Deutsche Bank Research Global Asset Management: For institutional and registered representative use only. Not for public viewing or distribution. Wealth Management: For client use. Strategy Asset Allocation The Arithmetic of EM and Global Growth: The $35 Trillion Myth Dote 11 September 2015 Chddb., Par.fij i hbtle Chief Strategist Strategist It 11 212 250-4776 1st/ 212 250-6605 [email protected] paragthatte@db,cm Strategist (+I) 212 250-2964 • The recent slowing in China and EM more broadly has raised concerns [email protected] about the level and sustainability of global growth; But EM growth has been slowing for the last 5 years, while DM growth picked up and global growth over the last few years has been perfectly steady at near trend rates, measured using conventional PPP exchange rate weights; • Conventional PPP exchange rate based measures massively overstate the size of EM in the global economy: by $35 trillion or 2 US GDPs; • Global growth has been rising over the lest few years when measured using market exchange rate based weights; • The arithmetic of global growth: DM (60%1 is still bigger than EM (40%) and 1pp of additional DM growth offsets 1.5pp of slower EM growth; • 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 PPP weights to be near trend rates while (ii) at market rate weights to accelerate above trend rates in 2016 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 slowing, it means a slowing in, if not the end of, global growth. The decline in commodity prices is often seen as evidence of this slowing in global growth and a driver of slow multinational corporate earnings growth. But growth in EM has been slowing for the last 5 years while gl