EFTA01458626.pdf

Asset Management: For institutional and registered Deutsche Bank representative use only. Research Not for public viewing or distribution. Wealth Management: For client use. Global Strategy Dote 11 September 2015 Asset Allocation Chddb., Par.fij i hbtle Chief Strategist Strategist The Arithmetic of EM and Global It 11 212 250-4776 1st/ 212 250-6605 [email protected] paragthatte@db,cm Growth: The $35 Trillion Myth Strategist (+I) 212 250-2964 • The recent slowing in China and EM more broadly has raised concerns [email protected] about the level andsustainability of global growth; But EM growth has been slowing for the last 5 years, while DM growth 1EM growth tagieq. DM ei eisNitt rising picked up and global growth over the last few years has been perfectly Real GOP growth (yoy,16) steady at near trend rates, measured using conventional PPP exchange rate IIMF data and forecast] 9 weights; 7 7 5 • Conventional PPP exchange rate based measures massively overstate the size ofEM in the global economy: by $35 trillion or 2 US GDPs; 3 1 • Global growth has been rising over the lest few years when measured using —EM .1 market exchange rate based weights; —DM -3 0, • The arithmetic of global growth: DM (60%1 is still bigger than EM (40%) and 1pp of additionalDM growth offsets 1.5pp of slower EM growth; ri I mew using PPP exchange a I i • We expect a continued normalization of EM growth lower though we are almost there; DM growth to pick up; and global growth (0 at conventional IGIebai !revel (PPP) steady last 3 ?ewe PPP weights to be near trend rates while (ii) at market rate weights to --World Real GDP Gr accelerate above trend rates in 2016 5 4. t A The recent slowing in China has raised concerns about global growth It is widely believed that if China, and the emerging markets (EM) more broadly, which represent the faster growing part of the global economy, are 2 Stead, 2 slowing, it means a slowing in, if not the end of, global growth. The decline in 1- gloo.9 groeth commodity prices is often seen as evidence of this slowing in global growth 0 0 and a driver of slow multinational corporate earnings growth. -1 3 3 I' 3' rez it) 0) But growth in EM has been slowing for the last 5 years while global growth e C 9 has been perfectly steady. measured using conventional PPP exchange rate weights WefQM. way PPP excharge eces EM real GDP growth, as measured by the IMF at purchasing power parity Setae Pares Bog (PPP) exchange rates, fell from a peak of 7.4% in 2010 down to 4.6% in 2014. Developed markets (DM) growth on the other hand rose after the European Ititabei growth with noel. at weights ieine financial crisis ended and was up from 1.2% in 2012 to 1.8% in 2014. The pickup in DM growth simply offset the slowing in EM growth and global 5.0 Wald Real GDP Growth(%) 5.0 growth was perfectly steady during 2012-2014 at slightly below its long run trend rate of 3.5%, its average over the last 40 years. 4.0 4.0 Conventional PPP exchange rate based measures massively overstate the size 3.0 3.0 of EM in the global economy. by 535 trillion or 2 US GDPs 2.0 2.0 • PPP vs market exchange rates for EM. The IMF's headline measure of global growth uses PPP exchange rates to aggregate country GDPs into a 1.0 Avg: 2,9% j nal 1.0 global composite. The approach seeks to avoid changes in measured 0.0 growth 0.0 global real GDP simply because of changes in the value of the dollar which 3 86 86 C has historically exhibited big (40-50%) long cycles (6-7 years). In our view, ...... the approach makes sense for DM where PPP corresponds to the average Weights Laing Mike exthange lobes Deutsche Bank Securities Inc. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0118623 CONFIDENTIAL SDNY_GM_00264807 EFTA01458626