how emerging markets are shaping the world
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How emerging markets are shaping the world. A brief analysis John Birchall. As the US fades other are growing. What is driving this?. The collapsing price of technology - PowerPoint PPT PresentationTRANSCRIPT
How emerging markets are shaping the worldA brief analysisJohn Birchall
As the US fades other are growing
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0.5%
1.0%
1.5%
2.0%
95 96 97 98 99 00 01 02 03 04 05 06
0.0%
0.5%
1.0%
1.5%
2.0%
US Emerging Other
Global grow th contributions
What is driving this? The collapsing price of technology
The political openness generated by, first, the adoption of outward looking policies by the Chinese under Deng Xiaoping in the early 1980s and, second, by the fall of the Berlin Wall in 1989
These are massive shocks that have rocked the competitive equilibrium of the world economy through both labour and capital flows
The fall in real communications prices
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80100120
1920 1930 1940 1950 1969 1970 1980 1990
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80100120
Ocean Freight AirTransatlantic phone Satellite
Cost of transport and communications
The history of China’s economy
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1 960 1300 1700
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China Europe
GDP per capita, 1-1700 AD $$
Now it’s edging into the lead
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607590
1820 1890 1913 1952 1978 2003
0123
456
Per capita GDP % of World Av erage (LHS)Share of World Ex ports % (RHS)
China's Geopolitical standing, 1820-2003
The US would have fallen faster if the merging markets had not been hungry for US goods
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-10
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90 92 94 96 98 00 02 04 06 08
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Ex ports Residential inv estment
% Yr% Yr US
Who drives US export growth?
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% Pts % PtsContributions to 2007 US ex port grow th
The Eurozone is increasingly influenced by China and Eastern Europe
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0.4
0.6
0.8
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Contributions to 2007 Eurozone ex port grow th % Pts% Pts
Japan id also increasing its dependence on emerging markets
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% Pts % PtsContributions to 2007 Japanese ex port grow th
The emerging markets influence on capital markets
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Dev eloping Countries Dev eloped Countries
Total foreign ex change reserv e holdings USDbnUSDbn
This is driving demand for asset back securities
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95 96 97 98 99 00 01 02 03 04 05 06 07 08
-1000100200300400500
Official purchases Corporate bondsCorporate equity FDI
USDbn USDbn
But personal debt is also increasing
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90 93 96 99 02 05
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Non-financial corporate business Households
% GDP% GDP US outstanding debt
Might loose monetary discipline in emerging markets be partly responsible for commodity price increases?
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00 01 02 03 04 05 06 07 08
020406080100120
Economist food prices (LHS)Economist metal prices (LHS)Brent oil prices (RHS)
USD/BBLIndex 2000 = 100
Have US consumers finally run out of steam?
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4.5
Q2 1953 -
Q3 1957
Q3 1957 -
Q2 1960
Q2 1960 -
Q4 1969
Q4 1969 -
Q4 1973
Q4 1973 -
Q1 1980
Q1 1980 -
Q3 1981
Q3 1981 -
Q3 1990
Q3 1990 -
Q1 2001
Q1 2001 -
Q3 2007
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Peak to Peak - US Consumption %%
And their spending on capital items is slowing
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6.0
8.0
Q2 1953 -
Q3 1957
Q3 1957 -
Q2 1960
Q2 1960 -
Q4 1969
Q4 1969 -
Q4 1973
Q4 1973 -
Q1 1980
Q1 1980 -
Q3 1981
Q3 1981 -
Q3 1990
Q3 1990 -
Q1 2001
Q1 2001 -
Q3 2007
-2.0
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%% Peak to Peak - US total inv estment
Will China have to re-value?
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6.5
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8.5
Consumer price inflation CNY v s USD (RHS)
% Yr China
Could Brazil (BRIC country) be the new leader?
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2.5
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00 01 02 03 04 05 06 07 08
5060708090100110
BRL v s USDBrazil nominal effectiv e ex change rate (RHS)
Index 2000=100
The food price problem
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90 92 94 96 98 00 02 04 06 08
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Cent/BushelCent/Bushel Wheat No.2, Hard (Kansas)
It’s across all markets
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90 92 94 96 98 00 02 04 06 08
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$/MT$/MT Thai Rice prices (B Grade)
Stocks are low
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1978/79 1984/85 1990/91 1996/97 2002/03
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Rice - ending stocks Mln tonsMln tons
Wheat also
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1978/79 1984/85 1990/91 1996/97 2002/03
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Wheat - ending stocks Mln tonsMln tons
Problems of the developing world
Food and energy price uncertainty makes inflation targeting more difficult…
…and requires tough decisions on interest rates…
…when the rise in global inflationary pressures is someone else’s fault