Global Economic Prospects: Navigating strong currents Andrew Burns World Bank January 18, 2011 http://www.worldbank.org/globaloutlook
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
Annual growth to slow somewhat in 2011 Real GDP growth rates in percent 10 8 World High-income Middle-income Low-income 6 4 2 0-2 -4 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: World Bank, Global Economic Prospects, 2011
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, 2011. 4
Recovery achieved despite persistent weakness in high-income countries Trade volumes relative to trend (% deviation; trend based on 1990-2005) 25 20 15 10 5 0-5 -10-15 export volumes import volumes -20-25 -30 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.
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
Crisis in Europe and Central Asia was deeper and rebound less strong Real GDP growth rates in percent 10 8 6 4 2 0-2 -4-6 -8 World High-income Developing Europe & Central Asia 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: World Bank, Global Economic Prospects, 2011
Poland avoided contraction, but growth to remain below pre-crisis trend through 2012 Real GDP growth rates in percent 10 5 0 World High-income Developing Poland -5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: World Bank, Global Economic Prospects
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
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 1200 1000 800 600 400 200 0-200 Portfolio Equity Private Debt FDI Remittance Share of GDP (right axis) 1995 1997 1999 2001 2003 2005 2007 2009 2011p Source: World Bank, Global Economic Prospects, 2011. Percent of GDP 9 8 7 6 5 4 3 2 1 0
Decline and recovery in capital flows was very concentrated percent of GDP 16 14 12 10 8 Short-term Debt Bank Bond Portfolio Equity FDI 6 4 2 0-2 06-07 2008 2009 2010 06-07 2008 2009 2010 06-07 2008 2009 2010 06-07 2008 2009 2010 Top 9 Europe & Central Asia (excluding Turkey) Other Middle Low Income Source: World Bank, Global Economic Prospects, 2011.
Bank NPLs remain elevated in Europe and Central Asia up in Poland in 2009 Median %-share of non-performing loans (NPLs) to total 12 10 8 6 4 2 0 2005 2006 2007 2008 2009 2010 High Income with rising NPLs Europe and Central Asia Developing Asia Other Developing Other HICs Source: World Bank and International Monetary Fund, 2010
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
Capital flows put upward pressure 150 140 130 120 Brazil Mexico Thailand India Turkey China on many currencies Real-effective exchange rate, January 2009=100 Indonesia Russia South Africa Malaysia 110 100 90 2009M01 2009M06 2009M11 2010M04 2010M09 Source: World Bank, Global Economic Prospects, 2011.
Inflationary pressures are building 25 20 Brazil Turkey Indonesia South Africa Russia India Mexico China 15 10 5 0 2010M01 2010M03 2010M05 2010M07 2010M09 2010M11 Source: World Bank, Global Economic Prospects, 2011.
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
Market jitters over sovereign debt have not spread to developing countries, incl. Poland 5-yr sovereign credit-default swap rates, basis points, Feb. 2010-Jan. 2011 1500 1200 900 600 300 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
Slow growth due to Euro uncertainty scenario Real GDP growth rates in percent 10 8 Middle-income 6 4 Low-income 2 High-income 0-2 -4 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: World Bank, Global Economic Prospects, 2011
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
Dollar denominated commodity price began rising rapidly toward year end Index, 2000=100 500 Energy Agriculture Base Metals 400 300 200 100 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Source: DEC Prospects Group
Real local currency food prices have been relatively stable 280 230 Nominal US dollar Nominal euro 180 130 80 Real US dollar Real developing-country 30 2004M01 2005M01 2006M01 2007M01 2008M01 2009M01 2010M01 Source: World Bank, Global Economic Prospects, 2011.
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 70 71 50 22 Metals and minerals 132 133 105 76 Agriculture 90 90 67 26 Food 84 84 62 25 Source: World Bank, Global Economic Prospects, 2011.
Staple grain prices remain well below 2008 peaks Indexes, real international dollar prices deflated by US CPI, Jan. 2005=100 300 250 200 Wheat Food Maize 150 100 Rice 50 2005M01 2006M01 2007M01 2008M01 2009M01 2010M01 Source: World Bank.
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 16 14 12 10 8 6 4 2 0-2 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
Source: World Bank, Global Economic Prospects Fiscal deficits in South Asia and high-income countries a medium-term priority Percent share of GDP 2 0-2 -4-6 -8 2007 2009 2012p -10 South Asia High-Income countries Middle East and North Africa East Asia and Pacific Latin America and Caribbean Sub-Saharan Africa
Polish debt on unsustainable path % of GDP % of GDP 60.0 0.0 55.0 General government balance General government debt -1.0-2.0 50.0-3.0-4.0 45.0-5.0-6.0 40.0-7.0-8.0 35.0 1995 1997 1999 2001 2003 2005 2007 2009-9.0 Source: Eurostat, European Comission.
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.
Global Economic Prospects: Navigating strong currents Andrew Burns World Bank January 18, 2011 http://www.worldbank.org/globaloutlook