Vieslekcija: Globālās ekonomikas tendences

GLOBAL ECONOMIC TRENDS
16.03.2018.
Ieva Skrīvere
Latvijas Banka
International Relations and Communication Department
Chief Economist

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

Source: IMF World Economic Outlook data base
Order of bars for each group indicates (left to right):, 2017, 2018 projections, and 2019 projections
GLOBAL GROWTH: TOO LOW FOR TOO LONG
6.5 6.5 6.6
Emerging and
Developing Asia1.3
1.9
2.6
2.7
3.3 3.5
3.7 3.9 3.9
Sub-Saharan Africa
Middle East
and North Africa
Euro Area
Latin America and
the Caribbean
United States
World
2.3
2.7 2.5
2.5
3.6 3.5
2.4
2.2 2

Source: IMF World Economic Outlook data base, Bank of Latvia calculations
TRADE GROWTH IS ALSO SLOWING DOWN
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Real GDP growth, % Trade growth, %
Average real GDP growth since 1990, % Average trade growth since 1990, %
Main reasons:
• Decline in investment
• China rebalancing (from
exports and investment
to consumption and
services)
• Deceleration of global
value chains (including,
due to technology)
• Emerging market
economies are less open
to trade
• Protectionist policies
and anti free trade
sentiment

(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

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.
UK
France
Finland
Denmark
Norway
Sweden
Germany
Australia
Hong Kong
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
USA
IndiaUAE
Saudi Arabia
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

Source: WTO, IMF World Economic Outlook data base, Bank of Latvia calculations
LATVIA HAS GAINED A LOT FROM OPENNESS
Goods export market share in world imports (index, 2004=100)
50
70
90
110
130
150
170
190
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Latvia
Slovak Republic
Poland
Lithuania
Czechia
Estonia
Slovenia
Cyprus
Hungary
Malta

Source: Jan Kruger/Getty Images
MEANWHILE THE CURRENT U.S. PRESIDENT PROMISES TO
MAKE AMERICA GREAT AGAIN, AND PUT AMERICA FIRST

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

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
IS MEXICO 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

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
PENNSYLVANIA 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 ELECTION OUTCOME

Source: The Economist
IN A "POST-TRUTH" ERA, DON'T TRUST EVERYTHING THEY SAY

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 OPENNESS

CENTRE OF GRAVITY: NOW AROUND THE PACIFIC

CENTRE OF GRAVITY: NOW AROUND THE PACIFIC
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

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
* - 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*

* - 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, %

* - IMF forecasts
CHINA: 1/3 OF WORLD GDP GROWTH
GDP growth, %
-2
-1
0
1
2
3
4
5
6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018* 2019*
Other USA EU-28 China World

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

Source: Bloomberg, bank home pages, IMF
Bank assets in USD tn
CHINA RISING ALSO IN THE FINANCIAL SECTOR
Top 3 banks in China at the same time are
Top 3 banks in the world
0 1 2 3 4
Deutsche Bank
Bank of America
BNP Paribas
JPMorgan Chase & Co
HSBC Holdings
Bank of China
Mitsubishi UFJ Financial Group
Agricultural Bank of China
China Construction Bank Corp
Industrial & Commercial Bank of China
China
Japan
EU
USA
Chinese bond market – 3rd biggest in the world.
Over the past 10 years increased 6 times

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
ARE WE GOING TOWARDS A G-2 WORLD?

Source: The Sun, CNN, Daily Express
EUROPE: POLITICAL CHALLENGES

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%
Source: 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

Source: Eurostat, European Commission Autumn Forecast 2017 for the situation in 2018
EUROPE: DEBT-FINANCED WELFARE
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 10 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

THANK YOU FOR YOUR ATTENTION
AND NOW – QUESTIONS

Vieslekcija: Globālās ekonomikas tendences

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