The State of the World’s Macroeconomy Marcelo Giugale Senior Director Global Practice for Macroeconomics & Fiscal Management Washington DC, December 3 rd 2014
Content 1. What’s Happening? Growing Concerns About Growth 2. What’s Coming? Old and New Risks 3. How to Deal with It? The Return of Structural Reforms 4. What Are The New Conceptual Issues? 2
1. What’s Happening? Growing Concerns About Growth 3
Rich Countries Are Barely Growing Real GDP (annual growth; 2000-2015) 10 8 6 Percent 4 2 0 -2 -4 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Advanced (GDP weighted) Emerging Developing (GDP weighted) Low income (GDP weighted) World (GDP weighted) World (Poverty weighted) 4 Source: World Bank using IMF WEO data
And Too Many LICs and MICs Are Slowing Down Share of countries with decelerating growth (% of the group) 70% 66% LICs MICs 60% 53% 50% 48% 50% 47% 41% 41% 40% 34% 28% 30% 25% 20% 16% 16% 10% 0% 2010 2011 2012 2013 2014 2015 5 Source: IMF WEO data
Commodity Prices Are Falling Index Jan 2010 =100 180 160 140 120 100 80 60 Non-energy Energy Food Metals and Minerals 40 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13 Jan-14 Oct-14 Source: World Bank DECPG 6
With Oil Prices Tumbling Dollars per barrel 140 Brent Oil Price 130 WTI Oil Price 120 110 100 90 80 70 23-Nov-11 23-May-12 23-Nov-12 23-May-13 23-Nov-13 23-May-14 23-Nov-14 Source: EIA 7
Volatility Is Not Getting Better Basis points EMBI Sovereign Spreads Emerging Europe Emerging Asia excluding China 420 China Latin America 360 300 240 180 120 60 0 1-Jan-10 1-Sep-10 1-May-11 1-Jan-12 1-Sep-12 1-May-13 1-Jan-14 1-Sep-14 Source: World Bank: Developing Trends 8
And Appetite for Developing-Country Portfolios is Weak Portfolio flows to developing-country bond and equity funds (6-week moving average, $billions) 8 6 4 2 0 -2 -4 -6 -8 Feb-11 Mar-11 May-11 Jun-11 Jul-11 Sep-11 Oct-11 Nov-11 Jan-12 Feb-12 Apr-12 May-12 Jun-12 Aug-12 Sep-12 Oct-12 Dec-12 Jan-13 Mar-13 Apr-13 May-13 Jul-13 Aug-13 Oct-13 Nov-13 Dec-13 Feb-14 Mar-14 Apr-14 Jun-14 Jul-14 Sep-14 Oct-14 Source: World Bank: Developing Trends 9
So Growth Forecasts for 2015 Are Being Trimmed 8 GDP Growth Projections (%) 7 6 July '14 Oct '14 5 4 3 2 1 0 Advanced United States Euro Area Emerging-Developing China Source: Find My Friends using the IMF World Economic Outlook 10
2. What Is Coming? Old and New Risks 11
The Global Risks We Know 1. US Raises Rates Too Fast - Capital Flow Reversals 2. Europe Back to Recession – No Action/Coordination 3. Japan Can’t Fire the “Third Arrow” 4. Hard Landing in China 5. Conflict Spreads (ISIS, Ukraine, Ebola, etc). 12
What They Mean For Developing Countries External Smaller environment buffers Deterioration Low in current commodity account prices balances Deterioration Slower trade in fiscal growth balances Volatility in capital flows 13
Buffer I: Worse Current Account Balances Averages 2005-07 2009-13 Change Advanced -0.35 2 2.35 14 Emerging/ -2.25 -5 -2.75 Developing
Buffer II: Worse Fiscal Balances Averages 2005-07 2009-13 Change Advanced 0.6 -2.8 -3.4 Emerging/ 1 -1.7 -2.7 15 Developing
Buffer III: Slightly Better Government Debt Averages 2005-07 2009-13 Change Advanced 52 74 22 16 Emerging /Developing (excluding HIPC) 46 44 -2 Emerging /Developing 57 44 -13
Buffer III: But Total Debt Continues to Rise Global debt-to-GDP ratio, 2001-13 Note Global debt includes household debt, government debt and non-financial corporates Source: Geneva Report on the World Economy, International Center for Monetary and Banking Studies (ICMB)and Center for Economic Policy and Research (CEPR) 17
Buffer III: But Total Debt Continues to Rise Global debt-to-GDP ratio, 2001-13 Note Global debt includes household debt, government debt and non-financial corporates Source: Geneva Report on the World Economy, International Center for Monetary and Banking Studies (ICMB)and Center for Economic Policy and Research (CEPR) 18
3. How to Deal with It? The Return of Structural Reforms 19
Remove labor market frictions and subsidies Improve the Boost public business investments, environment but efficiently Focus on Structural Reforms Create fiscal Deepen space by integration targeting subsidies 20
How Expensive Is to Change Jobs? 21
Do We Work where We Are More Productive? Contribution to GDP Growth (Percentage Points) 6 5 Productivity Growth Within Sectors Reallocation of Resources Across Sectors 4 3 2 1 0 -1 -2 1990s 2000s 1990s 2000s 1990s 2000s 1990s 2000s 1990s 2000s Asia CEE LAC MENA SSA Source: IMF (2013) 22
How Well Do We Manage Public Investment? 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Source: Dabla-Norris, Brumby, Kyobe, Mills and Papageorgiou (2011 ) Gambia, The Burundi LIC average Togo Chad Sierra Leone LICS Haiti Guinea Tanzania Uganda Kenya Benin Cambodia Mozambique Ethiopia Malawi Madagascar Bangladesh Public Investment Management Index 2007-2010 Burkina Faso Afghanistan Mali Rwanda Belize Congo, Rep. Solomon Islands West Bank and Gaza Yemen, Rep. MIC average Lao PDR São Tomé and Principe Senegal Gabon Sudan Swaziland Nigeria Djibouti Kyrgyz Republic Egypt, Arab Rep. Indonesia Azerbaijan Pakistan Albania Montenegro MICS Jamaica Mauritania Mongolia Kosovo El Salvador Namibia Philippines Côte d'Ivoire Ghana Zambia Turkey Lesotho Ukraine Serbia Belarus Jordan Moldova Botswana Kazakhstan Armenia Bolivia Peru Thailand Tunisia Colombia Brazil South Africa 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 23
How Costly Are Energy Subsidies? Number Total fuel Percent of Percent of of subsidies 2011 GDP Revenue countries (US$ bn) Developing Countries 55 202.3 2.5 9.2 Regions 8.3 East Asia and the Pacific 8 26.4 1.7 Indonesia 21.8 2.6 14.5 Malaysia 3.5 1.2 4.9 Brunei Darussalam 0.4 2.3 4.0 Europe and Central Asia 7 3.8 1.1 3.3 Turkmenistan 1.7 5.8 31.6 Kazakhstan 1.2 0.6 2.3 Kyrgyz Republic 0.2 3.4 10.5 Latin America and the Caribbean 9 22.9 4.9 16.2 Ecuador 4.2 5.4 14.0 Trinidad and Tobago 0.6 2.6 7.4 Venezuela 17.5 5.5 19.9 Middle East and North Africa 17 119.0 4.1 11.2 Egypt 15.8 6.7 30.5 Iraq 11.4 6.3 13.1 South Asia 4 24.7 1.1 6.2 Bangladesh 1.0 0.9 7.5 India 22.8 1.2 6.5 Sri Lanka 0.7 1.1 7.9 10 Sub-Saharan Africa 5.6 1.2 3.5 Angola 1.3 1.3 2.6 Cameroon 0.4 1.7 9.1 Nigeria 3.5 1.4 4.8 Net oil trade balance Exporter 28 158 3.3 10.1 Non-exporter 27 43.8 1.3 6.9 24 Source: IMF
Who Benefits from Energy Subsidies? Percent of total subsidies 70 60 Gasoline Diesel LPG Kerosene 50 40 30 20 10 0 Bottom Quintile Second Quintile Third Quintile Fourth Quintile Top Quintile Source: Arze del Granado and others, 2012 . 25
Integrate! Trade and FDI Go Together 26
Now Is the Time to Treat Investors Well Ease of Doing Business Distance to frontier East Asia and the Pacific Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Sub-Saharan Africa 100 OECD high income 90 80 70 60 50 40 30 Starting a business Enforcing contracts Resolving insolvency Source: World Bank 27
4. New Conceptual Issues 28
New Conceptual Issues 1. Growth & Inclusion, Efficiency & Equity, Markets & People 2. Monetary Policy: Dealing with Divergence 3. The “Infrastructure Push”: Dreams and Realities 4. The Role of Emerging Markets in Dev. Countries’ Growth 5. The Elasticity of Trade to Global Growth 6. “Debut” Issues and Frontier Markets 7. Fiscal Federalism in Low-Income Countries 29
Summary, in a Tweet: Slower Global Growth, With More Risks. Structural Reforms Are Back. #BeNiceToYourMacroeconomist 30
@Marcelo_WB 31
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