Lekcija Biznesa augstskolā Turība: Globālās ekonomikas tendences/Selected global (economic) trends and drivers behind them.

1. SELECTED GLOBAL (ECONOMIC) TRENDS
AND DRIVERS BEHIND THEM
Andris Strazds
Latvijas Banka
Adviser
23.10.2018.

2. Source: Our World In Data, World Bank, OECD, UNESCO
LIFE TODAY IS BETTER THAN EVER BEFORE
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1820 1860 1900 1940 1980
Share of people not living in extreme poverty
Share of people living in extreme poverty
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1800 1840 1880 1920 1960 2000
Literate world population
Illiterate world population
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1800 1840 1880 1920 1960 2000
Share of people that survive the first 5 years of
life
Share of people that die before they are 5 years
old
Extreme poverty Illiteracy Child mortality
94
10
88
15
43
4
2015

3. Source: IMF, YouGov survey, October 2016. The size of a circle is proportional to GDP per capita (in USD) in 2016.
Globalisation is defined as the increasing movement of products, ideas, money, jobs, culture and people around the world.
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20
30
40
50
60
70
80
90
-3 0 3 6 9 12 15 18 21 24 27 30 33 36 39
Overallthinkthatglobalizationisaforce
forgoodfortheworld(%ofresponses)
Real GDP (USD, PPP) changes, 2010-2016, %
THE FASTER THE ECONOMIC GROWTH
THE MORE POSITIVELY PEOPLE VIEW GLOBALISATION

4. (1) The global middle class (mostly China)
and (2) the very rich have
benefited the most from globalization
This, at least partially, explains the
growing popularity of nationalist and
protectionist ideas
Meanwhile, the biggest losers (or at least
the non-winners) are (1) the very poor
and (2) the middle class in advanced
economies
Change in real income between 1988 and 2008
at various percentiles of global income distribution
(calculated in 2005 international dollars)
Realincrease(%)
Percentile of global income distribution
WHO BENEFITS THE MOST FROM GLOBALIZATION?
Global middle
class
Top 1%
Bottom 5%
Advanced
economy middle
class
Source: Branko Milanovic, Global income inequality by the numbers: in history and now - an overview

5. Source: U.S. Department of Commerce, Bank of Latvia calculations
ONLY THE RICHEST HAVE SEEN THEIR INCOMES RISE RAPIDLY
90
95
100
105
110
115
120
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
95th
percentile
90th
percentile
80th
percentile
60th
percentile
Median (50th
percentile)
40th
percentile
20th
percentile
10th
percentile
U.S. household income distribution
(income in comparable prices; index, 1997=100)
Income for the median U.S. household today is
more or less at the same level as in 1999 and 2007

6. Avots: Jan Kruger/Getty Images
THUS PEOPLE VOTE FOR SOMEBODY WHO PROMISES
TO
MAKE AMERICA GREAT AGAIN, AND PUT AMERICA FIRST

7. Manufacturing output is at the highest
level ever. Meanwhile manufacturing
employment shows a steady 30-year
decline
A lot more emphasis should be put on
increasing the skills and knowledge of
the unemployed (and those likely to be
unemployed)
Source: Mark Muro, MIT Technology Review
US manufacturing sector inflation-adjusted output
and employment, 1980 to 2015
HAS MEXICO BEEN STEALING AMERICAN JOBS?
0
50
100
150
200
250
300
1980 1985 1990 1995 2000 2005 2010 2015
Real output Employment
The diverging lines reflect the sector's
improved productivity, automation and
technological development

8. ARTIFICIAL INTELLIGENCE IS GETTING MORE INTELLIGENT
8
Customer service
80% of "level one" customer service
requests can already be resolved by
chatbots, in the remaining 20% of cases
seamlessly passing on to a human
operator
News stories
Results of sports games, financial results
of companies and even pre-election
activities can already now be covered by
robots-journalists
Sources: IBM, digiday.com, Photo: shutterstock

9. Source: Bureau of Economic Analysis, Bank of Latvia calculations
Manufacturing
employment
(% of total, 2016)
Change in
manufacturing
employment
(2016. vs. 1998.)
WISCONSIN 13.10% 125 980
MICHIGAN 11.17% 277 451
OHIO 10.27% 343 853
PENNSYLVA
NIA
7.76% 305 488
RD D D D D D D
R RD D D D D D
R RD D D D D D
R D D R R D D R
United States presidential election, 2016
States won by the Republican
candidate (Trump/ Pence)
States won by the
Democrat candidate
(Clinton/ Kaine)
THE DECLINE IN MANUFACTURING JOBS IN THE RUST
BELT STATES AFFECTED THE 2016 ELECTION OUTCOME

10. Source: World Economic Forum
"Pursuing protectionism is like
locking oneself in a dark room.
While wind and rain may be kept
outside, that dark room will also
block light and air. No one will
emerge as a winner in a trade war."
World Economic Forum Annual Meeting in Davos, 17.01.2017
Xi Jinping, General Secretary of the Communist Party of
China,
President of the People's Republic of China
"It will be an era that sees China
moving closer to center stage and
making greater contributions
to mankind."
19th National Congress of the Communist Party of China in
Beijing, 18.10.2017.
CHINA: THE BIGGEST SUPPORTER OF TRADE OPENNESS?

11. Source: World Trade Organization
CHINA: A LEADER IN WORLD TRADE
Leading exporters and importers in world
merchandise trade, 2016, USD bn
Leading exporters and importers in world
services trade, 2016, USD bn
0 1000 2000 3000 4000
Italy
South Korea
United Kingdom
Hong Kong
the Netherlands
France
Japan
Germany
China
USA
Export Import
0 1000 2000 3000 4000
India
Singapore
Ireland
the Netherlands
Japan
France
United Kingdom
Germany
China
USA
Export Import

12. Source: IMF World Economic Outlook data base
* - IMF forecasts
CHINA: AN IMPRESSIVE GROWTH
8.4 8.3
9.1
10 10.1
11.3
12.7
14.2
9.6 9.2
10.6
9.5
7.9 7.8 7.3 6.9 6.7 6.8 6.5 6.3
'0
'2
'4
'6
'8
'10
'12
'14
'16
Real GDP growth, %

13. CENTRE OF GRAVITY: NOW AROUND THE PACIFIC

14. CENTRE OF GRAVITY: NOW AROUND THE PACIFIC
Source: IMF World Economic Outlook data base
GDP data in USD bn
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
1995 2005 2015
USA
China
中国
Zhōng Guó
Middle Kingdom/
Central Land

15. World GDP (PPP) World GDP (USD)
U.S. IS STILL THE LARGEST ECONOMY IN THE WORLD, THE SHARE
OF EUROPE IS GRADUALLY DECLINING, WHILE CHINA IS RISING
Source: IMF World Economic Outlook data base, Bank of Latvia calculations
* - IMF forecasts
'49.43 '49.36 '50.29 '50.40
'20.09 '19.33 '15.74 '14.01
'24.56 '21.54
'16.85 '15.05
'5.91 '9.77
'17.11 '20.54
1995 2005 2015 2022*
China
EU-28
USA
Other
'41.92 '37.24 '38.48 '38.39
'24.73
'27.54 '24.38 '22.78
'30.98 '30.36
'22.03 '20.32
'2.38 '4.86
'15.11 '17.81
1995 2005 2015 2022*

16. CHINA IS (JUST) RETURNING TO WHERE IT ONCE WAS
16
Sources: Angus Maddison, University of Groningen (before 1980),
IMF WEO database (from 1980)
0%
5%
10%
15%
20%
25%
30%
35%
40%
1820
1826
1832
1838
1844
1850
1856
1862
1868
1874
1880
1886
1892
1898
1904
1910
1916
1922
1928
1934
1940
1946
1952
1958
1964
1970
1976
1982
1988
1994
2000
2006
2012
2018
Global GDP distribution (% of total, PPP)
Western Europe USA China India

17. Source: IMF
41.90%
37.40%
9.40%
11.30%
41.73%
30.93%
10.92%
8.33%
8.09%
US Dollar
Euro
Chinese
Yuan
Japanese
Yen
British
Pound
SDR basket until 01.10.2016 SDR basket now
THE IMPORTANCE OF CHINA IS INCREASING ALSO IN THE
FINANCIAL SECTOR

18. "It was the rise of Athens and the fear that this instilled in Sparta that
made war inevitable.”
"At President Trump’s direction, we’re <…> implementing tariffs on
$250 billion in Chinese goods, with the highest tariffs specifically
targeting the advanced industries that Beijing is trying to capture and
control. And the President has also made clear that we’ll levy even
more tariffs, with the possibility of substantially more than doubling
that number, unless a fair and reciprocal deal is made."
Sources: Allison, Graham, "The Thucydides Trap", Foreign Policy, June 9, 2017
Vice President Mike Pence's Remarks on the Administration's Policy Towards China, Hudson Institute, October 4, 2018
ARE THE US AND CHINA FALLING INTO A SOFT VERSION
OF THE THUCYDIDES TRAP?
"The past 500 years have seen 16 cases in which a rising power
threatened to displace a ruling one. Twelve of these ended in war."
Thucydides Trap
A New Cold War between the US and China?

19. Source: European Commission spring forecast for 2018
EUROPE: STILL IN DEBT
0
20
40
60
80
100
120
140
160
180
200
-4.5 -3 -1.5 0 1.5
Generalgovernmentdebt,%ofGDP
General government budget balance, % of GDP
Many countries spend more
than they earn.
Only 12 out of 28 EU countries
are expected to have a
balanced budget this year
Only 12 out of 28 countries
fully comply with Maastricht
criteria (government debt
<60% of GDP, budget deficit
<3% of GDP)
Government debt levels are
very high, average in Europe:
81.6% of GDP

20. Less than 10% of world's population live in Europe; it constitutes around 25% of global economy.
However, Europeans receive more than half of all social benefits worldwide.
Western European
governments are not ready for
a significant increase in life
expectancy (up to 90 years),
which is becoming an
increasingly likely scenario
Social protection
n=96, 2004-2009
IS IT EASY TO BE YOUNG IN A WELFARE STATE?
Rest of the
world, 42%
Europe
(n=36)
58%
Sources: World Bank, Atlantic Council, Eurostat
Poverty cut-off-point: 60% of median equivalized income after social transfers
'13
'15
'17
'19
'21
'23
'25
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
At risk of poverty
EU-27 (% of total)
18-24 25-54 55-64 65+
Since the global financial crisis,
the inter-generational contract
has been broken

21. Source: Shutterstock, The Atlantic
"The world's 40 largest mega-regions account for two-thirds of all the
global economic activity and 85 percent of the world's technological
innovation while housing just 18 percent of its people. [..] Mega-
regions, if they are to function as integrated economic units, require
better, more effective, and faster ways move goods, people, and
ideas. High-speed rail accomplishes that, and it also provides a
framework for future in-fill development along its corridors."
/Richard Florida, 2009/
THIS IS A (MEGA)CITY ERA

22. 22
Questions?