global macroeconomic trends major headwinds risks and
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Hamid Rashid, Ph.D.Chief Global Economic Monitoring UnitDevelopment Policy Analysis DivisionUNDESA, New York
This does not represent the views of the UN and/or its Member States
Global macroeconomic trends
Major headwinds
Risks and uncertainties
Policy questions and challenges
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This does not represent the views of the UN and/or its Member States
This does not represent the views of the UN and/or its Member States
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Percent
World GDP World household consumption World fixed capital formation
Weak aggregate demand and equally weak investment growthdrags global growth
Increasing growth volatility in both developed and majority of largedeveloping economies
Source: UN/DESA
Source: UN/DESA, based on data from OECD and national accounts data on selected economies.
We expect global growth to bottom out at 2.3per cent in 2015
Growth to increase to 3.0 per cent and 3.2 percent in 2016 and 2017 respectively
The projected recovery is predicated on:◦ Commodity prices do not slide further
◦ Deflationary pressures ease in developed economies
◦ No further escalation of geo-political risks
◦ Gradual adjustment in policy rates and asset pricesand reduced volatility in financial markets
This does not represent the views of the UN and/or its Member States. 4
5This does not represent the views of the UN and/or its Member States
Q3 2012-Q2 2015 Q3 2009-Q2 2012 Q3 2006-Q2 2009 Q3 2003-Q2 2006
France 1.56 0.86 10.82 1.42
Germany 1.76 1.18 14.20 0.57
Italy 2.56 38.53 2.74 0.84
Japan 6.41 2.50 4.98 1.22
Spain 2.57 1.49 7.20 0.20
United Kingdom 0.45 0.82 5.83 0.45
United States 0.87 0.73 7.82 0.45
Brazil 1.32 1.24 2.57 0.50
Chile 1.04 0.99 2.01 0.76
China 0.12 0.16 0.41 0.21
India 0.20 0.53 1.09 0.44
Mexico 1.24 0.35 9.23 0.63
Russian Federation 4.32 0.46 4.23 0.24
South Africa 1.25 0.46 1.69 0.37
Quarterly growth volatility is increasing, but still below the levelsobserved during the crisis
Increasing growth volatility in commodity exporting economies
Source: UN/DESA, based on data from OECD.
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This does not represent the views of the UN and/or its Member States
-1.0
-0.5
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United States European Union Japan
2011 2012 2013 2014 2015 2016 2017
Back to the developed economies, with the United States leading the shift And contribution of China to global output growth plateauing
Source: UN/DESA
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Africa East Asia South Asia Western Asia Latin Americaand the
Caribbean
2011 2012 2013 2014 2015 2016 2017
Source: UN/DESA
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China contributed to nearly 1/3 of global output growth during the postcrisis period
Developing country contributions to global growth is declining
This does not represent the views of the UN and/or its Member States
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Per
cen
tage
Developed economies Economies in transition
Other developing economies China
Source: UN/DESA
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10Q1 11Q1 12Q1 13Q1 14Q1 15Q1
Y-o
-YT
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Export Import
Total volumes of imports and exports projected to grow by only 2.6 percent in 2015
Chinese imports projected to grow by only 1.3 per cent in 2015, downfrom 7 per cent during 2013-2014
Source: UN/DESA
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This does not represent the views of the UN and/or its Member States
China is the number one export destination for 29 economies – manyof them witnessed rapid export growth in recent years
Exports to China account for more than 25 per cent of total exports inthe case of 11 of these economies
Source: UN/DESA, based on IMF Direction of Trade database.
Global employment growth slowed down to 1.4 per cent per yearsince 2011, from 1.7 per cent per year during the pre-crisis years
Additional 12 million people are unemployed in OECD countries in2015 compared to the number of unemployed in 2007
Wage growth remained stagnant in many developed economies
This does not represent the views of the UN and/or its Member States.11
0.70.8
-0.8
0.6
0.9
-0.4
0.3 0.3
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
2006 2007 2008 2009 2010 2011 2012 2013
Gro
wth
(%)
Source: ILO
Global consumer price inflation, 2006-2016
Source: UN/DESA.
This does not represent the views of the UN and/or its Member States. 12
0
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4
6
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10
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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
World Developed economies
Economies in transition Developing economies
In 2015, global consumer price inflation is projected to fall to 2.6 percent, the lowest level since 2009
Deflationary pressure is easing in many developed economies
Source: UNDESA calculations based on OECD and data from national statistical offices
This does not represent the views of the UN and/or its Member States. 13
0.0
1.0
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-0.5 0 0.5 1 1.5 2 2.5 3
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GD
Pg
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thv
ola
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Average inflation rate
Average Growth Rates of Total Capital Services
2001-2007 2009-2013
Australia 5.2 4.9
Austria 2.9 2.1
Belgium 3.5 1.9
Canada 4.0 2.4
Denmark 3.4 1.1
Finland 2.4 0.7
France 2.9 1.7
Germany 1.6 0.8
Ireland 7.2 2.9
Italy 2.7 0.4
Japan 2.0 0.2
Korea 5.3 4.2
Netherlands 3.2 1.6
New Zealand 5.2 3.2
Spain 6.0 2.2
Sweden 3.1 2.0
Switzerland 3.3 2.4
United Kingdom 3.1 2.2
United States 3.8 1.8
China 5.3 5.6
India 4.9 6.7
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This does not represent the views of the UN and/or its Member States
Growth rates ofcapital servicesdeclined acrossall developedeconomies
But capitalintensity ofgrowth hasincreasedbecause ofdeclines inlabour inputs,since the globalfinancial crisis
Source: UN/DESA, based on data from OECD and Asian Productivity Organization.
Financial crisis induced a negative productivity shock across economies Growth in labour inputs –quality and quantity – suffered the largest
shock Average labour productivity growth – GDP per hour worked – declined
between 7.6 per cent (Germany) and 86.3 per cent (United Kingdom)during the post-crisis period
Total factor productivity (TFP) also declined during the post crisis period Contribution of labour inputs to world gross product declined from 52.5
per cent in 2002-2007 to 16.8 per cent during 2009-2014 Contribution of labour inputs to the GDP of developed economies
declined even more sharply, from 44.9 per cent in 2002-2007 to 10.8per cent during 2009-◦ Quantity of labour contributed -9.2 per cent of total growth in developed economies
Existing capital stock bearing the burden of sustaining global growth
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This does not represent the views of the UN and/or its Member States
Average % change per year
2001-2007 2009-2014
France 1.5 0.9
Germany 1.3 1.2
Japan 1.6 1.2
United Kingdom 2.2 0.3
United States 2.0 0.9
China 9.5 7.4
India 4.4 7.0
Russian Federation 5.4 2.0
South Africa 3.1 1.5
This does not represent the views of the UN and/or its Member States.
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Source: UN/DESA, based on data from OECD and Asian Productivity Organization.
This does not represent the views of the UN and/or its Member States. 17
0.20(4.04%)
0.14(4.13%)
0.57(11.73%)
0.26(7.86%)
0.66(13.57%)
0.63(18.65%)
1.64(33.94%)
2.18(64.58%)
1.78(36.72%)
0.16(4.78%)
2002-2007
2009-2014
Growth accounting, world economy
labor quality labor quantity ICT non-ICT TFP
4.84(100%)
3.37(100%)
Source: UN/DESA, based on the productivity data from the Conference Board Total Economy Database.
This does not represent the views of the UN and/or its Member States.
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0.22(9.38%)
0.14(19.14%)
0.39(16.82%)
-0.07(-9.17%)
0.42(17.98%)
0.36(47.31%)
0.66(28.15%)
0.32(41.88%)
0.65(27.68%)
0.01(0.84%)
2002-2007
2009-2014
Growth accounting, developed countries
labor quality labor quantity ICT non-ICT TFP
2.33(100%)
0.75(100%)
Source: UN/DESA, based on the productivity data from the Conference Board Total Economy Database.
Financial sector recovery outpaced real sectorrecovery worldwide
The stock of financial assets increased by $72trillion since December 2008◦ 3.3 times the world GDP, increasing from 2.9 times the
world GDP in 2008◦ Financial stocks reached 3.6 times the world GDP in
mid 2008
While financial corporations de-leveraged sincethe crisis, the debt securities issued by non-financial corporations increased by 55 per centbetween Q4 2008 and Q4 2014
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This does not represent the views of the UN and/or its Member States
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0
50,000
100,000
150,000
200,000
250,000
300,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
bil
lio
nU
S$
Total debt securities outstanding Total market capitalization - equity
Total stock of bank credit
Source: UN/DESA, using the BIS data on debt securities, World Federation of Exchangesdata on market capitalization and the Bankscope data on the stock of bank credit.
21This does not represent the views of the UN and/or its Member States
Billion US$ Q4 2002 Q4 2008 Q4 2014
Total debt securities 42,426 76,532 92,867
issued by:
Financial corporations 19,664 38,998 36,629
Nonfinancial corporations 5,585 7,226 11,211
General government 17,001 29,950 44,743
of which:
International debt securities 7,374 17,648 19,763
Source: UN/DESA, based on BIS debt securities data
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Normalization of the United States policy rate delayed, increasinguncertainty about the actual pace and sequence of normalization◦ Baseline assumption: 0.75-1.0 per cent increase by end 2016 and 1.75-2.0 per
cent increase by end 2017◦ Quick adjustments on negative term premium on government bonds◦ Rising debt servicing costs and increasing de-leveraging pressures◦ Abrupt changes in the direction of capital flows Increased financial market
volatility, overshooting or overreacting to adjustments
Increased vulnerabilities in large emerging economies◦ Lower commodity prices and slowdown in China exacerbating the export
revenue of many large emerging economies and shrinking their fiscal space◦ Sudden adjustment in policy rates, leading to capital outflows and depreciation
of exchange rates◦ Reduced liquidity and higher borrowing costs, depressing investment
Geo-political risks◦ Pose challenges to regional growth prospects◦ Further escalation in the Middle East could have spillover effects on oil prices◦ Spillover effects of the refugee crisis may intensify
This does not represent the views of the UN and/or its Member States
Key policy questions:
Is the slowdown in productivity growth cyclical or structural? Has the commodity price declined bottomed out? How large has been the impact of commodity price decline on
the world economy and how long will be its lagged effect? Has low inflation or the prospect of deflation contributed to
uncertainty, and hence growth volatility, in the developedeconomies?
Will inflation expectations change abruptly, leading to suddenspikes in interest rates?
How much of the re-building of the stock of financial assets canbe attributed to monetary easing?
How quickly firms will de-leverage and what would be the likelysize of adjustment in equity and real estate prices worldwide?
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This does not represent the views of the UN and/or its Member States
Monetary policy challenges are likely to intensify◦ Striking a delicate balance between achieving growth and employment targets and
ensuring financial stability;◦ Managing a gradual adjustment in asset prices◦ Striking a balance between domestic effects and international spillovers
Fiscal policies would need to do the heavy-lifting to stimulate growth◦ But fiscal space is limited in many developing countries◦ Fiscal space may shrink further if growth and commodity prices remain subdued and
debt servicing costs increase further◦ Structural reforms – though difficult to implement – may contribute to improving
competitiveness and productivity levels and stimulating new (including domestic)sources of growth
◦ Targeted employment policies may complement fiscal measures
Both domestic and international policy coordination is likely to becomeharder Incentive incompatibility of various policy objectives Difficult economic environment makes the trade-offs harder
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This does not represent the views of the UN and/or its Member States
Thank You
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