The Global Economic Crisis and Policy Responses in West Asia ESCWA, Damascus, Syria 5 May 2009
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Transcript of The Global Economic Crisis and Policy Responses in West Asia ESCWA, Damascus, Syria 5 May 2009
The Global Economic Crisis
and Policy Responsesin West Asia
ESCWA,Damascus, Syria
5 May 2009
2
Crisis Unexpected?• A crisis foretold• Unsustainable global imbalances • International financial architecture• Ideology: deregulation, self-regulation,
capital account liberalization• Financial Globalization: growth, stability?• Most developing countries innocent
victims• Policy responses: inadequate; double
standards• International cooperation: G7, G20, UN
3
Globalization: finance>trade
0
20
40
60
80
100
120
140
160
180
1980 1990 1995 2000 2006
US
$ T
rillio
ns
0
50
100
150
200
250
300
350
As
pe
rce
nt
of
GD
P, in
dic
es
19
80
=1
00
Global financial assets
Global merchandise trade
) Global financial assets as a percentage of GDP(right axis
) Global merchandise trade as a percentage of GDP(right axis
4
Finance-investment nexus?
0.00
0.05
0.10
0.15
0.20
0.25
0.30
Gross Fixed Capital Formation
Gross Financial Investment Abroad
Financial globalization
•Net capital flows from South to North (US largest borrower)
•Cost of funds not generally lower due to financial deepening (more intermediation, financial rents)
•Higher volatility•Lower growth, higher instability
Short-term capital inflows problematic•No real contribution to investment,
growth rates•Asset (shares, real estate) price +
related (e.g. construction) bubbles instead
•Cheaper finance for consumption binges•Over-investment excess capacity•All exacerbate instability, pro-cyclicality
7
Contagion: crisis spreadsFinancial sector contagion (incl. vicious circles):Sub-prime crisis financial crisis asset price deflation liquidity/credit crunch
Financial crisis Economic recession(including feedback loops)Real economy contagion (incl. vicious circles): Less investment, especially abroad (FDI) Less consumption
Reduced demand for imports, i.e. for exports of others Prices, output declines globally Growth, employment declines globally
Middle East market indices (Feb 2008-Feb 2009 change in per cent)
Abu Dhabi Securities
Market Amman Stock
Exchange Bahrain Stock
Exchange Beirut Stock
Exchange Doha Securities
Market Dubai Financial
Market Kuwait Stock
Market Muscat Securities
Market Palestine
Securities Exchange Saudi
Stock Market Composite*
-80 -70 -60 -50 -40 -30 -20 -10 0
Change in percent
Deflationary spiral•Asset (stock, property) markets
deflating negative wealth effect
more bank insolvency generalized credit squeeze
•Lower external demand, world trade excess capacity investment slowdown
•Depressed domestic demand lower prices, outputrices, output lower employment, incomes
10
Disorderly unwinding of global imbalances
-800
-600
-400
-200
0
200
400
600
2005 2006 2007 2008 2009
US Japan EU Developing, excl China China
Billions of dollars
11
Globalization: Parallel fates
-4
-2
0
2
4
6
8
2003 2004 2005 2006 2007 2008 2009 (P)
Developing countries
Developed countries
World
Preliminary, revised forecast
13
Recession in most developed
economies
2.9
1.9 1.8
4.8
2.82.4
2.9
6.5
2.0 2.1
2.7
6.0
1.2
0.4
1.1
4.9
-1.9
-0.6
-1.6
0.4
-2
-1
0
1
2
3
4
5
6
7
United States Japan EU-15 New EU members2005 2006 2007 2008 2009 orig. forecast
14
Slower growth in all developing countries
7.2
6.0
8.5
4.75.5
5.1
6.9
4.94.3
5.9
-0.2
1.6
4.5
0.1
2.7
-10123456789
Developing Africa East andSouth Asia
Western Asia LatinAmerica
2005 2006 2007 2008 2009 forecast
Growth by main country groups
Per capita GDP growth rateChange in growth
rate
2004-07 2008 20092009/
20082009/
2004-7
World 2.6 0.9 -3.4 -4.3 -6.0
Developed economies 2.1 0.3 -4.1 -4.4 -6.1
USA 1.6 0.1 -4.4 -4.6 -6.0
Japan 2.1 -0.6 -5.9 -5.3 -8.0
European Union 2.4 0.7 -3.4 -4.1 -5.8
Economies in transition 7.7 5.5 -2.6 -8.1 -10.2
Developing economies 5.7 4.0 0.1 -3.9 -5.6
Africa 3.4 2.5 -1.0 -3.5 -4.4
North Africa 3.6 3.6 1.4 -2.3 -2.2
Sub-Saharan Africa 3.6 2.2 -1.9 -4.1 -5.5
East and South Asia 7.3 5.0 1.8 -3.2 -5.5
East Asia 7.8 5.3 1.8 -3.5 -6.0
South Asia 6.5 4.9 2.6 -2.4 -3.9
West Asia 3.7 2.6 -1.2 -3.8 -5.0 Latin America +
Caribbean 4.0 2.7 -3.0 -5.8 -7.0
LDCs 5.2 3.6 0.3 -3.3 -4.9
LDCs excl. Bangladesh 5.4 3.4 -0.6 -3.9 -6.0
Growth by main country groups
Per capita GDP growth rate
Change in growth rate
2004
-07200
8200
92009/
2008
2009/ 2004-
7World 2.6 0.9 -3.4 -4.3 -6.0Developed
economies 2.1 0.3 -4.1 -4.4 -6.1
Economies in transition 7.7 5.5 -2.6 -8.1 -10.2
Developing economies 5.7 4.0 0.1 -3.9 -5.6
West Asia 3.7 2.6 -1.2 -3.8 -5.0
LDCs 5.2 3.6 0.3 -3.3 -4.9
Real growth and consumer inflation, 2005-2009Real Growth Consumer inflation Country/Group 2008 2009 2008 2009Bahrain 6.3 2.0 3.5 3.5Kuwait 6.1 0.7 10.4 5.7Oman 6.0 1.5 12.4 6.0Qatar 16.0 7.0 15.0 11.2Saudi Arabia 4.2 0.7 9.9 4.5United Arab Emirates 7.4 0.5 18.6 5.2GCC countries 5.8 1.1 12.0 5.2Egypt 6.5 4.5 17.1 9.7Iraq 8.9 5.0 2.7 5.0Jordan 6.0 3.6 14.0 6.5Lebanon 5.5 3.0 11.7 5.7Occupied Palestine -1.7 -1.0 9.8 5.2Sudan 8.5 4.2 15.0 11.0Syrian Arab Republic 6.5 3.2 14.7 6.0Yemen 4.5 2.0 19.0 12.7More Diversified
Economies 6.6 4.0 13.9 8.2
ESCWA region 6.1 2.1 12.7 6.3
Regional GDP growth rates in PPP terms, 2007-2010
Note: The IMF World Economic Outlook classification of the Middle East region includes Egypt, Iran, and Libya. Source: IMF, World Economic Outlook Update, January, 2009.
WorldAdvanced Economies
EuropeanUnion
Emerging &
DevelopingEconomies
Sub-Saharan
Africa
Central &Eastern Europe
Middle East
2007 2008 2009 2010
Real GDP growth in Arab States, 2007-2010
N
18
16
14
12
10
8
6
4
Un
emp
loy
men
t ra
te i
n p
er
cen
tUnemployment rates in the
Middle East (% of labour force)
▲ Total ♦ Males Females
Unemployment scenarios for
2009
Middle East .World
To
tal
Mal
es
Fem
ales
To
tal
Mal
es
Fem
ales
WA: Limited impact so far•Most of region’s financial markets have declined significantly
•So far, impact on real economy relatively limited due to:
- mass surplus liquidity (GCC countries) from oil boom
- relative insulation - low market capitalization
But worse yet to come•But crisis going to hit more forcefully
•Real GDP growth projected to drop to 4% in 2009 (6% in 2007)
•Unemployment rates to climb from 9.4% to 10.8%
Past growth problems
•Regional economic growth spurred by: - oil revenue- real estate investment- housing- tourism- foreign assistance --- rather than productive activity
•Surpluses not used to build up strong industry, infrastructure, skills
Monthly Crude Oil Prices ($/barrel)
Jan
-08
Feb
-08
Mar
-08
Ap
r-08
May
-08
Jun
-08
Jul-
08
Au
g-0
8
Sep
-08
Oct
-08
No
v-0
8
Dec
-08
Jan
-09
Food prices will remain higher
50
100
150
200
250
300
350
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Wheat Maize Rice
33
World trade collapsing
-0.8
4.45.6 6.4
2.0
-10.0
11.2
9.37.4
-15
-10
-5
0
5
10
15
2001 2002 2003 2004 2005 2006 2007 2008 2009
Ann
ual p
erce
ntag
e gr
owth
Preliminary, revised UN forecast
Collapsing world trade
(volume index, 1998 = 100)
100
120
140
160
180
200
220
240
260
280
2006M
1
2006M
3
2006M
5
2006M
7
2006M
9
2006M
11
2007M
1
2007M
3
2007M
5
2007M
7
2007M
9
2007M
11
2008M
1
2008M
3
2008M
5
2008M
7
2008M
9
2008M
11
2009M
1
World trade
Developing and other non-OECD country exports
OECD country exports
Source: CPB
ME current accountMiddle East and North Africa
-2000
200400600800
100012001400
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US $ billions
Exports
Current account balance
Source: Economic Intelligence Unit.
ME oil exporters too
Middle East and North Africa: Oil Exporters
0
200
400
600
800
1000
1200
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US$ billions
Exports
Current account balance
Source: Economic Intelligence Unit.
Volatile aid flows
0%
1%
2%
3%
4%
5%
6%
7%
8%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Other LICs
Sub-Saharan Africa
LDCs
Official aid (USD$/capita)
Iraq )2003( Jordan Lebanon Syria )2006( Yemen Egypt )2006( )2006( )2006( )2006(.
Remittances to developing countries, 2008-2010
45
260
41
239
42
238
0
50
100
150
200
250
300
Low-income countries Middle-income countries
(bil
lion
s of
US
doll
ars)
2008
2009
2010
Jordan )2007( Lebanon Oman )2006( Syria )2007( oPt )2007( Yemen )2007( )2007(
Total remittances as % of national GDP
Remittances from Saudi Arabia,
2005
Remittances from Saudi Arabia
as % of GDP of receiving Arab country, 2005
Per
cen
tag
e o
f G
DP
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Impact of crisis on extreme poverty
Change in extreme poverty (< $1.25/day)
No. of Poor Change in poverty’09/‘04-’0
7 ’09/‘08 ’09/‘04-’07 ’09/‘08
Transition economies 0.6 0.6 0.3% 0.3%
Developing economies 111.1 73.5 1.8% 1.2%
Africa 5.9 4.2 1.2% 0.9%North Africa 0.1 0.1 0.1% 0.1%Sub-Saharan Africa 5.8 4.1 1.6% 1.1%East and South
Asia 101.0 65.6 2.0% 1.3%East Asia 16.2 27.5 0.8% 1.3%South Asia 84.2 37.8 3.0% 1.3%West Asia 0.6 0.2 0.5% 0.2%LAC 4.1 3.7 0.7% 0.7%
Livelihoods threatened• Declining living standards, increasing
inequality of concern for some time • Many livelihoods under threat, especially
when social protection not well-developed
• Migrant workers > 60% in most GCC countries
• Prolonged slowdown in world economy likely to cause remittances, job creation, tourism and ODA to decline, unemployment to increase, particularly among youth
Policy priorities•Promote growth of productive sector
•Encourage pro-poor growth•Strengthen social protection •Oppose discrimination•Emphasize human development, decent work
46
Trade impacts: summary•Exports decline all developing countries
•Terms of trade primary exporters
•Trade surpluses, reserves may run down quickly
•But lower energy, food prices help net food and oil-importers
47
Financial impacts on developing countries• Despite non-involvement in sub-prime debacle:
Emerging stock markets collapse greater Reversal of capital flows, FDI also down Spreads rise, much higher borrowing costs
• But financial positions stronger than during Asian + LA crises (more foreign reserves, better fiscal balances)But reserves rapidly evaporating with export collapse; fiscal space also disappearing
Social, political impacts •>200 m. more working poor •ILO: Unemployment to rise by 51m
•Government social spending at risk
•Rising social unrest•US intelligence report:
crisis -- greatest security risk
New Bretton Woods moment?
Bretton Woods, 1944: United Nations conference on monetary and financial affairs
• 15 years after 1929 Depression• Middle of WW2• US initiative vs UK Treasury stance• 44 countries (28 developing countries; 19 LA)• IMF, IBRD, ITO – UN system• Clear emphasis on sustaining growth, employment
creation, development, not just financial stability
• But BWIs very different governance arrangements
Responses to crisis• UN, BIS forecasts more accurate than
others; IMF, WB upbeat till late 2008• IMF, WB also marginalized by G7, etc• IMF discouraging strong fiscal stimulus
by developing countries without surplus• G7 G20: more inclusive? legitimate?
crisis-, but not developmental or equitable
• PGA (Stiglitz) Commission of Experts• Doha Declaration: June 09 summit on
impact of crisis on developing countries
UN role?• Universal, legitimate lead reform
process?• Ensure comprehensive systemic reform• Ensure developmental financial system• Ensure inclusive financial system • Develop capacity for offering 2nd
opinion to interested member states
• Align IMF, WB with UNDA (including FfD), IADGs to ensure policy coherence
57
Thank youPlease visit UN-DESA Please visit UN-DESA www.un.orgwww.un.org
G24 G24 www.g24.orgwww.g24.org andand PGAPGA www.un.org/ga/president/63/ websites websites
• Research papersResearch papers• Policy briefsPolicy briefs• Other documentsOther documents
Acknowledgements: UN-DESA, ILO, Acknowledgements: UN-DESA, ILO, ESCWAESCWA