TM 2- 1

© Warren Keegan Associates, Inc.

Global Economic Environment

Increasing Interdependency Among Economies

Emerging Markets

Global Focus of Nations

FX Market – Tail Wagging the Dog

Types of Economic Systems

Market Allocation

Command Allocation

Mixed Allocation

TM 2- 2

© Warren Keegan Associates, Inc.

The Asian Flu

China 8.8# 8.8 7.5

Hong Kong 5.4 3.9 2.5

Indonesia 6.3 3.2 2.1

Japan 0.0# 1.3 1.0

Korea 5.8 3.4 2.2

Malaysia 7.4 3.1 2.1

Philippines 4.9 3.9 2.5

Singapore 7.4 5.3 3.2

Taiwan 6.6 6.2 3.5

Thailand 0.9 -1.7 -2.0

USA 3.7% 2.3 2.5

1997

1998*

Real GDP growth estimates, annual average %

*Data Sources: Merrill Lynch, ING Barings, and Morgan Stanley Dean
Witter ** W K A, Inc.

# = actual performance

1998**

TM 2- 3

© Warren Keegan Associates, Inc.

Measures of Economic Performance

1950 - 1987 Averages

Real Compound

Annual Growth in

GDP Per Capita

Japan

Korea

Germany

Italy

Denmark

Sweden

Switzerland

U.K.

United States

Overall Labor

Productivity
Growth

Net National

Investment

4.0%

5.7%

6.2%

3.9%

2.7%

2.6%

2.2%

2.2%

1.9%

Japan

Korea

Italy

Germany

Denmark

Sweden

U.K.

Switzerland

United States

4.4%

5.8%

5.9%

3.8%
2.4%

2.3%

2.2%

1.2%

1.4%

Japan

South Korea

Switzerland

Germany

Denmark

Sweden

Italy

U.K.

United States

13.7%

14.7%

17.6%

11.8%

11.6%

11.6%

10.9%

7.7%

7.1%

TM 2- 4

© Warren Keegan Associates, Inc.

World GNP Top 10 - 1995

In Billions

United States:

$6,659

Japan:

$4,247

Rest of World:

$6,255

Germany: $1,999

Italy: $1,183

U.K.: $1,076

Spain: $570

Brazil: $484

Canada: $595

France: $1,352

China: $677

26%

24%

TM 2- 5

© Warren Keegan Associates, Inc.

World GNP Top 10 - 2020

In Billions

United States:

$11,195

Japan:
$10,037

Rest of World:

$15,474

China:

$4,126

Germany: $3,707

France: $2,446

Korea: $2,184

Italy: $1,989

Taiwan: $1,825

Spain: $1,283

U.K.: $1,601

TM 2- 6

© Warren Keegan Associates, Inc.

Free Economies

1. Hong Kong

2. Singapore

3. Bahrain

4. New Zealand

5. Switzerland

6. United States

7. Ireland
8. Luxembourg

9. Taiwan

10. United Kingdom

TM 2- 7

© Warren Keegan Associates, Inc.

Mostly Unfree Economies

73. Lithuania

74. Saudi Arabia

76. Kenya

79. Slovak Rep.

81. Colombia

86. Mexico

91. Brazil

96. Romania

97. Cambodia

99. Egypt

103. Pakistan

105. Venezuela

107. Bulgaria

109. Madagascar

110. Russia

116. Croatia

120. Ethiopia
121. India

125. China

127. Ukraine

TM 2- 8

© Warren Keegan Associates, Inc.

Mostly Free Economies

11. Bahamas

12. Japan

13. Czech Rep.

14. Australia

16. Canada

17. U.A.E

25. Germany

28. South Korea

33. Sweden

34. Argentina

35. France

36. Italy

37. Spain

49. Guatemala

56. Israel

58. Turkey

62. Greece

63. Hungary
64. South Africa

70. Poland

TM 2- 9

© Warren Keegan Associates, Inc.

Country Income Segmentation

High Income (Advanced Countries)

- Triad

- Others

Upper Middle Income (NIC's)

Lower Middle Income (DC's)

Low Income (LDC's)

Basket Cases (BC's)

+ $9,385

+ $3,036

+ $765

« $765

TM 2- 10
© Warren Keegan Associates, Inc.

GNP per Capita: 1995 & 2020

Top Ten Countries

Luxembourg $37,800

Switzerland 36,900

Japan 33,700

Denmark 27,100

Norway 26,600

U.S. 25,300

Sweden 24,900

Germany 24,500

Austria 24,100

Kuwait 23,700

1995

Singapore $75,200

Luxembourg 73,600

Japan 72,400

Hong Kong 71,900

Switzerland 44,000

Austria 40,500

Belgium 40,200

Germany 39,200

Korea 38,400

Cyprus 38,000

2020

TM 2- 11
© Warren Keegan Associates, Inc.

The Expanding Triad

European Economic Area

N. American Free Trade Area

Japan and the Tigers

Population

(million)

GNP

(billion)

GNP

Per Capita

393

$ 8,354

$ 21,248

284

$ 19,831

374

$ 8,293

$ 22,134

U.S., Canada, Mexico

Hong Kong,
Japan, Malaysia,
Singapore, South Korea, Taiwan, Thailand

1997 figures

% of World:

7%
30%

% of World:

5%

21%

% of World:

7%

30%

EU: Austria,
Belgium,
Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, Netherlands, Portugal, Spain, Sweden, U.K.

EFTA: Iceland, Switzerland

$ 5,638

TM 2- 12

© Warren Keegan Associates, Inc.

GLOBAL INCOME AND POPULATION: 1995

World (Total) $25,097 $4,678 100 5,815 100

Triad (Total) 19,119 24,203 76 790 14

North America* 7,253 24,903 29 291 5

Japan 4,247 33,748 17 126 2

EU 7,619 20,435 30 373 6

Other High Income 844 34,415 3 25 «1

Upper Middle Income 2,239 4,397 9 509 9

Lower Middle Income 2,403 1,001 10 2,401 41

Low Income 491 300 2 1,640 28

Unavailable Data N/A N/A N/A 450 8

GNP

(billion)

GNP

Per Capita

% of

World

GNP

Population

(million)

% of

World

Population

Market

*Not including Mexico

TM 2- 13

© Warren Keegan Associates, Inc.

Why do nations trade with

one another?

Theory of Absolute Advantage

Theory of Comparative Advantage

TM 2- 14

© Warren Keegan Associates, Inc.

WESTERN EUROPE

Intra-Trade:1,230

Exports: 481

Imports: 473
World Trade Flows

ASIA

Intra-Trade: 394

Exports: 491

Imports: 360

REST OF WORLD

Intra-Trade: 57

Exports: 255

Imports: 303

AMERICAS

Intra-Trade: 221

Exports: 364

Imports: 455

160

162

128

170

40

44

143

191

253

160

1992

Sources: International Trade Statistics

General Agreement on Tariffs and Trade

Geneva 1993

72

68

(in billions of dollars)

TM 2- 15

© Warren Keegan Associates, Inc.

Balance of Payments

Current Account

Merchandise Trade

Services

Travel

Income On Investments

Military Expenditure

Aid and Gifts

Capital Account

Short Term

Long Term

- Direct Investment

- Portfolio Investment

Errors and Omissions

Official Reserves
TM 2- 16

© Warren Keegan Associates, Inc.

International Product Trade Cycle Model

10

11

12

13

14

15

8
9

10

11

12

13

14

15

10

11

12

13

14

15

High Income Countries

Medium Income Countries

Low Income Countries

Time

Stages of Production Development

New Product

Standardized Product

Maturing Product

Quantity

production

consumption

Export

Import

Import

Import

Export

Export