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LSE100 public lecture and prize giving
The Long Goodbye: how the crisis casts a long
shadow
Martin Wolf
Chief Economics Commentator at the Financial Times, London
Author, The Shifts and The Shocks: what we've learned – and still have to learn – from
the financial crisis
Professor George Gaskell
Chair, LSE
Suggested hashtag for Twitter users: #LSEWolf
The Long Goodbye: how the crisis
casts a long shadow
Martin Wolf, Associate Editor & Chief
Economics Commentator, Financial Times
London School of Economics
9th November 2015
London
Long Goodbye
• Shadow
• Policies
• Lessons
3
1. Shadow
• The crisis was a watershed moment:
– Developed countries are slowly recovering
– But potential growth has collapsed
– Emerging economies are badly hit
– China has entered a difficult transition
4
1. Shadow: high-income economies
LOST OUTPUT AND LOST GROWTH
IMF Pre-Crisis Forecasts and Outcomes for GDP of High-Income
Economies (Source: IMF, World Economic Outlook April 2015)
115
110
105
100
95
90
85
80
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
5
Autumn 2007
Autumn 2008
Autumn 2014
1. Shadow: high-income economies
DIVERGENCE BETWEEN THE US AND EUROZONE
GDP AND REAL DOMESTIC DEMAND
110
108
106
104
102
100
98
96
94
92
90
Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015
6
US GDP
US Domestic Demand
Eurozone GDP
European Domestic Demand
1. Shadow: high-income economies
DIVERGENCE IN LIVING STANDARDS
GDP Per Head (2007 = 100; at purchasing power parity;
2015 is a forecast) (Source: The Conference Board)
110.0
105.0
100.0
95.0
90.0
85.0
2007
7
France
2008
2009
Germany
2010
Italy
2011
2012
United Kingdom
2013
2014
United States
2015
Spain
1. Shadow: high-income economies
COLLAPSE OF PRODUCTIVITY GROWTH
Annual Rate of Labour Productivity Growth
(Source: US Council of Economic Advisers)
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
4.5%
4.0%
3.5%
2.5%
2.2%
1.9%
1.1%
0.8%
0.7%
0.6%
0.4%
0.0%
Canada
8
3.2%
Germany
US
1950-2007
France
Japan
2010-2014
UK
0.0%
Italy
1. Shadow: high-income economies
COLLAPSE OF INVESTMENT
Contribution of Capital Investment to Annual Growth of Labour
Productivity (Source: US Council of Economic Advisers)
1.4%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
-0.2%
-0.4%
1.3%
0.8%
0.7%
0.5%
0.7%
0.6%
0.4%
0.3%
0.2%
0.1%
0.0%
-0.2%
Italy
9
0.9%
0.8%
France
Canada
1948-2007
UK
Germany
2010-2014
Japan
US
1. Shadow: emerging economies
UNEXPECTED GLOBAL SLOW-DOWN
Successive Medium-Term Growth Forecasts (five years ahead)
(Source: IMF, World Economic Outlook, April and October 2015)
8
7
6
5
4
3
2
1
0
World
10
Fall 2011
Advanced economies
Fall 2012
Fall 2013
Emerging market economies
Fall 2014
Fall 2015
1. Shadow: emerging economies
CHINA’S UNBALANCED ECONOMY
Shares of Spending in China’s GDP
(Source: Haver Analytics)
100%
2
2
3
2
3
14
17
16
16
15
47
46
45
43
34
36
36
40
5
9
8
14
14
14
13
41
40
38
37
36
42
40
40
41
43
80%
60%
8
4
2
3
2
3
13
13
14
14
14
14
37
36
37
37
37
38
46
47
47
46
46
46
4
40%
20%
0%
2000
11
Investment
2002
2004
2006
Household Consumption
2008
2010
Govt Consumption
2012
2014
Net exports
1. Shadow: emerging economies
CHINA’S SLOWING ECONOMY
Contributions to Chinese Growth (percentage points)
(Source: Haver Analytics)
15
13
11
9
7
5
3
1
-1
-3
-5
6.2
1.8
6.6
4.1
2000
12
5.4
3.5
5.2
6.9
3.6
2002
Consumption
6.2
4.4
2004
3.6
8
5.4
7
4.3
5
6.4
5.4
2006
6.5
4.3
2008
Gross Investment
5.3
5
6
2010
Net Exports
3.2
4.2
3.6
4.4
3.7
3.7
2012
Total
2014
2. Policies: easy money
WHAT THE ECB TELLS US ABOUT EASY MONEY
Official Policy Rates
(Source: Thomson Reuters Datastream)
8
7
6
5
4
3
2
1
0
Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14
13
US Fed funds
Europe (Bundesbank repo/ECB repo)
UK (BoE base rate)
Japan (BoJ uncollatoralized call money)
2. Policies: easy money
WHAT JAPAN TELLS US ABOUT BALANCE SHEETS
Central Bank Balance Sheets (assets over GDP; per cent)
(Source: Thomson Reuters Datastream and Bank of England)
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
Q1
2005
14
Q1
2006
Q1
2007
Q1
2008
US (Federal Reserve)
Q1
2009
Q1
2010
Q1
2011
Eurozone (ECB)
Q1
2012
UK (BoE)
Q1
2013
Q1
2014
Q1
2015
Japan (BoJ)
2. Policies: austerity
GREAT DEPRESSION AND GREAT RECESSION IN UK
UK Real GDP Per Head in the Great Depression and the
Great Recession (1929 and 2007 = 100; at purchasing
power parity; 2015 is a forecast)
(Source: Maddison Project and Conference Board)
115.0
110.0
105.0
100.0
95.0
90.0
1
15
2
3
4
1929-1937
5
6
2007-2015
7
8
9
2. Policies: austerity
SHORTFALL IN UK FISCAL TIGHTENING
CYCLICALLY-ADJUSTED NET PUBLIC BORROWING
(per cent of GDP)(Source: OBR)
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
2010-112011-122012-132013-142014-152015-162016-172017-182018-192019-20
16
June 2010 Forecast
March 2015 Forecast
2. Policies: austerity
NO BOND-MARKET VIGILANTES
Yield on UK Government 10-year Gilts
(Source: Thomson Reuters Datastream)
10
9
8
7
6
5
4
3
2
1
0
17
LSE100 public lecture and prize giving
The Long Goodbye: how the crisis casts a long
shadow
Martin Wolf
Chief Economics Commentator at the Financial Times, London
Author, The Shifts and The Shocks: what we've learned – and still have to learn – from
the financial crisis
Professor George Gaskell
Chair, LSE
Suggested hashtag for Twitter users: #LSEWolf