Transcript Source: IMF est 2004 - The Economics Network

WHERE IS THE
WORLD ECONOMY
HEADING?
Dr Derek Braddon
Reader in Economics
UWE, Bristol
Year 12 ECONOMICS CONFERENCE – 4TH JULY, 2005
THE GLOBAL ECONOMY
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Gross World Product (GWP) = $53 trillion 2004
EU
= 22% GWP
USA = 21% GWP
Japan = 7% GWP
China = 12% GWP
Russia = 3% GWP
[Source: IMF est 2004]
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The Population Explosion
1 billion people in the world in 1802
2 billion in 1927
3 billion in 1961
4 billion in 1974
5 billion in 1987
6 billion in 1999……………2050 = 9 billion
Source:[UN est 2004]
How did we
do in 2004?
MAIN ISSUES AND PROBLEMS
• Inflation: rich nations = 1 to 4%; poor nations
= 5 to 60%.
• Energy price problem, especially oil
• Start of new inflation problem?
• Major trade imbalances with USA
• Economic growth: major industrialised
nations enjoying faster growth
• The elimination of poverty and growing
concern about climate change
WORLD GDP GROWTH
2003 AND 2004
4.5
4
3.5
3
2.5
2003
2004
2
1.5
1
0.5
0
UK
GERMANY
JAPAN
USA
STRONGER!
Source: Economist poll of GDP forecasts
WHAT IS DRIVING THE ECONOMIC
RECOVERY?
• Very low interest rates
• Continued expansionary fiscal policy
• Recovery in company finances
• Buoyant consumer demand
• Some stock market recovery
GLOBAL SHORT TERM
INTEREST RATES
7
6
5
USA
EURO
JAPAN
4
3
2
1
0
2000
2001
2002
2003
Source: IMF
2004
BUDGET DEFICITS
COMPARED: 2004
0
-1
-2
-3
UK
JAPAN
USA
EURO
-4
-5
-6
-7
-8
% GDP
Source: Economist
US: Equity prices
Jan 1973=100
2200
2000
Technology Media
Telecoms (TMT)
Jan 1973=100
2200
2000
1800
1600
1800
US Market*
1400
US Market
excluding TMT
1600
1400
1200
1200
1000
1000
800
800
600
600
400
400
200
*Datastream market index
200
0
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source: Datastream
World: Current account imbalances
$ billion
300
200
$ billion
300
Japan
200
100
100
0
-100
0
Asia
-200
-300
-100
Eurozone
-200
-300
US
-400
-400
-500
-500
-600
-700
Forecast
-600
-700
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Source: OEF
Three important
developments
PRODUCER PRICES 2003/4
5
4
3
2
2003
yr to sept
1
0
-1
-2
-3
UK
GERMANY
JAPAN
Source: Economist
USA
JAPAN IS BACK!
• After more than a
decade of stagnation,
Japan looks as though
it has turned the
corner.
• At last Japan has
become more
“normal”!
HUGE CONSUMER DEBTS
IN UK
The story so
far ….
So where are we now?
In the world:
• Little danger of deflation
• Growth generally healthy
in rich nations
• Limited stock market
recovery
• Main threats from energy
prices and
politics/terrorism
In Britain:
• Still strongest growth in
Europe, BUT
• Highest interest rates in
Western Europe – about
to fall?
• ‘Soft landing’ to housing
asset price bubble
• Fiscal imbalance
• BUT……….
Three
Critical
Issues…..
Oil – is the
world running
out ?
OIL:
A supply and demand problem
• World oil demand is increasing, driven by
increasing population, the industrialization of
China and India and huge US appetite for oil.
• Supply is keeping up with demand at present
but world oil production peaks around 20102015 when demand will then exceed supply.
• Among other consequences, the oil price will
increase dramatically. Other fuel sources
become economically viable – but can they
replace oil at rate required?
OPEC estimates, 2004
Actual
The impact of a $10 pb rise in the world oil price
% difference from base
Year 1
Year 2
Long Run
GDP
UK
US
Eurozone
Japan
-0.2
-0.1
-0.3
-0.2
-0.5
-0.5
-0.4
-0.5
-0.4
-0.6
-0.3
-0.7
Inflation
UK
US
Eurozone
Japan
0.2
0.4
0.2
0.3
0.5
0.4
0.4
0.4
0.0
0.0
0.0
0.0
AFRICA
A CONTINENT IN
CRISIS
AFRICA – THE STRUGGLE FOR SURVIVAL
• “Africa’s poverty is a scar on the conscience of the world” (Tony
Blair, World Economic Forum, Davos, June 2005). Only continent
to have become poorer in last 25 years.
• 150m African children live below the poverty line and two-fifths of
African children are malnourished (Oxfam).
• During this lecture, 900 children will have died from starvation
and related illnesses, > two-thirds in Africa.
• WHO believes 34m people have AIDS, 25m of these are in subSaharan Africa. During this lecture, 400 children in Africa will
have been made orphans due to AIDS.
• This is a continent that is staggering backwards on almost every
front - education, sanitation, infant mortality, disease eradication while the rest of the world moves forward into the 21st century.
AFRICA – THE STRUGGLE FOR SURVIVAL
• Universal free primary education in Africa, promised
for 2015, at current rates will not occur until 2130.
• Half the population of sub-Saharan Africa live on less
than $1 per day.
• Economists and politicians search for
solutions:
• Aid and/or Trade?
• Should the rich write-off African debts? (£8 billion per
year).
• A Marshall Plan for Africa? (Nelson Mandela)
WAKING GIANTS:
The explosive growth of
china and india
“Let China sleep for, when she wakes, she
will shake the world” (Napoleon Bonaparte,
1800)
CHINA
• China’s GDP has quadrupled since 1978. Measured on a
purchasing power parity (PPP) basis, China in 2004 was
the second-largest economy in the world after the US.
• Has the third largest stock of foreign direct investment
in the world
• Has saving and investment = to 40% GDP
• Is the 3rd largest importer and 4th largest exporter in the
world – huge impact on commodity market (esp. oil)
• Its imports will drive up price of commodities and its
exports will cut prices of manufactured goods in world
markets
INDIA
• 10th most industrialised country in the world
• 4th largest economy in terms of purchasing power
• 3rd largest scientific and technical labour force in the
world with well-established IT base
• 2nd largest exporter of computer software and home to
software developments centres of some of world’s
largest companies. Over 200 of the Fortune Top 1000
global companies now use Indian software services and
professionals
• Extremely well-educated and competitive labour force
– another growing economic power for the future.
WHERE IS THE WORLD
ECONOMY HEADING?
• In the short-run, faster economic growth for rich
nations but with concerns about inflation returning and
increasing job losses to Asia.
• In longer run, greater economic instability as the world
tries to adjust to the emergence of new economic
powers, resolve the issue of endemic poverty in Africa
and contemplate a world without oil but with major
climate change.
• The G8 leaders meet on Wednesday in Edinburgh –
they are going to be busy!