2014 ECONOMIC OUTLOOK FOR THE AMERICAS BUSINESS CYCLE AND POLICY DYNAMICS Ellen Hughes-Cromwick Chief Economist Ford Motor Company Global Interdependence Center Southwest Economic Summit The Americas February 24, 2014
KEY POINTS TODAY • A favorable report card: Economies in the Americas region are poised for moderate growth in 2014 with low risk of recession • But there is a wide continuum of performance among the major markets • North America’s barometer of health is Canada, facing far fewer structural imbalances, sound banking, contained inflation, and domestic demand growth now beyond the Ontario province • While the centerpiece of the Americas – the U.S. – continues to heal from the financial crisis, Mexico is reviving and offers promise to achieve their potential in the next two years • Structural barriers to improvements in the standard of living persist in some South American markets, with severe external imbalances in Argentina and Venezuela • Brazil’s challenges in 2014 – 2015 are rotating from high inflation and interest rates to uncertainty about investment and capital spending trend • Economies of the Americas region have several precious assets: its people, trade linkages, and a valuable natural resource base
SLIDE 1
GLOBAL TRENDS
SLIDE 2
GLOBAL NEW VEHICLE SALES (Mils. Units) 81
64
66
68
72
74 68
85
77 Other
65
60
21.1 China
22.2
U.S.
15.9
Europe
13.8
4.6
17.0
17.2
2003
2005
2007
2009
2011
2013
2013 Global Sales Reached 85 Million Units SLIDE 3
GLOBAL NEW VEHICLE SALES (Mils. Units) 54.3 38.4
40.7
42.7
44.0
48.0
55.1
57.3
60.0
47.7 47.5 Rest of World
21.5
22.6
23.3
23.5
23.8
21.0 17.4
19.6
21.6
23.7
25.0
19.1 N. America 13.1 4.4
5.9 S. America
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
In 2013, Americas New Vehicle Sales Accounted For Nearly 30% of Global Sales SLIDE 4
AMERICAS ECONOMIC FUNDAMENTALS
SLIDE 5
EMERGING MARKETS CURRENCY UPDATE • Since January 2013, there have been double-digit declines in the value of several major emerging markets’ exchange rates • Several markets likely affected by the removal of U.S. monetary policy stimulus (“QE Tapering”) • The other triggers for these declines vary widely among all of these countries • Argentina and Venezuela have unique, severe imbalances • Inflationary pressures and growth slowdowns in most of these markets have contributed to currency weakness • Central banks in Brazil, Turkey, South Africa, and India have raised policy interest rates to dampen inflation and support currencies Key Takeaways • Brazil’s imbalances challenging; could be managed with appropriate policies • Argentina and Venezuela increasingly unstable, at risk for large devaluations • Russia, Turkey, and South Africa still subject to further currency weakness • India’s central bank largely successful in stemming a more severe selloff • A broad-based currency crisis similar to the late 1990s is not likely due to policy responses already underway in several markets SLIDE 6
EMERGING MARKETS CURRENCY UPDATE Volatility Range (Pct.) *
Pct. Change Since January 2013
Argentina Peso
19
(37.2)
Brazil Real Venezuela Bolivar
30
(31.8)
Russia Ruble Per Euro Turkey Lira Per Euro
(20.7)
11
(17.8)
India Rupee
Memo: Japan Yen
5
(13.7)
South Africa Rand
Thailand Baht
12
(16.7)
14
(14.6) Yen Has Fallen 26% During Last 2 Years
11 (8.4)
5
(11.5) Depreciation
10 Appreciation
* Based on 5-year currency fluctuations
Currency Sell-Offs Spurred By Capital Flows To Mature Market Safe Havens SLIDE 7
U.S. KEY ECONOMIC INDICATORS Consumer Sentiment Index
Mfg. Purchasing Managers’ Index (PMI)
85.1 59.2
79.9
57.0
81.2 51.5 74.2
72.3
72.9
50
54.1
54.2
Expansion Contraction
49.0
Preliminary February 2014 Matched January Reading at 81.2
51.3
55.8 2011
2012
2013
Unemployment Rate (Pct.)
2014 January
2011
2012
2013
Real GDP (Pct. Change, YoY)
2014 January
9.1 3.3
3.1 2.7
2.0 1.3
6.6 2011
2012
2013
2014 January
1Q 2011
1Q 2012
1Q 2013
4Q
Growth Pace Improving SLIDE 8
U.S. HOUSING UPDATE Housing Starts (SAAR, Mils.) And Home Builders’ Survey Index
30-Year Mortgage Rate (Pct.)
2.0
75 60
Housing Starts
1.5
6.5
46.0 45
5.0
4.4
1.0
0.88 30 Home Builders Survey Index (Rt. Scale)
0.5
0.0
3.5
15 0
2007
2008
2009
2010
2011
2012
2013
2014
Case-Shiller Home Prices (Pct. Change, YoY) Note: Includes 20 major metropolitan areas
13.7
2007
2008
2009
2010
2011
2012
2013
2014
New Home and Light Vehicle Sales (SAAR, Mils.) 25
2.0
Note: Based on six-month moving average
Light Vehicle Sales
20
4.6
1.5
15.5
15 1.0
(0.1)
(4.5)
10
New Home Sales (Rt. Scale)
5
0.4 0.5
(19.0) 0
2007
2008
2009
2010
2011
2012
2013
2007
0.0
2008
2009
2010
2011
2012
2013
2014
Housing Sector Recovery Key Feature Of Economic Growth This Year SLIDE 9
NORTH AMERICA VEHICLE SALES SUMMARY Total North America (Mils.)
U.S. (Mils.) January 2014 SAAR*
19.1 16.6
15.9
14.5
2008
2009
2010
13.5
2011
2012
2013
2013
Canada (Mils.)
1.7
15.6
11.8
2008
2013
2014
Mexico (Mils.)
1.8 1.6
1.7
1.8
1.1
1.1
1.1
0.8
2008
15.6
2013 2013
2014
2008
2013
2013
1.1
2014
* January SAARs are preliminary estimates
Fiscal Austerity Led To Double Dip Recession North America Sales Projected To Grow Nearly 8% This Year The information contained herein does not constitute the Company’s forecast of financial performance and has been prepared solely for business planning purposes to determine actions the Company may take to meet its plan
SLIDE 10
MEXICO FOREIGN DIRECT INVESTMENT • Foreign direct investment (FDI) declined in 2009, concurrent with global economic downturn, on pace for full recovery in 2013 – The majority of FDI comes from the U.S. – Future FDI will depend on reforms; energy, labor and education reform particularly important – Low unit labor costs draw global manufacturers to Mexico
USD (Bils.) 40
Foreign Direct Investment
35
31.6
30 23.8*
25 20 15 10
16.6
9.5
15.5
5 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Source of Foreign Direct Investment, 2012 Rest of World 30%
Canada 10% Source: Bank of Mexico
Manufacturing Productivity
110 105
USD 15.5 Bils. Japan 11%
Source: Bank of Mexico *Through First Half 2013
U.S. 49%
105.2
100 95
Productivity**
90
89.6
Unit Labour Costs (Pesos) 85 2007
2008
Source: OECD
2009
2010
2011
2012
** Index, 2008=100
Foreign Direct Investment Pace Improved Last Year SLIDE 11
BRAZIL KEY ECONOMIC INDICATORS Consumer Confidence Index
PMI
128.7 121.7
51.40
53.1
121.6
50.8
50 114.7 45.5
109.7 108.9 2011
2012
2013
2014 January
2011
2012
Mfg. Production (Pct. Change, YoY)
2013
Real GDP (Pct. Change, YoY)
2014 January
9.7
7.7
4.2
6.2 2.4
3.3
3.3
2.0 1.8 (2.9)
(1.1)
(5.6) 2011
2012
0.9
0.8
(2.0)
2.2
0.6 2013
December
1Q 2011
1Q 2012
1Q 2013 3Q
Economy Facing Headwinds From Rising Interest Rates SLIDE 12
BRAZIL KEY ECONOMIC INDICATORS Units Economic Activity
Index
2013 2 Months 1 Month Full Year Ago Ago
Present Level Date
145.5
146.7
145.8
143.8
Dec-13
Consumer Inflation
% Chg YOY
6.2
5.8
5.9
5.6
Jan-14
Unemployment
%
5.4
4.6
4.3
4.8
Jan-14
Confidence
Index
113.3
112.5
111.2
108.9
Jan-14
Retail Sales
% Chg YOY
4.3
5.4
7.1
3.9
Dec-13
Exchange Rates
BRL/USD, e.o.p
2.34
2.32
2.34
2.43
Jan-14
Policy Interest Rate
%, e.o.p.
10.00
10.00
10.00
10.50
Jan-14
Stock Prices
% Chg YOY
(10.2)
(8.7)
(15.5)
(20.3)
Jan-14
Financial
SLIDE 13
SOUTH AMERICA VEHICLE SALES SUMMARY Total South America (Mils.)
Brazil (Mils.)
7.7%
4.4
5.9
5.7
5.2
January 2014 SAAR*
5.9
4.4
3.8
3.7
2013
2013
4.2
2.8
2008
2009
2010
2011
2012
2013
2008
Argentina (Mils.)
2014
Venezuela (Mils.) 1.2
0.9
0.6
0.7
0.8
0.8 0.3 0.1
2008
2013 2013
2014
2008
0.1
2013
0.1
2013
0.1 0.02 2014
* January SAARs are preliminary estimates
South America Vehicle Sales Projected To Grow About 2% This Year The information contained herein does not constitute the Company’s forecast of financial performance and has been prepared solely for business planning purposes to determine actions the Company may take to meet its plan
SLIDE 12
ARGENTINA KEY CHALLENGES Commodity Prices (USD per Metric Ton)
Argentine Peso Gap between ARS Blue and ARS
Soybean
(2/18/14 spot) 11.80
ARS Blue
531
Corn
ARS
430
Wheat
374 7.77
296
211
192
4.11 4.03 2011
2012
2013
2014
168
152 2010
2011
Merchandise Trade Balance (USD Bils.) Trade Balance Exports
Jan 2014 Dec 2013
FX Reserves: $29.6 Bils. Import Coverage: 5.9 Mos.
23.5
Imports
19.5 13.0
19.9
2012
2013
4.2
2011
4.4
2012
3.6
25.7 9.3
32.5
25.1
14.7
3.1
4.9
(7.1)
17.7
2013
1.9
2014
Fiscal Balance (ARS Bils.)
(22.5)
(30.7)
11.1 2.0 2010
322
306
Fiscal Balance Primary Balance
2007
2008
2009
(64.5) 2010
2011
2012
2013
Peso Devaluation; Trade Balance Challenges And Severe Fiscal Deficit SLIDE 15
ARGENTINA AND BRAZIL Real GDP Cumulative % Change Since 2010 50
Industrial Production Cumulative % Change Since 2010
50
40
36
Brazil
30
30
20
30 20 13 10
10 16
10 4
0 2010
2011
5
-10 2010
2013
Argentina Measures of Inflation % Change Over Same Period a Year Ago
35 30 25 20 15 10 5 0 2010
28.9
"Genuine"*
26
0
Argentina
2012
Argentina
40
2011
11.1
10.9
60
52
* Source: J.P. Morgan
40
2013
48
48
30
Official 2011
2012
Argentina International Reserves USD Bils
50 23.4
-1
Brazil
2012
2013
2014
20 2010
30 2011
2012
2013 SLIDE 16
ARGENTINA AND BRAZIL POLICY DYNAMICS Central Bank Policy Interest Rates Interest Rates
% 35 30 Argentina Lending Rate 25 20 15 10 5 Brazil "Selic" Policy Interest Rate 0 2010 2011 2012 2013
BRA/ARS
3.50
25.96
Central Bank Policy Interest Interest Rates Inflation-Adjusted Rates %
10
4.87
Brazil
5
0.82
0 -5
Argentina
10.50 -10
-9.04
-15 2010 2014
Argentina Peso v. Brazil Real Cross Exchange Rate 3.30
2011
2012
2013
2014
Brazil Exports to Argentina BRL Bils, Annual Rate
20
16.7 15
3.00
10.3
10
2.50 5
2.00 2010
7.0
6.3
2.20 2011
2012
2013
2014
0 2010
2011
2012
2013 SLIDE 17
FINANCIAL MARKET RISK PRICING
5-Year CDS Basis Points Feb 17, 2014 Argentina Brazil Mexico
2,294 185 92
Portugal
253
Spain
130
Malaysia
102
Bank Policy InterestBond Rates Yield Brazil Central 10-Year Government %
14 12 10 8 6 4 2 0
13.11
12.89 9.20
2011
2011
2012
2013
2014
Memo: U.S.
27
SLIDE 18
2014 POLICY DYNAMICS U.S. • QE taper and forward guidance adjustments • Financial markets could price in rate increases • Fiscal drag diminished Brazil • Central bank focus on inflation targeting • Fiscal budget management • Competitiveness challenges, i.e. trade policy structure Argentina • Hyper-inflation • Substantial fiscal deficit • Capital control measures and downward pressure on currency • Credit needs in light of low FX reserves SLIDE 19
2014 SUMMARY OUTLOOK • U.S. economy likely to grow in the 2.5 – 3.0% range • Mexico’s growth is likely to trend in the 3.0 – 4.0% range • Argentina in severe recession • Brazil’s outlook is mixed – high interest rates and capital outflows, coupled with structural challenges, will limit growth to 2% range this year
SLIDE 20