Transcript But the cyclical component of developing and high

Global Economic Trends
Bert Hofman
World Bank Office Manila
Implications of the ASEAN Charter for East Asian Integration
March 12, 2008
A Good Decade Thus Far
Developing Countries GDP
Growth
Forecasts for 2008 GDP growth have been revised
downwards
Projection
percent
3.2
US
3.0
2.8
2.6
Japan
2.4
2.2
2.0
Euro area
1.8
1.6
1.4
1.2
7
7
7
7
7
7
7
7
8
7
7
7
7
n 0 eb 0 ar 0 Apr 0 ay 0 un 0 Jul0 ug 0 ep 0 ct 0 ov 0 ec 0 an 0
O
J
J
F
M
A
S
D
N
M
Ja
Date of projection for 2008
Sizable slowdown in industrial country GDP
growth is now expected
Region/country
2007
2008
WB
Consensus
Forecasts
Feb 2008
IMF
WEO
Update
Oxford
Econ
High income OECD
USA
Euro-zone
Japan
2.5
2.2
2.7
2.1
1.8
1.6
1.7
1.5
..
1.6
1.6
1.4
1.8
1.5
1.6
1.5
..
1.8
1.7
1.5
Developing
7.4
6.7
..
6.9
..
Private capital flows are also expected to ease
Net private capital flows to developing countries
$ billions
$998 billion in 2007
(7.3% of GDP)
1000
800
Projected Percent
2008-09
Percent of GDP
(right axis)
600
3.5% of GDP
average 1990-02
8
6
5.25%
4
400
200
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
0
20 6
07
20 e
08
20 P
09
P
0
Source: World Bank, DECPG
2
0
But so far the impact on East Asia has been
limited
East Asia - Quarterly GDP Growth
East Asia - Export Growth
(% Change Year Ago. 1999 Q1 - 2007 Q4)
(Local Currency 3Mo. Mov. Averages - % Change
E. Asia
Year
SEAgo)
Asia
12.0
China
NIEs
40
9.0
6.0
20
3.0
-6.0
-20
Source: World Bank
Sep-2007
Apr-2007
Nov-2006
Jun-2006
Jan-2006
Mar-2005
Oct-2004
Dec-2003
Jul-2003
Feb-2003
Sep-2002
Apr-2002
Nov-2001
Aug-2005
NIEs
China
Jun-2001
Jan-2001
Q3 2007
Q1 2007
Q3 2006
Q1 2006
Q3 2005
Q1 2005
Q3 2004
Q1 2004
Q3 2003
Q1 2003
0
May-2004
E. Asia
SE Asia
Q3 2002
Q1 2002
Q3 2001
Q1 2001
Q3 2000
Q1 2000
Q3 1999
-3.0
Q1 1999
0.0
Several factors suggest East Asia is well placed
to weather a US recession
• Current accounts are in surpluses.
• Debt outstanding due within a year is below 10 percent of GDP in all
SE Asian economies.
• Reserve levels are very high—at end January 2008 total reserves
for the nine largest economies in the region stood at US$ 2.74
trillion.
• Domestic conditions are much stronger: domestic demand is robust,
corporate balance sheets are healthy, and capacity utilization is
high, which could encourage investment.
• Fiscal positions are also relatively strong in most economies in the
region—enabling them to undertake counter-cyclical policies to
stimulate demand if needed.
Perceived riskiness of EM bonds, especially East
Asian bonds, rose by much less than high-yield
corporate bonds
spreads, basis points
600
High-yield spread
High-income countries
500
400
300
EMBI spread
200
East Asia spreads
100
2-J
-07
n
a
1-F
-07
b
e
7
07
07
07
07
-07
-07
-07
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-07
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t
r -0
r
y
p
n
g
v
c
u
a
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p
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-J
-O
No
-S
-A
1-J
9
3-M
2-A
1-J
9
2-M
31
0
8
2
2
3
2
Source: Bloomberg, JPMorgan-Chase.
...and in historical perspective
the present widening of spreads is modest
Bond spreads (basis points)
2,500
2,250
2,000
1,750
1,500
1,250
1,000
750
500
Emerging market bond spread (EMBIG)
250
0
1994M1
1995M9
Source: JPMorgan.
1997M5
1999M1
2000M9
2002M5
2004M1
2005M9
2007M5
Developing countries have become key drivers
of global import growth
Contribution to global nominal import growth in US$, y/y %-points
10
Developing countries
5
0
United States
-5
1991M1
1993M1
1995M1
Source: World Bank, DECPG.
1997M1
1999M1
2001M1
2003M1
2005M1
2007M1
Trend developing country growth has become
decoupled from trend high-income growth
Developing and high-income growth and trend growth
9
8
7
Developing countries
6
5
4
3
2
1
High-income countries
0
-11962
1967
1972
Source: World Bank, DECPG.
1977
1982
1987
1992
1997
2002
2007
But the cyclical component of developing and
high-income country growth remains coupled
Deviation from trend GDP growth (percent)
3
Developing
country cycle
2
1
0
-1
-2
High-income
country cycle
-3
-4
1962
1967
1972
Source: World Bank, DECPG.
1977
1982
1987
1992
1997
2002
2007
Short Term Outlook
• Anticipated slowdown should help reduce some current global
economic tensions: rising commodity prices, inflationary pressure,
global imbalances.
• Difficult challenges remain for some developing countries, with
vulnerability to the possibility of capital flow reversals or the impacts
of increased food and energy prices. In East Asia the latter is likely
to be of much greater concern.
– Overall food prices in US$ have increased by 75 percent in 2000 due to
high energy and fertilizer prices, increased use of food crops for biofuels and world grain carryover stocks at record low levels
– Food prices are expected to remain elevated although some decline in
real terms may be expected. Demand for bio-fuels will probably
increase, energy and fertilizer prices expected to remain high and
pasture lands will take years before it can be cropped.
Short Term Outlook cont’d
• Overall outlook remains relatively strong for the East Asia region
• But a severe recession in the US and other developed countries
would clearly impact the region.
• East Asia is the region that participates most actively in the global
and regional production networks associated with MNCs. Many EA
countries are involved in the assembly process at different stages,
leading to product parts and components crossing borders
repeatedly before they are incorporated into the final product. The
final products however, are still destined primarily for the US and
European Union.
Long Term Outlook
• More prudent macroeconomic management and technological
progress have contributed to an increase in total factor productivity
(TFP) and real income growth over the past 15 years.
• Over the next 10 years, these same factors are expected to enable
developing countries to achieve annual per capita income gains of
3.9 percent, and perhaps as much as 3.4 percent in the decade
following the next. These projections imply per capita income
growth that is more than twice as fast as that in high-income
countries.
• Growth of such magnitude would reduce the number of people living
on less than a dollar a day from 1.2 billion in 1990 and 970 million in
2004 to 624 million by 2015.
• Such aggregate outcomes are not guaranteed, of course, and
performance across individual countries is likely to be diverse.