global economic prospects · source: world bank, global economic prospects 2013a. concluding...

1

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


Price of risk for most developing regions has

fallen below 2010 levels

4

0

50

100

150

200

250

300

350

400

450

500


East Asia & Pacific

Latin America

& Caribbean


Europe & Central

Asia





5

0

50

100

150

200

250

300

350

400

450

500


East Asia & Pacific

Latin America

& Caribbean


Europe & Central

Asia





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


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


South Asia Sub-Saharan Africa

2011 2012 2013 2014 2015

15

Annual GDP growth, %


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


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


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


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





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)


However, that progress is not

guaranteed and even small under

performance can have large negative

Baseline projection


Small improvements in potential growth result

in substantial long run gains


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)


By the same token relatively small

increases in potential growth can have

large long-term payoffs

Baseline projection





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

global economic prospects · source: world bank, global economic prospects 2013a. concluding...

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