Download Source:[UN est 2005] - The Economics Network

WHERE IS THE WORLD
ECONOMY HEADING?
Jonathan Bradley
Dean of Students and Principal
Lecturer in Economics
Year 12 Economics Conference
University of the West of England
Wednesday 25 June 2008
THIS LECTURE
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The global economy
Resources and the environment
New economic superpowers
Poverty
What’s going to happen in the world and
in the UK?
THE GLOBAL ECONOMY
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Gross World Product (GWP) = $61,258,714 mn 2005
EU
= 22% GWP
USA = 21% GWP
Japan = 7% GWP
China = 12% GWP
Russia = 3% GWP
[Source: IMF 2006]
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The Population Explosion
1 billion people in the world in 1802
2 billion in 1927
3 billion in 1961
4 billion in 1974
5 billion in 1987
6 billion in 1999……………2050 = ????
Source:[UN est 2005]
POPULATION
• UN estimate for 2050 = 9 billion
• An extra 3 billion
•
Source:[UN est 2005]
GLOBAL SHORT TERM
INTEREST RATES
6
5
4
USA
EURO
JAPAN
3
2
1
0
2002
2003
2004
2005
2006
Source: IMF
2007
2008
WORLD GDP GROWTH
2007 AND 2008 (est)
10
9
8
7
6
5
4
3
2
1
0
2007
2008
est
UK
Euro area
JAPAN
USA
China
Source: Economist poll of GDP forecasts, except
for 2007 China – author guess!
Slowing
down, except
China
BUDGET DEFICITS
COMPARED 2008 (est)
0
-0.5
-1
UK
JAPAN
USA
EURO
-1.5
-2
-2.5
-3
-3.5
% GDP
Source: Economist
SO WHERE ARE WE NOW?
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Renewed threat of inflation
Impact of rising interest rates
Can growth impetus be maintained?
Problem of US deficits and world’s ability
to finance them
• Convergence of new challenges for global
economy – unprecedented combination of
pressures
THE ENERGY ISSUE
A CLASSIC SUPPLY & DEMAND
BATTLE
OIL
• World oil demand is increasing, driven by increasing
population, the industrialization of China and India
and huge US appetite for oil.
• Supply is keeping up with demand at present but
world oil production peaks around 2010-2015 when
demand will then exceed supply.
• Among other consequences, the oil price will increase
dramatically. Other fuel sources become economically
viable – but can they replace oil at rate required?
OPEC estimates, 2006
OIL PRICE
160
140
120
100
80
$ barrel
60
40
20
0
73
77
81
85
89 93
97
1
5
8
PRICE OF A LITRE OF UNLEADED
IN JUNE 2009???
20% lower = 96 p
10% lower = £1.08
Same
= £1.20
10% higher = £1.32
20% higher = £1.44
EMERGING SUPERPOWERS
India and China
Demographic Trends in Japan,
China & India
UNITED NATIONS POPULATION & PROJECTIONS
China, India & Japan
1,800,000
140,000
1,600,000
120,000
1,000,000
80,000
800,000
60,000
600,000
40,000
400,000
20,000
200,000
0
0
CHINA
INDIA
JAPAN
Source: United Nations, World Population Prospects, 2004 Revision, Medium variant
Japan
100,000
1,200,000
19
5
19 0
5
19 5
6
19 0
6
19 5
7
19 0
7
19 5
8
19 0
8
19 5
9
19 0
9
20 5
0
20 0
0
20 5
1
20 0
1
20 5
2
20 0
2
20 5
3
20 0
3
20 5
4
20 0
4
20 5
50
China, India
1,400,000
WINNING THE ECONOMIC FUTURE:
INNOVATION AND DESIGN
• USA and Europe seem to assume that future growth for
them is innovation and design-led while India and
China will act as low-cost producers.
• Appealing idea for economists since it maintains the
Ricardian comparative advantage thesis intact –
therefore, theory appears to strengthen this view of
future world prospects
• Growing case-study evidence however that suggests the
‘design and innovation’ element of business is being
embedded more and more into leading companies in
both emerging economies.
CHINA
Growth has been very rapid
GDP growth at constant prices
16
14
12
10
8
6
4
2
0
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
China: Trade Surplus
300
250
200
150
$ billion
100
50
0
2001
2002
2003
2004
2005
2006
2007
2008
Source: Capital Economics
CHINA
• China’s GDP has quadrupled since 1978. Measured on a
purchasing power parity (PPP) basis, China in 2004 was
the second-largest economy in the world after the USA.
• Has the third largest stock of foreign direct investment
in the world
• Has saving and investment = to 40% GDP
• Is the 3rd largest importer and 4th largest exporter in the
world – huge impact on commodity market (esp. oil)
• Its imports will drive up price of commodities and its
exports will cut prices of manufactured goods in world
markets – huge competitive challenge to existing players
INDIA
INDIA
• 10th most industrialised country in the world
• 4th largest economy in terms of purchasing power
• 3rd largest scientific and technical labour force in the
world with well-established IT base
• 2nd largest exporter of computer software and home to
software developments centres of some of world’s
largest companies. Over 200 of the Fortune Top 1000
global companies now use Indian software services and
professionals
• Extremely well-educated and competitive labour force
– another growing economic power for the future.
ENDING POVERTY
Can we save Africa?
AFRICA – THE STRUGGLE FOR SURVIVAL
• “Africa’s poverty is a scar on the conscience of the world” (Tony
Blair, World Economic Forum, Davos, June 2005). Only continent
to have become poorer in last 25 years.
• 150m African children live below the poverty line and two-fifths of
African children are malnourished (Oxfam).
• During this lecture, 900 children will have died from starvation
and related illnesses, > two-thirds in Africa.
• WHO believes 34m people have AIDS, 25m of these are in subSaharan Africa. During this lecture, 400 children in Africa will
have been made orphans due to AIDS.
AFRICA – THE STRUGGLE FOR SURVIVAL
• Universal free primary education in Africa, promised for 2015, at
current rates will not occur until 2130.
• Half the population of sub-Saharan Africa (SSA) live on less than
$1 per day.
• Africa's > $200 billion debt burden is the single biggest obstacle to
the continent's development.
• SSA countries spend almost $14 bn annually on debt service but
receive only $10 bn in aid.
• G8 finance ministers agreed at a meeting in London on 11 June
2005 to write off $40bn in debt owed by 18 of the world's poorest
countries, most of them in sub-Saharan Africa.
• Promising step forward but of 40 countries targeted, only 18 have
yet reached ‘Millennium Development Goals’ to qualify for debt
write-off.
SO WHERE is THE WORLD
ECONOMY HEADING?
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USA recession, but probably not serious
Europe varied, but still generally slower
Japan will keep going
Rest of world: contrast between resourcerich and resource-poor
…..AND THE UK ECONOMY?
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Rather sick!
Slowing down
Big public sector deficit
Weak currency
Rising unemployment
Rising inflation
Serious danger of stagflation
HOUSE PRICES: rate of change
HOUSE PRICES: average
UK interest rates
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Source: Daily Telegraph
INFLATION
25
20
15
june cpi
10
5
0
76
0
1
2
3
4
5
6
7
8 forc
The squeeze on household budgets
THE TIGHTENING SQUEEZE
THIS?
OR THIS?