baseline forecast. • Given significant spare capacity in OPEC oil production following voluntary cuts in 2017/18, Saudi Arabia, Kuwait and the UAE are able to meet some supply shortages and begin to raise oil output. Oil prices surge to reach $100 per barrel by the end of this year. • Raising policy rates, combined with higher oil price and uncertainty surrounding trade policies, weight down on businesses and consumers sentiments in the US and Eurozone, leading to a slowdown in economic activities starting from 2018 Q3. • Equity prices decline gradually, standing at 10% below baseline by the end of 2019, generating adverse wealth effects and increasing costs of capital. • The slowing pace of growth in the US and Eurozone leads the Fed and the ECB to slow the pace of monetary policy normalization, but only gradually: from 2018 Q3 to 2019 Q1, the Fed policy rate stands slightly below baseline, but rates are still rising. • In countries where the service ratio has reached historically high levels (HK, China, Canada, Sweden, Australia, France and Turkey, “debt-service danger zone”), raising global interest rates push the debt service ratio up to levels that cause financial distress. • The US dollar appreciates against many EM oil importers and in particular the debt service danger zone countries (to a level around 4% above baseline in 2019). But depreciates against the Yen and Euro. • In 2019 the Fed keeps rates on hold, triggering the US bond yields to drop at 2.2% in 2019 Q2 and more in general it provides support to assets prices. • Only starting from the end of 2020, US policy rate gradually starts to increase again and the shock is gradually absorbed. Economist: Giorgia De Nora and Matt De Reding | (0)203 910 8117, (0)1865 268 929 | e-mail: [email protected], [email protected] Market turmoil amid late-cycle policy tightening

Summary Emerging market assets have sold off in recent weeks, reviving fears that another “taper tantrum” type episode may be under way. In this scenario, the sell-off escalates. A near-term spike in US inflation prompts an acceleration in the pace of US monetary policy tightening, triggering a sharp sell-off in equity and bond markets. As markets reassess their expectations for the future path of US policy rates, bond and equity markets sell off. US bond yields rise towards 4%, and US equities swiftly lose a quarter of their value. Amid the turmoil, the recovery in the world economy falters. In 2019, growth falls to 2.1% for the global economy and to just 0.9% in the US. EMs are more severely affected from sudden investment outflows, rising interest rates and a spike in risk premia weigh heavily on activity. We assign a 10% probability to this scenario.

Key Assumptions • Inflation rises above baseline in 2018 across advanced economies. In the US, inflation surprises significantly to the upside, rising well above the Fed’s 2% target to a rate above 3%. (In recent surveys by the Philadelphia Fed, professional forecasters have attached only a weight of around 10% to such an increase.) • Rising inflationary pressures force the Fed to accelerate monetary tightening. The Fed raises rates by 25bp five times in 2018, a faster rate of tightening than in the baseline (four hikes), and signals further significant tightening ahead. • Equity prices decline sharply, particularly in the US where valuations are already stretched. S&P 500 experiences a 24% decline peak to trough. The equity adjustment is around half of the peak to trough decline experienced in the global financial crisis. It is also in line with the historical relationship between equity prices and credit spreads in times of stress, based on simple regression analysis. • Concerns over US corporate debt lead to an increase in risk premia, and a resulting rise in advanced economy corporate borrowing rates. The spread on 10-year US corporate borrowing rates peaks at close to 400 basis points, with the rise in the first year of the scenario around half of that seen during the global financial crisis. • Financial market turmoil is reinforced by a liquidity shortfall in corporate and emerging market fixed-income ETF markets. With the underlying assets highly illiquid, some funds are unable to fully redeem investors’ holdings. • Tighter financial conditions hit business and consumer confidence in advanced economies, weighing on domestic demand. • The financial market turmoil spreads to vulnerable emerging markets, where a spike in risk premia leads to a sharp increase in short-term lending rates, as well as long-term corporate and government rates. Capital outflows weigh further on investment and exchange rates depreciate sharply. • The initial dollar strength also weighs on US competitiveness, exacerbating the impact of slowing global demand on volumes. Economist: Felicity Hannon, Economist | +44(0)20 3910 8124 | e-mail: [email protected] 1 Central bank tightening delayed amid subdued inflationary pressures

Summary Against a backdrop of relatively subdued wage pressures, central banks are able to provide greater policy stimulus. Economic recovery gathers pace and employment continues to rise, but labour market slack persists and wage growth is subdued in the major advanced economies. Further weak inflation results and monetary policy normalisation is delayed – with significant implications for both financial markets and the global economy. Markets react quickly, with the US dollar depreciating and US bond yields falling sharply. The US sees the greatest policy implications, thus the boost to other G7 economies is less striking. World GDP growth continues at 3.2-3.3% over 2018-19, the fastest pace of expansion since 2011. Emerging markets, however, are the greatest beneficiaries, buoyed by increased world trade and higher commodity prices. Furthermore, weakening US$ and US interest rates result in increased attractiveness of EM assets and reduced risk premia. We assign a 20% GSS weight to this scenario. Key Assumptions • Labour market slack remains more significant over the next 2-3 years than assumed in the baseline (and than implied by traditional metrics), leading to a longer period of low wage growth in G7 economies. Amid subdued domestic price pressures, inflation-targeting central banks postpone monetary policy normalisation. • The policy implications are greatest for the US, with the Fed funds rate 90bp below baseline by 2020. US bond yields fall sharply and the US$ depreciates by 5% in effective terms during H2 2018, with commodity exporting emerging market currencies performing the strongest. • Equity prices increase in response to the delayed policy tightening and the prospect of faster growth alongside subdued wage pressure. In the US, the S&P 500 increases by 13% in 2019, leaving the index just shy of the 3000 mark, and 7-8% above baseline in 2020 and 2021 respectively. • Emerging market borrowing costs decline, supported by reduced risk premia. • Greater global confidence and growth boosts commodity prices. Brent crude rises $8pb above baseline to break above $75pb in 2019. • As inflation gradually increases in the latter part of the scenario, central banks raise rates cautiously (reflecting a lesser rise in core than overall inflation, as well as wariness over undermining economic recovery).

Economist: Vanda Szendrei, Economist | +44(0)20 3910 8048 | e-mail: [email protected] 1