amar bhattacharya g-24 secretariat lecce, may 31, 2013
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Structural Transformation and Sustainable Growth of the Global Economy Beyond the Crisis and Lessons for Global Governance. Amar Bhattacharya G-24 Secretariat Lecce, May 31, 2013. Overview. Structural transformation in the global economy Impact and legacy of the crisis - PowerPoint PPT PresentationTRANSCRIPT
Structural Transformation and Sustainable Growth of
the Global Economy
Beyond the Crisis and Lessons for Global Governance
Amar BhattacharyaG-24 Secretariat
Lecce, May 31, 2013
Overview
1. Structural transformation in the global economy
2. Impact and legacy of the crisis3. Sustainable growth beyond the crisis4. Implications for global governance
2
Overview
1. Structural transformation in the global economy
2. Impact and legacy of the crisis3. Sustainable growth beyond the crisis4. Implications for global governance
3
Structural Transformation
World Economy at a point of structural transformation in the relationship and position between developed and developing countries
Change has been highlighted and accentuated by the crisis but had started well before
For almost 60 years developing country growth tracked that of developed countries and with depreciating countries led to growing divergence
During the past decade there has been a structural decoupling even though there are strong cyclical links
4
Growth in EMDCs has consistently outpaced AEs for decades
5Source: G-24 calculations based on data from World Economic Outlook, IMF and World Development Indicators, World Bank
This trend is evident in G-24 countries, especially when GDP is weighted
6
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
G-24 Simple AverageHigh Inc. OECD - GDP WeightedG-24 GDP Weighted
Per-Capita GDP Growth 1960-2012
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
G-24 Simple AverageHigh Inc. OECD -GDP WeightedG-24 GDP Weighted
Per-Capita GDP Growth Trend 1960-2012(Hodrick-Prescott Filter)
Source: Canuto (2013), World Bank Poverty Reduction and Economic Management Department
Structural Transformation
Not a story of China and India or of a few emerging markets and developing countries
Prior to crisis, 94 EMDCs recorded growth in excess of 5 percent per annum and 90 percent of EMDCs grew faster than the average of AEs
Trend will be continued; although average growth of both AEs and EMDCs lower than before the crisis, differential will be sustained
Particularly striking that low income countries and SSA are part of this trend
Underpinning this impressive growth has been a virtuous cycle of rising savings and investment, growing trade and macroeconomic resilience
7
8
Num
ber
of
coun
trie
s
Advanced Economies EMDCs
Increasing Number of EMDCs are on path to Convergence
Dispersion of Average Growth
<2.5% 2.5-5% >5%
Source: G-24 calculations based on data from World Economic Outlook Database April 2013, IMF.
Income groups are gradually converging
0
20
40
60
80
100
120
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Number of HIC countries Number of MICs Number of LICs
9
Long-term savings in EMDCs have been on a rising trend
10
0
10
20
30
40
50
60
1974-84 1985-94 1994-02 2003-05 2006-08 2009-10 2011-15
Advanced Countries East Asia and Pacific Latin America and the Caribbean
Middle East and North Africa South Asia Sub-Saharan Africa
Source: G-24 calculations based on Loayza et al. (2000) World Economic Outlook, IMF and World Development Indicators , World Bank databases
Investment and Savings Trends in Developing Countries, 1994-2015
(Percent)
Source: G-24 calculations based on data from World Economic Outlook Database, IMF
Structural Transformation
Sustained growth differential between AEs and EMDCs leading to a profound change in the global economic landscape with the share of EMDCs in the global economy measured in PPP terms greater than that of AEs
Similar trend between the G7 and the BRICS reflecting a new rebalancing of power
Convergence between GDP at market prices and GDP PPP in contrast to the pre-2000 an important element of the new story of convergence
12
Share of GDP (Market Prices) Share of GDP (PPP)
13Source: G-24 calculations based on data from World Economic Outlook Database, IMF
Advanced Economies EMDCs
EMDCs account for increasingly large shares of global GDP
Share of GDP (Market Prices) Share of GDP (PPP)
14Source: G-24 calculations based on data from World Economic Outlook Database, IMF
G7 BRICS
EMDCs account for increasingly large shares of global GDP
Growing Convergence Between GDP at Market Prices and GDP PPP
(Share of EMDCs in Global GDP)
0.00
10.00
20.00
30.00
40.00
50.00
60.00
GDP PPP GDP at Market Price GDP MP w PPP Convergence
15Source: World Economic Outlook, IMF
Overview
1. Structural transformation in the global economy
2. Impact and legacy of the crisis3. Sustainable growth beyond the crisis4. Implications for global governance
16
The crisis has been deeper and more prolonged than anticipated
17
GD
P (
% c
hang
e)
Europe Has Been At the Center of the Crisis
Europe has been principal factor behind the deepening and prolongation of the crisis
Delayed response in setting up effective firewall to bolster confidence
Excessive emphasis on austerity has not led to expected improvements in debt sustainability or necessary internal devaluations
Euro area deleveraging has been a major constraint There has been demand rotation but not adequate demand
support in AEs Reliance on prolonged unconventional monetary policies have
had negative spillover effects
18
Euro-area deleveraging has been a major constraint
19Source: World Bank, Global Economic Prospects, 2012 (based on European Central Bank Datastream)
Annualized increase in lending, Euro Area 3m/3m saar
Impact of Crisis on EMDCs
Large and immediate impact through trade channel but recovery faster and more sustained in EMDCs
Financial flows were also affected but differentially Long-term commodity prices have continued to increase
with high food prices still a cause of concern; trends have had large differential impacts across countries
Overall growth rates in EMDCs have withstood the crisis better than AEs because of improved resilience and use of counter cyclical policies
However reduced fiscal space has increased vulnerability to future shocks and constrains needed long-term investments
20
Exports sharply dropped during the crisis
21Source: IMF, World Economic Outlook, 2013 (based on Markit Economics and IMF Staff calculations)
And recovery in international trade has been uneven
22
World exports, Jan 2006-Nov 2012(Jan 2006 = 100)
Source: United Nations, World Economic Situation and Prospects, 2013
Financial flows have been affected, but differentially
23
Remittances and other resource flows to developing countries
Source: World Bank, Migration and Development Brief, April 19, 2013 (based on data from WDI and World Bank Global Development Prospects Group
Long-term commodity prices have increased since the 1960s, reaching an all-time high in 2011…
24Source: World Bank, PINK data. NOTE: Annual price Indices, 2005=100
Nominal commodity prices
Real commodity prices
And steady food prices are forecast for 2013
25Source: IMF, World Economic Outlook 2013 (based on IMF Primary Commodity Price System and IMF Staff calculations)
Net-exporters and net-importers of primary commodities have been affected differently
26
Product Category Income groupingNumber of Net-
ExportersNumber of Net-Importers
Primary commodities
High-income countriesMiddle-income countriesLow-income countries
134316
355424
Basic food (excl. beverages)
High-income countriesMiddle-income countriesLow-income countries
14322
346538
Agricultural raw materials
High-income countriesMiddle-income countriesLow-income countries
163528
326112
Metals
High-income countriesMiddle-income countriesLow-income countries
267133
22237
Fuels
High-income countriesMiddle-income countriesLow-income countries
11305
376535
Note: The sample consists of 48 high-income countries, 97 middle-income countries and 40 low-income countries.Source: G-24 calculations based on UNCTAD data
27
Growth rates in EMDCs have withstood the crisis better than those in AEs
Advanced Economies EMDCs
Source: G-24 calculations based on data from World Economic Outlook, IMF and World Development Indicator, World Bank
GD
P G
row
th
But reduced fiscal space increases the vulnerability of EMDCs to future shocks
28Source: World Bank Global Economic Prospects, 2013 (based on World Bank data)
2007: - 25% of developing countries had a deficit of >3% of GDP- 49% were running a surplus
2012: - 53% of developing countries had a deficit of >3% of GDP- 23% had a surplus
Overview
1. Structural transformation in the global economy
2. Impact and legacy of the crisis
3. Sustainable growth beyond the crisis4. Implications for global governance
29
Prospects for Sustained Growth Beyond Crisis
Differential growth prospects between AEs and EMDCs expected to be sustained
But significant heterogeneity across regions and countries
EMDCs are still a long way from the global productivity frontier with significant potential for catch-up gains
Potential output growth has been downgraded in many leading EMDCs because of country specific structural factors
30
Differential growth prospects between EMDCs and AEs are forecast
31
Other high-income countries
Euro-area
Real GDP, index 1980=100
Amongst EMDCs, there is also heterogeneity across regions
32
Ave
rage
GD
P G
row
th
2003-2008 2009-2012 2013-2015
Source: G-24 calculations based on data from World Economic Outlook, IMF and World Development Indicator, World Bank
EMDCs are a still long way from the productivity frontier
33
0.000
0.050
0.100
0.150
0.200
0.250
0.300
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Simple Averages
GDP-Weighted Averages
Ratio of G-24 to High Income OECD Per- Capita GDP(1960 - 2012; PPP GDP)
Source: Canuto (2013), World Bank Poverty Reduction and Economic Management Department
Prospects for potential output growth in some EMDCs have been downgraded
34
Reductions in Medium-Term Output (percent; relative to the September 2011 WEO)
Output Relative to Precrisis Trends in WEO Estimates in 2013(percent of precrisis trend GDP)
Source: Helbling (2013), based on World Economic Outlook and IMF staff estimates.Note: AE= advanced economies; EM = emerging market and developing economies; CEE = central and eastern Europe; CIS = Commonwealth of Independent States; DA = developing Asia; LAC = Latin America and the Carribean; SSA = sub-Saharan Africa
Major Challenges to Sustained and Sustainable Growth
Infrastructure development and financing The jobs crisis and prospects for long-term
employment creation Growing income inequality with lagging countries
and growing inequality in both AEs and EMDCs Sustainability including climate impact and
resilience also a source of enormous concern
35
Infrastructure is of critical importance to sustainable growth for EMDCs
36
Driver of Need Description
Growth • Emerging and developing countries (EMDCs) have high growth potential (~5-7% in non-OECD compared to 2% in OECD between 2010 and 2030)
• Even adjusting for higher productivity, this period of rapid growth will have strong capital intensity, and hence infrastructure needs
• Strong evidence shows that lack of infrastructure can be a significant constraint to economic growth
Structural change
• An increasing percentage of growth in EMDCs is coming from industry and services, requiring substantial new infrastructure
• With 2 billion people moving to urban centres in the coming three decades, there is a rapidly growing need to expand and upgrade urban infrastructure
Inclusion • Existing deficits are large: 1.4 billion have no access to electricity, 0.9 billion have no access to safe drinking water and 2.6 billion no access to basic sanitation
• Infrastructure is essential for expanding access to basic services and a more inclusive pattern of growth
Sustainability and resilience
• Ensuring the environmental sustainability and climate resilience is crucial for growth and development and requires new infrastructure and related networks
But, the existing long-term development financing architecture does not meet the need
37
Global infrastructure financing vs need
$US
D t
rill
ion
s
Source: Split of current sources of finance own assessment based on various estimates including Estache (2010); MDB working group paper on infrastructure (2011); Macquarie (2009)
The job crisis continues, especially in Europe, which has record unemployment
38Source: Hong (2013), based on United Nations, World Economic Situation and Prospects, 2013
Unemployment trends in EMDCs differ
39
Quarterly Unemployment Rates (%)
Source: Hong (2013), based on United Nations, World Economic Situation and Prospects, 2013
And inequality is increasing
40
• Increasing inequality in US—top 1 percent accounting for 23 percent of national income and top 0.01 percent for 12 percent
• Increasing global integration associated with growing income inequality in many EMDCs depending on starting points
• Growing inequality compromises equality of opportunity and long-term productivity growth (Stiglitz)
Sustainability is also an enormous concern
• The risks of climate change have likely been underestimated– Greenhouse gas concentrations or stocks have increased from
around 285ppm CO2e in the 1800s to around 445ppm today.– Could result in an eventual temperature increase (50-50 chance)
of more than 5deg Celsius compared with the pre-industrial era. – High probability of extreme weather events and a rising global
sea level– Potential cause of migration of hundreds of millions, perhaps
billions, of people around the world: likelihood of severe and sustained conflict
• Growth and stability in the medium and long-term are at risk if climate change is not addressed
41Source: Stern (2013), ‘Economic Growth, Poverty Reduction and Managing Climate Change’
Sustainable growth is crucial, but requires leadership and proactivity
• Ensuring the environmental sustainability and climate resilience is crucial for long-term growth and development
• Investing in low-carbon growth requires clear and credible public policy and institutional involvement to leverage finance (including excess global savings), manage risk (commercial and political), integrate approaches and lead by example
42Source: Stern (2013), ‘Economic Growth, Poverty Reduction and Managing Climate Change’
Overview
1. Structural transformation in the global economy
2. Impact and legacy of the crisis3. Sustainable growth beyond the crisis
4. Implications for global governance
43
Implications for Global Governance
44
• Growing interconnectedness poses new challenges in global coordination and governance arrangements
• Recent waves of financial crises has underscored importance of coordination in the economic and financial sphere but also the inherent challenges of such coordination
• The new wave of global challenges coincides with major shifts in relative positions and the role of old and new powers
Implications for Global Governance
45
Significant evolution in the institutional architecture:
G20 as premier forum for global economic and financial coordination with continued evolution in its role
Enhancement of role of Financial Stability BoardStrengthening in role of the IMF (resources,
instruments, surveillance)
The Institutional Architecture
46
•FSAPs/ROSCs
•Article IV Consultations
•WEO/GFSR
•Spillover Reports
•Early Warning Exercise (EWE) in
collaboration with FSB
•Plenary
•Standing Committee on
Assessment of Vulnerability
•AGV
•Standing Committee on
Standards Implementation and
Implementation Monitoring
Network
•Surveillance Discussion
•G20 MAP
The Overall Surveillance Framework• Complementary architecture between IMF and FSB including
on multilateral surveillance• IMF comparative strengths are integrating macro,
macrofinancial and financial perspectives as well as integrating bilateral and multilateral aspects in Article IV consultations; and well broad array of instruments to assess global systemic risks (WEO, GFSR, spillover reports and EWE in collaboration with FSB)
• FSB’s strengths are its network of financial stability experts through the AGV, access to national supervisors, interface with BIS and SSBs and synergy between the Plenary and all three standing committees and their working groups
47
The global rank of economies has shifted markedly in the last four decades
48
Rank 1980 1990 2000 2015
1United States 2788 United States 5801 United States 9951 United States 18012
2 Japan 997 Japan 2370 Japan 3256 China 16647
3 Germany 762 Germany 1447 China 3015 India 5930
4 France 537 France 1027 Germany 2144 Japan 5095
5 Italy 509 Italy 976 India 1571 Germany 3497
6United Kingdom 450
United Kingdom 922 France 1532 Russia 2957
7 Brazil 446 China 910United Kingdom 1486 Brazil 2780
8 Mexico 337 Brazil 786 Italy 1404United Kingdom 2572
9 India 286 India 745 Brazil 1234 France 2438
10 Canada 280 Mexico 612 Russia 1121 Mexico 2055
11 Spain 272 Canada 558 Mexico 1065 Italy 1943
12 China 248 Spain 551 Canada 911 Korea 1897
13 Netherlands 150 Korea 336 Spain 900 Canada 1676
14 Poland 150 Australia 306 Korea 776 Indonesia 1549
15 Australia 146 Turkey 291 Australia 525 Spain 1499
GDP (PPP), $Billions
Source: WEO Database, IMF
Contributions to World Growth(percent)
1981 to 1991 1991 to 2001 2001 to 2011 1981 to2011
United States 21.2 26.3 9.6 17.0
Euro Area+ UK 20.6 17.3 6.4 12.6
Japan 11.4 2.4 1.0 3.7
China 8.7 17.9 29.6 21.6
India 4.4 6.5 10.1 7.8
Rest of World 33.8 29.7 43.4 37.3
Source: A. Virmani based on IMF data
Contributions to Growth by DecadeRank Country 1980 to 1990* Country 1990 to 2000 Country 2000 to 2009
1 United States 26.8% United States 36.0% China 25.5%
2 Japan 21.1% China 9.6% United States 21.5%
3 Germany 4.4% Japan 6.6% India 6.1%
4 United Kingdom 3.8% Germany 4.5% Korea, Rep. 3.2%
5 China 3.6% United Kingdom 4.2% Brazil 3.1%
6 France 3.2% Korea, Rep. 3.0% United Kingdom 3.1%
7 Italy 2.8% France 3.0% Japan 3.0%
8 Korea, Rep. 2.3% India 2.4% France 2.1%
9 Canada 1.8% Canada 2.3% Russian Federation 2.0%
10 India 1.6% Mexico 2.1% Spain 2.0%
11 Spain 1.5% Italy 2.0% Australia 1.9%
12 Australia 1.2% Brazil 1.8% Canada 1.8%
13 Turkey 1.0% Spain 1.8% Argentina 1.7%
14 Brazil 1.0% Australia 1.5% Germany 1.4%
15 Mexico 0.9% Netherlands 1.3% Indonesia 1.4%
*Not included: Russian Federation nor FSU nor ECA former Communist states, for 1980 to 1990 period.
Source: J.Y. Lin (2011) calculations based on data from World Development Indicators, World Bank
Contribution to World Growth - Rank
Rank: Contribution to Global Growth
2006 2007 2008 2009 2010 2011 2012 2013
China 1 1 1 1 1 1 1 1
United States 2 4 2 3 3 3
Euro Area 3 2 6 4 4 4 4
India 4 3 2 2 3 2 2 2
Russia 5 5 3 7 5 6 5
Japan 6 7 5 5 7
Mexico 7 12 11 10 9 10 10
Brazil 8 6 4 6 6 7 6
Korea 9 9 9 8 8 10 9 9
United Kingdom 10 10 15 11
Turkey 11 11 8 13
Indonesia 12 11 5 3 12 7 8 8
Structural Transformation of Global Economy
51
Source: A. Virmani calculations based on data from World Economic Outlook, IMF (September 2011)
IFI governance arrangements have failed to account for changing economic realities
52
Evolution in Actual and Calculated IMF Quotas Relative to Weight in Global Economy
Source: G24 calculations based on IMF data
53
IFI governance arrangements have failed to account for changing economic realities
1 Defined as EMDCS whose GDP PPP share divided by the 14th General Review Quota share is greater than 1 and not over-represented by more than 25% based on the current quota formula. 2 PRGT-eligible countries including Zimbabwe. Source: G24 calculations based on IMF data
Why Europe Needs to Adjust Its Quota and Voting Share in the IMF
Post-2010 Quota Share
2011-2012 GDP Weight1 Calculated Quota2
United States 17.4 20.0 16.1
Japan 6.5 6.7 6.3
Europe excl CIS 32.8 23.7 34.7
Advanced Europe 29.4 21.1 30.8
EMDCs 42.3 48.0 42.3
Poor Countries 2.7 1.6 1.6
1GDP Blend of 40 percent GDP at market exchange rates and 60 percent at GDP PPP2 Based on current formula and 2007-2009 data
Thank you