Transcript The Global Economic Outlook - An Uneven Recovery

The Global Economic Outlook:
An Uneven Recovery?
Carlos A. Primo Braga
Special Representative and Director for Europe, External Affairs VicePresidency, The World Bank
Presentation at the Università di Pavia/Istituto Universitario di Studi
Superiori/Collegio Santa Caterina da Siena
November 25, 2011
The views expressed here are those of the author and do not necessarily
reflect the views of the World Bank, or those of its Executive Directors or
the governments they represent.
“Theory is when you understand everything, but nothing works.
Practice is when everything works, but nobody understands why.
At this station, theory and practice are united, so nothing works and nobody
understands why.” (Source: Fisher, 2011)
What is the global economic outlook?
A mix of good and bad news…
•
•
•
Commodity prices increase has moderated and inflationary pressures are down
Japanese recovery is proceeding well
Emerging markets growth remains strong (and developing countries are expected
to grow between 5.6 and 4.7% in 2012)
BUT
• Eurozone strains have increased
• Political uncertainty about US budget discussions
• Weaker underlying growth momentum in High Income Countries (2012 forecasts
between 1.8 and 1.1% versus 2.2% forecast of mid-year)
• Major global stock market correction (more than $5 trillion since July)
• Even though developing countries fundamentals remain strong, contagion is
generating significant headwinds and major capital outflows
• Moreover, developing countries have now a more restricted fiscal space compared
to 2008
In short: downside risks have increased
Commodity prices have stabilized or are falling
Sources: Datastream and World Bank DEC Prospects Group
Impact of Japan disaster is fading
Car production
12-month percent change, number of units produced
Note: 2011
Source: OECD/Toyota Motor Corporation and Honda Motor Co. Ltd monthly reports.
2011 GDP compares well with 2007,
in most cases
•
For example, GDP is below its 2007 level in only 8 out of 30 ECA countries
Deviations of 2011 real GDP from the 2007 level
40
30
20
10
0
-10
CHN
TKM
UZB
IND
AZE
TJK
BLR
KSV
ALB
KAZ
BRA
KGZ
POL
KOR
MDA
TUR
GEO
MKD
SRB
MNE
RUS
BIH
MEX
CAN
BGR
SVK
DEU
CZE
ROM
USA
FRA
SVN
HUN
GBR
ARM
JPN
HRV
ITA
UKR
LTU
EST
LVA
-20
BUT…
The Outlook According to the IMF
WEO Real GDP Growth Projections
(percent change from a year earlier)
World
U.S.
Euro area
Japan
Brazil
Russia
India
China
2011
(Sept 2011)
4
1.5
1.6
-0.5
3.8
4.3
7.8
9.5
2011
(Jun 2011)
4.3
2.5
2.0
-0.7
4.1
4.8
8.2
9.6
2011
(Apr 2011)
4.4
2.8
1.6
1.4
4.5
4.8
8.2
9.6
2012
(Sept 2011)
4
1.8
1.1
2.3
3.6
4.1
7.5
9
2012
(Jun 2011)
4.5
2.7
1.7
2.9
3.6
4.5
7.8
9.5
2012
(Apr 2011)
4.5
2.9
1.8
2.1
4.1
4.5
7.8
9.5
Source: IMF, World Economic Outlook.
Forecasts have been downgraded further since
September
Projected growth
10
8
6
4
2
0
June 2011
baseline
-2
Current
Upper-bound
baseline
Developing
High-income
World
-4
-6
2005
2006
2007
2008
Source: World Bank DEC Prospects Group
2009
2010
2011
2012
2013
Eurozone financing: 10y government bonds
yields (sources: Bloomberg and RGE)
Contagion has increased sovereign credit default
swap rates worldwide
Change in 5-year sovereign credit-default swap, basis points (as of Oct.31st)*
1,655
500
400
Developing countries
High-income
countries
300
200
100
0
Argentina
Ukraine
Croatia
Romania
Bulgaria
Kazakhstan
Lithuania
Turkey
Russia
Thailand
South Africa
Malaysia
China
Venezuela
Indonesia
Philippines
Colombia
Brazil
Mexico
Chile
Peru
Greece
Italy
Portugal
France
Spain
Germany
Japan
USA
Ireland
-100
* Change since the beginning of July.
Sources: Bloomberg and World Bank DEC Prospects Group
European banking-sector counterparty-risk
concerns persist despite pledge to recapitalize
Interbank overnight spreads, basis points
400
350
United States (LIBOR-OIS spread)
300
250
200
150
Europe (EURIBOR-EONIA spread)
Indications of rising concerns about
counter-party risk in European
banking system
(Latest reading, 88.1)
100
50
0
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Sources: Datastream and World Bank DEC Prospects Group
Jul-10
Jan-11
Jul-11
13
Market perceptions and political turmoil are
impacting the real-side of the world economy
• Change in mood about recent growth performance
– Data revisions (for high-income countries)
– Weaker than anticipated second quarter results
• Financial market turmoil reflects both disappointing (backwardlooking) economic news and growing (forward-looking) fears
(sovereign debt concerns, perceived lack of political consensus on
how to address economic problems…)
• Increased uncertainty and shaken confidence may dampen
investment and increase precautionary savings
Impact on developing countries can be significant if
further deterioration of economic conditions in highincome countries materializes
• Direct financial channel potentially important for Latin
America & Caribbean and Europe & Central Asia regions (due
to integrated bank ownership)
• Implications for world trade non-trivial
• Should wealth effects and confidence be affected more
markedly than growth could be weaker by two percent or
more
• If financial-sector solvency is affected or a market-induced
credit event occurs more serious consequences could be
envisaged
Fiscal space: 42% of developing countries have a
government deficit greater than 4% of GDP in 2010,
versus only 18% in 2007
Source: World Bank DEC Prospects Group
The “elephant” in the room
The implications of the European sovereign
debt crisis
• Signs of contagion with CDS spreads rising even in some core Euro Area
countries
• Banking-sector exposure to European sovereign debt is an issue of
concern
• Markets remain uncertain about commitment to adjustment; lack of
consensus on the role of the ECB; moreover, the current debt overhang
plus fiscal/financial imbalances, and limitations on the use of exchangerate policy constrain growth prospects
• Uncertainty can transform temporary liquidity problems into solvency
crises…
• Sovereign debt crises: history suggests that growth (unlikely in the near
future…), fiscal adjustment (growing political resistance…), inflation (the
experience of the 1920s vs the reality of the 2010s), debt restructuring
(financial engineering and real debt relief…) and financial repression are
some of the usual channels to cope with unsustainable debt/GDP ratios
The trade channel: MENA, ECA and SSA have the closest
ties to high-spread European economies
Percent of merchandise exports destined to Europe
45
40
9.5
35
30
7.3
25
6.2
20
15
16.3
4.2
4.8
10
5
0
Latin America &
Caribbean
East Asia &
Pacific
South Asia
Sub-Saharan
Africa
Europe & Central Middle East &
Asia
North Africa
Arab spring events have affected investment,
economic activity and labor markets
Industrial production (% change, 3m/3m, seasonally adjusted annualized rates)
Source: World Bank based on data from Datastream
Tourist arrivals (% change over same
period last year)
Source: UNWTO.
Unemployment rates (%)
Source: Government statistics.
Growth and unemployment
Growth accelerated in response to reforms but not enough
to address the key challenges facing the region (average,
annual growth rates in %)
The MENA region has the highest youth unemployment rate in
the world (%)
40
9
8
35
7
30
6
5
25
4
20
3
2
1
1990-99
15
2000-08
10
0
5
-1
0
-2
North
Africa
MENA has the lowest participation rate, and also among
women (% of working age population)
SSA
ECA
LAC
SA
female
MENA
0
20
40
60
80
SA
LAC
World
Sub
South
Saharan Asia
Africa
The young population has been soaring in MENA
EAP
total
Middle
East
100
East
Asia
MENA’s job problem cannot be attributed solely to
a slow pace of job creation relative to growth
• Oil importers record a slow response of job creation to income growth
• Oil exporters create jobs at a fast pace relative to growth so their main
problem is low income growth
• In all MENA countries, job quality is an issue
Employment-growth elasticities, 2004-08
Source: ILO.
ECA: job losses remain a big concern
• ECA: Unemployment increased significantly during the crisis; 1 in 8 are
unemployed
• Youth unemployment is a concern; 3 in 10 young adults are unemployed
Youth unemployment rates in select ECA
countries (percent, Q1 2011)
Unemployment rates (percent, latest available)
50
60
40
50
30
40
30
20
ECA average
ECA average
20
10
10
Source: Employment Monitor-- http://go.worldbank.org/B8MMAI31I0
0
KAZ
RUS
CZE
SVN
MDA
TUR
EST
ROM
POL
HUN
BGR
LVA
SVK
LTU
HRV
SRB
MKD
BLR*
TJK*
KAZ¹
RUS¹
CZE‡
ROM**
MDA‡
UKR**
SVN‡
POL‡
TUR‡
HUN‡
BGR**
HRV**
EST‡
SVK‡
ALB**
LTU‡
LVA**
ARM*
MNE*
SRB*
MKD**
BIH*
0
Sub Saharan Africa GDP growth
GDP Growth - SSA
Oil countries
the crisis
Average GDP
growth rates
1998-2008
Liberia
Mozambique
Sierra Leone
Rwanda
Sao Tome and Princ.
Ethiopia
Tanzania
Cape Verde
Mali
Burkina Faso
40%
Botswana
Ghana
The Gambia
Mauritius
Namibia
Senegal
Niger
Benin
Zambia
Madagascar
Percentage of total African population
SSA: A more inclusive and
sustained growth
Equatorial Guinea
Angola
Chad
Sudan
30%
Nigeria
Cameroon
Congo, Rep.
•Thanks to cfrom
Gabon
Kenya
Malawi
South Africa
Guinea
Lesotho
Swaziland
Seychelles
Burundi
Congo, Dem. Rep.
Comoros
CAR
Togo
Côte d’Ivoire
Eritrea
Guinea-Bissau
Zimbabwe
Growth 4% or higher
Growth less than 4%
30%
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
Growth performance in SSA
GDP growth in Sub-Saharan Africa by country groups
Source: World Development Indicators, World Bank.
Africa’s infrastructure deficit
Infrastructure deficit
(billion dollars/year)
Total gap
$93
Current expenditures
$45
Potential efficiency gains
$17
________________________
Funding gap
$31
Concluding remarks
• Global recovery more vulnerable. Recent turbulence in financial markets
and uncertainty about future prospects is impacting growth in both highincome and developing countries
• Risks of contagion are increasing and may have serious consequences for
the global economy
• Mechanisms to address the Eurozone crisis need to be rapidly deployed
• Developing countries are in a more vulnerable position than in 2007/8
• Structural reforms to foster job creation remain critical (although as the
Arab Spring illustrates expansion of employment opportunities may not be
enough if these opportunities fall short of the expectations of job seekers
– particularly in the case of educated youth)
References
• Fischer, R.W., 2011, “Explaining Dissent on the FOMC Vote for
Operation Twist (with reference to Jan Mayen Island, Paul Volcker
and Thor’s Hammer),” Dallas, Texas: Federal Reserve Bank of Dallas.
• IMF, World Economic Outlook, several years
• Primo Braga, C.A., and G.A. Vincelette, eds, 2010, Sovereign Debt
and the Financial Crisis: Will This Time Be Different?, Washington,
D.C.: The World Bank.
• World Bank, 2011, Africa’s Future and the World Bank’s Support to
It, Washington, D.C.: Africa Region, The World Bank.
• World Bank, 2011, “Developing Trends: September 2011,”
Washington, D.C.: Development Prospects Group, The World Bank.
• World Bank, 2011, Investing for Growth and Jobs, Washington, D.C.:
MENA Region, The World Bank.