gic banque de france march 2016 mann, catherine
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21 MARCH 2016, GIC Meeting at Banque de France
Catherine L. Mann OECD Chief Economist
Global Prospects
and the
Global Trade Downshift
ECOSCOPE blog: oecdecoscope.wordpress.com/
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Themes
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Stronger global growth remains elusive
Global trade downshift
Collective policy action to create virtuous cycle
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Global Growth Projections
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GDP projections: Interim Economic Outlook, Feb 18, 2016
Source: OECD Economic Outlook databases; and OECD calculations.
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Projections Downgraded
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Projections downgrades Feb 2016 vs. November 2015 Outlooks
Source: OECD Economic Outlook databases; and OECD calculations.
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Sluggish Real Investment mixed projected improvement
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Real fixed investment
1. OECD commodity exporters includes Australia, Canada, Chile, Mexico and Norway. Source: OECD November 2015 Economic Outlook database.
Projected improvement assumes
favourable structural and demand policy settings
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Low inflation and weak wage growth
Note: Latest month available. Core inflation is for consumer prices excluding food and energy. The private consumption deflator is used for the United States. Source: OECD Economic Outlook databases.
Core inflation Compensation per employee
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Global Trade Downshift Dramatic in EMEs and drags down global growth
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Import volumes
Source: Economic Outlook database.
-15
-10
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%
World tradegrowth
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Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15
Y o Y % change
non OECD
OECD
World
Global trade volumes and GDP, USD Market exchange rates
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Global Trade Downshift: Temporary or Permanent?
Demand (austerity) factors (Europe)
China slowdown, knock-on to Asia and commodities (EMEs)
Sluggish investment and GVCs
China rebalancing, on-shoring more permanent?
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Austerity and Weak Intra-EU trade: Important post crisis but less so lately
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Ratio of Global import volume to global GDP volume, index 2007=100
Excluding Intra-EU trade, trade/GDP ratio remains closer to its long-term
trend, but 2015 slowdown still apparent even excluding intra-EU trade
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East Asia at the centre
of 2015 trade slowdown
Source: OECD Economic Outlook Database
Trade goods and services, volume
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EA15 EU27 USA JPN CHN DAE WLD
% change % change
Avg. 2011-2014 2015
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Weaker import growth in China key factor in overall trade slowdown
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China: Real GDP and import volumes
Sources: OECD Economic Outlook database.
Commodity price changes and China’s share of global consumption
Note: Commodities shown are aluminium, coal, copper, iron ore, lead, natural gas, nickel, oil, uranium and zinc. Sources: IMF; BP Statistical Review of World Energy; World Bureau of Metal Statistics.
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20Y-o-y % change
Real GDP Import volumes
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Falling commodity prices; Mfg downshift
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Source: Thomson Reuters Datastream
Commodity prices
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World trade prices
Manufactures
Primary commodities excluing fuels
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China knock-on effects slowdowns among other EMEs
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Note: For Korea, 2015 Q3 compared to 2014 Q3. Intensive trade with China is where merchandise exports to China were above 2% of GDP in 2014. Sources: OECD National Accounts database; IMF; UNCTAD.
Sharpest slowdowns in countries with close trade links to China and/or dependent on commodities
Change in GDP growth Y-o-y growth in 2015 Q2 compared to y-o-y growth in 2014 Q2
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Rebalancing in China Permanent effect on trade growth?
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Composition of growth in China
Note: Manufacturing (secondary) includes construction. Source: Chinese National Bureau of Statistics; People’s Bank of China; and Thomson Reuters.
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China on-shoring value chain Permanent effect on trade growth?
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China is doing less assembling, with the share of ordinary trade (i.e. domestic demand driven) picking up
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1993 1997 2001 2005 2009 2013
% of goods exports
Export by custom regime
Processing and AssemblingProcessing with Imported MaterialOrdinary Trade
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1993 1997 2001 2005 2009 2013
% of goods imports
Import by custom regime
Processing and AssemblingProcessing with Imported MaterialOrdinary Trade
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Sluggish Investment, GVCs,
and Trade Slowdown
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Length of GVCs by Industry, 2008
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Emerging Markets and GVC Intensity EME poor performance accentuates slowdown
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Source: OECD/WTO Statistics on Trade in Value Added
Value added share in GVCs of manufactured goods,
1995-2011 (%)
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1995 2000 2005 2008 2009 2010 2011
USA
JPN
CHN
EU28
OECD
NONOECD
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Technology: permanent downshift?
Source: OECD (2015) Digital Economy Outlook
Global Internet Traffic
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Services trade: No general downshift
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USA JPN DEU FRA GBR CHN
%
Trade volume growth
Goods avg 2010-2014 Goods 2015 Services avg 2010-2014 Services 2015
…
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Temporary vs. permanent downshift:
openness, investment and productivity
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Trade helps explain productivity spillovers
% difference in MFP productivity spill-over between max and min value of each variable across countries
Trade with the frontier measures the intensity of trade with the productivity leader by industry (Minimum Austria, Maximum : Canada)
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Trade, Investment, GVCs, Productivity
downshift vs virtuous circle
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Ex
po
rts
+Im
po
rts
/GD
P
Year
Openness
Trade Elas. Low(2015) (1.1)
Trade Elas. Med(2008-14) (1.4)
Trade Elas. High(1988-2007) (2.1)
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100.5
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Le
ve
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Year
Productivity
MFP Low TradeElasticity
MFP Med TradeElasticity
MFP High
Note: Calibrated with 2% real GDP growth and assuming a 4 percentage point increase in openness (imports+exports/GDP) increases productivity (MFP) by 0.8% after 5 years based on current work in the Economics Department
A drop in the elasticity of trade to GDP growth from the historical
average of 2.1 to 1.1 (observed in 2015) would result in productivity 4
percentage points lower after 20 years, all else equal.
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WHAT CAN BE DONE?
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Roll back protectionist measures
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Source: Global Trade Alert
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2009 2010 2011 2012 2013 2014 2015
Number of discriminatory trade related measures
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Estimated impact of shocks on investment Percentage change after 5 years
1. 16% reduction in OECD index of regulation in energy, transport and communications (ETCR) over 5 years,
equivalent to the average pace of reduction among 15 OECD countries during the period 1993-2013.
2. Two-standard-deviation reduction in index corresponds to a 26% reduction.
Source: OECD calculations.
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Product market liberalisation Two-standard-deviationreduction in global
uncertainty
1% increase in foreigndemand
1% increase in domesticdemand
2
Set the stage for more robust investment
Structural issues, sluggish demand (local and global),
and credit in the Euro area hold back investment
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Focus on Regulatory Barriers in Services
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Product Market Regulation , 2013
Services increasing are traded, are intermediates for
goods trade, and are elements of trade facilitation
Source: Going for Growth Interim Report Economic Policy Reforms, 2016
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European Union Example:
Regulatory reforms, Investment, and Trade
28 Source: European Commission; Eurostat; and Fournier et al. (2015).
Juncker is less about the money and more about regulatory harmonization; limited projects reflects lack of progress on both
Juncker investment plan slow off the starting blocks
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14%
Cut in regulatory heterogeneity by 20%
Cut in regulatory stringency to align to the average ofthe top half best performers
Regulatory Reform and increase in Trade intensity within the EU
“Source: Fournier, J.-M. (2015), “The Negative Effect of
Regulatory Divergence on Foreign Direct Investment”,
OECD Economics Department Working Paper No. 1268
(forthcoming), OECD Publishing, Paris.
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European Union Example
Reform finance and credit channel
29 Source: Eurostat; OECD National Accounts Database. 1. Gross non-performing debt instruments as a percentage of total debt instruments. Source: European Central Bank.
And to promote new credit creation Bank credit to non-financial corporations
Year-on-year percentage change
Deleveraging needed for financial health
Household and non-financial corporate debt
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Robust Global Demand Needed Role for Collective Fiscal Action
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1st year effects of a ½ per cent of GDP public investment stimulus by all OECD economies Change from baseline
Note: Simulation using the NiGEM model, based on a two-year increase in the level of government investment equivalent to ½ per cent of GDP per annum in all OECD countries. The euro area figures are a weighted average of Germany, France and Italy. Source: OECD calculations.
Collective action, quality projects, structural policy efforts
required to realise gains to GDP and to improve debt/GDP ratios
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Robust Global Demand Needed External rebalancing temporary or permanent?
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Messages
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Stronger global growth requires collective action
• Rollback protectionism; revive pace of structural policies
• Monetary, financial policies to promote new credit/equity
• Focus fiscal policies on investment-led spending
Global trade downshift—temporary or permanent?
• China rebalancing changes GVCs
• Trade dematerialization puts premium on services reforms
• Sluggish investment is demand related
External rebalancing—temporary or not?
• Will US return to being the global buyer?
• Will China become like the US or like Germany?
• Implications for development prospects around the world
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Sources
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1. IEO
2. GfG
3. Future of productivity