Hamid Rashid, Ph.D. Chief Global Economic Monitoring Unit Development Policy Analysis Division UNDESA, New York 1
Global macroeconomic trends Major headwinds Risks and uncertainties Policy questions and challenges 2
8 Percent 6 Source: UN/DESA 4 2 0-2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017-4 -6 World GDP World household consumption World fixed capital formation Source: UN/DESA, based on data from OECD and national accounts data on selected economies. Weak aggregate demand and equally weak investment growth drags global growth Increasing growth volatility in both developed and majority of large developing economies 3
We expect global growth to bottom out at 2.3 per cent in 2015 Growth to increase to 3.0 per cent and 3.2 per cent in 2016 and 2017 respectively The projected recovery is predicated on: Commodity prices do not slide further Deflationary pressures ease in developed economies No further escalation of geo-political risks Gradual adjustment in policy rates and asset prices and reduced volatility in financial markets. 4
Q3 2012-Q2 2015 Q3 2009-Q2 2012 Q3 2006-Q2 2009 Q3 2003-Q2 2006 France 1.56 0.86 10.82 1.42 Germany 1.76 1.18 14.20 0.57 Italy 2.56 38.53 2.74 0.84 Japan 6.41 2.50 4.98 1.22 Spain 2.57 1.49 7.20 0.20 United Kingdom 0.45 0.82 5.83 0.45 United States 0.87 0.73 7.82 0.45 Brazil 1.32 1.24 2.57 0.50 Chile 1.04 0.99 2.01 0.76 China 0.12 0.16 0.41 0.21 India 0.20 0.53 1.09 0.44 Mexico 1.24 0.35 9.23 0.63 Russian Federation 4.32 0.46 4.23 0.24 South Africa 1.25 0.46 1.69 0.37 Source: UN/DESA, based on data from OECD. Quarterly growth volatility is increasing, but still below the levels observed during the crisis Increasing growth volatility in commodity exporting economies 5
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0 Source: UN/DESA United States European Union Japan 2011 2012 2013 2014 2015 2016 2017 Back to the developed economies, with the United States leading the shift And contribution of China to global output growth plateauing 6
8 7 6 5 4 3 2 1 0-1 -2 Africa East Asia South Asia Western Asia Latin America and the Source: UN/DESA Caribbean 2011 2012 2013 2014 2015 2016 2017 7
5 Source: UN/DESA Percentage 4 3 2 1 0-1 -2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-3 Developed economies Other developing economies Economies in transition China China contributed to nearly 1/3 of global output growth during the post crisis period Developing country contributions to global growth is declining 8
Y-o-Y Trade volume growth rate 20 18 16 14 12 10 8 6 4 2 0 Export Import Source: UN/DESA 10Q1 11Q1 12Q1 13Q1 14Q1 15Q1 Total volumes of imports and exports projected to grow by only 2.6 per cent in 2015 Chinese imports projected to grow by only 1.3 per cent in 2015, down from 7 per cent during 2013-2014 9
Source: UN/DESA, based on IMF Direction of Trade database. China is the number one export destination for 29 economies many of them witnessed rapid export growth in recent years Exports to China account for more than 25 per cent of total exports in the case of 11 of these economies 10
Global employment growth slowed down to 1.4 per cent per year since 2011, from 1.7 per cent per year during the pre-crisis years Additional 12 million people are unemployed in OECD countries in 2015 compared to the number of unemployed in 2007 Wage growth remained stagnant in many developed economies 1.0 0.8 0.6 0.4 0.7 0.8 0.6 0.9 Growth (%) 0.2 0.0-0.2-0.4-0.6-0.8-1.0 0.3 0.3 2006 2007 2008 2009 2010 2011 2012 2013-0.4-0.8 Source: ILO. 11
Global consumer price inflation, 2006-2016 18 16 14 12 10 8 6 4 2 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: UN/DESA. World Economies in transition Developed economies Developing economies In 2015, global consumer price inflation is projected to fall to 2.6 per cent, the lowest level since 2009 Deflationary pressure is easing in many developed economies. 12
Quarterly GDP growth volatility 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0-0.5 0 0.5 1 1.5 2 2.5 3 Average inflation rate Source: UNDESA calculations based on OECD and data from national statistical offices. 13
Average Growth Rates of Total Capital Services 2001-2007 2009-2013 Australia 5.2 4.9 Austria 2.9 2.1 Belgium 3.5 1.9 Canada 4.0 2.4 Denmark 3.4 1.1 Finland 2.4 0.7 France 2.9 1.7 Germany 1.6 0.8 Ireland 7.2 2.9 Italy 2.7 0.4 Japan 2.0 0.2 Korea 5.3 4.2 Netherlands 3.2 1.6 New Zealand 5.2 3.2 Spain 6.0 2.2 Sweden 3.1 2.0 Switzerland 3.3 2.4 United Kingdom 3.1 2.2 United States 3.8 1.8 China 5.3 5.6 India 4.9 6.7 Source: UN/DESA, based on data from OECD and Asian Productivity Organization. Growth rates of capital services declined across all developed economies But capital intensity of growth has increased because of declines in labour inputs, since the global financial crisis 14
Financial crisis induced a negative productivity shock across economies Growth in labour inputs quality and quantity suffered the largest shock Average labour productivity growth GDP per hour worked declined between 7.6 per cent (Germany) and 86.3 per cent (United Kingdom) during the post-crisis period Total factor productivity (TFP) also declined during the post crisis period Contribution of labour inputs to world gross product declined from 52.5 per cent in 2002-2007 to 16.8 per cent during 2009-2014 Contribution of labour inputs to the GDP of developed economies declined even more sharply, from 44.9 per cent in 2002-2007 to 10.8 per cent during 2009- Quantity of labour contributed -9.2 per cent of total growth in developed economies Existing capital stock bearing the burden of sustaining global growth 15
Average % change per year 2001-2007 2009-2014 France 1.5 0.9 Germany 1.3 1.2 Japan 1.6 1.2 United Kingdom 2.2 0.3 United States 2.0 0.9 China 9.5 7.4 India 4.4 7.0 Russian Federation 5.4 2.0 South Africa 3.1 1.5 Source: UN/DESA, based on data from OECD and Asian Productivity Organization.. 16
Growth accounting, world economy labor quality labor quantity ICT non-ict TFP 2009-2014 0.14 (4.13%) 0.26 (7.86%) 0.63 (18.65%) 2.18 (64.58%) 0.16 (4.78%) 3.37 (100%) 2002-2007 0.20 (4.04%) 0.57 (11.73%) 0.66 (13.57%) 1.64 (33.94%) 1.78 (36.72%) 4.84 (100%) Source: UN/DESA, based on the productivity data from the Conference Board Total Economy Database.. 17
Growth accounting, developed countries labor quality labor quantity ICT non-ict TFP 2009-2014 -0.07 (-9.17%) 0.14 (19.14%) 0.36 (47.31%) 0.32 (41.88%) 0.01 (0.84%) 0.75 (100%) 2002-2007 0.22 (9.38%) 0.39 (16.82%) 0.42 (17.98%) 0.66 (28.15%) 0.65 (27.68%) 2.33 (100%) Source: UN/DESA, based on the productivity data from the Conference Board Total Economy Database.. 18
Financial sector recovery outpaced real sector recovery worldwide The stock of financial assets increased by $72 trillion since December 2008 3.3 times the world GDP, increasing from 2.9 times the world GDP in 2008 Financial stocks reached 3.6 times the world GDP in mid 2008 While financial corporations de-leveraged since the crisis, the debt securities issued by nonfinancial corporations increased by 55 per cent between Q4 2008 and Q4 2014 19
300,000 250,000 200,000 billion US $ 150,000 100,000 50,000 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total debt securities outstanding Total market capitalization - equity Total stock of bank credit Source: UN/DESA, using the BIS data on debt securities, World Federation of Exchanges data on market capitalization and the Bankscope data on the stock of bank credit. 20
Billion US$ Total debt securities Q4 2002 Q4 2008 Q4 2014 42,426 76,532 92,867 19,664 38,998 36,629 5,585 7,226 11,211 17,001 29,950 44,743 7,374 17,648 19,763 issued by: Financial corporations Nonfinancial corporations General government of which: International debt securities Source: UN/DESA, based on BIS debt securities data 21
Normalization of the United States policy rate delayed, increasing uncertainty about the actual pace and sequence of normalization Baseline assumption: 0.75-1.0 per cent increase by end 2016 and 1.75-2.0 per cent increase by end 2017 Quick adjustments on negative term premium on government bonds Rising debt servicing costs and increasing de-leveraging pressures Abrupt changes in the direction of capital flows Increased financial market volatility, overshooting or overreacting to adjustments Increased vulnerabilities in large emerging economies Geo-political risks Lower commodity prices and slowdown in China exacerbating the export revenue of many large emerging economies and shrinking their fiscal space Sudden adjustment in policy rates, leading to capital outflows and depreciation of exchange rates Reduced liquidity and higher borrowing costs, depressing investment Pose challenges to regional growth prospects Further escalation in the Middle East could have spillover effects on oil prices Spillover effects of the refugee crisis may intensify 22
Key policy questions: Is the slowdown in productivity growth cyclical or structural? Has the commodity price declined bottomed out? How large has been the impact of commodity price decline on the world economy and how long will be its lagged effect? Has low inflation or the prospect of deflation contributed to uncertainty, and hence growth volatility, in the developed economies? Will inflation expectations change abruptly, leading to sudden spikes in interest rates? How much of the re-building of the stock of financial assets can be attributed to monetary easing? How quickly firms will de-leverage and what would be the likely size of adjustment in equity and real estate prices worldwide? 23
Monetary policy challenges are likely to intensify Fiscal policies would need to do the heavy-lifting to stimulate growth Striking a delicate balance between achieving growth and employment targets and ensuring financial stability; Managing a gradual adjustment in asset prices Striking a balance between domestic effects and international spillovers But fiscal space is limited in many developing countries Fiscal space may shrink further if growth and commodity prices remain subdued and debt servicing costs increase further Structural reforms though difficult to implement may contribute to improving competitiveness and productivity levels and stimulating new (including domestic) sources of growth Targeted employment policies may complement fiscal measures Both domestic and international policy coordination is likely to become harder Incentive incompatibility of various policy objectives Difficult economic environment makes the trade-offs harder 24
Thank You 25