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Emerging Trends in Developing Countries

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Emerging Trends in Developing Countries …

Emerging Trends in Developing Countries
by Alvaro Ortiz

Inaugural Lecture at Master of Development, Institutions and Economic Integration (Universidad de Valencia)

Lección inaugural Máster en Desarrollo, Instituciones e Integración Económica (Universidad de Valencia)

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  • 1. Emerging Trends in Developing Countries Lección inaugural Master en Desarrollo, Instituciones e Integración Económica Álvaro Ortiz Vidal-Abarca - Chief Economist Cross Emerging Markets BBVA Research Valencia, October 2013
  • 2. Multidimensional Emerging Markets Trends Income & Wealth Demography & Urbanization Increasing World Presence The Rise of Emerging Middle class Vulnerability & Resilience Infrastructure & Financial Deepening Openness & Trade Inclusive Growth Poverty and Inequality Technology, Productivity & Education Institutions
  • 3. Income & Wealth Wealthier and Healthier: Emerging Markets are Catching Up with Developed World but still a sizeable Gap
  • 4. First, the static picture… to identify where do we stand? Income & Wealth World: Wealth and Health (2012) (GDP per cápita in US$ and Life Expecancy) Source: Gapminder through World Bank Data Developed Economies Emerging Economies Frontier Economies
  • 5. The Catch Up will continue: GDP per capita growth differences will remain important… Income & Wealth GDP per capita Growth Rate (1980-2020) (% yoy, in nominal PPP-adjusted USD) Source: BBVA Research Advanced economies Advanced Economies 1990-00 Major advanced economies (G7) 2000-10 2010-20 European Union Other advanced economies 0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10 Central and eastern Europe Commonwealth of Independent States Emerging Economies Newly industrialized Asian economies Developing Asia Latin America and the Caribbean Middle East and North Africa
  • 6. Which is allowing Emerging economies to increase their role in global growth Income & Wealth Contribution to global growth by period and country groups (1980-2022) (in percentage points) Source: BBVA Research and IMF 5 4 3 2 1 0 80s Advances 90s Emerging 00s pre crisis Crisis 2012-2022
  • 7. The “new growth” will be increasingly based in EM with a bias in the pacific region Income & Wealth Expected contribution to global growth between 2012 and 2022 (%) Source: BBVA Research and IMF Eastern Europe Western Europe 4.5 4.9 10.9 56.4 6.4 Africa North America 6.8 Middle East Japan Emerging Asia 1.7 Pacific Region 77.5% Latin America 7.5 1.0 Oceania
  • 8. Increasing World Presence Emerging Markets are increasing their share in World GDP but Balance of Power Quotas remain unchained
  • 9. Emerging markets are increasing their share in world GDP Increasing World Presence Share of world GDP: developed and emerging markets (%) Source: IMF/WEO 100 90 80 70 60 50 40 30 20 10 0 1980 Emerging Economies 1990 Developed Economies 2000 2007 2013 2018
  • 10. China and India play in another league Increasing World Presence Incremental GDP between 2012 and 2022 (% share of world growth and bn USD for the 3 big players) Source: BBVA Research and IMF/WEO Other DMs 5% RoW 8% G7 17% Other EMs 3% EAGLEs 57% Nest 10% 27500 25000 22500 20000 17500 15000 12500 10000 7500 5000 2500 0 12971 12428 4092 15727 5036 4756 China 2012 USA 2012-2022 India
  • 11. Other relevant players in Asia, as well as in Latin America and Europe Increasing World Presence Incremental GDP between 2012 and 2022 and GDP level in 2012 [EAGLEs] (bn USD) (incremental GDP in y-axis and 2012 level below country labels) (bubbles are proportional to 2012 level) Source: BBVA Research and IMF/WEO 1300 1200 1100 Indonesia 1219 Brazil 2363 Russia 2520 1000 900 800 700 600 500 400 300 Korea 1618 Japan 4623 Turkey Germany 1126 3207 Mexico 1768 UK 2335 Taiwan 905 G6 avg. 2620
  • 12. And there are more candidates, some of them really close to the threshold Increasing World Presence Incremental GDP between 2012 and 2022 and GDP level in 2012 [Nest] (bn USD) (incremental GDP in y-axis and 2012 level below country labels) (bubbles are proportional to 2012 level) Source: BBVA Research and IMF/WEO 500 G6 avg. 2620 Nigeria 453 Australia France 450 2260 967 Colombia 400 500 Malaysia Spain Egypt Thail. 498 1415 S.Africa 540 350 655 S.Arabia 580 Iraq 744 Canada 300 G6 min. 156 Argentina 1451 Vietnam 745 (Italy) Iran 322 Poland Bang. 250 1002 1808 307 Philip. 806 425 200 Peru 328 Pakistan Chile 150 517 322 100
  • 13. A new global economic order is pushing for a new view on international relations Increasing World Presence Emerging & Developed Economies(%) Source: IMF and BBVA Research Population GDP Stock Mket Capitalisation IMF Voting 16 33 50 50 45 55 67 84 Emerging & Developing Economies Developed Economies
  • 14. Inclusive Growth Reducing Poverty but Rising Inequality Social Protection should increase to cope with increasing social demands
  • 15. The EM growth has been “somehow” a pro poor growth Inclusive Growth Selected Asia: Change in Poverty Headcount Ratio Poverty: % of People living under 1.5$ per day (in percentage points, since 1990) (at 2005 ppp prices) Source: IMF Regional Economic Outlook: Asia and Pacific Source: IMF Regional Economic Outlook: Asia and Pacific
  • 16. But with raising inequality in some fast growth areas Inclusive Growth Change in Gini Index since 1990 (percentage points) Change in Gini Index since 1990 (percentage points) Source: UNICEF Source: IMF Regional Economic Outlook: Asia and Pacific Other Asia South Asia Industrial Asia NIEs ASEAN Sub-Saharan Africa Middle East and North Africa Latin America and the Caribbean Central and Eastern Europe 5 0 5 10 Average Weighted Average by population 15
  • 17. The Safety Net on EM is still far from Western Levels… Inclusive Growth Old-age pension beneficiaries Source: ILO (% of population above retirerment age)
  • 18. In many aspects… Inclusive Growth Unemployment effective coverage worldwide (% of unemployed) Source: ILO
  • 19. One of the reason is low Fiscal Revenue… Inclusive Growth Fiscal revenue and spending 2010 (% GDP) Source: IMF
  • 20. Which limits Social Spending and inclusiveness Inclusive Growth Social spending (% of GDP) Education and inclusiveness Source: IMF Pension 2010 1/ Health 2010 1/ Education 2007 1/ Indonesia 0.9 1.3 3.5 Malaysia 2.9 2.9 4.5 Philipines 1.1 1.4 2.6 Singapore 0.6 1.0 3.2 Thailand 0.8 1.6 4.9 ASEAN-5 Other Asian Economies China 2.2 2.2 1.9 India 1.7 0.9 3.2 Vietnam 1.6 1.5 5.3 ASEAN-5 1.3 1.6 3.7 Advanced 7.4 7.0 - Emerging 4.2 2.7 - Regional average Health and inclusiveness Source: IMF Regional Economic Outlook: Asia and Pacific Source: IMF Regional Economic Outlook: Asia and Pacific
  • 21. But in some dimensions is improving very fast compared with previous historical experiences Inclusive Growth Health protection coverage for selected countries (% of total population) Source: ILO
  • 22. Increasing World Presence Population will “moderate” but the “premium” is still alive and Households will increase Urbanization & Agglomeration a new challenge
  • 23. Population will gradually decline in EM but still maintains an important premium with developed Demography & Urbanization Labor Force Population Growth (% yoy) World Labor Force: Ratio of Working Age to non Working Age Population Source: BBVA Research and UN 4 Mid term Long term Source: World Bank 3 2 1 China 0 Korea India -1 Indonesia G7 4 Mid term 3 2050 2045 2040 2035 2030 2025 2020 2015 2010 2005 2000 1995 1990 1985 1980 1975 1970 1965 1960 1955 1950 -2 Long term 2 Russia Turkey 1 Brazil 0 Mexico -1 G7 2050 2045 2040 2035 2030 2025 2020 2015 2010 2005 2000 1995 1990 1985 1980 1975 1970 1965 1960 1955 1950 -2
  • 24. ...But Household size will also decline limiting the population decline impact in some goods Demography & Urbanization Household Size and GDP Per cápita World Household Size (in members ans log of gdp per capita) (members per houesold unit) Source: BBVA Research and UN Source: BBVA Research and UN 8 7,0 6,5 7 6,0 5,5 Household size 6 5,0 4,5 5 4,0 3,5 4 3,0 2,5 3 1 0 1 2 3 ln of real PPP-adjusted GDP 4 Yemen Jordan Sudan India Central African Republic Tunisia Chad Tanzania Iran Bangladesh Vietnam Paraguay Belize Mexico Malawi Botswana Panama Costa Rica FYR Macedonia Sri Lanka Brazil Bosnia and Herzegovina Israel Uruguay Slovenia Poland 2 Ireland Spain Russia Bulgaria Lithuania Hungary Canada France Belgium United Kingdom Netherlands Germany Finland 2,0
  • 25. Different Population Pyramids will create different oportunities and challenges… Demography & Urbanization Population pyramids for selected economies (2010) Source: BBVA Research and UN G7 Countries 100+ Eagles Ageing Advanced Female 90-94 Male Eagles Populating Premiun Male Female Female Male 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4 4 3 2 1 0 1 2 3 4 5 4 3 2 1 0 1 2 3 4 5 5 4 3 2 1 0 1 2 3 4 5
  • 26. …Urbanization will increase very fast in some of the regions… Demography & Urbanization World Urbanization Rates(1980-2020) World Urbanization Rates(1980-2020) (Urban population as a % of total) (Annual Change in Urbanization Rates) Source: United Nations Source: United Nations 90 0,8 80 0,7 70 0,6 60 0,5 50 0,4 40 0,3 30 0,2 20 0,1 10 0 West Europe N.América East Europe West Europe N.América East Europe Asia Latam Africa Asia Latam Africa 2025 2020 2015 2010 2005 2000 1995 1990 1985 1980 1975 -0,1 1970 2025 2020 2015 2010 2005 2000 1995 1990 1985 1980 1975 1970 1965 1960 0
  • 27. Regional Aggregates mask some rapid changes in some countries (Andeans & South East Asia) Demography & Urbanization World Urbanization Rates(2011) (Urban population as a % of total) Source: United Nations World Urbanization Rates(2030) (Urban population as a % of total) Source: United Nations
  • 28. …and we will observe an intensive Urban Agglomeration process specially in Asia Percentage of urban population and agglomerations by size class Source: UN Urbanization Prospects, 2011 revision 2011 2025 Demography & Urbanization
  • 29. The Rise of EM Middle Classes The “Emerging Middle Classes” revolution has already started changing consumption patterns and social demands
  • 30. …The EM Middle Classes revolution accelerated at the beginning of this century… The Rise of Emerging Middle Classes Estimation of income distribution by GDP per capita in emerging economies (1980-2020) (millions of people and % of total population; original data in real PPP-adjusted USD) Source: BBVA Research Slow Motion Distribution changes Fast Track 6000 100% Slow Motion Distribution changes 90% 5000 Fast Track 80% 70% 4000 60% 3000 50% 40% 2000 30% 20% 1000 10% Affluent Low Middle Class Affluent (>40000 USD) High Middle Class Low Income Affluent Low Middle Class Medium Middle Income (15000 to 25000 USD) Low Income (1000 USD to 5000 USD) Poor( <1000 USD) High Middle Class Low Income 2020 2018 2016 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 0% 1980 2020 2018 2016 Medium Middle Class Poor High Middle Income (25000 to 40000 USD) Low Middle Income (5000 USD to 15000 USD) 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 0 Medium Middle Class Poor
  • 31. … and is being specially intensive in some areas… The Rise of Emerging Middle Classes Estimation of income distribution by GDP per capita in emerging economies regions (1980-2020) (millions of people and % of total population; original data in real PPP-adjusted USD) Source: BBVA Research 2500 2000 East Asia South Asia 1600 2000 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 1984 1982 1986 300 1980 2020 2018 2016 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 600 Emerging Europe 1986 350 1994 0 1992 0 1990 400 1988 500 1986 800 1984 1000 1982 1200 1980 1500 Latam 500 250 400 200 300 150 200 100 Affluent (>40000 USD) High Middle Income (25000 to 40000 USD) Low Middle Income (5000 USD to 15000 USD) 1984 1982 1980 2020 2018 2016 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 0 1984 0 1982 100 1980 50 Medium Middle Income (15000 to 25000 USD) Low Income (1000 USD to 5000 USD) Poor( <1000 USD)
  • 32. We will observe a gradual change in consumption patterns… The Rise of Emerging Middle Classes Consumption Patterns in S. Korea (1980-2010): Emerging Markets Consumption Patterns Source: BBVA Research Source: BBVA Research & IMF (spending distribution by COICOP groups. ( PPA Adjusted GDP per cápita) (GDP pre capita order, % en consumer price index basket, 2012) 100 100% 90 90% 80% 80 70% 60% 70 50% 60 40% 50 30% 20% 40 10% 30 0% 1980 (6.095$) 1990 (13.068$) 2000 (20.901$) 2010 (29.717$) 20 10 Corea Chile Polonia Argentina Rusia Malasia México Brasil Turquía Sudáfrica Colombia Perú Tailandia Ucrania Egipto Filipinas India Vietnam 0 Pakistán Tobacco & Alcohol Housing Health Communications Education Other Business Services Nigeria Food & Non. Alc. Beberages Dressing & Shoes Menaje Transport Leisure & Culture Hotels and Catering
  • 33. Infrastructure & Financial Deepening Population, Wealth Creation, Urbanization & Agglomeration will generate pressures on Infrastructure. Financial Deepening will help
  • 34. Income transition and changing consumption patterns: auto industry Infrastructure & Financial Deepening Increase of world car fleet by decades GDP per capita (PPP-adj. USD) and car ownership (millions of units) (units per 1,000 people) Source: BBVA Research Source: BBVA Research 350 600 300 500 Car ownership (units per 1,000 people) G7 (2020) 250 200 150 100 50 0 1980-1990 China 1990-2000 EAGLEs exChina 2000-2010 Nest US 400 G7 (1980) 300 200 Nest (2020) 100 0 G6 Others -100 7 EAGLEs = Brazil, China, India, Indonesia, Korea, Mexico, Russia, Taiwan and Turkey Nest = Bangladesh, Pakistan, Malaysia, Philippines, Thailand, Vietnam, Argentina, Chile, Colombia, Peru, Poland, Egypt, Nigeria, South Africa Nest (1980) EAGLEs (1980) 2010-2020 EAGLEs (2020) 8 9 10 log of GDP per capita (real PPP-adjusted USD) 11 12
  • 35. Expected annual increase in car fleet for the next decade concentrated in Asia and Latam Infrastructure & Financial Deepening Expected annual increase in World Car Fleet (2010-2020) (% yearly growth) Source: BBVA Research 0% 2% 4% 6% ≥8%
  • 36. Thus infrastructure needs will continue to grow… specially in the high growth areas Infrastructure & Financial Deepening Annual Infrastructure Investment Needs in Developing Markets: Changes 2010-2030 Regional Infrastructure Investment Needs in Developing by Markets 2030 ( Total in USD bns) ( Total in USD bns) Source: World Bank Source: World Bank USD billions 350 1.000 USD billions Water 900 300 800 Sanitation Fixed 700 250 600 200 Mobile 500 150 400 100 300 Transportation 50 200 100 0 2012 0 Power 2015 2018 2021 AFR 2024 2027 2030 Power EAP Transportation ECA LAC Telecoms MNA SAR Water/Sanitation AFR: SubSaharan Africa, EAP:East Asia Pacific, ECA: Eastern Europe and Central Asia, LAC: Latin America, MNA: Middle East N Africa, SAR:South Asia
  • 37. But remember that the fiscal base is till low so new forms of financing are coming Infrastructure & Financial Deepening Public Private partnership infrastructure projects (in USD bns) Source: World Bank Public Private partnership infrastructure projects by Countries (in 2005 USD bns) Source: World Bank 170 180 150 160 130 140 110 120 90 100 40 70 80 30 50 60 30 40 10 20 -10 1984 70 60 50 20 10 0 1987 Energy 1990 1993 1996 Telecommunications 1999 2002 Transport 2005 Water 2008 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Other developing Brazil China India Russia Turkey
  • 38. And the traditional “financial deepening” will acceletareDireccion Completa Infrastructure & Financial Deepening Private Credit to GDP: Changes 1998-2008 Private Credit to GDP: Changes 1998-2008 (Average Annual Change in the ratio) (Average Annual Change in the ratio) Source: BBVA Research Source: BBVA Research
  • 39. Technology, Productivity & Education Facing a global productivity slowdown but with still higher productivity growth than developed Countries. Younger and increasingly well prepared labor force: A real challenge for Developed
  • 40. Total factor productivity is slowing down but EM premium is still alive Technology, Productivity & Education Total Factor Productivity Growth (1990-2012) (median, 5 years mov.avg growth rates) Source: Total Economy Database and Own Calculations) 2,5 2,0 1,5 1,0 0,5 0,0 -0,5 -1,0 -1,5 WEurope 90-95 USA 95-00 Japan 00-05 Europe 05-12 Latam Asia M.East Africa
  • 41. In some regions Education performance is near the OECD average…and human capital is not far from ours Technology, Productivity & Education Source: BBVA Research and OECD PISA Report Education index* and median age (2010) Source: Mckinsey (2012) *Human Capital Index Secondary school student performance (score; 2009) *Median Age
  • 42. *Or latest year available Pakistan Nigeria Bangladesh S.Africa India Vietnam Indonesia China Mexico Philippines Egypt Peru Brazil Malaysia Colombia Turkey Thailand France UK Chile Japan Italy Avg G7 Argentina Poland Russia Ukraine US Korea Pakistan Nigeria Bangladesh India Malaysia Indonesia Vietnam Thailand Turkey China Egypt Philippines Argentina Mexico Chile Russia Peru S.Africa Ukraine US Colombia Poland Korea Italy Canada Brazil UK Japan Avg G7 Germany France Differences in enrolment are centered in tertiary education Technology, Productivity & Education School enrolment (total enrollment over population of corresponding age; 2010*) Source: BBVA Research and World Bank Secondary education Tertiary education 100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 More divergences in tertiary education
  • 43. 65 60 55 50 45 40 35 30 25 20 15 5 10 5 0 Nigeria Chile Brazil Peru Turkey Egypt South Africa Russia Colombia Ukraine Pakistan France Italy Vietnam Argentina Japan Indonesia G7 Bangladesh Canada Germany UK US Poland Korea China Thailand Mexico Malaysia Philippines India Egypt Nigeria Bangladesh Pakistan Turkey South Africa Ukraine Colombia Chile Vietnam Peru Poland India Italy Argentina Russia Brazil Indonesia Canada Germany Mexico G7 Japan US UK Thailand France China Korea Malaysia Philippines Which is increasingly reflected in the Tech content of manufactures and services exports Technology, Productivity & Education High Tech Exports (2010) ICT Goods and Services Exports (as % of manufactures exports) (as % of goods and service exports) Source: World Bank Source: World Bank 70 40 35 30 25 20 15 10 0 ICT goods exports ICT service exports
  • 44. Vulnerability & Resilience The last EM crisis (1990s) are key to explain the Special Resilience to the 2008 crisis and Low Vulnerability
  • 45. A vulnerability convergence Vulnerability & Resilience Sovereign Rating Index 2007-2013 Source: BBVA Research by using S&P, Moodys and Fitch Data AAA 20 AA+ 19 AA 18 AA17 A+ A16 15 A14 BBB+ 13 BBB 12 BBB11 BB+ 10 BB BB-9 B+ 8 B 7 B- 6 CCC+ 5 CCC 4 CCCCC3 D 2 1 0 20 AAA 19 AA+ 18 AA 17 AA16 A+ A 15 A-14 13 BBB+ 12 BBB 11 BBB10 BB+ BB 9 BB-8 B+ 7 B 6 B- 5 CCC+ 4 CCC 3 CCCCC 2 D 1 0 20 AAA 19 AA+ AA18 17 AAA+16 A 15 A- 14 13 BBB+ 12 BBB 11 BBB10 BB+ BB 9 BB- 8 B+ 7 B 6 B- 5 CCC+ 4 CCC 3 CCCCC 2 D 1 20 AAA 19 AA+ 18 AA 17 AA16 A+ A 15 A-14 13 BBB+ 12 BBB 11 BBB10 BB+ 9 BB 8 BB7 B+ B 6 B- 5 4 CCC+ 3 CCC CCC2 CC 1 D AAA 20 AA+ 19 AA18 17 AAA+16 A 15 A- 14 13 BBB+ 12 BBB 11 BBB10 BB+ BB 9 BB- 8 B+ 7 B 6 B- 5 CCC+ 4 CCC 3 CCCCC 2 D 1 20 AAA 19 AA+ 18 AA 17 AA16 A+ A 15 A-14 13 BBB+ 12 BBB 11 BBB10 BB+ 9 BB 8 BBB+ 7 B 6 B- 5 4 CCC+ 3 CCC CCC2 CC 1 D 0 0 0 0
  • 46. -10.0 Risk Thresholds 50 0 0 Household Debt 2013 (% GDP) (% GDP) 150.0 250.0 Corporate Sector Debt 2013 Source: BBVA Research and BIS Source: BBVA Research and BIS 130.0 110.0 200.0 90.0 70.0 150.0 50.0 100.0 30.0 10.0 50.0 0.0 China India Indonesia Malaysia Philippines Thailand 60 China India Indonesia Malaysia Philippines Philippines Thailand Thailand 80 Argentina Brazil Chile Colombia Mexico Peru 250 Argentina Argentina Brazil Chile Colombia Mexico Peru 100 Bulgaria Croatia Hungary Poland Romania Russia Turkey 300 1002 311 417 Source: BBVA Research and IMF United States Canada Japan Australia Korea Norway Sweden Denmark Finland UK Austria France Germany Netherlands Belgium Italy Spain Ireland Portugal Greece Czech Rep China India Indonesia Malaysia Philippines Thailand (% GDP) Bulgaria Croatia Hungary Poland Romania Russia Turkey Turkey 100 20 Argentina Brazil Chile Colombia Mexico Peru Gross Public Debt 2013 United States United States Canada Japan Australia Korea Norway Sweden Denmark Finland UK Austria France Germany Netherlands Belgium Italy Spain Ireland Portugal Greece Czech Rep China India Indonesia Malaysia Philippines Thailand 40 Bulgaria Croatia Hungary Poland Romania Russia Turkey 180 245 120 Argentina Brazil Chile Colombia Mexico Peru United States Canada Japan Australia Korea Norway Sweden Denmark Finland UK Austria France Germany Netherlands Belgium Italy Spain Ireland Portugal Greece Czech Rep 140 Bulgaria Croatia Hungary Poland Romania Russia Turkey United States Canada Japan Australia Korea Norway Sweden Denmark Finland UK Austria France Germany Netherlands Belgium Italy Spain Ireland Portugal Greece Czech Rep Somehow justified by Stock vulnerability data Vulnerability & Resilience External Debt 2013 (% GDP) Source: BBVA Research and IMF 200 150
  • 47. Credit Bubbles are not particularly relevant to worry in excess… but some incipient signs have been appearing Vulnerability & Resilience Private credit colour map (1996-2013 Q2) (yearly change of private credit-to-GDP ratio) Source: BBVA Research and Haver Real housing prices colour map (1996-2013 Q2) (yearly change of real housing prices) Source: BBVA Research, BIS and Globalpropertyguide … B ooming: C redit/G DP growth is higher than 5% E xcess C redit G rowth: C redit/G DP growth between 3%-5% High G rowth: C redit/G DP growth between 2%-3% Mild G rowth: C redit/G DP growth between 1%-2% S tagnant: C redit/G DP is declining betwen 0%-1% De-leveraging: C redit/G DP growth declining Non Available G4 Europa Occidental Europa Emergente LATAM US Japan C anada UK Denmark Netherlands G ermany France Italy B elgium G reece S pain Ireland Portugal Iceland Turkey Poland C zech R ep Hungary R omania R ussia B ulgaria C roatia Mexico B razil C hile C olombia Argentina Peru Uruguay C hina Korea Thailand India Indonesia Malaysia Philippines Hong Kong S ingapore Asia Asia LATAM Europe EM Western Europe G4 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 US Japan C anada UK Denmark Netherlands G ermany France Italy B elgium G reece S pain Ireland Portugal Iceland Turkey Poland C zech R ep Hungary R omania R ussia B ulgaria C roatia Mexico B razil C hile C olombia Argentina Peru Uruguay C hina Korea Thailand India Indonesia Malaysia Philippines Hong Kong S ingapore 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 # # # # # # # # # # # # # # # # # # # # # # # # # # B ooming: R eal House prices growth higher than 8% E xcess G rowth: R eal House Prices G rowth between 5% and 8% High G rowth: R eal House Prices growth between 3%-5% Mild G rowth: R eal House prices growth between 1%-3% S tagnant: R eal House Prices growth between 0% and 1% De-Leveraging: House prices are declining Non Available Data
  • 48. Besides, some important previous vulnerabilities are now lower (except for EM Europe)… Vulnerability & Resilience Emerging Markets: FX Loans 2012 (% Total Loans, 2012 or latest available data) Source: IMF 100 90 80 70 60 50 40 30 20 10 India Korea Indonesia Hong Kong Singapore Argentina Colombia Brazil Chile Honduras Peru Paraguay Uruguay Czech R. Russia Turkey Poland Ukraine Moldova Macedonia Romania B.Herzegovina Bulgaria Georgia Croatia Lithuania Latvia 0
  • 49. Which is the result of several years of reforms… Vulnerability & Resilience Policies and reforms after late 90s-early 00s crises • Exchange rate flexibility • Fiscal discipline and debt consolidation • Central bank independence • Lower price increases and inflation-targeting • Banking supervision • Better business environment
  • 50. Openness & Trade Increasing share in World Trade with SouthSouth flows increasing. Diminishing influence of GATT but increasing bilateral agreements
  • 51. The share of EM in World Trade is increasing Openness & Trade Distribution of world exports (% of total exports) Source: WTO Distribution of world Imports (% of total exports) Source: WTO
  • 52. And trade routes are changing Openness & Trade Share of Total Trade between Geographic regions in World Trade 2011 (1990 shares in brackets) Source: WTO and BBVA Research (3.6%) (7.8%) (0.7%) (3.4%) (1.6%) (2.5%) (10.2%) (8.1%) (0.9%) (2.6%) (3.2%) (0.8%) (0.7%) (0.6%) Increasing Share About Same Share Declining Share
  • 53. Rapid growth in emerging countries increases South-South relations Openness & Trade (% of total exports) Source: BBVA Research and IMF/DOTS 1980s-1990s 2010-2012 North-North 61% South-North 16% SouthSouth 6% South in 40% of transactions NorthNorth 40% SouthNorth 24% North-South 20% www.bbvaresearc h.com/KETD/fbin/ mult/EWSouthSout hTrade_i_tcm348390302.pdf?ts=30 82013 Distribution of world exports according to origin and destination North-South 17% Read more at: “Asia-driven South-South trade intensifies specialization patterns in the rest of emerging regions” SouthSouth 15% South in 60% of transactions
  • 54. GATT loosing influence but Increasing bilateral agreements Openness & Trade The Asian Noodle (Trade agreements in Asian Countries) Source: BBVA Research and IMF/DOTS
  • 55. Institutions Still far from Developed Economies Institutional challenges remain to keep growth momentum
  • 56. EMs improvements have been limited and the gap is still wide relative to the G7 Institutions Governance Indicators 1996-2012 Governance Indicators 1996-2012 Source: BBVA Research and WB Source: BBVA Research and WB (average of six indicators) (average of six indicators) 0.4 2,5 0.3 2,0 0.2 1,5 0.1 1,0 Nest G7 Colombia Japan Turkey Korea Mexico Taiwan Indonesia Poland Brazil Chile Peru Nigeria France Russia Canada Germany Vietnam China Malaysia US India Bangladesh S.Africa UK Philippines Italy Pakistan Egypt Argentina Thailand EAGLEs 2012 -0.6 2011 -2,5 2010 -0.5 2009 -2,0 2008 -0.4 2007 -1,5 2006 -0.3 2005 -1,0 2004 -0.2 2003 -0,5 2002 -0.1 2000 0,0 1998 0.0 1996 0,5
  • 57. Institutions matter for capital attraction Institutions FDI stock and institutional factors (FDI in % of GDP and institutional indicator as specified) Source: BBVA Research, UNCTAD, World Bank and CSP Ease of Doing Business (ordinal ranking) 80 Governance (-2.5 to +2.5; inverted scale) 80 60 50 40 30 20 10 0 FDI Stock as a % of GDP (2010) 70 FDI Stock as a % of GDP (2010) FDI Stock as a % of GDP (2010) 70 60 50 40 30 20 10 20 40 60 80 100 120 140 160 Ease of Doing Business Rank (2012) 70 60 50 40 30 20 10 0 0 0 State fragility (0 to 25) 80 -1.6 -1.2 -0.8 -0.4 0.0 0.4 0.8 1.2 1.6 Governance (2010) 0 2 4 6 8 10 12 14 16 18 State fragility (2010)
  • 58. Institutions matter for welfare Institutions Global competitiveness index and GDP per capita (PPP-adjusted) (GCI from 1 to 7 and GDP per capita in logs) Source: BBVA Research and World Economic Forum 12 PPP- adjusted GDP per capita 11 10 9 8 7 6 2.5 3.0 3.5 4.0 4.5 Global Competitiveness Index (1-7) 5.0 5.5 6.0
  • 59. Thank you…