global economic prospects · source: world bank, global economic prospects 2013a. concluding...
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Andrew Burns World Bank March 2013
Global
Economic
Prospects
Assuring
growth over
the medium term
Despite better financial conditions,
stronger growth remains elusive
• More than 4 years after financial crisis hit, high-income countries continue to suffer from volatility and slow growth
• Developing country prospects solid, but need to focus on productivity enhancing domestic policies if they are to regain pre-crisis growth rates
• Risks have declined but remain and countries are vulnerable to commodity price shocks, high-income volatility, and a freezing of capital flows
• A steady hand is required to avoid pro-cyclical policy and in order to rebuild macroeconomic buffers so that authorities can react in case of new external (or domestic) shocks
2
Financial market jitters have eased significantly
Yield on 10 year sovereign debt, percent
Source: World Bank, Datastream
0
2
4
6
8
10
12
14
16
18
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13
United States
Italy
Spain
Germany
Portugal
3
0
50
100
150
200
250
300
350
400
450
500
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13
East Asia & Pacific
Latin America
& Caribbean
Middle-East & North Africa
Europe & Central
Asia
Credit Default Swap rates, basis points
Source: World Bank, Datastream
Price of risk for most developing regions has
fallen below 2010 levels
4
0
50
100
150
200
250
300
350
400
450
500
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13
East Asia & Pacific
Latin America
& Caribbean
Middle-East & North Africa
Europe & Central
Asia
Credit Default Swap rates, basis points
Source: World Bank, Datastream
Price of risk for most developing regions has
fallen below 2010 levels
5
0
50
100
150
200
250
300
350
400
450
500
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13
East Asia & Pacific
Latin America
& Caribbean
Middle-East & North Africa
Europe & Central
Asia
Credit Default Swap rates, basis points
Source: World Bank, Datastream
Price of risk for most developing regions has
fallen below 2010 levels
6
0
5
10
15
20
25
30
Italy Spain Portugal
Italian, Portuguese, and Spanish borrowing costs have climbed on Cyprus concerns(change in 10-year bond yields since the Cyprus
announcement , basis points)
Source: Bloomberg and Development Prospects Group
High-Spread EA yields up, following Cyprus deal,
but not by enough to undo earlier gains
Source: Bloomberg and Development Prospects Group 7
After declining in May/June, capital flows to
developing countries have rebounded
8
Gross international capital flows to developing countries, billions USD
0
10
20
30
40
50
60
70
Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12
New equity issuance
Bond issuance
Syndicated Bank-lending
Source: World Bank, Dealogic.
0
1
2
3
4
5
6
7
8
9
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
2004 2005 2006 2007 2008 2009 2010 2011 2012e 2013f 2014f 2015f
ST Debt Bank Lending Bond Flows Portfolio Equity FDI Inflows $ trillion % GDP
Capital flows expected to strengthen but remain
stable as % of GDP
9 Source: World Bank, Global Economic Prospects 2013A.
Total as a share of GDP (RHS)
10
Developing countries appear to be escaping from
high-income weakness Industrial production, percent growth, 3m/3m saar
Source: World Bank, Datastream.
-10
-5
0
5
10
15
20
25
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13
China
Other
developing
Other
High income
Euro Area
Manufacturing purchasing managers index (PMI), balance of respondents
11
Purchasing manager’s indexes:
Better, but still weak
Source: World Bank, Markit/Haver Analytics.
44
46
48
50
52
54
56
58
60
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13
Other
developing
China
Other high-income
Euro Area
Order books in USA and Japan are strengthening
6.1
18.6
-3.1
-40
-30
-20
-10
0
10
20
30
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13
JPN: Core orders ex ships, utilities
USA: New orders durable goods ex transport
DEU: Total new orders
Japan
United States
Germany
New orders, 3m/3m annualized growth rate
Source: World Bank, Datastream. 12
Inflation remains in check across the developing
regions
13
0
1
2
3
4
5
6
7
8
9
10
East Asia & Pacific
ECA (excl. Belarus)
LAC (excluding Venezuela)
MENA (excl. Iran and Syria)
Sub-Saharan Africa
South Asia
2011 2012 2013
Annual percent increase in CPI, (2013 most recent value y/y)
Growth to pick up but remain 1-2 percentage
points slower than pre-crisis rates
Annual GDP growth, %
14
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015
Developing countries
High-income countries
Source: World Bank, Global Economic Prospects 2013A.
World
Growth to be constrained by capacity in many
developing regions
-4
-2
0
2
4
6
8
10
High-income East-Asia & Pacific
Europe & Central Asia
Latin America & Caribbean
Middle-East & North Africa
South Asia Sub-Saharan Africa
2011 2012 2013 2014 2015
15
Annual GDP growth, %
Source: World Bank, Global Economic Prospects 2013A.
Outlook remains precarious
• Risks have declined and are more balanced,
but remain:
– Persistent fiscal uncertainty in the U.S.
– Euro Area risks
– A sharp drop of investment in China
– Oil or food supply shock
16
Developing countries need to focus on domestic
issues
• Overall aggregates hide vulnerabilities at the
country level
• Current account deficits in oil-importing
countries have deteriorated 3.2 percentage
points since 2007
• Fiscal deficits of all developing countries
have deteriorated by 2.9 pp.
• Rising debt (public and private increases
vulnerabiities)
17
-6
-4
-2
0
2
4
00 01 02 03 04 05 06 07 08 09 10 11 12
SSTM2_NGDPS
-2
-1
0
1
2
3
00 01 02 03 04 05 06 07 08 09 10 11 12
LACM2_NGDPS
-4
-2
0
2
4
6
8
10
12
00 01 02 03 04 05 06 07 08 09 10 11 12
ECAM2_NGDPS
Monetary conditions have eased in most regions
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
00 01 02 03 04 05 06 07 08 09 10 11 12
EAPM2_NGDPS
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
00 01 02 03 04 05 06 07 08 09 10 11 12
SASM2_NGDPS
-5.0
-2.5
0.0
2.5
5.0
7.5
10.0
12.5
00 01 02 03 04 05 06 07 08 09 10 11 12
MNAM2_NGDPS
Difference between rate of growth of money supply and potential output
East Asia & Pacific
Europe & Central Asia
Latin America & Caribbean
South Asia
Middle-East & North Africa
Sub-Saharan Africa
0
5
10
15
20
25
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
More
2007 2012 2007
2012
25% had a deficit greater than 3% of GDP
49% were in balance or running a surplus
52% have a deficit in excess of 3% of GDP
23% are in balance or running a surplus
*
*
*
*
Many developing countries need to continue
growing fiscal space
19
# of developing economies
General government balance, % of GDP
Source: World Bank, Global Economic Prospects 2013A.
Estimated total debt for exceeds 50% of GDP
in many developing countries
20
Share of GDP
Source: World Bank and IMF.
Near record low stocks of maize, but wheat and
rice markets are relatively well supplied
0
5
10
15
20
25
30
35
40
45
50
Maize Rice Wheat ‘75 ‘90 ‘08
21
End of crop-year stocks as a % of total consumption
Source: World Bank, USDA
‘60
2008
Strong growth is not guaranteed
• Short-term fluctuations feel urgent, but
durable depends on the sustainability of
growth
• Requires renewed focus on structural policies
– Infrastructure investments
– Education (quality and quantity)
– Regulatory environment
– Macroeconomic stability
22
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1992 2002 2012 2022 2032 2042
Assuming continued strong productivity
growth, per capita incomes in developing
countries could rise to 52% of high-
Baseline projection
Developing country, per capita income, % of 2010 high-income level
Small improvements in potential growth result in
substantial long run gains
Source: World Bank, Global Economic Prospects 2013A.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1992 2002 2012 2022 2032 2042
Weaker growth (-0.5 pp pa)
However, that progress is not
guaranteed and even small under
performance can have large negative
Baseline projection
Developing country, per capita income, % of 2010 high-income level
Small improvements in potential growth result in
substantial long run gains
Source: World Bank, Global Economic Prospects 2013A.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1992 2002 2012 2022 2032 2042
Slow growth (- 1.0 pp pa)
Weaker growth (-0.5 pp pa)
However, that progress is not
guaranteed and even small under
performance can have large negative
Baseline projection
Developing country, per capita income, % of 2010 high-income level
Small improvements in potential growth result
in substantial long run gains
Source: World Bank, Global Economic Prospects 2013A.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1992 2002 2012 2022 2032 2042
Rapid growth (+ 1.0 pp per annum)
Faster growth (+ 0.5 pp pa)
Slow growth (- 1.0 pp pa)
Weaker growth (-0.5 pp pa)
By the same token relatively small
increases in potential growth can have
large long-term payoffs
Baseline projection
Developing country, per capita income, % of 2010 high-income level
Small improvements in potential growth result in
substantial long run gains
Source: World Bank, Global Economic Prospects 2013A.
Concluding remarks
• May-June Euro Area pessimism has had larger than
expected real-side effects, global economy is much
weaker
• Financial conditions have improved but weak growth in
high-income countries remains a factor for developing
countries
• Developing countries need to focus on domestic policy
needs and vulnerabilities
• Sustained strong growth in developing countries will
depend on productivity enhancements, investments in
infrastructure, human capital and governance
27
Andrew Burns World Bank March 2013
Global
Economic
Prospects
Assuring
growth over
the medium term
28
http://www.worldbank.org/globaloutlook
http://www.worldbank.org/propsects
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