Download Historical Statistics of the World Economy

Presented by
Bart van Ark, Chief Economist
How Unique are Current Times?
Global Growth and Crises in Historical Perspective
November, 2010
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Angus Maddison (1926-2010).
This presentation is dedicated to Angus
Maddison, who was a lifelong scholar in the
measurement of long-term economic growth in
the world economy, After several decades at
the
OECD, Maddison became an economics
professor at the University of Groningen (The
Netherlands), where he developed a broadly
based research program on the sources of
growth and development. The most important
part of this program was the development of
historical measures of GDP and per capita
income growth and comparative levels of
economic performance. The full set of numbers
Maddison published in Historical Statistics on World Population, GDP and Per
Capita GDP 1-2008 AD is available online from his homepage (www.ggdc.net/
maddison). The Conference Board is proud to have inherited one small part of
this monumental enterprise in the form of the output and productivity estimates
since 1950 that appear in the Total Economy Database (www.conferenceboard.org/data/economydatabase)
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The current shift in global production may be unprecedented
 Projections for 2011-2020 suggest faster global GDP growth than
2000-2010 (or even 2000-2008), and not much below 1950-1973
 Slow investment, low demand, persistent unemployment, and
structural weaknesses will prevent acceleration of growth in
advanced economies
 Emerging economies will raise their contribution to global growth
further over the next decade even with moderate slowdown in coming
decade
 The shift in global output from 60% (advanced) – 40% (emerging) in
2000 to 40% (advanced) – 60% (emerging) is largest in history
 Is a change in “economic leadership” imminent and what can we
learn from the past?
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Agenda
1. Projections of global GDP growth 2011-2020: methods and ranges
2. How unique are current times?
3. A change in economic leadership?
4. The downside risks and upside potential in the next decade
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The Conference Board
Global Economic Outlook 2011-2020
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The Conference Board Global Economic Outlook 2011-20
 Short term (2011) based on The Conference Board Leading
Economic Indexes
 Medium term (2011-2015) based on measures of output gaps, trends
in unemployment and capacity utilization
 Long term (2011-2020) based on projections of working age
population, assumptions on total factor production and related trends
in capital growth.
 All informed by evidence from business outlooks and assessment of
political-institutional issues that may impact on growth
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The Conference Board Leading Economic Indexes® signal
slower, but positive, short-term growth in advanced economies
6-month percent change (annual rate)
6-month percent change (annual rate)
50
25
20
The Conference Board Leading Economic Indexes®
Japan
(right side)
U.S. (Sep '10)
Euro area (Sep '10)
U.K. (Aug '10)
Germany (Aug '10)
Japan (Aug '10)
15
10
5
30
20
10
0
0
-5
-10
-10
-20
-15
-30
-20
-40
-25
-50
-30
2006
2007
Source: The Conference Board
7
40
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2008
2009
2010
-60
The short-term growth prospects for emerging economies are
mixed
6-month percent change (annual rate)
24
20
16
12
The Conference Board Leading Economic Indexes®
China
Korea
Mexico
8
4
0
-4
-8
-12
-16
-20
-24
-28
-32
Aug '10
2006
2007
Source: The Conference Board
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2008
2009
2010
Multi-speed growth disparities in 2010 continue into 2011
Projected GDP growth
2010
slow speed
2011
medium speed
high speed
medium speed
slow speed
Source: The Conference Board Global Economic Outlook 2011-2020, preliminary estimates
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The closing of the output gap will take time, even if the
potential output level itself falls
Percent of potential GDP
Projections
4
Output gap between
actual and potential GDP
3
2
1
0
-1
Euro 15
-2
-3
-4
U.S.
-5
-6
-7
-8
1996
1998
2000
2002
Sources: CBO, IMF, The Conference Board
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2004
2006
2008
2010
2012
2014
Required growth to close output gap in U.S. by 2015 is
between 3.5 and 4%
Percent
Projections
5
4
3
2
1
Real GDP growth
Potential output growth
Required growth to close output gap
TCB GDP forecast
0
-1
-2
-3
1996
1998
2000
2002
Sources: BEA, CBO, The Conference Board
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2004
2006
2008
2010
2012
2014
In Europe “required” growth until 2015 is much less due to
lower potential output growth rate
Percent
Projections
4
EU-15
3
2
1
0
Real GDP growth
Potential output growth
Required growth to close output gap
TCB GDP forecast
-1
-2
-3
-4
-5
1996
1998
2000
2002
Sources: BEA, CBO, The Conference Board
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2004
2006
2008
2010
2012
2014
Advanced economies will show weakness in employment
and productivity growth
*
*
*
*
*Preliminary estimates of
The Conference Board
Global Economic Outlook
2011-2020
Source: The Conference Board Total Economy Database, September 2010;
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Investment remains the main driver in emerging economies
but total factor productivity will need to play key role
*
*
Source: The Conference Board Total Economy Database, September 2010
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*
*
The 2000-2020 period may become the second fastest
growth period in recent history
Growth rate of real GDP, 1820-2020
1820-1870
1870-1913 1913-1950 1950-1973 1973-2000 2000-2020
Western Europe
United States
Other Advanced
1.7
4.2
1.0
2.1
3.9
2.8
1.2
2.8
2.5
4.8
3.9
7.5
2.3
3.1
3.6
1.3
1.9
2.1
China
India
Developing Asia
Latin America
Middle East
Africa
Eastern Europe
Russia and CIS
-0.4
0.4
0.9
1.2
0.8
0.7
1.4
1.6
0.6
1.0
2.1
3.5
1.4
1.3
2.3
2.4
0.0
0.2
1.9
3.4
2.6
2.6
0.9
2.1
4.9
3.5
4.6
5.4
7.4
4.4
4.9
4.8
6.8
5.1
4.7
3.0
3.4
2.9
1.0
-0.6
9.9
8.1
5.3
3.6
4.9
5.2
3.4
4.0
World
Today's Advanced
Today's Emerging
0.9
1.9
0.4
2.1
2.6
1.6
1.8
2.0
1.6
4.9
4.9
5.0
3.1
2.9
3.4
4.0
1.8
6.4
Sources: 1820-2000: Maddison (2007); 2000-2020 The Conference Board
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The world economy looks set for a large shift in global
distribution of output
Shares of world GDP
23
2020
2010
2000
23
*
18
24
15
21
13
4
8
4
4
23
8
18
5
16
US
8
16
EU-15 Other advanced China
14
11
24
India Russia and CIS Other emerging
*Preliminary estimates of
The Conference Board
Global Economic Outlook
2011-2020
Source: The Conference Board Total Economy Database, September 2010
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Differences with Maddison’s projections to 2030
(Maddison, 2007)
 Maddison’s 2003-2030 projection for world GDP growth was 3.2%
(2.1% for “rich” and 4.1% for “rest”), about 0.8%-point lower than our
estimate from 2000-2020.
 OECD revised Maddison estimates upward to 3.5% global growth
(1.8% for “rich” and 4.5% for “rest”)
 Maddison has a larger GDP share for China (17% of world GDP level
in 1990$ vs. 11% in 2005$) and bigger growth deceleration (5% vs.
8.5% growth) and India (6% vs. 8% growth).
 It may be reasonable to assume slower growth after 2030, maybe by
0.5%, because of declining catch-up opportunities for emerging
economies.
 Substantial downside risks to our global outlook may have been
partly incorporated in Maddison’s estimates
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How unique are current times?
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The 2000s have seen a larger output share in global output
from today’s emerging economies
Billion dollars at 1990 price level (using PPP)
28,000
GDP
Today’ s Advanced
1.Western Europe
2.North America and Advanced Pacific
3.Advanced East Asia
24,000
20,000
3 4
Today’ s Emerging
1.China
2.India
3.Eastern Europe and Russia
4.Other emerging
16,000
2 3
12,000
2
8,000
1 1
4,000
0
1820
1870
1913
Sources: Maddison (2007), The Conference Board
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1950
1973
2000
2008
Until 1820, what are today’s emerging economies, had by
far the largest share in the global economy
Billion dollars at 1990 price level (using PPP)
600
GDP
500
Today’ s Advanced
1.Western Europe
2.North America and Advanced Pacific
3.Advanced East Asia
4
Today’ s Emerging
1.China
2.India
3.Eastern Europe and Russia
4.Other emerging
400
300
3
2
200
3
1
2
100
0
1
1
1000
Sources: Maddison (2007), The Conference Board
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1500
1820
Period 2000-2020 shows unprecedented change in output
shares across major global regions
Alternative measures of changes in global output shares
* 2000-2050 makes conservative assumptions that there will be no further shifts in global output shares after 2020
Sources: Maddison (2007), The Conference Board
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A change in economic leadership?
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Colin Clark, Conditions of
Economic Progress, 1940
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What is economic leadership and how does it arise?
 Economic leadership has two faces (Rostas, 1985):
 The relative primacy of a country in commercializing a new
technology and establishing a dominant position in a major sector.
 The assumption of responsibility for the successful operation of
the world economy as a whole
 Economic leadership arises from “intensive growth”:
 Population growth, more specifically: a rising share of the working
age population
 A sustainable mix of investment and productivity growth
 A pioneering role in technological and institutional innovation
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Why did the West arise?
 Human capacity to transform forces of nature through rational
investigation and systematic experimentation, including rise of
universities and the mass use of printing and publishing;
 The fostering of entrepreneurship, especially in urban trading centers
(Bruges, Venice, etc.);
 Reforms of marriage, inheritance, and kinship arrangements to
support individualism, accumulation and nation state building
 The emergence of a multipolar nation-state system that supported
trade, competition, and intellectual exchange.
 A gradual evolution of these forces to establish European economic
leadership (Maddison-Pomeranz debate)
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During periods of intensive growth, population rises…
Percent
2.2
Population growth rates
Maddison estimates
2.0
1.8
1.6
1.4
U.S.
Western Europe
China
India
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1000-1500
1500-1820
Sources: Maddison (2007), The Conference Board
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1820-1950
1950-2000
2000-2020
…in conjunction with a rise in per capita income
Percent
10
9
8
7
6
GDP per capita, annual growth rates
Maddison estimates
U.S.
Western Europe
China
India
5
4
3
2
1
0
-1
1000-1500
1500-1820
Sources: Maddison (2007), The Conference Board
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1820-1950
1950-2000
2000-2020
How does economic leadership erode?
 Preconditions for the relative decline of leading world economic
powers (Kindleberger, 1996)
 Financialization of the economy – and erosion of manufacturing
base
 Overindebtedness (see also Reinhart and Rogoff, 2008)
 Currency debasement
 Overdependence of energy
 Political corruption and rent seeking
 Loss of technological leadership
 A falling share in working age population and skill erosion
 In other words: “extensive growth”
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The risks during the next decade
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The downside risk for the global outlook is with emerging
economies
 Inflationary pressures in emerging markets will be high and drive
nominal currency appreciation to effectuate rebalancing
 Domestic consumption growth, including services, may dominate
trade and investment and slow economic growth
 Financial instability risks are high given the large global flows of
capital into the immature capital markets of emerging economies
 The transition from Investment to productivity as primary driver of
growth is more difficult at innovation frontier
 The demographic burden of a decline working age population may
come too early, in particular for China
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China’s demographics will peak this decade, but other
emerging markets will continue to see improvements
Percent
72
IDB projections
Working age of population
as a percent of total population
70
China
68
Advanced
countries
66
64
62
Emerging
60 ex. China and India
58
56
India
54
52
50
1990
1995
2000
Sources: The Census Bureau (IDB), The Conference Board
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2005
2010
2015
2020
In China aging population and shrinking workforce will add
to inflationary pressures longer term
1,500
5%
Working age population (millions)
1,200
4%
900
3%
600
2%
300
1%
0
0%
-300
-1%
-600
-2%
-900
-1,200
-1,500
65+population
15-39 Population
15-39 Growth Rate (RHS)
65+growth rate (RHS)
40-64 Population
0-14 Population
40-64 Growth Rate (RHS)
0-14 growth rate (RHS)
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Sources: UN Population Division, World population Prospects: The 2008 Revision, The Conference Board
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-3%
-4%
-5%
The “upgrade” of human capital will be one of the biggest
challenges for emerging economies
Percentage of labor force by skill level
Emerging economies
Source: The Conference Board Total Economy Database, September 2010
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Advanced economies
The upside potential for advanced economies is to reignite
an innovation cycle and to realign with the financial cycle
Demand for
finance related
to investment
and innovation
Supply of debt
and equity
Financial cycle
Excess
supply of
capital over
demand; by
how much
depends on
many factors
S-shaped
innovation
cycle/phase
(Kondratieff)
Shortage of supply over
demand pushing up returns;
how long and how large the
returns will be depends on the
shape of this gap
1970’s
Slow growth &
weak finance
from retained
earning and
equity
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1980’s
1990’s
Recovery /
Raid growth
restructuring related to ICT/
of banking
solid increase
sector; and
in debt +
moderate
equity / ratio
increase in
www.conferenceboard.org
loans
2000’s
Slowdown
idue to
saturation;
finance
chases less
productive
activity;
Case for 1970s2000s
The current slow-growth period in the U.S. may have its
origins in the prerecession slowdown
Annual percent change from preceding quarter
10
Real GDP
8
Current
pre-2010 annual revision
pre-2009 comprehensive revision
6
4
2
0
-2
-4
-6
-8
2000
2001
2002
2003
2004
Note: Trends were estimated using a Hodrick-Prescott (1997) filter.
Sources: BEA, The Conference Board
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2005
2006
2007
2008
2009
2010
How much can history tell us about the future?
 Topline macro GDP growth estimates can either overstate or
understate the dynamics of structural change.
 Positive and negative shocks can change the course of action, but
mostly play out very, very gradually.
 In short term downside risks for emerging economies are large,
especially in Asia.
 What is nature of economic leadership with average income far below
former leaders?
 What does greater interconnectivity of the global economy mean for
convergence process?
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