George Dennis

Applied Portfolio Management Activity 2

3/2/15
1.

Global
Developed
Countries (avg)
United States
Euro
Area
German
y
France
Italy
Spain
Japan
United Kingdom
Emerging
Economies (avg)
Russia
China
India
Brazil
Mexico
Poland
Turkey

GDP Growth (in% y-o-y)

Trend
2014 E
Trend
2012GDP
20132013
Growth
2014
0.0
4.1
0.9

2012
GDP
Growth
3.2

2013 E
GDP
Growth
3.2

0.2
2.8

0.2
1.6

0.0
-1.2

1.4
2.9

1.2
1.3

-0.5

-0.4

0.1

1.0

1.4

0.9
0.0
-2.4
-1.6
2.0
0.2

0.5
0.1
-1.7
-1.2
1.7
1.1

-0.4
0.1
0.7
0.4
-0.3
0.9

1.5
0.8
0.4
0.8
2.0
1.5

1.0
0.7
2.1
2.0
0.3
0.4

3.6
3.4
7.8
5.1
0.9
3.8
2.0
2.3

3.5
2.2
7.3
4.9
2.9
1.5
1.6
4.0

-0.1
-1.2
-0.5
-0.2
2.0
-2.3
-0.4
1.7

4.3
3.4
7.4
5.6
3.2
3.3
2.4
5.0

0.8
1.2
0.1
0.7
0.3
1.8
0.8
1.0

GDP Growth (2012-2014)

10.0
Global
8.0

Developed Countries (avg)

United States
Euro Area
Germany

6.0

France
Italy
Spain

4.0

Japan
United Kingdom
Emerging Economies (avg)

2.0

Russia
China
India
Brazil

0.0
2012 GDP Growth 2013 E GDP Growth 2014 E GDPGrowth

Mexico
Poland
Turkey

-2.0

-4.0

GDP Growth (in% y-o-y)

3.0
Global
Developed Countries (avg)
United States

2.0

Euro Area
Germany
France
Italy

1.0

Spain
Japan
United Kingdom
0.0
Trend 2012-2013

Emerging Economies (avg)

Trend 2013-2014

Russia
China
India

-1.0

Brazil
Mexico
Poland

-2.0

GDP Growth (in% y-o-y)

-3.0

As can be seen in the chart above, most economies are growing in terms of GDP.
Specifically, most developed countries, except for Spain and Italy were expected to
increase their GDP in 2012 and 2013. Furthermore, with the exception of the United
States, Germany, and Japan, all developed countries were expected to increase their
growth rate from 2012 to 2013. Meanwhile, and developing economies grew in 2012 and
were expected to continue in 2013 and 2014. Furthermore, some developing economies
were expected to increase their growth rate from 2012 to 2013 while most others were
only expected to decrease very slightly, with the exception of Mexico, Russia, and China
who were all expected to decrease their growth rate by at least 0.5%.
Looking forward into 2013/2014, all GDPs were expected to increase their
growth rate over the previous year. However, Brazil, Turkey, and The United kingdom
are all expected to decrease the rate at which their GDP is growing.
For the most part, growth rates are increasing across the globe, with the average
global GDP growth rate increasing by almost one percent between 2013 and 2014.

Between 2012 and 2013, Brazil, Turkey, and The United Kingdom were expected to
increase growth at a much higher rate than other economies, however as the global
economy was expected to recover, growth and growth trend across the world was
expected to stabilize and continue to increase for all economies. One exception to this are
Italy and Spain who are expected to increase their growth rate in 2013 and 2014, but will
still trail other economies, especially emerging economies in terms of GDP growth rate.
Across all three years, developed countries are expected to lag behind emerging
economies by about 3% in terms of actual GDP growth. However, developed economies
are still increasing the rate at which they are growing which is a positive sign.
Meanwhile, emerging economies are not expected to grow as much in 2013 as they did in
2012, but are expected to rebound and increase growth rates by an average of 0.8% in
2014.
2.
GDP (PPP) in
Billions USD

Population
in Millions
Pax(a)

GDP per
Capita in
USD

2013(1)

2013 E (2)

(1)/(2)

Global
Developed Countries
United States

16,720,000

316.2

Euro Area

15,850,000

506.0

Germany

3,227,000

80.6

France

2,276,000

63.9

Italy

1,805,000

59.8

Spain

1,389,000

46.6

4,729,000

127.3

2,387,000

64.1

2,553,000
13,390,000
4,990,000

143.5
1357.4
1276.5

2,416,000

195.5

Japan
United
Kingdom

52,877.9
3
31,324.1
1
40,037.2
2
35,618.1
5
30,183.9
5
29,806.8
7
37,148.4
7
37,238.6
9

Emerging Economies
Russia
China
India
Brazil

17,790.9
4
9,864.45
3,909.13
12,358.0
6

15,688.7
Mexico
117.6
8
1,845,000
21,142.8
Poland
38.5
6
814,000
15,335.0
Turkey
76.1
9
1,167,000
(a) - data obtained from http://www.prb.org/pdf13/2013-populationdata-sheet_eng.pdf

Ranking by GDP in Billions of USD

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

United States
16,720,000
Euro Area
15,850,000
China
13,390,000
India
4,990,000
Japan
4,729,000
3,227,000
Germany
Ranking by
Population in Millions of
inhabitants
2,553,000
Russia
Brazil
1 China 2,416,000
1357.4
United Kingdom
2 India 2,387,000
1276.5
2,276,000
France
3 Euro Area
506.0
Mexico
4 United 1,845,000
States
316.2
1,805,000
Italy
5 Brazil
195.5
Spain
6 Russia 1,389,000
143.5
1,167,000
Turkey
7 Japan
127.3
814,000
Poland
8 Mexico
117.6
9 Germany
80.6
1
Ranking by GDP per
capita in USD
0 Turkey
76.1
52,877.93
1 United States 1
40,037.22
2 Germany
1 United
Kingdom
64.1
37,238.69
3 United Kingdom1
37,148.47
4 Japan
2 France
63.9
35,618.15
1
5 France
3 Italy 31,324.11
59.8
6 Euro Area
1
30,183.95
7 Italy
4
Spain
46.6
29,806.87
8 Spain
1
21,142.86
9 Poland
5 Poland
38.5
1 Russia
17,790.94
0
1 Mexico
15,688.78

1
1
2
1
3
1
4
1
5

Turkey

15,335.09

Brazil

12,358.06

China

9,864.45

India

3,909.13

(a) United States, China, India, Japan, Germany

(b) China, India, United States, Brazil, Russia
(c) United States, Germany, United Kingdom, Japan, France
3. There seems to be a significant relation between high GDP and Population and high
GDP growth rates. The U.S., China, and India are top three in both GDP and Population
while simultaneously achieving the highest rates of growth in their respective economic
zones. In a sense, the biggest are getting bigger. However, when looking at GDP per
Capita, with the exception of the U.S. and maybe Japan, it seems like those that are
leading are only seeing modest gains in GDP (usually <1%). However, there may be
more behind the numbers. For example, Japan has a declining population and China and
India have notoriously large populations. It may be more useful to look into the growth
rate of GDP per capita over a few years to get a better understanding of this data.
4.
Inflation Growth (in% y-o-y)
Trend
Trend
2012
2013 E
2014 E
20122013Inflation Inflation
Inflation
2013
2014
Global
3.7
3.2
-0.5
3.3
0.1
Developed
Countries (avg)
-0.7
0.2
United States
2.1
1.6
-0.5
1.9
0.3
Euro
Area
2.5
1.5
-1.0
1.6
0.1
German
y
2.1
1.6
-0.5
1.7
0.1
France
2.2
1.2
-1.0
1.5
0.3
Italy
3.3
1.6
-1.7
1.7
0.1

Avera
ge
3.4
1.9
1.9
1.8
1.6
2.2

Spain
Japan
United Kingdom
Emerging
Economies (avg)
Russia
China
India
Brazil
Mexico
Poland
Turkey

2012 Inflation Rankings

8.
1 Turkey
9
7.
2 India
6
5.
3 Brazil
4
5.
4 Russia
0
4.
5 Mexico
1
3.
6 Poland
7
3.
7 Italy
3
2.
8 United Kingdom
8
2.
9 China
7
1
2.
0 Euro Area
5
1
2.
1 Spain
4
1
2.
2 France
2

2.4
0.0
2.8

5.0
2.7
7.6
5.4
4.1
3.7
8.9

1.7
0.2
2.5

-0.7
0.2
-0.3

6.6
2.6
5.6
6.1
3.8
1.3
6.8

-0.7
1.6
-0.1
-2.0
0.7
-0.3
-2.4
-2.1

1.4
1.2
2.1

-0.3
1.0
-0.4

1.8
0.5
2.5

4.8
2.6
5.4
5.6
3.6
2.0
6.5

-0.3
-1.8
0.0
-0.2
-0.5
-0.2
0.7
-0.3

5.5
2.6
6.2
5.7
3.8
2.3
7.4

1 United States
2.
3
1
2014 E Inflation
Rankings
1 Germany
2.
6.
4
1
1 Turkey
5
1 Japan
0.
5.
5
2 Brazil0
6
5.
2013 E Inflation Rankings
3 India
4
Turkey
6.
4.
1
8
4 Russia
8
Russia
6.
3.
2
6
5 Mexico
6
Brazil
6.
2.
3
1
6 China
6
India
5.
2.
4
6 Kingdom
7 United
1
Mexico
3.
2.
5
8
8 Poland
0
China
2.
1.
6
6 States
9 United
9
United Kingdom
2.
1
1.
7
5
0 Germany
7
Spain
1.
1
1.
8
1 Italy7
7
United States 1
1.
1.
9
2 Euro6Area
6
1 Germany
1.
1
1.
0
6
3 France
5
1 Italy
1.
1
1.
1
6
4 Spain
4
1 Euro Area
1.
1
1.
2
5
5 Japan
2
1 Poland
1.
3
3
1
1.
4 France
2
1
0.
5 Japan
2
Emerging economies, in General have a much higher inflation rate than developed
countries. Other than the United Kingdom and Italy who have higher inflation rates than
China, every developed country maintained an inflation rate lower than that of every
emerging economy in 2012.

From 2012 to 2013, the rate of inflation is expected to decrease across all but
three countries. In this time period, the development level of the economy does not imply
a specific course for a specific economy. This can be seen in that both emerging and
developed economies are averaging a 0.7% drop in inflation rates between 2012 and
2013. However, when we look forward an additional year, inflation rates are expected to
follow different paths in emerging and developed economies. In developed nations, the
rate of inflation is expected to increase everywhere but Spain and the UK with an average
estimated increase of 0.2% year-over-year. Meanwhile, emerging economies are expected
to continue their decrease in inflation rates, with all but Poland expecting to see drops in
inflation rates between 2013 and 2014. On average, emerging economies are expected to
see a 0.3% average drop in inflation rates from 2013 to 2014, while not as drastic as the
year before, they are still expected to drop.
In the developed world, Italy and the United Kingdom are expected to have the
highest inflation rates going forward while Japan is expected to have the lowest inflation
rates of any country included. Meanwhile, on average, all but one country in the
emerging markets have higher inflation rates than all other developed countries.
However, to reiterate, this inflation rate is decreasing at a higher rate on average than in
developed countries.
Over the three years of data, the inflation rankings do not change very much, with
the same countries in the top four across all three years. Furthermore, the rankings
outside of the top four are not very volatile, apart from Italy and Spain who are expected
to decrease their inflation rate significantly in 2013 and 2014, especially in comparison to
the other countries.
In the developed world, The United States presents an economy that has a good
balance between inflation and GDP. In each year, The U.S. has or is expected to have
GDP growth that at least matches or exceeds the inflation rate. This is actually quite rare
in this selected time period as many developed countries are unable to grow their GDP at
the rate of inflation in their economy, something which may pose a problem going
forward. The emerging market is in a very similar situation. However, they are in general
seeing higher inflation rates as well as higher growth in GDP. For the most part however,
the inflation rate is just edging out the rate that GDP is growing, which means GDP is not
really growing much at all. The one exception to this is china, where GDP is growing at
an average of almost 5% more per year than the inflation rate.
5.
Economic Zone
United states

Japan

Positive Drivers
- Recovery in Employment and
Housing
- Less Uncertainties (i.e. Debt
Ceiling)
- Unemployment declining &
new jobs are being created
- High private consumption and
exports

Negative Drivers
- Imminent debt ceiling
- Inventory Cycle
- New housing
construction still well
below average
-

Disappointing GDP
growth in 2Q 2013
Low Production

Emerging Economies

European Union

In China, increased production

Mexico: industrial activity
should increase as U.S.
recovers
Mexico: pro-reform climate
will lead to positive energy
reform and growth
India & Brazil: high GDP
growth
Brazil: interest rate hikes seem
to be working
First q-on-q growth of GDP in
two years
PMI: has broken 50 points for
manufacturing and services.
Increased consumption
Inflation is stopping its
upward trend
Labor market seems to be
improving
Credit supply is improving
Euro areas foreign sector
surplus is increasing
Increased trade with other
developed countries

investment
deflation
China: high house
prices
China: indebtedness of
local govts and private
sector segments
Mexico: stagnation in
industrial activity/public
spending cuts
India & Brazil:
Deflation
GDP growth may be
due to temporary factors
PMI: not balanced
across the continent.
Some countries are
declining
Inflation may be
negatively impacted by
rising oil prices
Slowdown in emerging
markets (will harm
exports)

Each economic zone will be facing different challenges in the coming quarters
and will respond accordingly. However, in the increasing globalization of the economy,
the success and failures of each zone will be closely intertwined. For example, continued
decline in emerging economies may lead to a decrease in consumer spending and
therefore a decrease in imports from developed countries. This decrease in developed
countries exports may harm their economies.
Looking forward, it is reasonable to expect moderate but slow growth across
world economies. One of the biggest risks going forward is the price of Oil. Many
emerging countries such as Russia and China and Middle Eastern countries depend on oil
to drive growth in their economies. However, as new technologies emerge that are both
lowering demand and increasing supply, it may be tough for these areas to depend on oil.
Meanwhile, a decrease in the price of oil may help developed countries, especially those
that consume large amounts of oil, continue to grow and may also help slow inflation in
these areas.
Another big risk going forward will be the general uncertainties in the United
States. As a major world player, any changes that occur in the spending habits and
financial markets of the United States will have a significant impact across developed and
emerging markets. Furthermore, monetary policy across the world will be a huge driver

of growth in the coming months and years. As each country or area deals with their own
challenges and improvements, they will adopt differing policies that will significantly
impact the local and world economy.