Global Economic Prospects

Transcription

1 Global Economic Prospects Assuring growth over the medium term Andrew Burns DEC Prospects Group January 213 1

2 Despite better financial conditions, stronger growth remains elusive More than 4 years after financial crisis hit, high-income countries continue to suffer from volatility and slow growth Developingcountry prospects solid, but need to focus on productivity enhancing domestic policies if they are to regain pre-crisis growth rates Risks have declined but remain and countries are vulnerable to commodity price shocks, high-income volatility, and a freezing of capital flows A steady hand is required to avoid pro-cyclical policy and in order to rebuild macroeconomic buffers so that authorities can react in case of new external (or domestic) shocks 2

3 Recent Developments 3

4 Financial market jitters have eased significantly Credit default swap rates, basis points Portugal Ireland Spain Italy Euro Area (GDP weighted) Jan '1 Jul '1 Jan '11 Jul '11 Jan '12 Jul '12 Jan '13 Source: World Bank, Datastream. 4

5 After declining in May/June, capital flows to developing countries have rebounded Gross international capital flows to developing countries, billions USD New equity issuance Bond issuance Syndicated Bank-lending Mar-9 Sep-9 Mar-1 Sep-1 Mar-11 Sep-11 Mar-12 Sep-12 Source: World Bank, Dealogic. 5

6 A secular recovery in equity and bank lending, more volatile bond flows Gross international bond issues Gross syndicated bank lending 28 Gross new equity issues Source: World Bank, Dealogic.

7 Because of bonds, middle-income regions had most volatile flows Quarterly gross international capital flows in 212, billions of USD 25 2 Syndicated Bank lending New equity issuance Bond issuance Q1 Q2Q3 Q4 1 5 East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle-East & North Africa South Asia Sub-Saharan Africa Source: World Bank, Dealogic. 7

8 Developing countries may be escaping from high-income weakness Industrial production, percent growth, 3m/3m saar China Other developing Other High income -1 Jan '11 Jul '11 Jan '12 Jul '12 Source: World Bank, Datasteam. Euro Area 8

9 Outside Europe, middle-income industrial activity is strengthening Industrial production growth 3m/3m, saar 5 India Turkey -15 Jan '11 Jul '11 Jan '12 Jul '12 China Brazil Russia Note: Turkish data is 4m/4m saar Source: World Bank, Datastream. 9

10 Purchasing manager s indexes better but still weak Manufacturing purchasing managers index (PMI), points Other developing China Other high-income Jan '1 Jul '1 Jan '11 Jul '11 Jan '12 Jul '12 Source: World Bank, Markit/Haver Analytics. Euro Area 1

11 Outlook 11

12 8 Annual GDP growth, % Projections have been downgraded in both 212 and Developing countries 5 June 212 forecasts 4 High-income countries Source: World Bank, Global Economic Prospects 213A. 12

13 Modest regional growth through 215 Annual GDP growth, % High-income East-Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle-East & North Africa South Asia Sub-Saharan Africa -4 Source: World Bank, Global Economic Prospects 213A. 13

14 Capital flows expected to strengthen but remain stable as % of GDP $ trillion % of GDP e 212f 213f 214f ST Debt Bank Lending Bond Flows Portfolio Equity FDI Inflows Total (% GDP, RHS) Source: World Bank, Global Economic Prospects 213A. 14

15 Barring further supply disruptions, high food and metals prices should ease USD price, nominal index 25= Food Energy 15 Metals & Minerals Source: World Bank, Global Economic Prospects 213A.

16 Outlook remains precarious So far developing countries have weathered great recession relatively well Continued strong growth is not guaranteed and requires renewed focus on structural policies Risks have declined and are more balanced, but remain: Persistent fiscal uncertainty in the U.S. Euro Area risks A sharp drop of investment in China Oil or food supply shock 16

17 Future growth is not guaranteed Since the crisis, developing country growthhas been 1% slower than during the 2/7 period Regaining or surpassing those growth rates requires sustained progress in raising supply potential by: Maintaining macroeconomic sustainability Improving governance Investing in Infrastructure Health Education 17

18 Small improvements in potential growth result in substantial long run gains Developing country, per capita income, % of 21 high-income level.8 Rapid growth (+ 1. ppper annum).7.6 High growth scenario results in developingcountry incomes of 75% high-income 21 levels in 25 vs52% in baseline Faster growth (+.5 pppa).5.4 Baseline projection Weaker growth (-.5 pp pa) Slow growth (-1. pppa) Source: World Bank, Global Economic Prospects 213A.

19 Prospects are vulnerable to a range of external risks Change in level of real GDP from baseline, percent Prolonged fiscal paralysis Contained Euro crisis Abrupt decline in Chinese investment East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle-East & North Africa South Asia Sub-Saharan Africa Source: World Bank, Global Economic Prospects 213A. 19

20 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 Maize Rice Wheat Source: World Bank, USDA 2

21 Developing countries should focus on supply side and buffers Overall aggregates hide vulnerabilities at the country level Current account deficits in oil-importing countries have deteriorated 3.2 percentage points since 27 Fiscal deficits of all developing countries have deteriorated by 2.9 pp. Buffers may reduce vulnerability to external shocks by as much as 33 percent 21

22 Many countries would be vulnerable to a drop-offin exports or external finance Months of imports covered by reserves Short-term debt as a % of reserves Lithuania Pakistan El Salvador Gambia Congo Maldives Seychelles Venezuela, B. R. Panama Ghana Dominican Republic Viet Nam Egypt Mauritania Ecuador Benin Belarus 2 4 India Egypt Uruguay Vietnam Costa Rica Ecuador Guyana Dominican Republic Chile El Salvador Turkey Sudan Belize 1 2 Source: World Bank, Global Economic Prospects 213A.

23 Many developing countries need to continue growing fiscal space # of developing economies * 25% had a deficit greater than 3% of GDP * 49% were in balance or running a surplus * 52% have a deficit in excess of 3% of GDP * 23% are in balance or running a surplus General government balance, % of GDP More Source: World Bank, Global Economic Prospects 213A. 23

24 Developing country fiscal deficits are now mostly structural not cyclical Total, cyclical and structural Fiscal balance, % of GDP 3 2 Cyclical balance Structural balance Overall balance Source: World Bank, Global Economic Prospects 213A.

25 Economies with fiscal space can reduce the impacts of external shocks Impact on developing country GDP of a 5% decline in high-income activity, with and without adequate fiscal space for automatic stabilizers to operate Impact, % of GDP East Asia & Pacific Europe & Central Asia Latin America & Caribbean with adequate fiscal space without adequate fiscal space Middle East & North Africa South Asia Sub-Saharan Africa Source: World Bank, Global Economic Prospects 213A. 25

26 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 developing country growth is being sapped by high-income weakness In a slow and volatile external environment, sustained strong growth in developing countries will depend on productivity enhancements, investments in infrastructure, human capital and governance Developing countries need to focus on domestic policy needs, including a rebuilding of buffers in many cases 26

27 Global Economic Prospects Assuring growth over the medium term Andrew Burns DEC Prospects Group January

28 Commodity prices have stabilized Jan '1 Jul '1 Jan '11 Jul '11 Jan '12 Jul '12 28 Maize Copper Crude oil Wheat Rice (Monthly)

29 Commodity prices have stabilized Maize Crude oil Wheat Rice (Monthly) Jan '1 Jul '1 Jan '11 Jul '11 Jan '12 Jul '12 29

30 Imports are recovering Jan '11 Apr '11 Jul '11 Oct '11 Jan '12 Apr '12 Jul '12 Oct '12

31 Exports are recovering Jan '11 Apr '11 Jul '11 Oct '11 Jan '12 Apr '12 Jul '12 Oct '12 HIODXGSRMRCHSAKD_SAAR3M EMUDXGSRMRCHSAKD_SAAR3M DEVDXGSRMRCHSAKD_SAAR3M

32 High-spread sovereign yields United States Italy Spain Germany Portugal 32 Jan '9 Jul '9 Jan '1 Jul '1 Jan '11 Jul '11 Jan '12 Jul '12