The Future of the Global The Future of the Global EconomyEconomy

Augusto López-Claros, Ph.D.

International Environment ForumBrighton, United Kingdom

December 18, 2010

2

Global Economic Outlook

Macroeconomic Outlook (% GDP Growth)

2009 2010 2011

World Output -0.6 4.8 4.2

Advanced Economies -3.2 2.7 2.2

US -2.6 2.6 2.3

Japan -5.2 2.8 1.5

Euro Area -4.1 1.7 1.5

Germany -4.7 3.3 2.0

France -2.5 1.6 1.6

Italy -5.0 1.0 1.0

Middle East and N. Africa 2.0 4.1 5.1

Sub-Saharan Africa 2.6 5.0 5.5

Western Hemisphere -1.8 4.0 4.0

Brazil -0.2 7.5 4.1

Mexico -6.5 5.0 3.9

China 9.1 10.5 9.6

India 5.7 9.7 8.4

Russia -7.9 4.0 4.3

3

Rising Public Debt

Public Debt (in % of GDP)

0

20

40

60

80

100

120

140

Chile

Mex

icoBra

zil

Colombia

Argenti

na

Russia

China

South

Afri

ca

Spain

Poland

India

Portu

gal

Franc

e

Greec

eIta

ly

United S

tate

s

Germ

any

United K

ingdom

Pub

lic D

ebt

(% o

f G

DP

)

4

United States Public Debt

(in % of GDP)

0

20

40

60

80

100

120

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Pub

lic d

ebt

(% o

f G

DP

)

5

U.S. Deficits: Largest in History

U.S. Fiscal Deficit: 1980-2010 (% of GDP)

Source: IMF World Economic Outlook

-14

-12

-10

-8

-6

-4

-2

0

2

4

1980 1985 1990 1995 2000 2005 2010

% o

f G

DP

6

Advanced economies’ gross financing needs, 2010

(In percent of GDP)

Maturing debt Deficit

Gross financing

needs Gross debt*Average

maturity**

Australia 2.0 -5.0 7.0 15.5 4.8

Belgium 20.8 -5.1 25.9 97.3 5.4

Canada 15.9 -5.3 21.2 82.5 5.6

France 16.9 -8.2 25.1 77.4 6.5

Germany 10.2 -5.7 15.9 72.5 6.0

Greece 13.4 -8.1 21.5 115.1 7.4

Ireland 7.7 -12.2 19.9 64.5 6.7

Italy 21.2 -5.2 26.4 115.8 6.7

Japan 54.2 -9.8 64.0 217.7 5.2

Portugal 13.0 -8.8 21.8 77.1 6.2

Spain 10.3 -10.4 20.7 55.2 6.7

Sweden 6.8 -3.3 10.1 40.9 6.0

United Kingdom 8.6 -11.4 20.0 68.2 12.8

United States 21.2 -11.0 32.2 83.2 4.4

Source: IMF, Fiscal Monitor 2010* In 2009. ** In years.

7

Projected Change of Elderly

Projected shares of elderly in total population by region(in percent)

0

8

16

24

32

40

2000 2025 2050 2000 2025 2050

Population age 65+ Population age 80+

Europe Asia

8

Radically different growth experiences

GDP per capita 1980-2009 (PPP in US $)

0

10,000

20,000

30,000

40,000

50,000

1980 1985 1990 1995 2000 2005 2010

Argentina Brazil Korea Ireland Nigeria

10,499

38,685

27,938

14,525

2,274

9

Growth Experiences

Average annual per capita income growth

1970s 1980s 1990s 1970 2000

58 poorest countries

0.5 -0.4 -0.5 100 96

Other developing countries

2.5 4.0 4.0 100 280

10

Sustainable Economic Welfare

Index of Sustainable Economic Welfare: United States

0

2,000

4,000

6,000

8,000

10,000

1950 1955 1960 1965 1970 1975 1980 1985 1990

ISEW per capita GNP per capita

11

Sustainable Economic Welfare

Gross National Product

Minus

Cost of commuting

Cost of personal pollution control

Cost of auto accidents

Cost of water pollution

Cost of air pollution

Cost of noise pollution

Loss of wetlands

Loss of farmland

Depletion of nonrenewable resources

Long-term environmental damage

…

…

Equals

Sustainable Economic Welfare

12

Average GDP per capita in dollars

Average income level

High-income countries $37,787

Upper-middle-income countries

$6,942

Lower-middle-income countries

$2,286

Low income countries $567

Source: World Bank 2008 country classification, IMF, The Economist Democracy Index

13

Decile shares of global income (2002, in %)

Decile Percentage shares

First 0.61

Second 0.94

Third 1.25

Fourth 1.62

Fifth 2.19

Sixth 3.13

Seventh 4.99

Eight 8.26

Nineth 19.71

Tenth 57.52

Total 100

Top ventile 31.34

Top to bottom decile ratio 94.6

Source: Branko Milanovic, World Bank

14

Extreme poverty:

2005

Total 1374 (21%)

India 456

Africa 388

China 208

Latin America 45

Millions of people with income under $1.25/day

2005

Total 2562 (39%)

India 828

Africa 557

China 447

Latin America 91

Millions of people with income under $2/day

World Population: 6600

15

Poverty

1990 2005

Millions of people with income under $1.25/day

1819 1374

Millions of people with income under $2/day

2756 2562

16

Evolution of Social Indicators

1960 2007

Infant mortality rate(per 1000 live births)

140 44

Average life expectancy(years)

43 66

Illiteracy rate(% of adults)

53 18

17

Implications of Population Growth

Population Growth from 1800 to 2050 (billions)

•Energy consumption

•Burdens of scale of human / economic activity on environment

•Consequences

―Global warming

―Loss of tropical forests

―Bio-diversity loss

0

2

4

6

8

10

1800 1950 1970 1990 2000 2010 2025 2050

18

A regulatory nightmare

Doing Business Report: An international perspective on regulation

Argentina Brazil Mexico Venezuela India ChinaNew

Zealand

Ease of doing business* 113 125 56 174 122 83 2

Starting a business* 135 127 115 142 121 151 1

Number of procedures 15 18 9 16 13 14 1

Time (days) 32 152 28 141 30 40 1

Dealing with construction permits*

167 108 33 96 136 176 2

Employing workers* 130 121 141 180 89 111 14

Registering property* 95 111 88 92 105 30 3

Time (days) 51 42 74 47 45 29 2

Protecting investors* 104 70 38 170 38 88 1

Paying taxes* 134 145 149 177 169 132 12

Enforcing contracts* 45 100 79 71 180 18 11

Time (days) 590 616 415 510 1420 406 216

Closing a business* 83 127 23 149 140 62 17

Time (years) 2.8 4 1.8 4 10 1.7 1.3

* Ranking sobre 181 países Fuente: Doing Business Report 2009

19

Corruption vs. Regulation

2009 Corruptions Perceptions Index vs Ease of Doing Business Ranks

y = 0.7306x + 21.009

R2 = 0.6142

0

40

80

120

160

200

0 40 80 120 160 200

DBR

CP

I

20

21

Current Account Balances

(in billions of US $)

Country 2007 2010

United States -727 -466

Spain -144 -72

United Kingdom -75 -50

Australia -58 -30

Italy -52 -58

France -26 -46

China 372 270

Germany 254 200

Japan 211 167

Norway 55 69

Russia 77 70

Switzerland 44 50

Korea 6 26

Saudi Arabia 93 29

Kuwait 50 35

22

China: Current Account Balances

0

200

400

600

800

1000

1200

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

0

2

4

6

8

10

12US billions % of GDP

23

Dollar to Euro exchange rate

January 1999 to October 2010

Source: Board of Governors of the Federal Reserve

0.8

1.0

1.2

1.4

1.6

Jan-

99

Oct-99

Aug-0

0

Jun-

01

Apr-0

2

Feb-0

3

Dec-03

Oct-04

Jul-0

5

May

-06

Mar

-07

Jan-

08

Nov-08

Sep-0

9

Jul-1

0

24

Governance Gap

Global problems requiring collective action

Management of global environment

Fight against poverty

Global financial architecture

Nuclear proliferation

Illegal drugs

Terrorism and conflict prevention

Trade liberalization and distribution of benefits

Education