Global Economic Prospects

Transcription

1 Global Economic Prospects Slow and halting progress Andrew Burns DEC Prospects Group October, 22,

2 Despite better financial conditions, stronger growth remains elusive May/June financial turmoil had significant impact on global growth So far, improved financial indicators have not translated into better growth Risk of a crisis persists, with potentially serious consequences for developing countries Higher grain prices will add to burden on developing countries Prospects for developing country depend more on strengthening the supply side than demand stimulus 2

3 Financial market jitters have eased Credit default swap rates, basis points 2000 significantly Portugal Ireland 500 Spain Italy Euro Area (GDP weighted excl. Greece) Source: World Bank Prospects Group. 3

4 Financial market jitters have eased Credit default swap rates, basis points significantly 500 Middle East & N. Africa 400 Europe & Central Asia Euro Area (GDP weighted excl. Greece) Latin America & Caribbean 100 East Asia & Pacific Source: World Bank Prospects Group. 4

5 Market sentiment has improved from May/June turbulence % change from early-june (as of October 17, 2012) % change from Jan (as of October 17, 2012) * Changes in CDS rates are percentage points and inverted (positive sign indicates improved risk aversion). 5

6 After declining in May/June, capital flows to developing countries have rebounded Gross capital flows to developing countries, billions USD July September average 42% higher than in 2011 Source: Dealogic and World Bank staff calculations. 6

7 20 There is some (modest) indication of a pick up in economic activity: Industrial production Industrial production, percent growth, 3m/3m saar 15 China 10 Other developing 5 Other High-income 0 Euro area Source: World Bank Prospects Group. 7

8 Middle income industrial activity is Industrial production growth 3m/3m, saar weak but strengthening Source: DEC Prospects Group, USDA 8

9 40 There is some (modest) indication of a pick up in economic activity: Imports Merchandise import volumes, percent growth, 3m/3m saar Developing Countries 20 Other high-income 0-20 Euro Area -40 Jan '10 Jul '10 Jan '11 Jul '11 Jan '12 Jul '12 Source: World Bank Prospects Group. 9

10 But, purchasing manager s indexes point to continued weak activity (recession in Europe) Manufacturing purchasing managers index ( PMI), points Other Developing Other High-income 50 China 45 Euro Area 40 Jan '11 Apr '11 Jul '11 Oct '11 Jan '12 Apr '12 Jul '12 Source: World Bank, Markit/Haver Analytics. 10

11 Euro Area deleveraging is easing but remains a constraint on growth Annualized increase in lending, Euro Area 3m/3m saar, percent Last data point August, 2012 Source: European Central Bank, Datastream. 11

12 Easing of Euro Area deleveraging may ease funding constraints on developing countries Syndicated bank lending to developing countries, billions USD Source: Dealogic and World Bank staff calculations. 12

13 Easing of Euro Area deleveraging may ease funding constraints on developing countries Syndicated bank lending to developing countries, billions USD October 2011, new banking rules in Europe introduced. Transition phase (and associated deleveraging ) to end July Source: Dealogic and World Bank staff calculations. 13

14 Easing of Euro Area deleveraging may ease funding constraints on developing countries Syndicated bank lending to developing countries, billions USD Bank lending off 33% post October 2011 October 2011, new banking rules in Europe introduced. Transition phase (and associated deleveraging ) to end July Source: Dealogic and World Bank staff calculations. 14

15 Easing of Euro Area deleveraging may ease funding constraints on developing countries Syndicated bank lending to developing countries, billions USD Average bank lending in post October 2011 period off more than 33% October 2011, new banking rules in Europe introduced. Transition phase (and associated deleveraging ) to end July Source: Dealogic and World Bank staff calculations. 15

16 Projections have been downgraded in both 2012 and 2013 Annual GDP growth, % Source: World Bank, Development Prospects Group. 16

17 Modest regional growth through 2014 Annual GDP growth, % Source: World Bank, Development Prospects Group. 17

18 Capital flows expected to strengthen but remain stable as % of GDP Source: DEC Prospects Group, World Bank 18

19 Outlook remains precarious So far developing countries have weathered great recession relatively well U.S. fiscal cliff will likely be avoided but has potential to disrupt activity Euro Area risks have diminished but remain, with potentially serious impacts for developing countries For the poor, tight conditions in food markets pose serious risks 19

20 Compared with high income countries crisis has not hit developing countries very hard Real per capita GDP, index 1980=100 Developing countries Other high income Euro Area Source: DEC Prospects Group, World Bank 20

21 For developing countries priority is maintaining strong growth over medium term Real per capita GDP, index 1980=100 Outlook through 2025 assuming sustained per capita growth of 4.7 % Other high income Developing countries Euro Area Source: DEC Prospects Group, World Bank 21

22 For developing countries priority is maintaining strong growth over medium term Real per capita GDP, index 1980=100 Outlook through 2025 assuming sustained per capita growth of: 4.7 % (avg 00 12) 3.2 % 2 % Other high income Developing countries Assumes per capita growth 1.5 percentage points slower Euro Area Source: DEC Prospects Group, World Bank 22

23 Majority of developing countries have or are close to regaining full capacity Output gap in 2012, percent of potential GDP Source: World Bank, Development Prospects Group. 23

24 Many developing countries need to continue growing fiscal space # of developing economies General government deficit, % of GDP Source: World Bank, Development Prospects Group. 24

25 Fiscal cliff scenario would hit developing countries fairly hard Change in level 2013, % of GDP Source: World Bank, DEC Prospects Group. 25

26 Developing countries remain vulnerable to a large Euro Area crisis Change in level of real GDP from baseline, percent Source: World Bank, DEC Prospects Group. 26

27 Index, Jan. 2005= Resurgence of food prices threatens poverty Maize 380 Crude oil 280 Rice (Monthly) 180 Wheat Source: DEC Prospects Group, World Bank 27

28 Local grain prices are up significantly among countries reporting data Maize Wheat Percent change real price, y o y Percent change real price, y o y Rice Percent change real price, y o y Maize Rice Wheat Average increase Median increase Countries up (%) Countries down (%) Source: FAO, GVEIWS; World Bank, DEC Prospects Group. 28

29 Near record low stocks of maize, but wheat and rice markets are relatively well supplied End of crop year stocks as a % of total consumption Source: Dec Prospects Group, USDA 29

30 Commodities price forecast, USD p r i c e, nom i n a l i n d e x 2005=100 Food Crude oil Metals Source: World Bank, DEC Prospects Group

31 Concluding remarks May June Euro Area pessimism has had larger than expected real side effects, global economy is much weaker Financial conditions have improved but may well deteriorate again due to Euro Area problems or the U.S. fiscal cliff A significant downturn in the high income world remains a possibility, but developing countries need to focus on domestic policy needs, including a rebuilding of buffers in many cases For developing economies, sustained strong growth will depend on productivity enhancements, investments in infrastructure, human capital and governance 31

32 Global Economic Prospects Slow and halting progress Andrew Burns World Bank Prospects Group Oct. 22,