Structural Transformation of the Global Economy

Implications of Global Power Shifts

Amar BhattacharyaG-24 Secretariat

Eurodad/Glopolis International ConferencePrague, June 4, 2013

Overview

1. Structural transformation in the global economy

2. Implications of changing power dynamics

2

Overview

1. Structural transformation in the global economy

2. Implications of changing power dynamics

3

Structural Transformation World Economy at a point of structural transformation

in the relationship and position between developed and developing countries

Change has been highlighted and accentuated by the crisis but had started well before

For almost 60 years developing country growth tracked that of developed countries and with depreciating countries led to growing divergence

During the past decade there has been a structural decoupling even though there are strong cyclical links

4

Growth in EMDCs has consistently outpaced AEs for decades

5Source: G-24 calculations based on data from World Economic Outlook, IMF and World Development Indicators, World Bank

This trend is evident in G-24 countries, especially when GDP is weighted

6

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

G-24 Simple AverageHigh Inc. OECD - GDP WeightedG-24 GDP Weighted

Per-Capita GDP Growth 1960-2012

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

G-24 Simple AverageHigh Inc. OECD -GDP WeightedG-24 GDP Weighted

Per-Capita GDP Growth Trend 1960-2012(Hodrick-Prescott Filter)

Source: Canuto (2013), World Bank Poverty Reduction and Economic Management Department

Structural Transformation Not a story of China and India or of a few emerging markets and

developing countries Prior to crisis, 94 EMDCs recorded growth in excess of 5 percent

per annum and 90 percent of EMDCs grew faster than the average of AEs

Trend will be continued; although average growth of both AEs and EMDCs lower than before the crisis, differential will be sustained

Particularly striking that low income countries and SSA are part of this trend

Underpinning this impressive growth has been a virtuous cycle of rising savings and investment, growing trade and macroeconomic resilience

7

8

2003-2008

2009-2012

2013-2015

2003-2008

2009-2012

2013-2015

2003-2008

2009-2012

2013-2015

<2.5% 2.5-5% >5%

0

10

20

30

40

50

60

70

80

90

100

1423 21

112 4 0 0 0

19

56

3345

5863

94

44

62

Num

ber o

f cou

ntrie

s

Advanced Economies EMDCs

Increasing Number of EMDCs are on path to convergence

Dispersion of Average Growth

<2.5% 2.5-5% >5%

Source: G-24 calculations based on data from World Economic Outlook Database April 2013, IMF.

9

Income groups are gradually converging

0

20

40

60

80

100

120

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Number of HIC countries Number of MICs Number of LICs

Structural Transformation Sustained growth differential between AEs and

EMDCs leading to a profound change in the global economic landscape with the share of EMDCs in the global economy measured in PPP terms greater than that of AEs

Similar trend between the G7 and the BRICS reflecting a new rebalancing of power

Convergence between GDP at market prices and GDP PPP in contrast to the pre-2000 an important element of the new story of convergence

10

Share of GDP (Market Prices) Share of GDP (PPP)

11Source: G-24 calculations based on data from World Economic Outlook Database, IMF

1980 1990 2000 2005 2010 20150

10

20

30

40

50

60

70

80

90

100

1980 1990 2000 2005 2010 20150

10

20

30

40

50

60

70

80

90

100

Advanced Economies EMDCs

EMDCs account for increasingly large shares of global GDP

Share of GDP (Market Prices)

1980 1990 2000 2010 20150

10

20

30

40

50

60

70

Perc

ent

Share of GDP (PPP)

1980 1990 2000 2010 20150

10

20

30

40

50

60

70

Perc

ent

12Source: G-24 calculations based on data from World Economic Outlook Database, IMF

G7 BRICS

EMDCs account for increasingly large shares of global GDP

Growing Convergence Between GDP at Market Prices and GDP PPP

(Share of EMDCs in Global GDP)

0.00

10.00

20.00

30.00

40.00

50.00

60.00

GDP PPP GDP at Market Price GDP MP w PPP Convergence

13Source: World Economic Outlook, IMF

14

Growth rates in EMDCs have withstood the crisis better than those in AEs

Advanced Economies EMDCs

Source: G-24 calculations based on data from World Economic Outlook, IMF and World Development Indicator, World Bank

GDP

Grow

th

Average 2003-08 Average 2009-12 Average 2013-150.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Continued, differential growth prospects between EMDCs and AEs are forecast

15

19601963

19661969

19721975

19781981

19841987

19901993

19961999

20022005

20082011

20140

50

100

150

200

250

300

350

400

450

500

Developing countries

Other high-income countries

Euro-area

Real GDP, index 1980=100

Though amongst EMDCs, there is heterogeneity across regions

16

Aver

age

GDP

Grow

th

2003-2008 2009-2012 2013-2015

Source: G-24 calculations based on data from World Economic Outlook, IMF and World Development Indicator, World Bank

EAP ECA LAC MENA South Asia SSA0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Major Challenges to Sustained and Sustainable Growth

Infrastructure development and financing The jobs crisis and prospects for long-term

employment creation Growing income inequality with lagging countries

and growing inequality in both AEs and EMDCs Sustainability including climate impact and

resilience also a source of enormous concern

17

Overview

1. Structural transformation in the global economy

2. Implications of changing power dynamics

18

Implications for Global Governance

19

• Growing interconnectedness poses new challenges in global coordination and governance arrangements

• Recent waves of financial crises has underscored importance of coordination in the economic and financial sphere but also the inherent challenges of such coordination

• The new wave of global challenges coincides with major shifts in relative positions and the role of old and new powers

The global rank of economies has shifted markedly in the last four decades

20

Rank 1980 1990 2000 2015

1 United States 2788 United States 5801 United States 9951 United States 18012

2 Japan 997 Japan 2370 Japan 3256 China 16647

3 Germany 762 Germany 1447 China 3015 India 5930

4 France 537 France 1027 Germany 2144 Japan 5095

5 Italy 509 Italy 976 India 1571 Germany 3497

6United Kingdom 450

United Kingdom 922 France 1532 Russia 2957

7 Brazil 446 China 910United Kingdom 1486 Brazil 2780

8 Mexico 337 Brazil 786 Italy 1404United Kingdom 2572

9 India 286 India 745 Brazil 1234 France 2438

10 Canada 280 Mexico 612 Russia 1121 Mexico 2055

11 Spain 272 Canada 558 Mexico 1065 Italy 1943

12 China 248 Spain 551 Canada 911 Korea 1897

13 Netherlands 150 Korea 336 Spain 900 Canada 1676

14 Poland 150 Australia 306 Korea 776 Indonesia 1549

15 Australia 146 Turkey 291 Australia 525 Spain 1499

GDP (PPP), $Billions

Source: WEO Database, IMF

Contributions to World Growth(percent)

1981 to 1991 1991 to 2001 2001 to 2011 1981 to2011

United States 21.2 26.3 9.6 17.0

Euro Area+ UK 20.6 17.3 6.4 12.6

Japan 11.4 2.4 1.0 3.7

China 8.7 17.9 29.6 21.6

India 4.4 6.5 10.1 7.8

Rest of World 33.8 29.7 43.4 37.3

Source: A. Virmani based on IMF data

IFI governance arrangements have failed to account for changing economic realities

22

Evolution in Actual and Calculated IMF Quotas Relative to Weight in Global Economy

Source: G24 calculations based on IMF data

23

With a Persistent Bias Against Poor Countries

1 Defined as EMDCS whose GDP PPP share divided by the 14th General Review Quota share is greater than 1 and not over-represented by more than 25% based on the current quota formula. 2 PRGT-eligible countries including Zimbabwe. Source: G24 calculations based on IMF data

Trends in GDP PPP and GDP at Market Prices

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2003-2007 2007-2009 2011-2012 2014-2015 2014-2015 compression 0.95

Sub-Saharan Africa

GDP PPP GDP MKT

14th Review Proposed Quota

Pre-Singapore

Source: Calculations based on WEO data 24

Why Europe Needs to Adjust Its Quota and Voting Share in the IMF

Post-2010 Quota Share

2011-2012 GDP Weight1 Calculated Quota2

United States 17.4 20.0 16.1

Japan 6.5 6.7 6.3

Europe excl CIS 32.8 23.7 34.7

Advanced Europe 29.4 21.1 30.8

EMDCs 42.3 48.0 42.3

Poor Countries 2.7 1.6 1.6

1GDP Blend of 40 percent GDP at market exchange rates and 60 percent at GDP PPP2 Based on current formula and 2007-2009 data

Thank you