Global Economic Prospects: Navigating strong currents

Transcription

1 Global Economic Prospects: Navigating strong currents Andrew Burns World Bank January 18,

2 Main messages Most developing countries have passed with flying colors the stress test of the financial crisis. Remarkable confirmation of pre-crisis economic strength, done while high-income countries remained weak Regional and global challenges include: Sharply tighter financial conditions Further fallout from financial sector uncertainty Impact of excessive exchange rate pressure Potential poverty impacts of rising food prices Need to recreate fiscal space used in crisis response

3 Annual growth to slow somewhat in 2011 Real GDP growth rates in percent 10 8 World High-income Middle-income Low-income Source: World Bank, Global Economic Prospects, 2011

4 Outside Europe & Central Asia, most developing countries are close to having fully recovered from the crisis Output gaps, in 2010 bb Source: World Bank, Global Economic Prospects,

5 Recovery achieved despite persistent weakness in high-income countries Trade volumes relative to trend (% deviation; trend based on ) export volumes import volumes Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Source: World Bank, Global Economic Prospects, 2011.

6 Main messages Most developing countries have passed with flying colors the stress test of the financial crisis. Remarkable confirmation of pre-crisis economic strength, done while high-income countries remained weak Regional and global challenges include: Sharply tighter financial conditions Further fallout from financial sector uncertainty Impact of excessive exchange rate pressure Potential poverty impacts of rising food prices Need to recreate fiscal space used in crisis response

7 Crisis in Europe and Central Asia was deeper and rebound less strong Real GDP growth rates in percent World High-income Developing Europe & Central Asia Source: World Bank, Global Economic Prospects, 2011

8 Poland avoided contraction, but growth to remain below pre-crisis trend through 2012 Real GDP growth rates in percent World High-income Developing Poland Source: World Bank, Global Economic Prospects

9 Main messages Most developing countries have passed with flying colors the stress test of the financial crisis. Remarkable confirmation of pre-crisis economic strength, done while high-income countries remained weak Regional and global challenges include: Sharply tighter financial conditions Further fallout from financial sector uncertainty Impact of excessive exchange rate pressure Potential poverty impacts of rising food prices

10 Weak bank-lending implies private capital flows will not recover to pre-crisis levels for some time Net private capital flows to developing countries, $ billion in billions Portfolio Equity Private Debt FDI Remittance Share of GDP (right axis) p Source: World Bank, Global Economic Prospects, Percent of GDP

11 Decline and recovery in capital flows was very concentrated percent of GDP Short-term Debt Bank Bond Portfolio Equity FDI Top 9 Europe & Central Asia (excluding Turkey) Other Middle Low Income Source: World Bank, Global Economic Prospects, 2011.

12 Bank NPLs remain elevated in Europe and Central Asia up in Poland in 2009 Median %-share of non-performing loans (NPLs) to total High Income with rising NPLs Europe and Central Asia Developing Asia Other Developing Other HICs Source: World Bank and International Monetary Fund, 2010

13 Main messages Most developing countries have passed with flying colors the stress test of the financial crisis. Remarkable confirmation of pre-crisis economic strength, done while high-income countries remained weak Regional and global challenges include: Sharply tighter financial conditions Further fallout from financial sector uncertainty Impact of excessive exchange rate pressure Potential poverty impacts of rising food prices Need to recreate fiscal space used in crisis response

14 Capital flows put upward pressure Brazil Mexico Thailand India Turkey China on many currencies Real-effective exchange rate, January 2009=100 Indonesia Russia South Africa Malaysia M M M M M09 Source: World Bank, Global Economic Prospects, 2011.

15 Inflationary pressures are building Brazil Turkey Indonesia South Africa Russia India Mexico China M M M M M M11 Source: World Bank, Global Economic Prospects, 2011.

16 Main messages Most developing countries have passed with flying colors the stress test of the financial crisis. Remarkable confirmation of pre-crisis economic strength, done while high-income countries remained weak Regional and global challenges include: Sharply tighter financial conditions Further fallout from financial sector uncertainty Impact of excessive exchange rate pressure Potential poverty impacts of rising food prices Need to recreate fiscal space used in crisis response

17 Market jitters over sovereign debt have not spread to developing countries, incl. Poland 5-yr sovereign credit-default swap rates, basis points, Feb Jan Greece Poland Ireland LMICs with Median < 200 Portugal LMICs with Median > 200 Spain 0 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Sources: Datastream and World Bank DEC Prospects Group

18 Slow growth due to Euro uncertainty scenario Real GDP growth rates in percent 10 8 Middle-income 6 4 Low-income 2 High-income Source: World Bank, Global Economic Prospects, 2011

19 Main messages Most developing countries have passed with flying colors the stress test of the financial crisis. Remarkable confirmation of pre-crisis economic strength, done while high-income countries remained weak Regional and global challenges include: Sharply tighter financial conditions Further fallout from financial sector uncertainty Impact of excessive exchange rate pressure Potential poverty impacts of rising food prices Need to recreate fiscal space used in crisis response

20 Dollar denominated commodity price began rising rapidly toward year end Index, 2000= Energy Agriculture Base Metals Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Source: DEC Prospects Group

21 Real local currency food prices have been relatively stable Nominal US dollar Nominal euro Real US dollar Real developing-country M M M M M M M01 Source: World Bank, Global Economic Prospects, 2011.

22 Energy, food and agricultural price rise much less strong in real terms September 2010 price relative to January 2005 Real Nominal Nominal Real USD developing USD euros country Energy Metals and minerals Agriculture Food Source: World Bank, Global Economic Prospects, 2011.

23 Staple grain prices remain well below 2008 peaks Indexes, real international dollar prices deflated by US CPI, Jan. 2005= Wheat Food Maize Rice M M M M M M01 Source: World Bank.

24 Source: Thomson Datastream and World Bank Temporary upswing in inflation in Europe and Central Asia tied to drought median CPI, seasonally adjusted, annual percent change Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 East Asia & Pacific High Income Countries Middle East & N. Africa Sub-Saharan Africa Europe & Central Asia Latin America & Caribbean South Asia

25 Source: World Bank, Global Economic Prospects Fiscal deficits in South Asia and high-income countries a medium-term priority Percent share of GDP p -10 South Asia High-Income countries Middle East and North Africa East Asia and Pacific Latin America and Caribbean Sub-Saharan Africa

26 Polish debt on unsustainable path % of GDP % of GDP General government balance General government debt Source: Eurostat, European Comission.

27 Concluding remarks Most developing countries have passed with flying colors the stress test of the financial crisis. Remarkable confirmation of pre-crisis economic strength, done while high-income countries remained weak Increasingly focus needs to turn to structural rather than demand management policies.

28 Global Economic Prospects: Navigating strong currents Andrew Burns World Bank January 18,