1. Global
Economic
Prospects:
Coping with policy normalization
in high-income countries
Andrew Burns
World Bank
January 14, 2014
http://www.worldbank.org/globaloutlook
1

2. Fourth quarter manufacturing suggests continued
strengthen in US and Japan, weakness elsewhere
Manufacturing output growth, 3m/3m saar
Q4
15
Japan
10
United States
5
0
Other high-income
-5
Euro Area
-10
-15
Jan '12
Source: World Bank, Datastream.
Jul '12
Jan '13
Jul '13

3. Fourth quarter manufacturing suggests continued
strengthen in US and Japan, weakness elsewhere
Manufacturing output growth, 3m/3m saar
Q4
15
Japan
10
United States
5
0
Other high-income
-5
Euro Area
-10
-15
Jan '12
Source: World Bank, Datastream.
Jul '12
Jan '13
Jul '13

4. Fourth quarter manufacturing suggests continued
strengthen in US and Japan, weakness elsewhere
Manufacturing output growth, 3m/3m saar
Q4
15
10
Japan
United States
5
0
Other high-income
-5
Euro Area
-10
-15
Jan '12
Source: World Bank, Datastream.
Jul '12
Jan '13
Jul '13

5. Fourth quarter manufacturing suggests continued
strengthen in US and Japan, weakness elsewhere
Manufacturing output growth, 3m/3m saar
Q4
15
10
Japan
United States
5
0
Other high-income
-5
Euro Area
-10
-15
Jan '12
Source: World Bank, Datastream.
Jul '12
Jan '13
Jul '13

6. Growth firming or solid in most
developing countries
Industrial production growth, 3m/3m saar
20
15
China
10
Other
developing
India
5
0
-5
-10
-15
Jan '11
Jul '11
Source: World Bank, Datastream.
Jan '12
Jul '12
Jan '13
Jul '13
6

7. Growth firming or solid in most
developing countries
Industrial production growth, 3m/3m saar
20
15
China
10
Other
developing
India
5
0
-5
-10
-15
Jan '11
Jul '11
Source: World Bank, Datastream.
Jan '12
Jul '12
Jan '13
Jul '13
7

8. Global GDP growth is projected to:
8

9. Global GDP growth is projected to:
• firm from 2.4% in 2013 to 3.2% this year,
9

10. Global GDP growth is projected to:
• firm from 2.4% in 2013 to 3.2% this year,
• stabilizing at 3.4% and 3.5% in 2015 and
2016
10

11. A gradual pick up in growth, led by
high-income countries
Percent annual GDP growth
10
Middle Income
8
Low Income
6
4
World
High
Income
2
0
-2
-4
2000
2002
Source: World Bank.
2004
2006
2008
2010
2012
2014
2016

12. A gradual pick up in growth, led by
high-income countries
Percent annual GDP growth
10
Middle Income
8
Low Income
6
4
World
High
Income
2
0
-2
-4
2000
2002
Source: World Bank.
2004
2006
2008
2010
2012
2014
2016

13. A gradual pick up in growth, led by
high-income countries
Percent annual GDP growth
10
Middle Income
8
Low Income
6
4
World
High
Income
2
0
-2
-4
2000
2002
Source: World Bank.
2004
2006
2008
2010
2012
2014
2016

14. A gradual pick up in growth, led by
high-income countries
Percent annual GDP growth
10
Middle Income
8
Low Income
6
4
World
High
Income
2
0
-2
-4
2000
2002
Source: World Bank.
2004
2006
2008
2010
2012
2014
2016

15. A gradual pick up in growth, led by
high-income countries
Percent annual GDP growth
10
Middle Income
8
Low Income
6
4
World
High
Income
2
0
-2
-4
2000
2002
Source: World Bank.
2004
2006
2008
2010
2012
2014
2016

16. Growth in developing countries will pick
up from 4.8% in 2013 to a slower than
previously expected 5.3% this year, 5.5%
in 2015 and 5.7% in 2016 .
16

17. Growth in developing countries will pick
up from 4.8% in 2013 to a slower than
previously expected 5.3% this year, 5.5%
in 2015 and 5.7% in 2016 .
17

18. Growth in developing countries will pick
up from 4.8% in 2013 to a slower than
previously expected 5.3% this year, 5.5%
in 2015 and 5.7% in 2016 .
18

19. Growth in developing countries will pick
up from 4.8% in 2013 to a slower than
previously expected 5.3% this year, 5.5%
in 2015 and 5.7% in 2016 .
19

20. Growth in developing countries will pick
up from 4.8% in 2013 to a slower than
previously expected 5.3% this year, 5.5%
in 2015 and 5.7% in 2016 .
20

21. Slower developing country growth is
mainly a cyclical phenomenon
GDP and potential GDP, annual growth rate
10
Post-crisis developing
country growth is 2.2
percent slower than
during the boom period.
All but 0.5 percentage
points of that is cyclical
Potential + Cyclical GDP growth
Potential GDP growth
9
8
7
6
5
4
3
2
1
0
Period of gradual acceleration in potential
1990
1995
Source: World Bank.
2000
Boom Period
2005
Growth slower only
relative to boom
2010
2015
21

22. Slower developing country growth is
mainly a cyclical phenomenon
GDP and potential GDP, annual growth rate
10
Post-crisis developing
country growth is 2.2
percent slower than
during the boom period.
All but 0.5 percentage
points of that is cyclical
Potential + Cyclical GDP growth
Potential GDP growth
9
8
7
6
5
4
3
2
1
0
Period of gradual acceleration in potential
1990
1995
Source: World Bank.
2000
Boom Period
2005
Growth slower only
relative to boom
2010
2015
22

23. Slower developing country growth is
mainly a cyclical phenomenon
GDP and potential GDP, annual growth rate
10
Post-crisis developing
country growth is 2.2
percent slower than
during the boom period.
All but 0.5 percentage
points of that is cyclical
Potential + Cyclical GDP growth
Potential GDP growth
9
8
7
6
5
4
3
2
1
0
Period of gradual acceleration in potential
1990
1995
Source: World Bank.
2000
Boom Period
2005
Growth slower only
relative to boom
2010
2015
23

24. Doing better going forward will require
focusing on:
24

25. Doing better going forward will require
focusing on:
• structural policies: investment in
education, infrastructure and health.
25

26. Doing better going forward will require
focusing on:
• structural policies: investment in
education, infrastructure and health.
• better regulations to enhance the
growth potential of countries
26

27. Growth acceleration to be limited in
regions that have already fully recovered
Percent annual GDP growth
8
2012
7
2013
2014
2015
2016
6
5
4
3
2
1
0
East Asia & Pacific
Europe & Central Asia
Latin America & Caribbean & North Africa
Middle-East
South Asia Sub-Saharan Africa
Source: World Bank.
27

28. Growth acceleration to be limited in
regions that have already fully recovered
Percent annual GDP growth
8
2012
7
2013
2014
2015
2016
6
5
4
3
2
1
0
East Asia & Pacific
Europe & Central Asia
Latin America & Caribbean & North Africa
Middle-East
South Asia Sub-Saharan Africa
Source: World Bank.
28

29. Growth acceleration to be limited in
regions that have already fully recovered
Percent annual GDP growth
8
2012
7
2013
2014
2015
2016
6
5
4
3
2
1
0
East Asia & Pacific
Europe & Central Asia
Latin America & Caribbean & North Africa
Middle-East
South Asia Sub-Saharan Africa
Source: World Bank.
29

30. Growth acceleration to be limited in
regions that have already fully recovered
Percent annual GDP growth
8
2012
7
2013
2014
2015
2016
6
5
4
3
2
1
0
East Asia & Pacific
Europe & Central Asia
Latin America & Caribbean & North Africa
Middle-East
South Asia Sub-Saharan Africa
Source: World Bank.
30

31. Growth acceleration to be limited in
regions that have already fully recovered
Percent annual GDP growth
8
2012
7
2013
2014
2015
2016
6
5
4
3
2
1
0
East Asia & Pacific
Europe & Central Asia
Latin America & Caribbean & North Africa
Middle-East
South Asia Sub-Saharan Africa
Source: World Bank.
31

32. Growth acceleration to be limited in
regions that have already fully recovered
Percent annual GDP growth
8
2012
7
2013
2014
2015
2016
6
5
4
3
2
1
0
East Asia & Pacific
Europe & Central Asia
Latin America & Caribbean & North Africa
Middle-East
South Asia Sub-Saharan Africa
Source: World Bank.
32

33. Growth acceleration to be limited in
regions that have already fully recovered
Percent annual GDP growth
8
2012
7
2013
2014
2015
2016
6
5
4
3
2
1
0
East Asia & Pacific
Europe & Central Asia
Latin America & Caribbean & North Africa
Middle-East
South Asia Sub-Saharan Africa
Source: World Bank.
33

34. Growth acceleration to be limited in
regions that have already fully recovered
Percent annual GDP growth
8
2012
7
2013
2014
2015
2016
6
5
4
3
2
1
0
East Asia & Pacific
Europe & Central Asia
Latin America & Caribbean & North Africa
Middle-East
South Asia Sub-Saharan Africa
Source: World Bank.
34

35. Growth acceleration to be limited in
regions that have already fully recovered
Percent annual GDP growth
8
2012
7
2013
2014
2015
2016
6
5
4
3
2
1
0
East Asia & Pacific
Europe & Central Asia
Latin America & Caribbean & North Africa
Middle-East
South Asia Sub-Saharan Africa
Source: World Bank.
35

36. The strengthening recovery in highincome countries is most
welcome, but it brings with it risks
of disruption as monetary policy
tightens.
36

37. In a smooth adjustment scenario, capital flows
to developing countries will ease only marginally
% of developing country GDP
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
10Q1
Source: World Bank.
13Q1
16Q1
37

38. In a smooth adjustment scenario, capital flows
to developing countries will ease only marginally
% of developing country GDP
9.0
Smooth adjustment scenario :
capital flows decline from
4.6% of developing country GDP
in 2013 to 4.0 percent in 2016
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
10Q1
Source: World Bank.
13Q1
16Q1
38

39. In a smooth adjustment scenario, capital flows
to developing countries will ease only marginally
% of developing country GDP
9.0
Smooth adjustment scenario :
capital flows decline from
4.6% of developing country GDP
in 2013 to 4.0% in 2016
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
10Q1
Source: World Bank.
13Q1
16Q1
39

40. Global trade to grow from an
estimated 3.1% in 2013 to 4.6%
this year and 5.1% in each of
2015 and 2016.
40

41. Global trade to grow from an
estimated 3.1% in 2013 to 4.6%
this year and 5.1% in each of
2015 and 2016.
41

42. Global trade to grow from an
estimated 3.1% in 2013 to 4.6%
this year and 5.1% in each of
2015 and 2016.
42

43. Global trade to grow from an
estimated 3.1% in 2013 to 4.6%
this year and 5.1% in each of
2015 and 2016.
43

44. While unlikely a sharp market reaction to tapering
could cut deeply into capital flows for a short period
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
10Q1
Source: World Bank.
13Q1
16Q1
44

45. While unlikely a sharp market reaction to tapering
could cut deeply into capital flows for a short period
9.0
If long-term rates in US jump up 100 basis points
capital flows could fall by 50 percent or more for several months
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
10Q1
Source: World Bank.
13Q1
16Q1
45

46. While unlikely a sharp market reaction to tapering
could cut deeply into capital flows for a short period
9.0
If long-term rates in US jump up 100 basis points
capital flows could fall by 50 percent or more for several months
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
10Q1
Source: World Bank.
13Q1
16Q1
46

47. While unlikely a sharp market reaction to tapering
could cut deeply into capital flows for a short period
9.0
If long-term rates in US jump up 100 basis points
capital flows could fall by 50 percent or more for several months
8.0
A 200 bp rise could cause capital flows
to decline by 80 percent
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
10Q1
Source: World Bank.
13Q1
16Q1
47

48. Earlier rapid increase in credit increases
the risk of banking-sector crises
Level of banking-sector net credits in 2012, % of GDP
Change in net bank credits, 2012-2007 (% of GDP)
40
180
35
160
30
140
120
25
100
20
80
15
60
Source: World Bank, IMF.
Brazil
Kosovo
Romania
Malawi
Lao PDR
Paraguay
Cambo…
Lesotho
Venezu…
Turkey
Gambia
Morocco
Malaysia
Vietnam
Vanuatu
St. Lucia
China
-
Serbia
-
Armenia
20
Botswa…
5
Bhutan
40
Thailand
10
48

49. Earlier rapid increase in credit increases
the risk of banking-sector crises
Level of banking-sector net credits in 2012, % of GDP
Change in net bank credits, 2012-2007 (% of GDP)
40
180
35
Change in Credit level
160
30
Credit levels in 2012
140
120
25
100
20
80
15
60
Source: World Bank, IMF.
Brazil
Kosovo
Romania
Malawi
Lao PDR
Paraguay
Cambo…
Lesotho
Venezu…
Turkey
Gambia
Morocco
Malaysia
Vietnam
Vanuatu
St. Lucia
China
-
Serbia
-
Armenia
20
Botswa…
5
Bhutan
40
Thailand
10
49

50. Earlier rapid increase in credit increases
the risk of banking-sector crises
Level of banking-sector net credits in 2012, % of GDP
Change in net bank credits, 2012-2007 (% of GDP)
40
180
35
Change in Credit level
160
30
Credit levels in 2012
140
120
25
100
20
80
15
60
Source: World Bank, IMF.
Brazil
Kosovo
Romania
Malawi
Lao PDR
Paraguay
Cambo…
Lesotho
Venezu…
Turkey
Gambia
Morocco
Malaysia
Vietnam
Vanuatu
St. Lucia
China
-
Serbia
-
Armenia
20
Botswa…
5
Bhutan
40
Thailand
10
50

51. Policy makers need to give thought now to how they
would respond to a significant tightening of global
financing conditions.
51

52. Policy makers need to give thought now to how they
would respond to a significant tightening of global
financing conditions.
• Countries with adequate policy buffers and investor
confidence may be able to rely on market
mechanisms, counter-cyclical macroeconomic and prudential
policies to deal with a decline in flows.
52

53. Policy makers need to give thought now to how they
would respond to a significant tightening of global
financing conditions.
• Countries with adequate policy buffers and investor
confidence may be able to rely on market
mechanisms, counter-cyclical macroeconomic and prudential
policies to deal with a decline in flows.
• In other cases, where the scope for maneuvering is more
limited, countries may be forced to tighten fiscal policy to
reduce financing needs or raise interest rates to incite
additional inflows.
53

54. Policy makers need to give thought now to how they
would respond to a significant tightening of global
financing conditions.
• Countries with adequate policy buffers and investor
confidence may be able to rely on market
mechanisms, counter-cyclical macroeconomic and prudential
policies to deal with a decline in flows.
• In other cases, where the scope for maneuvering is more
limited, countries may be forced to tighten fiscal policy to
reduce financing needs or raise interest rates to incite
additional inflows.
• Where adequate foreign reserves exist, these can be used to
moderate the pace of exchange rate adjustments, while a
loosening of capital inflow regulation and incentives for
foreign direct investment might help smooth adjustment.
54

55. By improving the longer term
outlook, credible reform
agendas can go a long way
towards boosting investor and
market confidence.
55

56. Global
Economic
Prospects:
Coping with policy normalization
in high-income countries
Andrew Burns
World Bank
January 14, 2014
http://www.worldbank.org/globaloutlook
56