The State of the Worlds Macroeconomy Marcelo Giugale Senior - - PowerPoint PPT Presentation

Marcelo Giugale

Senior Director Global Practice for Macroeconomics & Fiscal Management Washington DC, December 3rd 2014

The State of the World’s Macroeconomy

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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?

1. What’s Happening? Growing Concerns About Growth

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2 4 6 8 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Percent

Real GDP (annual growth; 2000-2015)

Advanced (GDP weighted) Emerging Developing (GDP weighted) Low income (GDP weighted) World (GDP weighted) World (Poverty weighted)

Rich Countries Are Barely Growing

Source: World Bank using IMF WEO data

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And Too Many LICs and MICs Are Slowing Down

Source: IMF WEO data

16% 41% 41% 50% 28% 34% 16% 48% 66% 47% 53% 25% 0% 10% 20% 30% 40% 50% 60% 70% 2010 2011 2012 2013 2014 2015 LICs MICs

Share of countries with decelerating growth (% of the group)

Commodity Prices Are Falling

Source: World Bank DECPG

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40 60 80 100 120 140 160 180 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13 Jan-14 Oct-14 Non-energy Energy Food Metals and Minerals Index Jan 2010 =100

With Oil Prices Tumbling

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70 80 90 100 110 120 130 140 23-Nov-11 23-May-12 23-Nov-12 23-May-13 23-Nov-13 23-May-14 23-Nov-14 Brent Oil Price WTI Oil Price Dollars per barrel

Source: EIA

Volatility Is Not Getting Better

60 120 180 240 300 360 420 1-Jan-10 1-Sep-10 1-May-11 1-Jan-12 1-Sep-12 1-May-13 1-Jan-14 1-Sep-14 Emerging Europe Emerging Asia excluding China China Latin America Basis points EMBI Sovereign Spreads

Source: World Bank: Developing Trends

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And Appetite for Developing-Country Portfolios is Weak

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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

Portfolio flows to developing-country bond and equity funds (6-week moving average, $billions)

Source: World Bank: Developing Trends

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So Growth Forecasts for 2015 Are Being Trimmed

Source: Find My Friends using the IMF World Economic Outlook

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1 2 3 4 5 6 7 8

Advanced United States Euro Area Emerging-Developing China

GDP Growth Projections (%) July '14 Oct '14

2. What Is Coming? Old and New Risks

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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).

What They Mean For Developing Countries

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External environment

Low commodity prices Slower trade growth Volatility in capital flows

Smaller buffers

Deterioration in current account balances Deterioration in fiscal balances

Buffer I: Worse Current Account Balances

Averages 2005-07 2009-13 Change Advanced

• 0.35

2 2.35 Emerging/ Developing

• 2.25
• 5
• 2.75

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Averages 2005-07 2009-13 Change Advanced 0.6

• 2.8
• 3.4

Emerging/ Developing 1

• 1.7
• 2.7

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Buffer II: Worse Fiscal Balances

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Buffer III: Slightly Better Government Debt

Averages 2005-07 2009-13 Change Advanced 52 74 22 Emerging /Developing (excluding HIPC) 46 44

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Emerging /Developing 57 44

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Buffer III: But Total Debt Continues to Rise

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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)

Buffer III: But Total Debt Continues to Rise

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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)

3. How to Deal with It? The Return of Structural Reforms

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Focus on Structural Reforms

Remove labor market frictions and subsidies Boost public investments, but efficiently Create fiscal space by targeting subsidies Deepen integration Improve the business environment

How Expensive Is to Change Jobs?

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Do We Work where We Are More Productive?

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1 2 3 4 5 6

1990s 2000s 1990s 2000s 1990s 2000s 1990s 2000s 1990s 2000s Asia CEE LAC MENA SSA

Contribution to GDP Growth (Percentage Points)

Productivity Growth Within Sectors Reallocation of Resources Across Sectors

Source: IMF (2013)

Source: Dabla-Norris, Brumby, Kyobe, Mills and Papageorgiou (2011)

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 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Gambia, The Burundi Togo Chad Sierra Leone Haiti Guinea Tanzania Uganda Kenya Benin Cambodia Mozambique Ethiopia Malawi Madagascar Bangladesh Burkina Faso Afghanistan Mali Rwanda Belize Congo, Rep. Solomon Islands West Bank and Gaza Yemen, Rep. Lao PDR São Tomé and Principe Senegal Gabon Sudan Swaziland Nigeria Djibouti Kyrgyz Republic Egypt, Arab Rep. Indonesia Azerbaijan Pakistan Albania Montenegro 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

LICS MICS

LIC average MIC average

Public Investment Management Index 2007-2010

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Number

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countries Total fuel subsidies (US$ bn) Percent of GDP Percent of Revenue Developing Countries 55 202.3 2.5 9.2 Regions East Asia and the Pacific 8 26.4 1.7 8.3 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 Sub-Saharan Africa 10 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

How Costly Are Energy Subsidies?

Source: IMF

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2011

Who Benefits from Energy Subsidies?

10 20 30 40 50 60 70 Bottom Quintile Second Quintile Third Quintile Fourth Quintile Top Quintile Gasoline Diesel LPG Kerosene Percent of total subsidies

Source: Arze del Granado and others, 2012.

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Integrate! Trade and FDI Go Together

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30 40 50 60 70 80 90 100 Starting a business Enforcing contracts Resolving insolvency East Asia and the Pacific Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Sub-Saharan Africa OECD high income Distance to frontier

Ease of Doing Business

Now Is the Time to Treat Investors Well

Source: World Bank

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4. New Conceptual Issues

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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

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Summary, in a Tweet:

Slower Global Growth, With More Risks. Structural Reforms Are Back. #BeNiceToYourMacroeconomist

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@Marcelo_WB