World Economic Situation And Prospects 2009 2010

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Robert Vos, Director, Development Policy and Analysis Division, Department of Economic …

Robert Vos, Director, Development Policy and Analysis Division, Department of Economic
and Social Affairs, United Nations
Mr. Vos is responsible for two of the UN’s flagship reports, the World Economic and Social
Survey and the World Economic Situation and Prospects. He also serves on the Secretariat
of the United Nations’ Committee for development policy. During his presentation, Mr. Vos
will introduce current analysis of the short- and long-term economic outlook.

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  • Despite the current slump in energy and commodity prices, the underlying reality hasn't changed: the world economy can't keep growing by increasing throughput. There simply isn't enough fossil fuel, mineral ores, or agricultural land to bring the developing world up to western standards of living using the current model. As soon as the global economy picks up, commodity prices will ratchet up again and drag us down. The US will have a particularly hard time getting going again under the old growth model. We need to reframe on sustainable development rather than GDP growth. For more on this see http://econosystemics.com, or search 'econosystemics' here on slideshare for my intro presentation. Comments on that very much appreciated. Thanks!
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  • 1. World Economic Situation and Prospects 2009- 2010 May 2009 Rob Vos United Nations www.un.org/esa/policy
  • 2. Main messages 1. Worst financial crisis since World War II 2. Global economy is in recession • Synchronized downturn, no green shoots yet • Rising unemployment • Setbacks in progress to poverty reduction and other MDGs 3. Downside risks of a prolonged global recession 4. Policy challenges: • Further decisive and cooperative action is needed to restore the financial health of banks • Fiscal stimulus measures should be better coordinated and aligned with global sustainable development objectives • Deeper reforms of the international financial architecture should urgently be set in motion • A new framework for global economic governance 2
  • 3. 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 is easing somewhat… Credit crunch in the US Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Spread of interbank lending, % Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 … … … Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 3
  • 4. … but borrowing costs for developing countries remain elevated; private capital flows are reversing 10 Africa Asia 8 Latin America Europe 6 4 2 0 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 4
  • 5. World trade growth is collapsing 12 10.9 9.2 7.7 8 6.6 4.1 Annual percentage change 4 2.4 0 2004 2005 2006 2007 2008 2009 2010 -4 -8 -12 -11.1 5
  • 6. After a plunge, oil prices are back to 2005 level 140 Nominal price 120 Real price 100 $ per barrel, monthly average 80 60 40 20 0 2002 2003 2004 2005 2006 2007 2008 2009 6
  • 7. still above historic levels at lower levels, though World food prices remain Index, 2000 = 100 100 150 200 250 300 350 400 450 500 50 Jan2001 Jul2001 Wheat Jan2002 Jul2002 Jan2003 Maize Jul2003 Jan2004 Rice Jul2004 Jan2005 Jul2005 Jan2006 Jul2006 Jan2007 Jul2007 Jan2008 Jul2008 Jan2009 7
  • 8. World economy is in recession, recovery is uncertain 5 4.0 3.9 4 3.9 3.5 3 Optimistic 2.7 2.1 2 1.6 1 0 Pessimistic 2003 2004 2005 2006 2007 2008 2009 2010 -1 -2 -2.6 -3 8
  • 9. World income per capita is declining in 2009 10 8 GDP per capita annual growth % 6 4 2 0 2004 2005 2006 2007 2008 2009 2010 -2 -4 -6 Developed countries Economies in transition Developing countries 9
  • 10. 60 developing countries will see declining incomes in 2009 (number of countries with declining per capita incomes) 70 60 Developed countries 60 Economies in transition Developing countries 50 40 33 30 22 18 20 14 12 13 10 1 2 0 2008 2009 2010 10
  • 11. Severe recession in developed economies 8 6.1 6 4.0 4 GDP growth rate, % 2.4 2.7 2.0 2 1.5 1.5 1.1 1.0 0.4 0.7 0.0 -0.1 0 -0.6 -0.4 -2 -1.1 -1.7 -4 -3.5 -3.7 -6 -8 -7.1 USA Japan EU15 NewEU 2007 2008 2009 2010 Baseline 2010 Pessimistic scenario 11
  • 12. Sharp contraction of economic activity in the economies in transition…… 10 8.5 8 6.2 6 5.4 GDP growth rate, % 4.2 4 2 1.5 1.0 0 -0.3 -0.6 -2 -1.9 -4 -6 -5.4 South-eastern Europe CIS 2007 2008 2009 2010 Baseline 2010 Pessimistic scenario 12
  • 13. Developing countries are being hit hard through trade and finance channels • Spill-over effects through financial markets are hitting strongest on the middle-income countries • All developing countries are affected through slowing trade. • Primary exporters are also seeing deterioration in terms of trade • Low-income, net food and oil-importers are seeing improving terms of trade, but are suffering mainly through reduced demand for exports • Balance of payments constraints are emerging in growing number of countries and vast reserves are quickly evaporating 13
  • 14. Leading to slowdown of growth in all developing countries 10 9.6 8.5 7.6 8 6.8 6.0 6.1 GDP growth rate, % 5.4 5.6 5.5 6 5.4 4.9 4.9 4.3 4.5 4.0 3.9 4.1 4.0 4 3.0 3.1 2.9 2 1.7 1.7 2 1.4 0.9 0 -0.7 -0.7 -1.1 -2 -1.8 -4 Developing Africa East Asia South Asia Western Latin countries Asia America 2007 2008 2009 2010 Baseline 2010 Pessimistic scenario 14
  • 15. 3.Downside risks • Deeper and prolonged crisis (a)prolonged credit crunch in major economies and deeper recession (b)steep capital reversals in emerging markets (c)less ODA for low-income countries • Global imbalances 15
  • 16. continues The dollar volatility 105 120 135 90 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 Yen/US$ Apr 05 Jul 05 Oct 05 Jan 06 Euro/US$ Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 0.60 0.70 0.80 0.90 16
  • 17. …and global imbalances persist, though narrowing in deflationary spiral 600 United States 400 Japan 200 Billion US$ 0 European Union -200 -400 Developing countries (excl -600 China) and EiT -800 China 2004 2005 2006 2007 2008 2009 17
  • 18. 4. Policy challenges (1) • We have seen extraordinary responses to deal with the crisis – $18 trillion of public funding (30% of WGP) allocated to financial sector – $2.6 trillions fiscal stimulus (4% of WGP spent over 2009-2011) planned, less than the desired level of 2-3% of WGP annually – Financial landscape has changed – Coordinated monetary responses 18
  • 19. 4. Policy challenges (2) • More and even bolder action is needed: – Decisive and cooperative action is needed to restore the health of financial sector. – Align fiscal stimulus with global sustainable development objectives – Fundamental reforms of the international financial system are needed to overcome the systemic flaws 19 – A new framework for global economic