1_MACRO_ECO_2014_Romania.ppt

Prof. Patrick GOUGEON/ESCP Europe/2014

Understanding the global economy

Facts, trends and threats•Introduction: the economic system at a glance•Production and GDP: current issues•Consumption and saving•Financing the economy: the role of financial institutions•Government intervention•The globalisation trend: a complex game•Emerging economies: facts and prospects


FirmsFirms

HouseholdsHouseholds

AggregateDemand*

AggregateDemand*

Consumption (c)

Income(Y)

FinancialInstitutionsFinancial

Institutions

Saving (S)

Investment (I)

Public sectorPublic sector

Export (X)Import (M)

InternationalCapital flows

Privatetransfers

Publictransfers

Self financing

*Aggregate demand = C+I+G+X-M

G

p

q

OD

market

The economic system


•GDP: a relevant measure?•Substitution of Capital for Labour to foster productivity• Outsourcing• Service activities are growing in importance

Production: current issues


4

Gross Domestic Product (GDP): few definitions

GDP = Value Added

Nominal GDP = Real GDP (1 + inflation rate)

GDP per capita: Total GDP/Population

GDP ppp*= adjusted GDP to allow international comparisons(*ppp: purchasing power parity, 100$ in Romania has a higher purchasing power than 100$ in Paris)

Potential GDP: critical limit at “full capacity”, risk of inflation above

GDP gap Population growth, structural reforms

GDPt potential GDPt potential GDPt+1 unemployment

Investment (capacity, productivity, development)

GDP gap Population growth, structural reforms

GDPt potential GDPt potential GDPt+1 unemployment

Investment (capacity, productivity, development)

Romania

Source: CIA world fact book


5

Gross Domestic Product, current prices,

national currency millions

Purchasing Power

Parities for total GDP, national currency per USD

Gross Domestic Product, current

prices, USD millions

Average hours

worked per person

Total employment (number of persons engaged)

Hours worked for

total employmen

t

GDP per hour

worked, current

prices, USD

GDP per hour

worked as % of USA

(USA=100)

Country

Australia 1344345 1.51 888750 1686 11247 18961 46.9 78.8

Austria 284002 0.85 332861 1587 4251 6745 49.4 82.9

Belgium 352941 0.87 407403 1551 4468 6930 58.8 98.8

Canada 1621530 1.22 1327345 1702 17339 29509 45 75.6

Chile 103806380 403.19 257461 2068 6497 13437 19.2 32.2

Czech Republic 3667429 13.78 266109 1907 5185 9890 26.9 45.2

Denmark 1745740 7.96 219314 1537 2807 4315 50.8 85.4

Estonia 14501 0.53 27617 1879 551 1035 26.7 44.8

Finland 180295 0.92 196629 1697 2448 4154 47.3 79.5

France 1932802 0.88 2194118 1500 26679 40021 54.8 92.1

Germany 2498800 0.81 3071282 1419 40490 57467 53.4 89.8

Greece 230173 0.72 318675 2109 4658 9821 32.4 54.5

Hungary 27119836 133.43 203251 1961 4007 7855 25.9 43.5

I celand 1539511 138.78 11093 1697 167 283 39.2 65.9

I reland 153939 0.86 178036 1664 1847 3073 57.9 97.3

I srael 811430 3.73 217338 1938 3171 6147 35.4 59.4

I taly 1548816 0.81 1908569 1778 24658 43842 43.5 73.2

J apan 479179200 111.39 4301851 1733 63013 109196 39.4 66.2

Korea 1172803400 827.35 1417549 2193 23816 52230 27.1 45.6

Luxembourg 41597 0.92 45408 1616 358 578 78.5 132

Mexico 13091512 7.95 1646425 1866 44670 83342 19.8 33.2

Netherlands 591477 0.84 705601 1377 8589 11831 59.6 100.2

New Zealand 196805 1.51 130662 1758 2190 3850 33.9 57

Norway 2496178 9.01 276954 1413 2600 3675 75.4 126.6

Poland 1412784 1.87 754097 1939 15861 30754 24.5 41.2

Portugal 172699 0.63 272407 1714 4937 8462 32.2 54.1

Slovak Republic 65905 0.52 127301 1749 2154 3767 33.8 56.8

Slovenia 35974 0.64 56431 1639 964 1580 35.7 60

Spain 1062591 0.72 1477840 1663 18744 31169 47.4 79.7

Sweden 3306271 9.04 365862 1624 4523 7346 49.8 83.7

Switzerland 546620 1.51 361891 1627 4588 7467 48.5 81.4

Turkey 1105101 0.99 1115994 1877 23073 43316 25.8 43.3

United Kingdom 1455397 0.65 2233883 1647 29043 47836 46.7 78.5

United States 14582400 1 14582400 1695 144581 245047 59.5 100

Russian Federation 44939153 15.98 2812383 1973 69362 136862 20.5 34.5

G7 countries .. .. 29619448 1657 345803 572917 51.7 86.9

Euro area .. .. 11320177 1581 145796 230476 49.1 82.5

OECD-30 .. .. 41339559 1718 542990 932733 44.3 74.5

OECD Total .. .. 41898406 1723 554173 954933 43.9 73.7

VariableOECD, 2010


GDP…ambiguities

•Measurement issues:quality, ppp adjustments, public services

•A reference to market transactions only:Don’t do it yourself and don’t marry your maid!

•Negative externalities:When deliquency or pollution boost GDP growth!

•The importance of market prices:GDP a measure of value creation…or of the ability to capture value?

•Missing inputs:Capital consumption, free natural resources

•GDP per capita as a measure of economic development:It may also depends on how GDP is shared!


Comments on working hours and productivity

From the economist

In Europe productivity gains

have been redistributed in

terms of less working hours

instead of higher income.

It is not a sign of relative

underdevelopment…that may be a

choice!

In Europe productivity gains

have been redistributed in

terms of less working hours

instead of higher income.

It is not a sign of relative

underdevelopment…that may be a

choice!


Various measures of productivity productivity

Source:


About offshoring

Orig

inal c

ost b

ase

100

45 - 55

Factor cost saving, additional telecom, management & off-shore location costs

Factor cost saving, additional telecom, management & off-shore location costs

30 - 35

Consolidation & standardizationSkills & trainingTask & process reengineeringEconomies of scales

Consolidation & standardizationSkills & trainingTask & process reengineeringEconomies of scales

Newcost base

Source: Offshoring: is it a win-win game?McKinsey Global InstituteAugust 2003

Value creation potential through:1. Increased global competitiveness of

off-shoring country2. Multiplier effect of increased national

savings

Value creation potential through:1. Increased global competitiveness of

off-shoring country2. Multiplier effect of increased national

savings

1.12$ – 1.14$

Value to the US from 1$ spend offshored to India?

As the economy grows and moves into higher value-added work, the challenge of attracting and retaining staff is rising with the skill level, as demand outstrips supply. The result is escalating costs for firms operating in China. “If you think that China is a cheap place for labour, think again,”

As the economy grows and moves into higher value-added work, the challenge of attracting and retaining staff is rising with the skill level, as demand outstrips supply. The result is escalating costs for firms operating in China. “If you think that China is a cheap place for labour, think again,”

BUT….

China's people problemApr 14th 2005 From The Economist print edition

Jobs destruction in offshoring industries should be compensated by creation of new jobs in other sectors benefitting from the multiplier effect…is that so simple?

Jobs destruction in offshoring industries should be compensated by creation of new jobs in other sectors benefitting from the multiplier effect…is that so simple?

As the cost of raw material increases, the competitive advantage from cheap labor is decreasing. Global companies now rethink their localisation strategy

As the cost of raw material increases, the competitive advantage from cheap labor is decreasing. Global companies now rethink their localisation strategy


10

http://www.alixpartners.com/en/WhatWeThink/manufacturing/2011USmanufacturingOutsourcingindex.aspx


Growing importance of services

A managerial challenge due to:« Intangibility »: intangible output« Simultaneity »: production an consumption are simultaneous« Heterogeneity »: each time a new experience

Country Agriculture Industry Sevices

China 10.1% 45.3% 44.6%South Korea 2.7% 39.8% 57.5%Turkey 8.9% 28.1% 63.0%World average 5.9% 3.5% 63.6%India 17.0% 18.0% 65.0%Brazil 5.4% 27.4% 67.2%Germany 0.8% 28.1% 71.1%Japan 1.2% 27.5% 71.4%Spain 3.3% 24.2% 72.6%Netherlands 2.8% 24.1% 73.2%Italy 2.0% 23.9% 74.1%United Kingdom 0.7% 21.1% 78.2%Greece 3.3% 17.9% 78.9%United States 1.2% 19.1% 79.7%

France 1.9% 18.3% 79.8%

Nominal GDP sector composition, 2012 Nominal GDP sector composition, 2012

Services: a wide range of different activities characterised by the intangibility of the output

Romania 7.5% 33.0% 59.5%


Consumption and Saving

International discrepanciesImportance of demographyAbout income inequality


Annex Table 23. Household saving ratesPer cent of disposable household income

Net savingsAustralia 7,5 8,4 4,9 5,0 5,4 6,9 6,4 7,0 4,5 1,8 1,5 2,5 1,6 -1,2 -3,2 -2,2 -0,8 -0,9 -0,8 -0,4 Austria 8,9 10,3 12,2 10,9 11,2 11,2 10,9 8,6 7,3 8,2 8,8 8,4 7,5 7,6 8,6 8,8 9,1 9,1 9,0 8,9 Canada 13,0 13,0 13,3 13,0 11,9 9,5 9,2 7,0 4,9 4,9 4,0 4,7 5,2 3,5 2,8 2,6 1,2 1,8 2,1 2,7 Czech Republic .. .. .. .. 9,4 6,4 10,0 6,1 6,0 4,1 3,4 3,3 2,2 3,0 2,4 0,2 0,5 0,3 0,2 0,2

Finland -0,6 2,0 7,4 10,2 7,9 1,4 4,2 0,3 1,5 0,4 1,6 -1,8 -0,9 0,0 1,1 2,1 0,0 -1,5 -2,3 -2,6 France 8,8 9,5 10,6 11,6 12,3 11,7 12,9 11,9 12,9 12,5 12,2 12,0 12,7 13,9 12,8 12,7 11,9 11,9 12,5 12,0 Germany 12,5 13,7 12,9 12,7 12,1 11,4 11,0 10,5 10,1 10,1 9,5 9,2 9,4 9,9 10,3 10,4 10,6 10,5 10,1 9,2

Italy 24,9 25,3 24,2 22,6 21,8 20,3 19,4 20,2 16,7 13,6 11,0 9,2 11,2 12,0 11,0 11,5 12,1 11,9 11,6 11,5 Japan 13,6 13,9 15,0 14,2 13,7 12,6 11,9 10,6 10,3 11,3 10,0 8,6 5,0 4,9 3,9 3,5 3,0 3,1 2,9 3,0 Korea 23,6 22,5 24,6 23,4 21,8 20,7 17,5 17,5 16,1 24,9 17,5 10,7 6,4 2,2 3,9 6,3 4,3 4,3 3,9 3,9 Netherlands 14,7 16,8 13,4 15,6 13,6 14,0 14,3 12,7 13,3 12,2 9,0 6,9 9,7 8,7 7,6 7,4 6,5 6,6 7,0 8,0

Norway 0,7 1,7 2,4 4,5 5,4 4,1 3,8 1,6 2,1 5,2 4,7 4,3 3,1 8,2 8,9 7,5 8,8 1,3 4,4 5,1 Sweden -1,2 3,4 5,6 9,7 11,4 10,0 9,8 7,6 5,2 4,3 4,1 5,1 9,8 10,6 10,5 9,6 8,8 8,3 7,4 6,5 Switzerland .. 9,6 10,0 10,7 11,2 11,1 11,6 11,3 10,5 10,7 10,0 11,8 11,9 9,1 9,1 8,5 8,0 7,6 8,0 8,1 United States 7,1 7,0 7,3 7,7 5,8 4,8 4,6 4,0 3,6 4,3 2,4 2,3 1,8 2,4 2,1 2,0 -0,4 -1,1 -1,2 -0,8

Gross savingsBelgium 10,7 13,1 13,2 14,4 15,6 15,5 18,9 17,4 16,3 15,6 15,8 14,0 14,7 14,1 12,5 11,0 10,7 10,7 11,2 11,0 Denmark -0,5 1,9 1,8 1,5 2,6 -1,6 1,3 0,9 -1,6 0,0 -3,3 -1,9 3,7 4,1 4,3 1,1 -2,5 1,9 3,0 3,4 Poland .. .. .. 18,2 16,7 16,3 18,2 14,2 14,0 14,3 12,9 10,7 12,1 8,4 7,8 6,7 6,8 7,4 7,8 7,6

Portugal .. .. .. .. .. .. 14,7 12,5 10,2 9,4 7,5 10,0 10,9 10,5 10,9 10,1 9,9 9,3 9,2 9,4 Spain 10,2 12,3 13,4 11,9 14,4 11,9 16,4 16,6 15,9 14,0 12,4 11,2 11,1 11,4 11,9 11,4 10,6 10,1 10,1 9,5 United Kingdom 6,7 8,0 10,3 11,7 10,7 9,3 10,2 9,4 9,5 7,0 5,3 5,1 6,4 5,0 4,9 3,7 5,3 4,9 4,9 5,3

2006 2007 200820052001 2002 2003 20041997 1998 1999 20001993 1994 1995 19961989 1990 1991 1992

Source: OECD Economic Outlook 81 database.

rated businesses). In most countries the households' saving include saving by non-profit institutions (in some cases referred to as personal saving). Other countries (Czech Republic, Finland, France, Japan and New Zealand) report saving of households only.

Note: The adoption of new national account systems, SNA93 or ESA95, has been proceeding at an uneven pace among OECD member countries, both with respect to variables and the time period covered. As a consequence, there are breaks in many national series. See Table “National Account Reporting Systems and Base-years” at the beginning of the Statistical Annex and OECD Economic Outlook Sources and Methods (http://www.oecd.org/eco/sources-and-methods). Countries differ in the way household disposable income is reported (in particular whether private pension benefits less pension contributions are included in disposable income or not), but the calculation of household saving is adjusted for this difference. Most countries are reporting household saving on a net basis (i.e. excluding consumption of fixed capital by households and unincorpo-

High saving rates in continental Europe……

decreasing to become negative in the US

Saving rates in few OECD countries


Saving rates in few OECD countries


Household savings in China and India

Rebalancing Growth in AsiaFinance & Development, December 2009, Volume 46, Number 4Eswar Prasad


Consumption & saving: a summary

•Demography•Income distribution•Social security•Wealth effect•Anticipations• Easy credit•Cultural traits

Influencing factors:


Households life cycle and saving

Age

Income, Consumption

Income

C

BorrowingPhase

Saving phase

Capital consumption

Retirement


Age

Income, Consumption

Income

C

BorrowingPhase

Saving phase

Capital consumption

Retirement

Households saving and investment

0

Net saving

Net Debt

45-50

Capital tobe transferred

Investmentsaving

Consumption, saving & investment


Population Structure: few comparisons










China…… and India



25

Population Structure: Romania


About aging …


Old age and dependency is a growing issue


Unfunded Pay as You GO pensionsIn an unfunded defined benefit pension, no assets are set aside and the benefits are paid for by the employer or other pension sponsor as and when they are paid. Pension arrangements provided by the state in most countries in the world are unfunded, with benefits paid directly from current workers' contributions and taxes. This method of financing is known as Pay-as-you-go

Unfunded Pay as You GO pensionsIn an unfunded defined benefit pension, no assets are set aside and the benefits are paid for by the employer or other pension sponsor as and when they are paid. Pension arrangements provided by the state in most countries in the world are unfunded, with benefits paid directly from current workers' contributions and taxes. This method of financing is known as Pay-as-you-go

Funded pensionsIn a funded plan, contributions from the employer, and sometimes also from plan members, are invested in a fund towards meeting the benefits. If it is a defined benefits plan, the investment risk is with the sponsor, if it is a defined contribution, the risk is with the beneficiaries

Funded pensionsIn a funded plan, contributions from the employer, and sometimes also from plan members, are invested in a fund towards meeting the benefits. If it is a defined benefits plan, the investment risk is with the sponsor, if it is a defined contribution, the risk is with the beneficiaries

The pensions funding issue

Do you consider a system is more appropriate to meet the aging challenge?


Risk of a deficit if L/R decreases because of ageing, the solutions would be: to postpone the retirement age, increase contributions and/or reduce benefits

Risk of a deficit if L/R decreases because of ageing, the solutions would be: to postpone the retirement age, increase contributions and/or reduce benefits

Supply of assets will be in excess of demand if L/R decreases because of ageing.As a result retirees would incur a capital loss due to a decrease in the value of their assetsThe possibility to invest globally might be a solution...but mind the foreign investment risk

Supply of assets will be in excess of demand if L/R decreases because of ageing.As a result retirees would incur a capital loss due to a decrease in the value of their assetsThe possibility to invest globally might be a solution...but mind the foreign investment risk

In any case, a productivity increase (higher GDP per worker) would helpFunded pension schemes could provide the long term saving needed to invest and boost productivity


Annual Productivity growth OECD average 1995/2011: 1.5% pa

Number of years (n) 40Years Year T Year T+n Change %

GDP 1950 2721 0.8%Population (millions) 100 100Over 64 (R: retirees) 20% 30%15 to 64 (L: working population) 65% 50%under 15 (young non working group) 15% 15%Dependency ratio (R/L) 0.31 0.60GDP per capita 19500 27210Productivity (GDP per person at work) 30000 54421 1.50%Pension transfer (as % of GDP) 12% 12%Income per capita for retirees 15600 21768 0.8%

The pensions funding issue: productivity is key

Assuming a close economy

What if we now consider a global economy where international movements of labour, goods and capital are free?


Income inequality is rising in rich countriesTHE gap between rich and poor has grown ever wider in wealthy countries over the past three decades. A new report by the OECD has reams of data on this phenomenon and is well worth looking at. The Gini coefficient, a measure of inequality in which zero corresponds to everyone having the same income and one means the richest person has all the income, increased by almost 10% from 0.29 in 1985 to 0.32 in 2008, for working-age people in OECD countries. The trend is caused by earnings: the pay of the richest 10% of employees has increased at a far greater rate than that of the poorest 10% of employees. Within the upper echelons, the top 1% have reaped the greatest gains. Technology has disproportionately benefited high-earning workers, who also spend far longer at work than do low-earners. High earners marry other high earners. And governments are doing less to redistribute wealth than they have done in the past. So far, so familiar. But the report also argues that globalisation is not a significant cause of inequality, and that one of the many reasons for the rise in income inequality is that more people are in work now (or at least they were before the financial crisis hit) compared with the 1970s.The Economist on line, Dec 2011

was nominal (Scott Sumner) • Inequality may ...(1) Inequality: The gap widens, again Mar 8th 2012, 4:00 from print edition

Easy credit:a solution to compensate for low income where income inequality is high?

Easy credit:a solution to compensate for low income where income inequality is high?


The role of financial institutions

Growing importance of financial intermediationAbout the the financial crisis


moneyFinancial assets

moneyFinancial assets

Households(saving)

Households(saving)

Companies, State,..(Capital needs)

Companies, State,..(Capital needs)

FINANCIALINTERMEDIARIES

FINANCIALINTERMEDIARIES

Banks, insurance companies,..Current and saving accounts,Insurance contracts

Debt, equity financing

Traded assets :shares, bonds

Stock MarketInformation, liquidity

Transferring saving to investment

Growing importance of financial intermediairies

Towards a standardized, imposed financial rationality for companies

Towards a standardized, imposed financial rationality for companies


Investor’s expectations:Creativity and initiative with a clear well focussed strategy,

Investor’s expectations:Creativity and initiative with a clear well focussed strategy,

� COHERENCE � TRANSPARENCY� RISK CONTROL� VALUE CREATION

Institutional investors imposing their rules…


SavingSaving Capital needsCapital needs

Financial Institutions and Markets

Financial Institutions and Markets

About the financial crisis

Growing risk aversion And….a growing business risk

Innovation, sophistication, segmentation and interdependencies

+Oligopoly structure with large

conglomerates

Funds in excess(US deficits, easy money and high saving rates in some other countries)

A system out of control


Banks: are they doing their job?

The Future of Finance, The LSE Report, London 2010


Excessive financial leverage to obtain high returns……but also resulting in severe risk exposure



An asymmetric pay structure allowing high gains when profits are there with no individual exposure to the downside risk! (moral hazard)



Economic growth: government intervention?

•When should governments intervene?•Basics of monetary policy•Public spending and budget deficits•Interest rates and exchange rates: role of central banks


M V = P QVelocity

Price level

Real value oftransactions

Quantity of money : 100, three agents A B C

exchanges:A - B : 100B - C : 100C - A : 100

Total value of transactions:300

= M x V 100 3

Cash in circulation outside banks+ sight deposits at bank

= M1+ other types deposits

= M2, M3, M4

Cash in circulation outside banks+ sight deposits at bank

= M1+ other types deposits

= M2, M3, M4

Monetary policy: growth versus inflation

Quantity of money

Increasing the quantity of money to boost aggregate demand may be ineffective if supply is inelastic or if we observe a downward change in V

Increasing the quantity of money to boost aggregate demand may be ineffective if supply is inelastic or if we observe a downward change in V


NAIRU*

*Non Accelerating Inflation Rate of Unemployment

GDPHigh

unemployment rate

Potential GDP

NAIRU*

Critical limit: with inelastic supply additional demand would mostly result in inflation rather than real

growth

Inflation

ease or tighten?

Ease Tighten

Lowunemployment rate


Employment & inflation: NAIRU*

* NAIRU: Non Accelerating Inflation Rate of Unemployment


Output Gaps and growth potential

Deviations of actual GDP from potential GDP as a per cent of potential GDP

Countries with positive output gaps are producing beyond their potential and tend to have accelerating inflation.

Source: IMF, 2009 / World Economic Outlook Database

44

Public spending

Apr 10th 2013, by Economist.com


Tax revenues

Government spending Structural deficit

About fiscal deficits...

cyclicalDeficit

cyclicalsurpus


Budget deficits….

The economic crisis following the financial crisis caused by excessive private debt (subprime) has forced most governments to intervene massively generating large budget deficits.The private debt bubble has turned into a public debt crisis

The economic crisis following the financial crisis caused by excessive private debt (subprime) has forced most governments to intervene massively generating large budget deficits.The private debt bubble has turned into a public debt crisis

Euro budget discipline in action

Time has now come for austerity......... and structural

reforms

Time has now come for austerity......... and structural

reforms


47

German gvt bonds US gvt bonds

Japan gvt bonds UK gvt bonds

Interest rates: difficult to go further down!

Current – previous close


Exchange rate policy

Quantity

$/Yenvalue of’1 $

in yen

Demand $ (= supply of yen against$)

Supply $ (= demand for yen against $)

Market exchange

rate

What if the the global US balance is on deficit?

Net supply of $ to compensate for the

global deficit

Risk of depreciationRisk of depreciation

Stabilisation•From the US: supply of currencies by the central bank and/or increase in interest rate to favour capital inflows •From Japan: accumulation of $ reserves and/or decrease in interest rate to favour capital outflows


The role of exchange rates

(from the economist)

Trade deficit

Devaluation

Cheaper more expensive Exports Imports

Exports ImportsIncrease decrease

Deficit reduced

Assumed automatic correction

And real life !

During the eighties a 10% change in the value of the $ has resulted in about 1,5% price adjustment only for clothing

During the eighties a 10% change in the value of the $ has resulted in about 1,5% price adjustment only for clothing

Because of global competition companies tendto absorb a larger part of foreign exchange movements


The Globalisation Trend

•US deficits: a vicious circle•Emerging countries: now they count•Abouts ustainability


Aggregate Demand for an Open Economy

AD = C + I + G + (X-M)

Private Demand

Public Demand

Net Exports

Each component is a growth driver. Some countries are « export driven » (China, Japan, Germany,…), others rely essentially on consumption (US, UK,…), sluggish economies count on public boost (France to a certain extent,..)


Official Settlements

Adjustment

Balance of payments

Current accountsGoodsServices

Investment incomeTransfers

Capital accountDirect investmentPortfolio investmentOthers

Items Balance

Trade balance

Balance of goodsand services

Current accountsbalance

Global Balance

Monetary Position

For details see: www.IMF.org

Record of all transactions over a period of time (one year) between “residents” and “non residents”


Current Balance+ 92.2

Global Balance-11.4

Monetary Position+2.2 (decrease in reserves)

Germany (2005):The large current account surplus is compensated by capital outflows (import of financial assets)

-103.5


US deficits: vicious circle

US trade deficit(60 to 70 billions $/month)

US trade deficit(60 to 70 billions $/month)

Accumulation of$ reserves in

exporting economies

Accumulation of$ reserves in

exporting economies

Excess liquidity on capital markets

Excess liquidity on capital markets

• Decrease in interest rates• Increase in value of assets

• Decrease in interest rates• Increase in value of assets

Budget deficitBudget deficit

High level of consumption

High level of consumption

(aggressive exchange rate policyconstitution of a safety net in case of currency crisis,

.... and may be a source of national pride!)

Credit …Consumption ….Deficit


Emerging Economies: they now count!

Aug 4th 2011, The Economist

Export driven economies, with a low level of local demand



Aug 4th 2011, The Economist

57The Economist, Aug 27th 2011

Asia’s economies can weather a Western slowdown—but not prevent it

Asia’s economies can weather a Western slowdown—but not prevent it


58

Exporting the trade surplus

Emerging-market firms are increasingly buying up rich-world onesSep 24th 2011 | from the print edition

Emerging-market firms are increasingly buying up rich-world onesSep 24th 2011 | from the print edition


Years

GDPppp/capita45 000$

25 000$

4000/6000 $ !

THREATS•Social unrest•Inflation, public deficit•Non Performing Loans, credit crunch•Infrastructures, environment•Governance, corruption•….

Mature Countries

Economic development: a critical step


an export driven economy

Aggregate Demand =Consumption + Investment + Government Expenses + Net Exports

Growth Drivers

Low wages attract FDI and boost export competitiveness...

…but also limit the growth of local demand

The Chinese model…


Low wages attract FDI and boost export

competitiveness...…but also limit the growth

of local demand

This development pattern may not be sustainableJob destructions in most developed countries seen as unfairDevelopment pattern imposed to neighbouring developing countriesImpact on commodity pricesExcess liquidity on financial markets


62

China: driving change.....

Labour costs (in Southern China)

have surged by 20% a year for the past four years

Labour costs (in Southern China)

have surged by 20% a year for the past four years

The EconomistManufacturing: The end of cheap ChinaMar 10th 2012

Now the challenge is to move up on the productivity lader and to supply higher quality product

Now the challenge is to move up on the productivity lader and to supply higher quality product

Provided they can handle their debt crisis!

Bulging bad debts give China a new banking dilemma (FT; By Paul J Davies August 27, 2013)

Provided they can handle their debt crisis!

Bulging bad debts give China a new banking dilemma (FT; By Paul J Davies August 27, 2013)

63

“Business as usual”: is that sustainable?

“Business as usual”: is that sustainable?

Growing energy needs

1_MACRO_ECO_2014_Romania.ppt

Documents

global us balance

large budget deficits

capital outflows

net supply

supply of yen

financial crisis

capital markets

capital inflows