global economic prospects coping with policy normalization in high-income countries january 2014
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Global Economic Prospects Coping with Policy Normalization in High-Income Countries January 2014 Andrew Williams Jr Email: [email protected] Mobile: +1-424-222-1997 Skype: andrew.williams.jr http://twitter.com/AWilliamsJr http://xeeme.com/AmbassadorAWJ https://www.facebook.com/FAUBermuda http://www.yatedo.com/andrewwilliamsjr http://www.slideshare.net/andrewwilliamsjr http://www.linkedin.com/in/andrewwilliamsjr http://www.facebook.com/ajactionteam http://www.facebook.com/ambassadorawj http://www.facebook.com/andrewwilliamsjr http://www.facebook.com/AJGombeyBermudaTRANSCRIPT
1
Andrew BurnsWorld BankJanuary 14, 2014
Global Economic
Prospects:Coping with policy normalization
in high-income countries
http://www.worldbank.org/globaloutlook
Jan '12 Jul '12 Jan '13 Jul '13-15
-10
-5
0
5
10
15
United States
Euro Area
Japan
Other high-in-come
Fourth quarter manufacturing suggests continued strengthen in US and Japan, weakness elsewhere
Source: World Bank, Datastream.
Q4Manufacturing output growth, 3m/3m saar
Jan '12 Jul '12 Jan '13 Jul '13-15
-10
-5
0
5
10
15
United States
Euro Area
Japan
Other high-in-come
Fourth quarter manufacturing suggests continued strengthen in US and Japan, weakness elsewhere
Source: World Bank, Datastream.
Q4Manufacturing output growth, 3m/3m saar
Jan '12 Jul '12 Jan '13 Jul '13-15
-10
-5
0
5
10
15
United States
Euro Area
Japan
Other high-in-come
Fourth quarter manufacturing suggests continued strengthen in US and Japan, weakness elsewhere
Source: World Bank, Datastream.
Q4Manufacturing output growth, 3m/3m saar
Jan '12 Jul '12 Jan '13 Jul '13-15
-10
-5
0
5
10
15
United States
Euro Area
Japan
Other high-in-come
Fourth quarter manufacturing suggests continued strengthen in US and Japan, weakness elsewhere
Source: World Bank, Datastream.
Q4Manufacturing output growth, 3m/3m saar
6
Jan '11 Jul '11 Jan '12 Jul '12 Jan '13 Jul '13-15
-10
-5
0
5
10
15
20
India
China
Other developing
Growth firming or solid in most developing countries
Industrial production growth, 3m/3m saar
Source: World Bank, Datastream.
7
Jan '11 Jul '11 Jan '12 Jul '12 Jan '13 Jul '13-15
-10
-5
0
5
10
15
20
India
China
Other developing
Growth firming or solid in most developing countries
Industrial production growth, 3m/3m saar
Source: World Bank, Datastream.
8
Global GDP growth is projected to:
9
Global GDP growth is projected to:
• firm from 2.4% in 2013 to 3.2% this year,
10
Global GDP growth is projected to:
• firm from 2.4% in 2013 to 3.2% this year,• stabilizing at 3.4% and 3.5% in 2015 and
2016
A gradual pick up in growth, led by high-income countries
2000 2002 2004 2006 2008 2010 2012 2014 2016-4
-2
0
2
4
6
8
10
World
High In-come
Middle Income
Low In-come
Percent annual GDP growth
Source: World Bank.
A gradual pick up in growth, led by high-income countries
2000 2002 2004 2006 2008 2010 2012 2014 2016-4
-2
0
2
4
6
8
10
World
High In-come
Middle Income
Low In-come
Percent annual GDP growth
Source: World Bank.
A gradual pick up in growth, led by high-income countries
2000 2002 2004 2006 2008 2010 2012 2014 2016-4
-2
0
2
4
6
8
10
World
High In-come
Middle Income
Low In-come
Percent annual GDP growth
Source: World Bank.
A gradual pick up in growth, led by high-income countries
2000 2002 2004 2006 2008 2010 2012 2014 2016-4
-2
0
2
4
6
8
10
World
High In-come
Middle Income
Low In-come
Percent annual GDP growth
Source: World Bank.
A gradual pick up in growth, led by high-income countries
2000 2002 2004 2006 2008 2010 2012 2014 2016-4
-2
0
2
4
6
8
10
World
High In-come
Middle Income
Low In-come
Percent annual GDP growth
Source: World Bank.
16
Growth in developing countries will pick up from 4.8% in 2013 to a slower than
previously expected 5.3% this year, 5.5% in 2015 and 5.7% in 2016 .
17
Growth in developing countries will pick up from 4.8% in 2013 to a slower than
previously expected 5.3% this year, 5.5% in 2015 and 5.7% in 2016 .
18
Growth in developing countries will pick up from 4.8% in 2013 to a slower than
previously expected 5.3% this year, 5.5% in 2015 and 5.7% in 2016 .
19
Growth in developing countries will pick up from 4.8% in 2013 to a slower than
previously expected 5.3% this year, 5.5% in 2015 and 5.7% in 2016 .
20
Growth in developing countries will pick up from 4.8% in 2013 to a slower than
previously expected 5.3% this year, 5.5% in 2015 and 5.7% in 2016 .
21
0
1
2
3
4
5
6
7
8
9
10
Potential + Cyclical GDP growthPotential GDP growth
Period of gradual acceleration in potential Boom PeriodGrowth slower only
relative to boom
Slower developing country growth is mainly a cyclical phenomenon
Source: World Bank.
GDP and potential GDP, annual growth rate
Post-crisis developing country growth is 2.2 percent slower than during the boom period. All but 0.5 percentage points of that is cyclical
22
0
1
2
3
4
5
6
7
8
9
10
Potential + Cyclical GDP growthPotential GDP growth
Period of gradual acceleration in potential Boom PeriodGrowth slower only
relative to boom
Slower developing country growth is mainly a cyclical phenomenon
Source: World Bank.
GDP and potential GDP, annual growth rate
Post-crisis developing country growth is 2.2 percent slower than during the boom period. All but 0.5 percentage points of that is cyclical
23
0
1
2
3
4
5
6
7
8
9
10
Potential + Cyclical GDP growthPotential GDP growth
Period of gradual acceleration in potential Boom PeriodGrowth slower only
relative to boom
Slower developing country growth is mainly a cyclical phenomenon
Source: World Bank.
GDP and potential GDP, annual growth rate
Post-crisis developing country growth is 2.2 percent slower than during the boom period. All but 0.5 percentage points of that is cyclical
24
Doing better going forward will require focusing on:
25
Doing better going forward will require focusing on:• structural policies: investment in
education, infrastructure and health.
26
Doing better going forward will require focusing on:• structural policies: investment in
education, infrastructure and health.• better regulations to enhance the
growth potential of countries
27
0
1
2
3
4
5
6
7
82012 2013 2014 2015 2016
Growth acceleration to be limited in regions that have already fully recovered
Percent annual GDP growth
Source: World Bank.
28
0
1
2
3
4
5
6
7
82012 2013 2014 2015 2016
Growth acceleration to be limited in regions that have already fully recovered
Percent annual GDP growth
Source: World Bank.
29
0
1
2
3
4
5
6
7
8
2012 2013 2014 2015 2016
Growth acceleration to be limited in regions that have already fully recovered
Percent annual GDP growth
Source: World Bank.
30
0
1
2
3
4
5
6
7
8
2012 2013 2014 2015 2016
Growth acceleration to be limited in regions that have already fully recovered
Percent annual GDP growth
Source: World Bank.
31
0
1
2
3
4
5
6
7
8
2012 2013 2014 2015 2016
Growth acceleration to be limited in regions that have already fully recovered
Percent annual GDP growth
Source: World Bank.
32
0
1
2
3
4
5
6
7
8
2012 2013 2014 2015 2016
Growth acceleration to be limited in regions that have already fully recovered
Percent annual GDP growth
Source: World Bank.
33
0
1
2
3
4
5
6
7
8
2012 2013 2014 2015 2016
Growth acceleration to be limited in regions that have already fully recovered
Percent annual GDP growth
Source: World Bank.
34
0
1
2
3
4
5
6
7
8
2012 2013 2014 2015 2016
Growth acceleration to be limited in regions that have already fully recovered
Percent annual GDP growth
Source: World Bank.
35
0
1
2
3
4
5
6
7
8
2012 2013 2014 2015 2016
Growth acceleration to be limited in regions that have already fully recovered
Percent annual GDP growth
Source: World Bank.
36
The strengthening recovery in high-income countries is most welcome,
but it brings with it risks of disruption as monetary policy
tightens.
37
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
In a smooth adjustment scenario, capital flows to developing countries will ease only marginally
Source: World Bank.
% o
f dev
elop
ing
coun
try
GD
P
38
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0 Smooth adjustment scenario :capital flows decline from 4.6% of developing country GDP in 2013 to 4.0 percent in 2016
In a smooth adjustment scenario, capital flows to developing countries will ease only marginally
Source: World Bank.
% o
f dev
elop
ing
coun
try
GD
P
39
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0 Smooth adjustment scenario :capital flows decline from 4.6% of developing country GDP in 2013 to 4.0% in 2016
In a smooth adjustment scenario, capital flows to developing countries will ease only marginally
Source: World Bank.
% o
f dev
elop
ing
coun
try
GD
P
40
Global trade to grow from an estimated 3.1% in 2013 to 4.6%
this year and 5.1% in each of 2015 and 2016.
41
Global trade to grow from an estimated 3.1% in 2013 to 4.6%
this year and 5.1% in each of 2015 and 2016.
42
Global trade to grow from an estimated 3.1% in 2013 to 4.6%
this year and 5.1% in each of 2015 and 2016.
43
Global trade to grow from an estimated 3.1% in 2013 to 4.6%
this year and 5.1% in each of 2015 and 2016.
44
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
While unlikely a sharp market reaction to tapering could cut deeply into capital flows for a short period
Source: World Bank.
45
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0 If long-term rates in US jump up 100 basis points capital flows could fall by 50 percent or more for several months
While unlikely a sharp market reaction to tapering could cut deeply into capital flows for a short period
Source: World Bank.
46
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0 If long-term rates in US jump up 100 basis points capital flows could fall by 50 percent or more for several months
While unlikely a sharp market reaction to tapering could cut deeply into capital flows for a short period
Source: World Bank.
47
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0 If long-term rates in US jump up 100 basis points capital flows could fall by 50 percent or more for several months
A 200 bp rise could cause capital flows to decline by 80 percent
While unlikely a sharp market reaction to tapering could cut deeply into capital flows for a short period
Source: World Bank.
48
Earlier rapid increase in credit increases the risk of banking-sector crises
Thail
and
Bhutan
Botswan
a
Armen
iaSe
rbiaChina
St. Lu
cia
Vanuatu
Vietnam
Malaysi
a
Morocco
Gambia
Turke
y
Venezu
ela
Leso
tho
Cambodia
Paragu
ay
Lao PDR
Malawi
Romania
Kosovo
Brazil
-
5
10
15
20
25
30
35
40
-
20
40
60
80
100
120
140
160
180 Change in net bank credits, 2012-2007 (% of GDP) Level of banking-sector net credits in 2012, % of GDP
Source: World Bank, IMF.
49
Earlier rapid increase in credit increases the risk of banking-sector crises
Thail
and
Bhutan
Botswan
a
Armen
iaSe
rbiaChina
St. Lu
cia
Vanuatu
Vietnam
Malaysi
a
Morocco
Gambia
Turke
y
Venezu
ela
Leso
tho
Cambodia
Paragu
ay
Lao PDR
Malawi
Romania
Kosovo
Brazil
-
5
10
15
20
25
30
35
40
-
20
40
60
80
100
120
140
160
180
Change in Credit levelCredit levels in 2012
Change in net bank credits, 2012-2007 (% of GDP) Level of banking-sector net credits in 2012, % of GDP
Source: World Bank, IMF.
50
Earlier rapid increase in credit increases the risk of banking-sector crises
Thail
and
Bhutan
Botswan
a
Armen
iaSe
rbiaChina
St. Lu
cia
Vanuatu
Vietnam
Malaysi
a
Morocco
Gambia
Turke
y
Venezu
ela
Leso
tho
Cambodia
Paragu
ay
Lao PDR
Malawi
Romania
Kosovo
Brazil
-
5
10
15
20
25
30
35
40
-
20
40
60
80
100
120
140
160
180
Change in Credit levelCredit levels in 2012
Change in net bank credits, 2012-2007 (% of GDP) Level of banking-sector net credits in 2012, % of GDP
Source: World Bank, IMF.
51
Policy makers need to give thought now to how they would respond to a significant tightening of global financing conditions.
52
Policy makers need to give thought now to how they would respond to a significant tightening of global financing conditions.• Countries with adequate policy buffers and investor
confidence may be able to rely on market mechanisms, counter-cyclical macroeconomic and prudential policies to deal with a decline in flows.
53
Policy makers need to give thought now to how they would respond to a significant tightening of global financing conditions.• Countries with adequate policy buffers and investor
confidence may be able to rely on market mechanisms, counter-cyclical macroeconomic and prudential policies to deal with a decline in flows.
• In other cases, where the scope for maneuvering is more limited, countries may be forced to tighten fiscal policy to reduce financing needs or raise interest rates to incite
additional inflows.
54
Policy makers need to give thought now to how they would respond to a significant tightening of global financing conditions.• Countries with adequate policy buffers and investor confidence
may be able to rely on market mechanisms, counter-cyclical macroeconomic and prudential policies to deal with a decline in flows.
• In other cases, where the scope for maneuvering is more limited, countries may be forced to tighten fiscal policy to reduce financing needs or raise interest rates to incite additional inflows.
• Where adequate foreign reserves exist, these can be used to moderate the pace of exchange rate adjustments, while a loosening of capital inflow regulation and incentives for foreign direct investment might help smooth adjustment.
55
By improving the longer term outlook, credible reform
agendas can go a long way towards boosting investor and
market confidence.
56
Andrew BurnsWorld BankJanuary 14, 2014
Global Economic
Prospects:Coping with policy normalization
in high-income countries
http://www.worldbank.org/globaloutlook