Mansoor Dailami The World Bank Ankara, Turkey June 22, 2011
Multipolarity: A New Global Economy A new global economic order is unfolding as the balance of global growth shifts from developed to emerging economies Multinationals from emerging markets will be increasingly important sources and drivers of global investment flows The international monetary system will move toward a multi-currency regime 2
Looking ahead: EM countries will be key players in a multipolar world Multipolarity The concurrent existence of more than two global growth poles Growth poles An economy that drives global growth by virtue of its: (a) size (b) dynamism (c) linkages with the rest of the world By 2025, leading emerging economies such as Brazil, India, Indonesia, Korea and Russia are likely to join the ranks of China and the advanced economies as global growth poles 3
Emerging economies are increasingly becoming the drivers of global growth Global distribution of growth poles 1994 98 2004 08 2004 08 1994 98 4
Increasing cross-border M&A deals originating in EM is a feature of the new corporate landscape Sources: Global Development Horizons 2011, based on Thomson-Reuters. 5
EM firms have become important borrowers in global markets $ 461 billion $ 123 b. Sources: Global Development Horizons 2011, based on Dealogic. 6
EM corporate cost of foreign capital has declined, but remains higher than in developed countries U.S. dollar corporate bond spread to benchmarks Sources: Global Development Horizons 2011, based on Dealogic. 7
With rising prominence of EM as a source of FDI, it is time to think about a multilateral framework to govern cross-border investment flows Sources: Global Development Horizons 2011, based on International Centre for the Settlement of Investment Disputes. 8
The role of EM in the international monetary system remains modest despite their growing economic size Virtually no EM has a currency used internationally for reserve accumulation, invoicing, or exchange rate anchor Developing countries are exposed to currency mismatch Addressing these disparities requires urgent attention, both to manage the system and to affect its future evolution 9
Regarding the future of international monetary system, three potential scenarios can be envisaged A status quo centered on the US dollar A system with the Special Drawing Rights (SDR) as the main international currency A multicurrency system 10
Historically few currencies have dominated the international currency system 1860-1914 pound since 1920s dollar 1930s dollar 1980s dollar pound D mark franc yen 11
This century may witness the emergence of a new multi-currency system 21th c. dollar euro renminbi 12
The use of renminbi in trade settlement is growing China s total exports 2010: $1.75 trillion China s total imports 2010: $1.52 trillion Sources: People s Bank of China. 13
and the renminbi offshore market has taken off on the back of government policy Source: Hong Kong Monetary Authority Source: Dealogic DCM On the equity side, the Hong Kong Stock Exchange will launch its first renminbi-denominated IPO. 14
While commodity prices have seen significant pressure in recent times, in part due to demand from emerging economies Sources: Global Development Horizons 2011. 15
multipolarity is likely to impact long-run base metals prices more than agriculture and energy Sources: Global Development Horizons 2011. 16
Turkey in a Multipolar World Turkey will be an important contributor to global growth by 2025 Turkey s global growth contribution will be supported by: Dynamic growth relative to advanced economies Increasing economic size These factors will in turn require: Improvements in TFP through technological adoption and factor reallocation Sustained levels of investment, especially in human capital Prudence in macroeconomic policymaking
Turkey s demographic dividend will be a key asset for a number of more years Sources: UN population projections 18
..with Turkey likely becoming one of the larger emerging economies in the world $ trillions 4.5 4.0 3.5 3.0 Baseline nominal GDP paths, 2009 25 Korea 4.4 4.1 4.0 3.3 2.5 Turkey 2.0 1.5 Mexico 1.0 0.5 0.0 Malaysia 1.1 Indonesia 0.5 2009 2011 2013 2015 2017 2019 2021 2023 2025 Sources: Global Development Horizons 2011. 19
and domestic consumption will rise, supported by a growing middle class Percent 75 70 65 Baseline consumption shares of GDP, 2009 25 Turkey 72.6 64.5 60 55 Latin American poles United States 62.5 50 45 44.7 40 35 China 30 2009 2011 2013 2015 2017 2019 2021 2023 2025 Sources: Global Development Horizons 2011
Sustaining high growth requires careful macroeconomic management.. percent 15 10 GDP growth Average of emerging G-20 (ex. Turkey) estimate percent of GDP 35 30 24 percent Gross fixed capital formation 5 25 19 percent 0 20-5 Turkey 15 10-10 5-15 2000 2002 2004 2006 2008 2010 0 Sources: World Bank DECPG and WDI. 21
Conclusion Rapid globalization and expected higher growth rates in emerging market economies will translate into greater economic influence for developing countries For Turkey to realize this potential as a key driver of global growth: Productivity growth through indigenous technological adoption and innovation Sustained levels of investment in human capital to offset the diminishing demographic dividend Continued prudence in macroeconomic policymaking Conduct foreign economic policy in line with Turkey s growing presence and economic responsibility 22