Globālās ekonomikas tendences

SELECTED GLOBAL (ECONOMIC) TRENDS
AND DRIVERS BEHIND THEM
Juris Kravalis
Latvijas Banka
Head of International Relations and Communication
08.10.2019.

Source: Our World In Data, World Bank, OECD, UNESCO
LIFE TODAY IS BETTER THAN EVER BEFORE
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1820 1860 1900 1940 1980
Share of people not living in extreme poverty
Share of people living in extreme poverty
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1800 1840 1880 1920 1960 2000
Literate world population
Illiterate world population
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1800 1840 1880 1920 1960 2000
Share of people that survive the first 5 years of
life
Share of people that die before they are 5 years
old
Extreme poverty Illiteracy Child mortality
94
10
88
15
43
4
2015

THE RISE OF CHINA HAS BEEN IMPRESSIVE

THE RISE OF CHINA HAS BEEN IMPRESSIVE
Source: IMF World Economic Outlook data base
GDP data in USD bn
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
1995 2005 2015
USA
China
中国
Zhōng Guó
Middle Kingdom/
Central Land

Source: IMF World Economic Outlook data base
* - IMF forecasts
CHINA: SEVERAL DECADES OF GROWTH
8.4 8.3
9.1
10 10.1
11.3
12.7
14.2
9.6 9.2
10.6
9.5
7.9 7.8 7.3 6.9 6.7 6.8 6.6 6.2
'0
'2
'4
'6
'8
'10
'12
'14
'16
Real GDP growth, %

CHINA IS (JUST) RETURNING TO WHERE IT ONCE WAS
6Sources: Angus Maddison, University of Groningen (before 1980),
IMF WEO database (from 1980)
0%
5%
10%
15%
20%
25%
30%
35%
40%
1820
1826
1832
1838
1844
1850
1856
1862
1868
1874
1880
1886
1892
1898
1904
1910
1916
1922
1928
1934
1940
1946
1952
1958
1964
1970
1976
1982
1988
1994
2000
2006
2012
2018
Global GDP distribution (% of total, PPP)
Western Europe USA China India

"It was the rise of Athens and the fear that this instilled in Sparta that
made war inevitable.”
"In the “National Security Strategy” that President Trump released
last December, he described a new era of “great power competition.”
<...> President Trump made clear that the United States of America
has adopted a new approach to China. We seek a relationship
grounded in fairness, reciprocity, and respect for sovereignty, and we
have taken strong and swift action to achieve that goal."
Sources: Allison, Graham, "The Thucydides Trap", Foreign Policy, June 9, 2017
Vice President Mike Pence's Remarks on the Administration's Policy Towards China, Hudson Institute, October 4, 2018
ARE THE US AND CHINA FALLING INTO A SOFT VERSION
OF THE THUCYDIDES TRAP?
"The past 500 years have seen 16 cases in which a rising power
threatened to displace a ruling one. Twelve of these ended in war."
Thucydides Trap
A New Cold War between the US and China?

Source: IMF, YouGov survey, October 2016. The size of a circle is proportional to GDP per capita (in USD) in 2016.
Globalisation is defined as the increasing movement of products, ideas, money, jobs, culture and people around the world.
UK
France
Finland
Denmark
Norway
Sweden
Germany
Australia
Hong Kong
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
USA
IndiaUAE
Saudi Arabia
20
30
40
50
60
70
80
90
-3 0 3 6 9 12 15 18 21 24 27 30 33 36 39
Overallthinkthatglobalizationisaforce
forgoodfortheworld(%ofresponses)
Real GDP (USD, PPP) changes, 2010-2016, %
THE FASTER THE ECONOMIC GROWTH
THE MORE POSITIVELY PEOPLE VIEW GLOBALISATION

(1) The global middle class (mostly China)
and (2) the very rich have
benefited the most from globalization
This, at least partially, explains the
growing popularity of nationalist and
protectionist ideas
Meanwhile, the biggest losers (or at least
the non-winners) are (1) the very poor
and (2) the middle class in advanced
economies
Change in real income between 1988 and 2008
at various percentiles of global income distribution
(calculated in 2005 international dollars)
Realincrease(%)
Percentile of global income distribution
WHO BENEFITS THE MOST FROM GLOBALIZATION?
Global middle
class
Top 1%
Bottom 5%
Advanced
economy middle
class
Source: Branko Milanovic, Global income inequality by the numbers: in history and now - an overview

IF MANY PEOPLE FEEL LEFT BEHIND,
THIS AFFECTS POLITICAL OUTCOMES

Avots: Jan Kruger/Getty Images
PEOPLE VOTE FOR SOMEBODY WHO PROMISES TO
MAKE AMERICA GREAT AGAIN, AND PUT AMERICA FIRST

Source: By Foreign and Commonwealth Office - International Atomic Energy Agency Director General, CC BY 2.0,
https://commons.wikimedia.org/w/index.php?curid=73747417
PEOPLE ALSO VOTE FOR BREXIT

ECONOMIC GROWTH IN EURO AREA IS SLOWING DOWN;
GERMANY IS LIKELY TO TECHNICALLY SLIP INTO RECESSION
13
2018 2019 (Forecast) 2020 (Forecast)
World 3,6 2,9 3,0
Euro area 1,8 1,1 1,0
Germany 1,4 0,5 0,6
France 1,5 1,3 1,2
Italy 0,9 0,0 0,4
Great Britain 1,4 1,0 0,9
USA 2,9 2,4 2,0
China 6,6 6,1 5,7
Russia 2,3 0,9 1,6
Real GDP growth (%); OECD forecast from September 2019
Source: OECD

EURO AREA INTEREST RATES ARE STILL AT A
HISTORICALLY LOW LEVEL
Main refinancing rates of central banks (%)
14
-1
0
1
2
3
4
5
6
7
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
ECB US FRS Bank of England Bank of Japan
Source: Bloomberg

ANOTHER INCREASINGLY URGENT
MATTER

EXTREME WEATHER EVENTS ARE BECOMING MORE
FREQUENT AND MORE DAMAGING
16
2018 2017 2008-2017
average/year*
1988-2017
average/year*
Number of
events
850 740 630 500
Overall losses
USD billion
160 350 190 140
Insured losses
USD billion
80 140 61 41
World natural catastrophe losses, 2018
*losses adjusted to inflation based on local CPI
Sources: Munich Re, NatCatSERVICE

CLIMATE: PHYSICAL AND TRANSITION RISKS
17
• Physical impacts include the economic costs and financial losses resulting from the
increasing severity and frequency of extreme climate change-related weather
events (such as heat waves, landslides, floods, wildfires and storms) as well as
longer term progressive shifts of the climate (such as changes in precipitation,
extreme weather variability, ocean acidification, and rising sea levels and average
temperatures).
• Transition impacts relate to the process of adjustment towards a low-carbon
economy. Emissions must eventually reach “net zero” to prevent further climate
change. The process of reducing emissions is likely to have significant impact on all
sectors of the economy affecting financial assets values. While urgent action is
desirable, an abrupt transition could also have an impact on financial stability and
the economy more broadly.
Source: NGFS (Network for Greening the Financial System)

18
Source: NGFS
• The Intergovernmental Panel on Climate Change (IPCC) projects the
necessary additional energy-related investments compatible with a
1.5°C scenario for the period 2016-2050 to reach USD 830 billion
annually.
• The European Union alone has identified an annual investment gap
amounting to almost EUR 180 billion to achieve its climate and
energy targets
/NGFS/
A LARGE INVESTMENT GAP

19
Source: NGFS
"Climate-related risks are a source of financial risk and it
therefore falls squarely within the mandates of central banks
and supervisors to ensure the financial system is resilient to
these risks."
/NGFS/
WHY WOULD CENTRAL BANKS AND FINANCIAL
MARKET SUPERVISORS CARE ABOUT CLIMATE?

OTHER WAYS HOW CLIMATE CHANGE RELATED
RISKS COULD AFFECT CENTRAL BANKS
20
o Impacts on
macroeconomic and
financial variables
(growth, productivity,
food and energy prices,
inflation expectations
and insurance costs)
o Lending against assets
exposed to climate
change
o Assets with climate
related risks in central
banks' own portfolios
Macroeconomics Monetary policy Asset management
Source: Latvijas Banka

ARTIFICIAL INTELLIGENCE IS GETTING MORE INTELLIGENT
23
Customer service
80% of "level one" customer service
requests can already be resolved by
chatbots, in the remaining 20% of cases
seamlessly passing on to a human
operator
News stories
Results of sports games, financial results
of companies and even pre-election
activities can already now be covered by
robots-journalists
Sources: IBM, digiday.com, Photo: shutterstock

Manufacturing output is at the highest
level ever. Meanwhile manufacturing
employment shows a steady 30-year
decline
A lot more emphasis should be put on
increasing the skills and knowledge of
the unemployed (and those likely to be
unemployed)
Source: Mark Muro, MIT Technology Review
US manufacturing sector inflation-adjusted output
and employment, 1980 to 2015
BETTER PAID MANUFACTURING JOBS BUT FEWER OF THEM
0
50
100
150
200
250
300
1980 1985 1990 1995 2000 2005 2010 2015
Real output Employment
The diverging lines reflect the sector's
improved productivity, automation and
technological development

Source: Shutterstock, The Atlantic
"The world's 40 largest mega-regions account for two-thirds of all the
global economic activity and 85 percent of the world's technological
innovation while housing just 18 percent of its people. [..] Mega-
regions, if they are to function as integrated economic units, require
better, more effective, and faster ways move goods, people, and
ideas. High-speed rail accomplishes that, and it also provides a
framework for future in-fill development along its corridors."
/Richard Florida, 2009/
THIS IS A (MEGA)CITY ERA

Globālās ekonomikas tendences

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