Dr. Abdul Quader Shaikh U.S. Department of Commerce (January
29, 2010) & Dr. Javier Reyes University of Arkansas Department
of Economics Sam M. Walton College of Business (February 5, 2010)
International Economic Outlook
Slide 2
Outline Introduction Economic Outlook: An overall picture
Regional Outlook: The specifics What the future holds?
Slide 3
Introduction The recovery has started, and the challenge is to
sustain it. Global Recession Is ending, but a subdued recovery lies
ahead. Although financial conditions have improved markedly, it
will still take some time for employment to improve
significantly.
Slide 4
Economic Forecast In the advanced economies, unprecedented
public intervention has stabilized activity and fostered a return
to modest growth in several economies. Emerging and developing
economies are currently further ahead on the road to recovery.
Rebalancing the Global Economy will take time.
Slide 5
Beyond 2010 Achieving sustained healthy growth over the medium
term will depend critically on addressing the supply disruptions
generated by the crisis and rebalancing the global pattern of
demand. Consumption in advanced economy is growing slower than in
Asia countries.
Slide 6
Economic Outlook Survey 80 percent of respondents expect the
world economy to grow over the next 12 months, compared with a net
69 percent in November. The Global recession Is Ending. Slow Job
Growth Ahead but Improving, but still difficult Financial
Conditions ahead. A Subdued Recovery and Vulnerability to Mild
Deflation. Beyond 2010 Global Economy may Rebalance. Policy
Challenges: Reconciling Short- and Medium-Term Objectives.
Slide 7
Growth Forecast Global GDP to grow 3.9% in 2010. Emerging
markets (as a whole) are expected to take the lead. Growth rates
expected between 6.0 to 6.3%. Developed economies are expected to
recover from recession and grow at an average of 2.1 to 2.7%. The
forecast of GDP growth spells good news for equities. Emerging
market equities are expected to outperform their counterparts in
developed economies. Stocks with exposure to China, India,
Malaysia, Indonesia and Korea are expected to offer attractive
returns in 2010.
Slide 8
World 3.9% India 7.7% 2010 Consensus GDP Growth (YoY%)
Estimates 10.0 3.6 4.0 2.7% 1.7
Slide 9
Positive growth is expected in 2010, but the recovery will be a
slow one. Source: World Economic Outlook, IMF, January 26, 2010.
Dotted lines not in the original figure
Slide 10
Developed Countries growth is expected to be minimal over the
next two years 3.9 4.3 2.1 2.4 2.7 2.6 1.7 2.4 3.6 2.2 1.32.7 1.5
1.4 1.0 1.9 1.7 1.3
Slide 11
The rapid growth of the mid-2000s in the Emerging Market and
Transition Economies is not expected to return 8.4 10 7.7 8.4 9.7
7.8 4.7 5.3 4.7 4.0 3.7 4.7 3.6 3.4 2.0 3.7
Slide 12
Regional Economic Forecast Latin America and the Caribbean Asia
and Pacific countries Africa Middle East &Central Asia
EURO
Slide 13
Latin America and the Caribbean -LAC will recover in tandem
with the World Economy, in contrast to previous crises where it
lagged the world cycle. But given that the world recovery will be
slow, then LAC recovery will take time as well. -Dependent on
consumption and employment levels domestically and in developed
economies (consumption, travel, remittances, etc.). -But investment
seems to be picking up. Source: IMF World Economic Outlook
Slide 14
Latin America and the Caribbean Latin America has exhibited
continuing problems of macroeconomic instability and a much weaker
degree of integration into the global economy. Performance of the
Brazilian economy, the largest in South America is a success story.
For a number of years it has been clear that Brazil, despite
substantial natural resource endowments and a talented and
entrepreneurial population, has failed to match the growth
performance of other emerging market economies, notably those of
East and South East Asia.
Slide 15
Asia and Pacific What is driving the growth? The recovery of
international trade flows Given the dramatic drop in trade flows in
2008-2009, and the expected recovery of trade in the coming years,
it is possible to argue that the growth in export oriented Asia
will continue. The challenges lie in controlling the inflows that
could lead to credit cycles, financial instability (vulnerability),
negative terms of trade effects, and possibly (but remotely as of
today) overheating of these economies. World Trade and Asias
Industrial Production Change in Real Effective Exchange Rate (%
between 08/2008 and 09/2009) Source: IMF World Economic
Outlook
Slide 16
China China is leading the global recovery, helped by its
limited direct exposure to the financial crisis and by a massive
stimulus package. GDP growth 8% in 2009 and 10% in 2010, before
easing slightly in 2011 as the impact of the fiscal stimulus ends.
The strong increase in domestic demand stemming from the stimulus
has drawn in imports, while exports have been weak and may not
fully recover to pre-crisis rates. There has been much hype about
Chinas rapid ascent in the world economy. A number of, medium-, and
longer-term potential growth- deceleratorsi.e., economic
overheating, widening regional and ruralurban economic divides,
banking sector fragility, environmental degradation, rampant
corruption, an ageing population etc.that could possibly brake
Chinas rapid ascent in the world economy.
Slide 17
Middle East and Central Asia Region MENAP (oil exporters)
Sufficient reserves for governments to respond to the crisis. They
will rebuild the reserves with oil revenue as the demand for oil
recovers. But their financial systems have been exposed and
regulation needs to change. MENAP (oil importers): Softened the
blow through the policies of MENA oil exporters and because of
their low integration into the world economy. But this will
translate in low (relative) growth rates in the near future. CCA
countries hit hard, Exporters are doing fine but the rest are
suffering and will continue to suffer as remittances drop from
Russia.
Slide 18
Sub- Saharan Africa Challenges: -Debt sustainability. -Strength
of Institutions -Dependence on exports of natural resources (could
have positive effects for many but it is a curse in disguise for
others) Source: IMF World Economic Outlook
Slide 19
EURO Area -Banks and firms continue the deleveraging of balance
sheets and this could slowdown the recovery even further. -Scarcity
of credits, high rates of unemployment and labor market rigidities,
investment drop, and the lack of global demand, point towards a
fragile and slow recovery. -Output gaps and inflation dynamics
suggest threats from overheating are not near by. Source: IMF World
Economic Outlook Employment over the Business Cycle
Slide 20
Japan Growth is projected to pick up gradually to around 2% in
2011, due in part to the new governments plan to increase public
spending. Unemployment rate is likely to stay around 5 per cent
through 2011 and deflation will persist.
Slide 21
United States? Wait five more minutes.
Slide 22
Inflation/Deflation in the World?? Source: IMF World Economic
Outlook
Slide 23
Rebalancing Global Demand Achieving sustained healthy growth
over the medium term also depends critically on rebalancing the
pattern of global demand. Many current account surplus economies
that have followed export-led growth strategies will need to rely
more on domestic demand. Many external deficit countries will need
to rely less on domestic demand and more on external demand. This
will require significant structural reforms, many of which are also
necessary to boost potential output. Improve corporate governance
and financial intermediation, support public investment, and
improve social safety nets.
Slide 24
Conclusions - The World Economy will grow - Asia will lead,
other emerging economies will follow, while developed economies
will take a bit more time. - Unemployment will remain high
worldwide - Inflation dynamics remain interesting to say the least
- And now lets take a closer look at the US