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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3

-6

-4

-2

0

2

4

6

8

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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-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

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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-2

-1

0

1

2

3

4

5

6

7

8

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


-3

-2

-1

0

1

2

3

4

5

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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0

2

4

6

8

10

12

14

16

18

20

10Q1 11Q1 12Q1 13Q1 14Q1 15Q1

Y-o

-YT

rad

evo

lum

eg

row

thra

te

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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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.


0

2

4

6

8

10

12

14

16

18

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


0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

-0.5 0 0.5 1 1.5 2 2.5 3

Qu

arte

rly

GD

Pg

row

thv

ola

tili

ty

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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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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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.


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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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.


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


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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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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Thank You

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global macroeconomic trends major headwinds risks and

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