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Transformational Changes in
the Global Economy
Trade, finance and commodities after the crisis
Hans Timmer
World Bank
March 1, 2011
Trade, Finance, and Commodities
• Trade dynamics illustrate that developing
countries have become the drive of global growth
Trade, Finance, and Commodities
• Trade dynamics illustrate that developing
countries have become the drive of global growth
• Financial markets still show the reverberations of
the financial crisis
Trade, Finance, and Commodities
• Trade dynamics illustrate that developing
countries have become the drive of global growth
• Financial markets still show the reverberations of
the financial crisis
• Food price increases reflect major changes in
commodity markets
Source: The World Bank
Japan’s export growth was largely driven by
Asian import demand during crisis
Contribution to annualized q/q growth (%)
Source: World Bank, DEC Prospects Group
Developing countries’ imports stronger than
their exports
Trade volumes relative to trend (% deviation; trend based on 1990-2005)
25
20
15
10
5
0
-5
-10
-15
export volumes
import volumes
-20
-25
-30
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
Source: World Bank, DEC Prospects Group
Share of developing countries in global trade
more than doubled during last 20 years
0.45
0.40
South share of total world imports
South import share from other South countries
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Comtrade data via WITS
Source: The World Bank
Source: The World Bank
Source: The World Bank
Developing countries have
become driver of global trade
• Sustained strong growth in developing countries
is more crucial than rebalancing for global
recovery
• Developing countries should take the lead in
trade negotiations
Decline and recovery in capital flows
was very concentrated
percent of GDP
16
Short-term Debt
14
Bank
12
Bond
10
Portfolio Equity
8
FDI
6
4
2
0
-2
06-07 2008 2009 2010 06-07 2008 2009 2010 06-07 2008 2009 2010 06-07 2008 2009 2010
Top 9
Source: The World Bank
Europe & Central Asia
(excluding Turkey)
Other Middle
Low Income
Bank NPLs remain elevated in Europe and
Central Asia
Median %-share of non-performing loans (NPLs) to total
12
10
8
6
4
2
0
2005
2006
2007
High Income with rising NPLs
Developing Asia
Other HICs
2008
2009
Europe and Central Asia
Other Developing
2010
Capital flows put upward pressure
on many currencies
Real-effective exchange rate, January 2009=100
150
Brazil
Russia
India
140
Indonesia
Thailand
Malaysia
Mexico
South Africa
Turkey
130
120
110
100
90
Jan-09
Apr-09
Jul-09
Oct-09
Source: International Monetary Fund
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Weak bank-lending implies private capital flows
will not recover to pre-crisis levels for some time
Net private capital flows to developing countries, $ billion
in billions
Source: The World Bank
Percent of GDP
From FDI inflow……
7.0
Percent of GDP
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1980
1983
1986
1989
1992
China
1995
1998
LMICs excl China
2001
2004
2007
…to FDI outflows
1.4
Percent of GDP
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1980
1983
1986
1989
1992
China
1995
1998
LMICs excl China
2001
2004
2007
Developing countries’ role in financial
markets will dramatically increase
• Developing countries aim to become less
dependent on dollar and US monetary policy.
• Coming decade will show shift from ingoing FDI
to outgoing FDI.
• While high-income countries look for regulating
financial markets, developing countries need to
deepen markets, partly through liberalizing them.
The recent boom was one of the largest,
longest lasting and involved all commodities
MUV-deflated US$ (2000=100)
Agriculture
Metals
Oil
Source: World Bank
Source: The World Bank
Technological progress increases the
efficiency of resource use
Commodity intensity of demand, index 1971 = 1
Source: World Bank.
367
1,000
Most major countries have passed the point where food
demand grows much faster than population
China
Brazil
Russia
18
45
135
India
0.4
1.1
2.9
8.1
GDP per capita (1,000 PPP $)
Note : Curve fitted on a log scale.
Source: World Bank
Note: Curve fitted on a log scale
22.0
59.8
Globally, agricultural productivity growth exceeds demand
growth
Projected annual average growth rates 2000-2030, per cent
2.5
2.3
2.1
2.0
1.7
1.5
1.5
1.2
1.0
Source: Productivity (Coelli and Rao, 2005); Food demand, FAO (2006)
Meat
Edible oils
Cereals
Agricultural
productivity
0.0
All food
crops
0.5
Production (history) and demand (forecasts)
(annual average percent change)
Source: FAO (history) and FAO/OECD (forecasts)
Causes of the boom
• Sharp increase in Chinese demand for
metals
• Decades of weak prices, during which as
much as ½ of global demand was being
met from idle capacity
• Impact of oil prices on agricultural prices
• Adverse weather patterns
• Larger role of financial market
High oil prices affect food prices
Oil < $50
Oil > $50
350
350
y = 0.4246x + 86.178
R2 = 0.0526
300
Maize Price ($/ton)
Maize Price ($/ton)
300
250
200
150
100
250
200
150
100
50
50
0
0
10
30
Crude Oil ($/bbl)
Source: DEC Prospects Group.
y = 2.1166x - 3.3711
R2 = 0.7527
50
50
100
Crude Oil ($/bbl)
150
Improving our capacity to respond to
commodity cycles
Domestic policy agenda
– Improve targeting of social welfare schemes
– Invest in rural infrastructure and agricultural R&D
– Be prepared to react rapidly because of long-term costs of even a relatively
short bout of high food prices
Global policy agenda
– Proceed with trade liberalization, including improved disciplines governing
export bans
– Increase the financial independence of World Food Program
– Improve information flows and coordination of food stocks
Transformational Changes in
the Global Economy
Trade, finance and commodities after the crisis
Hans Timmer
World Bank
March 1, 2011