מבט לכלכלה העולמית – התאוששות לא אחידה

The Global Economic Outlook:
An Uneven Recovery?
Carlos A. Primo Braga
Special Representative and Director for Europe, External Affairs Vice-
Presidency, The World Bank

Presentation at the Università di Pavia/Istituto Universitario di Studi
Superiori/Collegio Santa Caterina da Siena
November 25, 2011

The views expressed here are those of the author and do not necessarily
reﬂct the v e s o the W r l d B
e i w f o ank, o thos e o its E
r f xecu ve Dir e ors or
ct
the governments they represent.

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“Theory is when you understand everything, but nothing works.
Prac ce is w en e yt hi n w r ks, b n
h ver g o ut obody u nder stands w y.
h
At this sta o theor y a p ac ce are un t e so no hi ng wr ks an no
n, nd r i d, t o d body
understands why.” (Source: Fisher, 2011)


What is the global economic outlook?
A mix of good and bad news…
• Commodity prices increase has moderated and infl on y press ures are do
a ar wn
• Japanese recovery is proceeding well
• Emerging markets growth remains strong (and developing countries are expected
to grow between 5.6 and 4.7% in 2012)
BUT
• Eurozone strains have increased
• Poli cal u
ncer tai n y a
t bout U b
S udget d scus si o
i ns
• Weaker underlying growth momentum in High Income Countries (2012 forecasts
between 1.8 and 1.1% versus 2.2% forecast of mid-year)
• Major global stock market correc o (m r e than $ tri llio si n Jul y
n o 5 n ce )
• Even though developing countries fundamentals remain strong, contagion is
genera n si g fi nt he i n d an mj or ca t a o l ow
g ni ca adw s d a pi l u s
• Moreover, developing countries have now a more restricted fi space
scal
compared to 2008

In short: downside risks have increased


Commodity prices have stabilized or are falling

Sources: Datastream and World Bank DEC Prospects Group


Impact of Japan disaster is fading
Car produc o
n
12-month percent change, number of units produced

Note: 2011
Source: OECD/Toyota Motor Corpora o a H nda M t or C L m nt hl y repor ts.
n nd o o o. td o


2011 GDP compares well with 2007,
in most cases
• For example, GDP is below its 2007 level in only 8 out of 30 ECA countries

Devia o o 2
ns f 011 real G from the 2
DP 007 le
vel

40
% change from 2007

30

20

10

0

-10

-20
IND

HRV
SRB

FRA

ITA

LTU
EST
TJK

MEX
TKM

BLR

POL
KOR

TUR

ROM

ARM
KAZ

RUS
BIH
AZE

KSV

GEO
MKD

MNE

CZE
CHN

UZB

ALB

BRA

MDA

CAN

USA

SVN
HUN

JPN

LVA
DEU
SVK
BGR

GBR

UKR
KGZ


BUT…


The Outlook According to the IMF
WEO Real GDP Growth Projec o
ns
(percent change from a year earlier)

World U.S. Euro area Japan Brazil Russia India China
2011
4 1.5 1.6 -0.5 3.8 4.3 7.8 9.5
(Sept 2011)
2011
(Jun 2011)
4.3 2.5 2.0 -0.7 4.1 4.8 8.2 9.6
2011
(Apr 2011)
4.4 2.8 1.6 1.4 4.5 4.8 8.2 9.6

2012
(Sept 2011)
4 1.8 1.1 2.3 3.6 4.1 7.5 9
2012
(Jun 2011)
4.5 2.7 1.7 2.9 3.6 4.5 7.8 9.5
2012
(Apr 2011)
4.5 2.9 1.8 2.1 4.1 4.5 7.8 9.5
Source: IMF, World Economic Outlook.

Forecasts have been downgraded further since
September
Projected growth

Source: World Bank DEC Prospects Group


Eurozone ﬁanc i n 1 g
n g: 0y over nm nt be onds
yields (sources: Bloomberg and RGE)


Con t a g i o n ha s i n c r e a s e d so v e r e i g n c r e d i t
de f a u l t swap r a t e s wo r l dw i d e

Change i n 5- y ea r s o v e r e i g n c r e d i t - d e f a u l t swap , ba s i s po i n t s ( as o f Oc t .31 s t )*

H i g h - i n c ome
Deve l o p i n g co un t r i e s
coun t r i e s

* Change s i n c e t h e beg i n n i n g o f J u l y .
Sou r c e s : B l o ombe r g and Wo r l d Ban k DEC P r o s p e c t s G r o u p


European banking-sector counterparty-risk
concerns persist despite pledge to recapitalize
Interbank overnight spreads, basis points

United States (LIBOR-OIS spread)

Europe (EURIBOR-EONIA spread)
(Latest reading, 88.1)

Sou r c e s : Da t a s t r e am and Wo r l d Bank DEC P r o s p e c t s G r o u p 13


Market percep o a p i ca tu oi l a
ns nd ol l rm re
impac n the real -si d o the w r l d e
g e f o conom y

• Change in mood about recent growth performance
– Data revisions (for high-income countries)
– Weaker than an ci p ed second q ter res ul ts
at uar

• Financial market turmoil reﬂcts b h d sappoi n ng ( b kw d-
e ot i ac ar
looking) economic news and growing (forward-looking) fears
(sovereign debt concerns, perceived lack of poli c cons ens us o
al n
how to address economic problems…)

• Increased uncertainty and shaken conﬁenc e m y d p en
d a am
investment and increase precau o y savi n
nar gs


Impact on developing countries can be significant if
further deteriora o o e
n f conom c condi on i nhigh
i s -
income countries materializes

• Direct fianc i a channel p en all yi m r t ant fo La n
n l ot p
o r
America & Caribbean and Europe & Central Asia regions (due
to integrated bank ownership)
• Implica o fo w r l d trade n tri v a
ns r o on- i l
• Should wealth eff ects a confidnce be aff
nd e ected m ore
markedly than growth could be weaker by two percent or
more
• If fianc i a -sector sol v
n l ency is a ed or a mr ket - i nuc ed
ffect a d
credit event occurs more serious consequences could be
envisaged


Fiscal space: 42% of developing countries have a
government deﬁ t g eat er than 4 o G in 2
ci r % f DP 010,
versus only 18% in 2007

Source: World Bank DEC Prospects Group


The “elephant” in the room


The implica o o the E opean sover ei g
ns f ur n
debt crisis

• Signs of contagion with CDS spreads rising even in some core Euro Area
countries
• Banking-sector exposure to European sovereign debt is an issue of
concern
• Markets remain uncertain about commitment to adjustment; lack of
consensus on the role of the ECB; moreover, the current debt overhang
plus fi /finnci al im l an
scal a ba ces, ad l im a ons ont he us e of e hange-
n it xc
rate policy constrain growth prospects
• Uncertainty can transform temporary liquidity problems into solvency
crises…
• Sovereign debt crises: history suggests that growth (unlikely in the near
future…), fiscal a u tm nt (gr owi n p i ca re stance… , ina o (t he
dj s e g ol l si ) fl n
experience of the 1920s vs the reality of the 2010s), debt restructuring
(fianc i a e n i n a real d
n l ngi eer g nd ebt rel ie … a fia al re ess i on are
f ) nd nnci pr
some of the usual channels to cope with unsustainable debt/GDP ra o s


The trade channel: MENA, ECA and SSA have the closest
e to h g spr ead E opean e
s i h- ur conom e
i s
Percent of merchandise exports des n to E ope
ed ur

9.5
16.3

7.3

6.2

4.2

4.8


Arab spring events have aﬀected in tm nt ,
ves e
economic ac v ty a la
i nd bor m r ket s
a
Industrial produc o (% change, 3 / 3m seasonal ly a u ted a
n m , dj s nnual ized rat es )

Source: World Bank based on data from Datastream
Tourist arrivals (% change over same
Unemployment rates (%)
period last year)

Source: UNWTO. Source: Government sta s cs.

Growth and unemployment
Growth accelerated in response to reforms but not enough
to address the key challenges facing the region (average, The MENA region has the highest youth unemployment rate in
annual growth rates in %) the world (%)
40
9
8 35
7
30
6
5 25
4 20
3
1990-99 15
2
1 2000-08 10
0 5
-1
-2 0
North Middle SA LAC World Sub South East
Africa East Saharan Asia Asia
Africa

MENA has the lowest par c p on r a ad also am g
i a te, n on The young popula o h b
n as een soar i n in M NA
g E
women (% of working age popula o n)

EAP

SSA

ECA

LAC

SA
total female
MENA

0 20 40 60 80 100


MENA’s job problem cannot be a ri b ed sol e y to
ut l
a slow pace of job crea o rel a ve t o grow h
n t
• Oil importers record a slow response of job crea o to in om g owt h
n c e r
• Oil exporters create jobs at a fast pace rela v to g owt h so thei r m i n
e r a
problem is low income growth
• In all MENA countries, job quality is an issue

Employment-growth elas ci es, 204- 08
0

Source: ILO.


ECA: job losses remain a big concern
• ECA: Unemployment increased signiﬁ l y d i n the cri si s; 1 in 8 a e
cant ur g r
unemployed
• Youth unemployment is a concern; 3 in 10 young adults are unemployed
Unemployment rates (percent, latest available) Youth unemployment rates in select ECA
countries (percent, Q1 2011)

Source: Employment Monitor-- h p: //go. w r l d
o bank. o g/B8M I 3 0
r MA 1I


Equatorial Guinea
Angola

SSA: A more inclusive and Chad
Sudan
Nigeria 30% Oil countries

sustained growth Cameroon
•Thanks to cfrom the
Congo, Rep.
Gabon
crisis
Average GDP
Liberia
Mozambique
growth rates
Sub Saharan Africa GDP growth Sierra Leone
Rwanda
1998-2008
Sao Tome and Princ.
Ethiopia
Tanzania
Cape Verde

Percentage of total African population
Mali
Burkina Faso Growth 4% or higher
Botswana 40%
Ghana
The Gambia
Mauritius
Namibia
Senegal
Niger
Benin
Zambia
Madagascar

Kenya
GDP Growth - SSA Malawi
South Africa
Guinea
Lesotho
Swaziland
Seychelles
Growth less than 4%
Burundi 30%
Congo, Dem. Rep.
Comoros
CAR
Togo
Côte d’Ivoire
Eritrea
Guinea-Bissau
Zimbabwe

-5.0 0.0 5.0 10.0 15.0 20.0 25.0

Growth performance in SSA
GDP growth in Sub-Saharan Africa by country groups

Source: World Development Indicators, World Bank.


Africa’s infrastructure deﬁ t
ci

Infrastructure deficit
(billion dollars/year)
Total gap $93
Current expenditures $45
Potential efficiency gains $17
________________________
Funding gap $31


Concluding remarks
• Global recovery more vulnerable. Recent turbulence in ﬁanc i a m r ket s
n l a
and uncertainty about future prospects is impac n g owt h in b h h g
g r ot i h-
income and developing countries
• Risks of contagion are increasing and may have serious consequences for
the global economy
• Mechanisms to address the Eurozone crisis need to be rapidly deployed
• Developing countries are in a more vulnerable posi o than in 2
n 007/ 8
• Structural reforms to foster job crea o rem i n cri ca (a h
n a l lt ough as th e
Arab Spring illustrates expansion of employment opportuni e m y n
s a ot
be enough if these opportuni e fal l shor t o the e
s f xpecta on of jo
s b
seekers – par cul a l y in the case o e at ed y h)
r f duc out


References
• Fischer, R.W., 2011, “Explaining Dissent on the FOMC Vote for
Opera o T i st (w th ref er ence to Jan M yen Isl a
n w i a nd, P V cker
aul ol
and Thor’s Hammer),” Dallas, Texas: Federal Reserve Bank of
Dallas.
• IMF, World Economic Outlook, several years
• Primo Braga, C.A., and G.A. Vincele e, e , 2
ds 010, S over ei g D bt
n e
and the Financial Crisis: Will This Time Be Diﬀ ent ? , Washington,
er
D.C.: The World Bank.
• World Bank, 2011, Africa’s Future and the World Bank’s Support to
It, Washington, D.C.: Africa Region, The World Bank.
• World Bank, 2011, “Developing Trends: September 2011,”
Washington, D.C.: Development Prospects Group, The World Bank.
• World Bank, 2011, Inves n fo G owt h a Jo , Washington,
g r r nd bs
D.C.: MENA Region, The World Bank.


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