Long run prospects for the globalLong-run prospects for the global economy from the middle of a crisis

François BourguignonParis School of Economics

Ecole des Hautes Etudes en Sciences Sociales

CIGS, Tokyo, 30/09/11

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A world of change and uncertaintyA world of change and uncertainty …

Global economy subject to rapid and profound changes:changes:

• Emergence of new major global economic actors, North-South rebalancing, geographic reallocation of g, g g peconomic activities, …

• Globalization process: merchandise trade, finance, knowledge, …

Global economy subject to major uncertainties:• Natural resources, environment, financial crisis

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A world of disequilibria and dunexpected events …

Disorderly globalization led to dangerous disequilibria and disastrous events:disequilibria and disastrous events:

• Global imbalances allowing for excessive and unsafe lendingg• Partly responsible for present financial and economic crisis• Surge in commodity prices and their volatility • Global warming signs …

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The need for some clarity about ieconomic prospects

Deep structural changes and uncertainties make necessary identifying landmarks inmake necessary identifying landmarks in economic prospects.

…. This is the objective of this presentation, which f l b l i t ithfocuses on global economic prospects with some emphasis on commodity markets

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OutlineOutline

1. The big picture: the world economy in 2030 and the "Asian factor"• The geographical structure of global GDP• Growth and reallocation of industrial and manufacturing production• The demand for (metal) commodities

2. The 'small' picture: alternative scenarios for the world economy in the years ahead

3. Conclusion

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1. The "big picture": the world i 2030economy in 2030

Simulation methodology• Extending trends (e.g. Maddison's "forecast")• Global modeling permits to make trend extensions at national level mutually consistent

R lt t d h bi M ddi d d li• Results presented here combine Maddison and modeling (Linkage, World Bank) approaches

R lt t b t k ith h Results to be taken with very much care:• Simulation done "ceteris paribus"

M i t ibl th t ld ff t• Many non-economic events are possible that would affect economic growth in the next 20 years• Orders of magnitude of potential changes are what mattersOrders of magnitude of potential changes are what matters

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The world economy in 2030The world economy in 2030

Basic assumptions• Demographic changes as projected by UN• Capital accumulation follows the same pattern as during the 2000s• Total factor productivity according to long-run trends with some• Total factor productivity according to long-run trends, with some slowing down in developed and fast growing emerging countries• Uncertain restructuring of demand in developed countries

The importance of commodity trade and commodity prices for the developing world

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Global population: 1950-2030Global population: 1950 2030

Th ld l i f 1950 2030 l iThe world population from 1950 to 2030: population shares by region (%)

9000Africa

6000

7000

8000

Eastern Europe + F‐USSR

Latin America

4000

5000

Asia

1000

2000

3000

Developed countries

80

1000

1950 1973 2006 2030

Mean income level by region: 1950-2030

Theworld economy from 1950 to 2030: GDP per capita by region

Mean income level by region: 1950 2030

100000

The world economy from 1950 to 2030:  GDP per capita by region(2005 PPP USD)

Developed countries

ale

Asia

10000

logarithmic sca

AfricaEastern Europe+ F‐USSR

Latin America

1000

GDP pe

r cap

ita: 

G

1001950 1973 2006 2030

Year

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Global GDP shares by region: 1950-2030Global GDP shares by region: 1950 2030

The world economy from 1950 to 2030: GDP shares by region (%)

100

Eastern Europe + F‐

Latin America

Africa

80

Asia

Eastern Europe + FUSSR

40

60

Developed countries

20

01950 1973 2006 2030 10

GDP growth rates by region: 1950-2030GDP growth rates by region: 1950 2030

1950 73 1973 2006 2006 301950‐73 1973‐2006 2006‐30

World 4 7 3 2 3 1World 4.7 3.2 3.1Developed C. 4.8 2.6 2.3

Developing and emerging C. 5.1 4.6 4.5p g g gAsia 5.1 5.8 4.7

China 4.9 7.5 5.0India 3.5 5.5 5.3

Latin America 5.4 3.0 3.2Af i 4 4 3 2 4 0Africa 4.4 3.2 4.0

Global industrial production 4 3 2 5 2 311

Global industrial production 4.3 2.5 2.3

The relocation of industrial production

Industrialproduction: world and high income countries (HICs) 1970‐2007

The relocation of industrial production

40

4512000

Industrial production: world and high income countries (HICs), 1970‐2007

35

40

10000

0 USD

World, share of GDP, right  axis

HICs, share of GDP %, right axis

25

30

6000

8000

ion: billion 2000 G

DP share, %

World, IP, left axis

HICs, share of GDP %, right  axis

15

20

4000

ustrial produ

cti %

HICs, IP, left axis

5

10

2000

Ind

12001970 1975 1980 1985 1990 1995 2000 2005 2010

Year

Asian growth pushes commodity intensity of industrial production up

Commodity intensity of industrial production and the "Chinese factor ":

90

100180

Commodity intensity of  industrial production and the  Chinese factor  :steel and cement,  1985‐2009

70

80

90

140

160

(200

0=10

0)

S

Steel content of global industrial  production, left axis

50

60

70

100

120

ustrial prod

uction

 

Share of globalp

30

40

60

80

dity intensity of ind

production, %

Cement content of global industrial  production, left axis

Chi ' h f l b l t d ti i ht i

10

20

20

40

Commod China's share of global cement production,  right axis

China's share of global steel production,  right axis

1300

1985 1990 1995 2000 2005 2010

Year

Parallel cycles in global industrial production and demand for commodities

Covariationof global industrial and commodity production: 1985‐2009

2

2.5

Covariation of global industrial and commodity production: 1985‐2009

1.5

Global industrial production

0.5

1

tion

 from trend

p

Cement

‐0.5

01985 1990 1995 2000 2005 2010

Standard deviat Cement

‐1

Steel

14‐2

‐1.5

Year

The surge of China in the Global economy d h i d t i l bi

Share of China in Global GDP and Industrial production

and her industrial bias

14

16

Share of China in Global GDP and Industrial production

Share in Industrial production

12

Share in Industrial production(constant USD 2000)

8

10

Percen

t

6

P

Share in GDP (PPP USD 2005)

2

4

Share in GDP (constant USD 2000)

1501970 1975 1980 1985 1990 1995 2000 2005 2010

Axis Title

2. The 'small' picture: the global i heconomy in the years to come

2 scenarios: anemic growth in developed countries for next 3/4 years second dip

In both cases, emerging countries will be affected but ill k th i th d t d l d t iwill keep their growth advantage over developed countries.

Catching up continuesIMF W ld E i O tl k t 4 t l b l th IMF World Economic Outlook expects 4 per cent global growth

in 2012 and 6 per cent in emerging and developing economies

Reasons for this North-South asymmetry: Reasons for this North South asymmetry: Large domestic markets in emerging economies Buoyant South-South trade Southern exports often are mass consumption goods

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The global economy in the years to come …

No expected big change in commodity demand in the 'anemic growth scenario':

Emerging countries somewhat sheltered: drop in commodity demand should be limited in comparison to 2010 Prices should not drop by more than a few percentage points Prices should not drop by more than a few percentage points

Things would be more serious with the 'second dip' g pscenario

More pronounced drop in demand, even though emerging t i ld k icountries would keep growing

Financial turmoil may affect commodity prices and capital invested there

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WEO downside scenariosWEO downside scenarios

GDP hGDP change

USA Europe Emerg. Asia Lat.USA Europe Emerg. Asia Lat. America

Debt crisis in Europe

18Reduction in growth potential in the US + non-performing loans in Asia

ConclusionConclusion

Business as usual scenario: GDP and industrial production growth should decelerate a bit but will remain hi hhigh

Industrial production increasingly concentrated in emerging Asiaemerging Asia

Increasing weight of emerging countries in global demand (50% of additional overall global demand willdemand (50% of additional overall global demand will originate in Asia)

Demand for, and prices of basic commodities should Demand for, and prices of basic commodities should remain high and volatile unless supply response kicks in

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ConclusionConclusion

Downside risks Double dip in present crisis. Worst scenario, drop in global GDP

averaging 1 5% over 4 yearsaveraging 1.5% over 4 years Political disruption in China due to slower growth and

reorientation towards domestic market (plus financial crisis?) Natural disasters trigger major adjustment in developed

countries' environmental policies Weak growth and political instability in fast growing African Weak growth and political instability in fast growing African

population (2 billion people in 2050)

The costs of globalization: Inequality unemployment Inequality, unemployment, …

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END

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