1
World Economic
Situation and
Prospects 2013
Pingfan Hong
March 21 2013
At G-24 TGM
Washington DC
2 2
Outline
1. World Economic Outlook
• Global and regional growth prospects
• Trends in international trade and finance
2. Downside Risks and Uncertainties
• Euro area crisis
• US fiscal uncertainty
• Hard landing in major developing countries
3. Key Policy Issues
• Macroeconomic policy stance
• International policy coordination
3
Global growth projected to pick up slightly
– downside risks remain
4 4
Synchronized world economies
Annual GDP growth (%)
-8
-6
-4
-2
0
2
4
6
8
10
2004 2006 2008 2010 2012 2014
Developed economies Economies in transition Developing economies
5
Contributions to WGP growth by major groups
44%35% 33% 31%
42%
3%
4% 4% 4%
4%
53%61% 63% 65%
54%
2010 2011 2012 2013 2014
Developed economies Economies in transition Developing economies
Developing economies drive global growth
6
Developed economies:
trapped in low-growth?
Annual GDP Growth (%)
-6
-4
-2
0
2
4
6
USA European Union Japan
2007 2008 2009 2010 2011 2012 2013 2014
7
Economies in transition: moderate growth
Annual GDP Growth (%)
-10
-5
0
5
10
CIS and Georgia South-Eastern Europe
2007 2008 2009 2010 2011 2012 2013 2014
8
Developing regions: Gradual pick-up in
growth expected
Annual GDP Growth (%)
-2
0
2
4
6
8
10
12
Africa East Asia South Asia Western
Asia
Latin
America
and the
Caribbean
2007 2008 2009 2010 2011 2012 2013 2014
9
Annual GDP growth (%)
0
2
4
6
8
10
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Least developed countries: Recovery
projected, growth below potential
10
Jobs crisis continues:
Record unemployment in Europe
Monthly unemployment rates (%), Jan 2007 - Feb 2013
0
2
4
6
8
10
12
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
Jul-11
Jan-1
2
Jul-12
Jan-1
3
Japan United States EU (27 economies)
11
Job losses after the financial crisis:
cyclical or structural?
-7
-6
-5
-4
-3
-2
-1
0
1
0 6 12 18 24 30 36 42 48 54 60 66
Number of months from the employment turning point
De
gre
e o
f e
mp
loy
me
nt
be
low
(-)
or
ab
ov
e (
+)
turn
ing
po
int
lev
el
20011990
2008
19811980 1974
Post-recession employment recovery in the United States
12
2
4
6
8
10
2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1
Philippines Brazil
Mexico
Developing countries: Unemployment
trends differ
0
10
20
30
40
50
60
2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1
South Africa - YouthSouth Africa - Total
Quarterly Unemployment Rates (%)
13
Annual consumer price inflation rate (%)
-2
-1
0
1
2
3
4
5
2006 2007 2008 2009 2010 2011 2012 2013 2014
United States European Union Japan
Developed economies: Inflationary
pressures remain low
14
Developing regions:
Inflation projected to slow
Annual consumer price inflation rate (%)
0
2
4
6
8
10
12
14
2006 2007 2008 2009 2010 2011 2012e 2013f 2014f
Africa (excl. Zimbabwe) East Asia
South Asia Western Asia
Latin America and the Caribbean
15
World exports, Jan 2006- Nov 2012
(Jan 2006 = 100)
80
90
100
110
120
130
140
150
160
Ja
n-0
6
Ju
l-0
6
Ja
n-0
7
Ju
l-0
7
Ja
n-0
8
Ju
l-0
8
Ja
n-0
9
Ju
l-0
9
Ja
n-1
0
Ju
l-1
0
Ja
n-1
1
Ju
l-1
1
Ja
n-1
2
Ju
l-1
2
Emerging economies World Developed economies
Uneven recovery in international trade
16
International commodity prices:
slight moderation Commodity price (2000=100)
100
150
200
250
300
350
400
450
500
2008 2009 2010 2011 2012 2013Food (All) Agricultural raw materialsMinerals, ores and metals Oil (Brent)
17
Stock market indices have recently moved up
40
60
80
100
120
140
160
Ja
n-0
7
Ja
n-0
8
Ja
n-0
9
Ja
n-1
0
Ja
n-1
1
Ja
n-1
2
Ja
n-1
3
S&P 500 Euro Stoxx 50 Nikkei 225 Hang Seng
18
Euro area crisis: spreads have come down
10-y government bond yield spread vis-à-vis Germany bund
0
3
6
9
12
15
Jan-
08
Jul-
08
Jan-
09
Jul-
09
Jan-
10
Jul-
10
Jan-
11
Jul-
11
Jan-
12
Jul-
12
Jan-
13
%
0
7
14
21
28
35
Ireland (LHS) Italy (LHS) Portugal (LHS)Spain (LHS) Greece (RHS)
19
Financial resources
from the poor to the rich
Net capital flows to emerging markets
20
Developing countries piling up
foreign exchange reserves
21
ODA far below the target
22
Significant changes in real effective
among major reserve currencies
Real effective exchange rates (Jan 2011 = 100)
80
85
90
95
100
105
110
Jan-2011 Jul-2011 Jan-2012 Jul-2012 Jan-2013
United States Euro area Japan
23
Developing countries: diverging trends in
real effective exchange rates Real effective exchnage rate (Jan 2011=100)
80
85
90
95
100
105
110
Jan-2011 Jul-2011 Jan-2012 Jul-2012 Jan-2013
Republic of Korea China Brazil South Africa
24
1. Further deepening of the euro area crisis • Vicious circle between sovereign risk and bank fragility
• Downward spiral between austerity and recession
• New policies promising, but uncertainties remain
2. From “fiscal cliff” to debt ceiling in the U.S. • No increase in income tax rates for 99% families, but payroll tax
holiday expired
• Automatic government spending cuts activated
• Debt ceiling pending
3. Hard landing in major developing countries • Continued deceleration in fixed investment
• Greater weakness in external demand
Downside Risks
25 25
Soft landing or hard landing ?
GDP growth rate (%)
-2
0
2
4
6
8
10
12
14
16
2000 2002 2004 2006 2008 2010 2012 2014
ChinaBrazilIndia
forecast
26
Cyclical risks • Housing bubble
• Local government debt and investment vehicles
• Shadow banking
Structural hurdles • Unbalanced economic structure
• Rising costs of environmental degradation and natural resources depletion.
• Inequality, monopoly
• Turning points in both demographic dividend and Lewis curve
Challenges for macroeconomic policy and reforms
Downside risks for Chinese economy
27 27
Impact of downside risks on
world economy will be substantial
28
Macro policy stance in developed economies • Continued fiscal tightening (Japan exception)
• Bold policy actions in Japan
• Open-ended strategy in monetary easing
• Targeting unemployment rate in the US
Macro policy stance in major developing countries • Mild expansionary fiscal combined with neutral monetary in China
• Neutral fiscal combined with expansionary monetary in L.A.
• Limited policy space in some developing countries
Policy suggestions from WESP 2013 • More concerted policy actions
• Focus more on jobs creation
International policy coordination • Global imbalances
Policy issues
29
Major developed countries collecting
seigniorage from developing countries
through quantitative easing
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2005 2006 2007 2008 2009 2010 2011 2012
Developing country foreign reserves
G4: Central bank assets aggregate
$billion
30
Are global imbalances still a problem?
-3
-2
-1
0
1
2
3
1997 1999 2001 2003 2005 2007 2009 2011 2013
USA Rest of the WorldOil exporters Germany and JapanEuropean Union less Germany East Asia less ChinaChina
31
Misconception in the popularly proposed rebalancing framework:
GDP = Consumption + Investment + Net Export
• This accounting identity does not define the causality
• The components are not independent variables
• Consumption cannot substitute for investment as the driver for long-term growth
• Tradeoff between current consumption and future consumption
• Increasing consumption to GDP ratio now will lead to lower GDP growth in the future
Pitfalls in China’s rebalancing
32
Consumption is not a driver for GDP growth
33
High investment rate is a necessary condition
for robust GDP growth
34
Thank you!
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