Download How emerging markets and shaping the world

How emerging
markets are shaping
the world
A brief analysis
John Birchall
As the US fades other are growing
Global grow th contributions
2.0%
2.0%
1.5%
1.5%
1.0%
1.0%
0.5%
0.5%
0.0%
0.0%
95 96 97 98 99 00 01 02 03 04 05 06
US
Emerging
Other
What is driving this?




The collapsing price of technology
Cost of transport and communications
120
The political openness generated
100
by, first, the adoption of outward
looking policies by the Chinese
80
under Deng Xiaoping in the early
1980s and, second, by the fall of
60
the Berlin Wall in 1989
40
These are massive shocks that
20
have rocked the competitive
equilibrium of the world economy
0
through both labour and capital
flows
The fall in real communications
prices
120
100
80
60
40
20
0
1920 1930 1940 1950 1969 1970 1980 1990
Ocean Freight
Transatlantic phone
Air
Satellite
The history of China’s economy
$
GDP per capita, 1-1700 AD
$
1000
1000
800
800
600
600
400
400
200
200
0
0
1
960
China
1300
1700
Europe
Now it’s edging into the lead
China's Geopolitical standing, 1820-2003
90
75
60
6
5
4
45
30
15
0
3
2
1
0
1820
1890
1913
1952
1978
2003
Per capita GDP % of World Av erage (LHS)
Share of World Ex ports % (RHS)
The US would have fallen faster if the
merging markets had not been hungry for
US goods
% Yr
US
% Yr
20
20
10
10
0
0
-10
-10
-20
-20
90
92
94
Ex ports
96
98
00
02
04
06
08
Residential inv estment
Who drives US export growth?
% Pts
Contributions to 2007 US export growth
% Pts
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
da
a
n
Ca
na m any
i
h
C
Ger
Ind
ia
zil
a
r
B
UK
an rance
w
i
F
Ta
an rabia rl and ussia
p
a
e
J
A
R
z
i
t
i
d
u
w
S
Sa
The Eurozone is increasingly
influenced by China and Eastern
Europe
% Pts
Contributions to 2007 Eurozone export growth
% Pts
De
Ja
Tu
No
rla
n
Sw
e
Ch
Sw
itz e
Cz
ec
hR
Ru
Po
la
US
0.0
pa
n
0.0
nm
ark
0.2
rke
y
0.2
rwa
y
0.4
d
0.4
de
n
0.6
ina
0.6
ep
ub
lic
0.8
ss i
a
0.8
UK
1.0
nd
1.0
Japan id also increasing its
dependence on emerging markets
% Pts
Contributions to 2007 Japanese export growth
% Pts
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
na
i
h
C
e
Kor
a
h
Net
ds
n
a
l
er
s
Rus
ia
g
re
nd
ny
n
bia
o
a
a
o
l
a
i
p
r
K
a
a
m
r
A
g
g
Th
di
Ge
Sin
u
Hon
a
S
E
UA
M
s
alay
ia
lia
a
r
t
Aus
The emerging markets influence on
capital markets
USDbn
Total foreign ex change reserv e holdings
USDbn
5000
5000
4000
4000
3000
3000
2000
2000
1000
1000
0
0
00
01
02
03
04
Dev eloping Countries
05
06
07
08
Dev eloped Countries
This is driving demand for asset
back securities
USDbn
USDbn
500
400
300
200
100
0
-100
500
400
300
200
100
0
-100
95 96 97 98 99 00 01 02 03 04 05 06 07 08
Official purchases
Corporate equity
Corporate bonds
FDI
But personal debt is also increasing
% GDP
US outstanding debt
% GDP
100
100
80
80
60
60
40
40
20
20
90
93
96
99
02
Non-financial corporate business
05
Households
Might loose monetary discipline in emerging
markets be partly responsible for commodity
price increases?
Index 2000 = 100
USD/BBL
350
300
250
200
150
100
50
120
100
80
60
40
20
0
00
01
02
03
04
05
06
07
Economist food prices (LHS)
Economist metal prices (LHS)
Brent oil prices (RHS)
08
Have US consumers finally run out
of steam?
%
Peak to Peak - US Consumption
%
4.5
4.5
4
4
3.5
3.5
3
3
2.5
2.5
2
2
1.5
1.5
1
1
0.5
0.5
Q2 1953 -
Q3 1957 - Q2 1960 - Q4 1969 -
Q4 1973 - Q1 1980 - Q3 1981 -
Q3 1990 - Q1 2001 -
Q3 1957
Q2 1960
Q1 1980
Q1 2001
Q4 1969
Q4 1973
Q3 1981
Q3 1990
Q3 2007
And their spending on capital items
is slowing
%
Peak to Peak - US total investment
%
8.0
8.0
6.0
6.0
4.0
4.0
2.0
2.0
0.0
0.0
-2.0
-2.0
Q2 1953 - Q3 1957 - Q2 1960 - Q4 1969 - Q4 1973 - Q1 1980 - Q3 1981 - Q3 1990 - Q1 2001 Q3 1957
Q2 1960
Q4 1969
Q4 1973
Q1 1980
Q3 1981
Q3 1990
Q1 2001
Q3 2007
Will China have to re-value?
% Yr
China
10
6.5
8
7.0
6
4
7.5
2
8.0
0
-2
8.5
00
01
02
03
04
Consumer price inflation
05
06
07
08
CNY v s USD (RHS)
Could Brazil (BRIC country) be the
new leader?
Index 2000=100
1.5
110
100
90
80
70
60
50
2.0
2.5
3.0
3.5
4.0
00
01
02
03
04
05
06
07
08
BRL v s USD
Brazil nominal effectiv e ex change rate (RHS)
The food price problem
Cent/Bushel
Wheat No.2, Hard (Kansas)
Cent/Bushel
1500
1500
1250
1250
1000
1000
750
750
500
500
250
250
0
0
90
92
94
96
98
00
02
04
06
08
It’s across all markets
$/MT
Thai Rice prices (B Grade)
$/MT
1200
1200
1000
1000
800
800
600
600
400
400
200
200
0
0
90
92
94
96
98
00
02
04
06
08
Stocks are low
Mln tons
Rice - ending stocks
Mln tons
160
160
140
140
120
120
100
100
80
80
60
60
40
40
1978/79 1984/85 1990/91 1996/97 2002/03
Wheat also
Mln tons
Wheat - ending stocks
Mln tons
220
220
200
200
180
180
160
160
140
140
120
120
100
100
1978/79 1984/85 1990/91 1996/97 2002/03
Problems of the developing world

Food and energy price uncertainty makes
inflation targeting more difficult…

…and requires tough decisions on interest
rates…

…when the rise in global inflationary
pressures is someone else’s fault