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Long run prospects for the globalLong-run prospects for the global economy from the middle of a crisis
François BourguignonParis School of Economics
Ecole des Hautes Etudes en Sciences Sociales
CIGS, Tokyo, 30/09/11
1
A world of change and uncertaintyA world of change and uncertainty …
Global economy subject to rapid and profound changes:changes:
• Emergence of new major global economic actors, North-South rebalancing, geographic reallocation of g, g g peconomic activities, …
• Globalization process: merchandise trade, finance, knowledge, …
Global economy subject to major uncertainties:• Natural resources, environment, financial crisis
2
A world of disequilibria and dunexpected events …
Disorderly globalization led to dangerous disequilibria and disastrous events:disequilibria and disastrous events:
• Global imbalances allowing for excessive and unsafe lendingg• Partly responsible for present financial and economic crisis• Surge in commodity prices and their volatility • Global warming signs …
3
The need for some clarity about ieconomic prospects
Deep structural changes and uncertainties make necessary identifying landmarks inmake necessary identifying landmarks in economic prospects.
…. This is the objective of this presentation, which f l b l i t ithfocuses on global economic prospects with some emphasis on commodity markets
4
OutlineOutline
1. The big picture: the world economy in 2030 and the "Asian factor"• The geographical structure of global GDP• Growth and reallocation of industrial and manufacturing production• The demand for (metal) commodities
2. The 'small' picture: alternative scenarios for the world economy in the years ahead
3. Conclusion
5
1. The "big picture": the world i 2030economy in 2030
Simulation methodology• Extending trends (e.g. Maddison's "forecast")• Global modeling permits to make trend extensions at national level mutually consistent
R lt t d h bi M ddi d d li• Results presented here combine Maddison and modeling (Linkage, World Bank) approaches
R lt t b t k ith h Results to be taken with very much care:• Simulation done "ceteris paribus"
M i t ibl th t ld ff t• Many non-economic events are possible that would affect economic growth in the next 20 years• Orders of magnitude of potential changes are what mattersOrders of magnitude of potential changes are what matters
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The world economy in 2030The world economy in 2030
Basic assumptions• Demographic changes as projected by UN• Capital accumulation follows the same pattern as during the 2000s• Total factor productivity according to long-run trends with some• Total factor productivity according to long-run trends, with some slowing down in developed and fast growing emerging countries• Uncertain restructuring of demand in developed countries
The importance of commodity trade and commodity prices for the developing world
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Global population: 1950-2030Global population: 1950 2030
Th ld l i f 1950 2030 l iThe world population from 1950 to 2030: population shares by region (%)
9000Africa
6000
7000
8000
Eastern Europe + F‐USSR
Latin America
4000
5000
Asia
1000
2000
3000
Developed countries
80
1000
1950 1973 2006 2030
Mean income level by region: 1950-2030
Theworld economy from 1950 to 2030: GDP per capita by region
Mean income level by region: 1950 2030
100000
The world economy from 1950 to 2030: GDP per capita by region(2005 PPP USD)
Developed countries
ale
Asia
10000
logarithmic sca
AfricaEastern Europe+ F‐USSR
Latin America
1000
GDP pe
r cap
ita:
G
1001950 1973 2006 2030
Year
9
Global GDP shares by region: 1950-2030Global GDP shares by region: 1950 2030
The world economy from 1950 to 2030: GDP shares by region (%)
100
Eastern Europe + F‐
Latin America
Africa
80
Asia
Eastern Europe + FUSSR
40
60
Developed countries
20
01950 1973 2006 2030 10
GDP growth rates by region: 1950-2030GDP growth rates by region: 1950 2030
1950 73 1973 2006 2006 301950‐73 1973‐2006 2006‐30
World 4 7 3 2 3 1World 4.7 3.2 3.1Developed C. 4.8 2.6 2.3
Developing and emerging C. 5.1 4.6 4.5p g g gAsia 5.1 5.8 4.7
China 4.9 7.5 5.0India 3.5 5.5 5.3
Latin America 5.4 3.0 3.2Af i 4 4 3 2 4 0Africa 4.4 3.2 4.0
Global industrial production 4 3 2 5 2 311
Global industrial production 4.3 2.5 2.3
The relocation of industrial production
Industrialproduction: world and high income countries (HICs) 1970‐2007
The relocation of industrial production
40
4512000
Industrial production: world and high income countries (HICs), 1970‐2007
35
40
10000
0 USD
World, share of GDP, right axis
HICs, share of GDP %, right axis
25
30
6000
8000
ion: billion 2000 G
DP share, %
World, IP, left axis
HICs, share of GDP %, right axis
15
20
4000
ustrial produ
cti %
HICs, IP, left axis
5
10
2000
Ind
12001970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Asian growth pushes commodity intensity of industrial production up
Commodity intensity of industrial production and the "Chinese factor ":
90
100180
Commodity intensity of industrial production and the Chinese factor :steel and cement, 1985‐2009
70
80
90
140
160
(200
0=10
0)
S
Steel content of global industrial production, left axis
50
60
70
100
120
ustrial prod
uction
Share of globalp
30
40
60
80
dity intensity of ind
production, %
Cement content of global industrial production, left axis
Chi ' h f l b l t d ti i ht i
10
20
20
40
Commod China's share of global cement production, right axis
China's share of global steel production, right axis
1300
1985 1990 1995 2000 2005 2010
Year
Parallel cycles in global industrial production and demand for commodities
Covariationof global industrial and commodity production: 1985‐2009
2
2.5
Covariation of global industrial and commodity production: 1985‐2009
1.5
Global industrial production
0.5
1
tion
from trend
p
Cement
‐0.5
01985 1990 1995 2000 2005 2010
Standard deviat Cement
‐1
Steel
14‐2
‐1.5
Year
The surge of China in the Global economy d h i d t i l bi
Share of China in Global GDP and Industrial production
and her industrial bias
14
16
Share of China in Global GDP and Industrial production
Share in Industrial production
12
Share in Industrial production(constant USD 2000)
8
10
Percen
t
6
P
Share in GDP (PPP USD 2005)
2
4
Share in GDP (constant USD 2000)
1501970 1975 1980 1985 1990 1995 2000 2005 2010
Axis Title
2. The 'small' picture: the global i heconomy in the years to come
2 scenarios: anemic growth in developed countries for next 3/4 years second dip
In both cases, emerging countries will be affected but ill k th i th d t d l d t iwill keep their growth advantage over developed countries.
Catching up continuesIMF W ld E i O tl k t 4 t l b l th IMF World Economic Outlook expects 4 per cent global growth
in 2012 and 6 per cent in emerging and developing economies
Reasons for this North-South asymmetry: Reasons for this North South asymmetry: Large domestic markets in emerging economies Buoyant South-South trade Southern exports often are mass consumption goods
16
The global economy in the years to come …
No expected big change in commodity demand in the 'anemic growth scenario':
Emerging countries somewhat sheltered: drop in commodity demand should be limited in comparison to 2010 Prices should not drop by more than a few percentage points Prices should not drop by more than a few percentage points
Things would be more serious with the 'second dip' g pscenario
More pronounced drop in demand, even though emerging t i ld k icountries would keep growing
Financial turmoil may affect commodity prices and capital invested there
17
WEO downside scenariosWEO downside scenarios
GDP hGDP change
USA Europe Emerg. Asia Lat.USA Europe Emerg. Asia Lat. America
Debt crisis in Europe
18Reduction in growth potential in the US + non-performing loans in Asia
ConclusionConclusion
Business as usual scenario: GDP and industrial production growth should decelerate a bit but will remain hi hhigh
Industrial production increasingly concentrated in emerging Asiaemerging Asia
Increasing weight of emerging countries in global demand (50% of additional overall global demand willdemand (50% of additional overall global demand will originate in Asia)
Demand for, and prices of basic commodities should Demand for, and prices of basic commodities should remain high and volatile unless supply response kicks in
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ConclusionConclusion
Downside risks Double dip in present crisis. Worst scenario, drop in global GDP
averaging 1 5% over 4 yearsaveraging 1.5% over 4 years Political disruption in China due to slower growth and
reorientation towards domestic market (plus financial crisis?) Natural disasters trigger major adjustment in developed
countries' environmental policies Weak growth and political instability in fast growing African Weak growth and political instability in fast growing African
population (2 billion people in 2050)
The costs of globalization: Inequality unemployment Inequality, unemployment, …
20
END
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