World real GDP growth in 20 Annual percent change % or more 6-% 3-6% 0-3% Less than 0% No data Source: International Monetary Fund.
World real GDP growth in 2011 Annual percent change % or more 6-% 3-6% 0-3% Less than 0% No data Source: International Monetary Fund.
Solid recovery World real GDP grew by 5 percent in 20 Real GDP growth, percent 8 6 4 2 0-2 -4 Emerging and developing economies Advanced economies World -6 1980 1985 1990 1995 2000 2005 20 2015 Source: World Economic Outlook, International Monetary Fund, April 2011 update.
World output forecasts Percent change from previous year 20 2011F 2012F World 5.0 4.4 4.5 Advanced economies 3.0 2.4 2.6 United States 2.8 2.8 2.9 Japan 3.9 1.4 2.1 United Kingdom 1.3 1.7 2.3 Euro area 1.7 1.6 1.8 Emerging and developing economies 7.3 6.5 6.5 Brazil 7.5 4.5 4.1 China.3 9.6 9.5 India.4 8.2 7.8 Russia Source: World Economic Outlook, International Monetary Fund, April 2011. 4.0 4.8 4.5
Inflation risk ahead? Percent change in consumer prices (year-to-year) Percent 9 8 7 6 5 4 3 2 1 0 Emerging and developing economies Advanced economies World 2002 2003 2004 2005 2006 2007 2008 2009 20 2011 2012 2013 2014 2015 2016 Source: World Economic Outlook, International Monetary Fund, April 20 update.
Inflation pressure rising in emerging countries % change in consumer price index, 3-month rolling average 18 Russia 16 India 14 12 8 Brazil 6 4 China 2 0-2 2007 2008 2009 20 2011 Source: OECD, Milken Institute.
Inflation pressure rising in emerging countries % change in consumer price index, 3-month rolling average 18 Russia 16 India 14 12 8 Brazil 6 4 China 2 0-2 2007 2008 2009 20 2011 Source: OECD, Milken Institute.
Emerging countries have tightened monetary policy in fear of inflation Target interest rates of central banks Policy interest rates, percent 16 14 12 India Brazil 8 6 China 4 2 India 0 2008 2009 20 2011 Source: Bloomberg.
Implied volatility: U.S. vs. emerging markets Implied volatility, percent 90 80 70 60 50 40 30 20 JPMorganEmerging MarketVolatility Index (VXY) Chicago Board Options Exchange Volatility Index (VIX) 0 2004 2005 2006 2007 2008 2009 20 2011 Source: Bloomberg.
End of the era of cheap capital? Consensus forecasts: Central bank rates will increase in the next 12 months Percent Percent 2.5 Eurozone 14.0 Brazil 2.0 12.0 1.5 U.K..0 Russia 1.0 8.0 6.0 China 0.5 U.S. 4.0 India 0.0 Q1 Q2 Q3 Q4 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 2.0 Q1 Q2 Q3 Q4 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Source: Bloomberg.
Global imbalances on the rise again Projections after 20 Percent of world GDP 3 2 1 U.S. China 0-1 -2-3 -4 1996 1998 2000 2002 2004 2006 2008 20 2012 2014 2016 Emerging Asia Oil exporting countries Rest of world Sources: International Monetary Fund, Milken Institute. Note: Discrepancies are not plotted.
Performance of emerging bond markets Total return of JPMorgan EMBI Global indexes Annualized total return, percent 25 20 15 5 0-5 - -15-20 -1.7-14.2-6.7 -.2-11.1 22.4 20.9 17.3 Middle East Asia Latin America 2008 2009 to Q1 2011 17.2 Europe Africa 16.7 Sources: DataStream, Milken Institute.
The persistence of sovereign defaults Sovereign defaults in selected countries, 1824 to 2008 Argentina Ecuador Paraguay Uruguay Venezuela 1830 1890 1915 1930s 1982 2001 1832 1868 1911 1914 1931 1982 1999 2008 1827 1874 1892 1920 1932 1986 2003 1876 1891 1915 1933 1983 2003 1832 1878 1892 1898 1932 1998 Sources: Sturzenegger and Zettelmayer (2006), Moody s, Milken Institute.
A map for world sovereign defaults 1935 1932 1982 1991 1932 1932 1981 1812 1940 1892 1877 1932 1982 1942 1939 1991 1984 1972 2002 2004 1932 2008 1984 1983 1986 2003 87 2004 2000 1983 1985 2000 2002 1981 1983 2003 2001 1993
Sovereign debt most likely to default in five years As of Q1 2011 Rank Country Five-year cumulative probability of default (%) Rank Country Five-year cumulative probability of default (%) 1 Greece 57.7 6 Ukraine 27.7 2 Venezuela 51.8 7 Dubai 24.7 3 Ireland 43.0 8 Lebanon 21.9 4 Portugal 40.1 9 Iraq 21.1 Source: CMA Global Sovereign Credit Risk Report. 5Note: Ranked Argentina by five-year cumulative probability of default. 34.7 Egypt 21.1
Capital raised: Developing Asia attracts the most funding after the crisis Middle East and North Africa 14% Sub- Saharan Africa 4% 2002-2006 Europe 31% Middle East and North Africa % Sub- Saharan Africa 3% 20 Developing Asia 45% Europe 19% Western Hemisphere 24% Developing Asia 27% Western Hemisphere 23% Source: International Monetary Fund.
Emerging markets: Equity markets have returned to pre-crisis level US$ index, 2007=0 125 Emerging Asia Eastern Europe 0 75 50 25 Latin America 0 2002 2003 2004 2005 2006 2007 2008 2009 20 2011 Source: Bloomberg.
Emerging market bond yield spreads As of April 8, 2011 Percent 12 8 9.57 6 5.53 4.88 4.61 4.55 4.49 4.27 3.88 4 3.47 3.19 2.59 2 0 0.62 0.52 0.32 0.21 Sources: Bloomberg, Milken Institute.
The education gap across regions Population with no schooling, percent of population age 15 and over 0 90 80 70 60 50 40 30 20 0 9.2 2.3 Advanced countries 61.2 17.4 Developing countries 88.1 24.5 Middle East and North Africa 77.1 32.6 Sub-Saharan Africa 45.9 Latin America 67.1 7.7 7.9 East Asia and the Pacific 76.1 33.2 South Asia 16.1 1950 20 1.3 Europe and Central Asia Source: Robert Barro and Jong-Wha Lee (20).
Average years of schooling increased dramatically for developing countries in the past 60 years Average years of schooling 12 11.03 8 6 4 2 0 6.22 Advanced countries 2.05 Developing countries 7.09 7.12 0.76 Middle East and North Africa 1.28 5.23 Sub-Saharan Africa 2.57 Latin America 8.26 7.94 1.77 East Asia and the Pacific 1950 20 1.02 5.24 South Asia 4.83 9.65 Europe and Central Asia Source: Robert Barro and Jong-Wha Lee (20).
Return on human capital Rate of return on an additional year of schooling, percent 14% 12% % 8% 6% 12.1% 13.3% 7.8% 6.6% 6.5%.3% 11.3% 8.5% 4% 2% 0% World Advanced countries Middle East and North Africa Sub-Saharan Africa Latin America East Asia and the Pacific South Asia Europe and Central Asia Source: Robert Barro and Jong-Wha Lee (20).
Investment rates have increased across all emerging market regions since 2000 Investment, percent of GDP 50 45 40 35 30 25 20 15 5 0 24.1 21.4 19.3 Africa n.a. 26.4 21.4 Eastern Europe 20.3 21.9 19.6 Latin America 26.4 23.6 18.5 Emerging Asia excluding China and India 28.8 35.2 43.9 14.6 23.6 39.5 n.a. 1970 2000 2008 22.1 20.2 China India Other emerging countries Source: McKinsey Global Institute.
Emerging countries vs. developed countries Investment in infrastructure as a share of GDP, nominal values % GDP Emerging economies Developed economies Transportation 1.9 3.1 Transportation 1.3 1.5 2008 1980 Utilities 1.8 1.1 Utilities 1 1.4 Telecom 0.8 0.5 Telecom 0.5 0.7 Total infrastructure 3.5 5.7 Total infrastructure 2.8 3.6 0 1 2 3 4 5 6 0 1 2 3 4 Source: McKinsey Global Institute; McKinsey Global Economic Growth Database.
Ruben Vardanian slides
Population growth Percent 2.0% 1.5% 1.0% 0.5% India Brazil China 0.0% -0.5% -1.0% 2007 2008 2009 20 2011E Russia Source: CIA 20 World Factbook.
Birth and death rates Pro mille 25 Death rate 20 15 Birth rate 5 0 Brazil India China Russia Source: CIA 20 World Factbook.
Life expectancy Years China Brazil India Russia 66.29 Source: CIA 20 World Factbook 62 64 66 68 70 72 74 76
Literacy Percent Russia 99.40% China Brazil India Source: CIA 20 World Factbook. 0% 20% 40% 60% 80% 0%
Ranking Quality of management schools Benchmark 20 QATAR 2007 2008 2009 20 0 20 40 60 80 0 Source: Global Competitiveness Report 2007-2011. India China Brazil Russia
Ranking Brain drain Benchmark 20 30 40 50 60 2007 2008 2009 20 SWITZERLAND India China Brazil 70 80 90 Russia Source: Global Competitiveness Report 2007-2011.
Ranking Corporate spending on R&D Benchmark 20 SWEDEN 2007 2008 2009 20 20 China 25 Brazil 30 35 40 India 45 50 55 Russia Source: Global Competitiveness Report 2007-2011.
Government spending on R&D Percent of GDP 4% 3% 2% 1% 1.1% 0% Source: OECD, 20.
Peter Dattels slides
The two-speed global recovery posses challenges Average projected real GDP growth during 2011-2012 (percent) 4.7 2.8 1.7 8.0 9.6 1.7 less than 0 0 to 3 3 to 6 more than 6 no data 4.3 Source: International Monetary Fund.
Will capital flowing into EMs create imbalances? Z score 2.0 1.5 1.0 Asian crisis Russia crisis Capital flows Real credit Real equity prices Start of global financial crisis Lehman collapse 0.5 0.0-0.5-1.0-1.5 1994 1996 1998 2000 2002 2004 2006 2008 20 Source: International Monetary Fund.
EM banks expand lending while corporates releverage Real credit and GDP growth (2008-, in percent) 20 16 12 8 4 Real credit growth Real GDP growth BRIC Countries: Debt-to-Equity Ratios of the Corporate Sector (2005 = 0, Russia on right scale) 200 175 150 125 0 Brazil: a) 182, b) 60 India: a)6, b) 21 Russia: a) 54, b) 21 China: a)8, b) 24 300 250 200 150 0 Source: International Monetary Fund. 75 50 a) D/E ratio 20, in percent b) D/E ratio 20, percentage points above average 1994-2009 2005 2006 2007 2008 2009 20e 0 50
EM monetary policy: Falling behind the curve? Emerging Economies (percent of potential GDP) 2.0 1.0 2011 projected output gap Country flags represent the real policy rate* 0.0-1.0-2.0-3.0-4.0-5.0 South Africa Russia Mexico Indonesia Chile India Brazil Malaysia China Source: International Monetary Fund. *Real policy rate is defined as current policy rate (Mar. 2011) minus 1-year ahead consensus inflation expectation normalized by its 5-year average (2005-); percentage points.
Rebalancing the policy mix between AEs an EMs Advanced Economies More structural policies needed -- > Cleaning Banks: Mainly in Europe Transparency, Capital, Restructuring/Resolution Sovereigns: Most AEs Fiscal consolidation Households: Mainly in U.S., some European Reducing debt burdens Emerging Markets More macroeconomic policies needed -- > Leaning Limit overheating and buildup of financial risks: Tighten macro policies Use macro prudential/capital flow measures Absorb/channel inflows: Broaden and deepen local capital markets
Rebalancing the policy mix between AEs an EMs Advanced Economies More structural policies needed -- > -- Legacy > Cleaning issues Banks: Mainly in Europe Transparency, Capital, Restructuring/Resolution Sovereigns: Most AEs Fiscal consolidation Households: Mainly in U.S., some European Reducing debt burdens Emerging Markets More More macroeconomic policies needed needed -- > Cyclical/growth -- > Leaning challenges Limit overheating and buildup of financial risks: Tighten macro policies Use macro prudential/capital flow measures Absorb/channel inflows: Broaden and deepen local capital markets