Hans Timmer World Bank March 1, 2011 Transformational Changes in the Global Economy Trade, finance and commodities after the crisis.

Hans TimmerWorld Bank

March 1, 2011

Transformational Changes in the Global Economy

Trade, finance and commodities after the crisis

Trade, Finance, and Commodities

• Trade dynamics illustrate that developing countries have become the drive of global growth

• Trade dynamics illustrate that developing countries have become the drive of global growth

• Financial markets still show the reverberations of the financial crisis

Trade, Finance, and Commodities

• Trade dynamics illustrate that developing countries have become the drive of global growth

• Financial markets still show the reverberations of the financial crisis

• Food price increases reflect major changes in commodity markets

Trade, Finance, and Commodities

Source: The World Bank

Japan’s export growth was largely driven by Asian import demand during crisis

Source: World Bank, DEC Prospects Group

Contribution to annualized q/q growth (%)

Source: World Bank, DEC Prospects Group

Developing countries’ imports stronger than their exports

Share of developing countries in global trade more than doubled during last 20 years

Source: Comtrade data via WITS

Source: The World Bank

Source: The World Bank

Source: The World Bank

Developing countries have become driver of global trade

• Sustained strong growth in developing countries is more crucial than rebalancing for global recovery

• Developing countries should take the lead in trade negotiations

Decline and recovery in capital flows was very concentrated

Source: The World Bank

Bank NPLs remain elevated in Europe and Central Asia

Capital flows put upward pressure on many currencies

Real-effective exchange rate, January 2009=100

Source: International Monetary Fund

Weak bank-lending implies private capital flows will not recover to pre-crisis levels for some time

Net private capital flows to developing countries, $ billion

Source: The World Bank

in billions Percent of GDP

From FDI inflow……

Percent of GDP

…to FDI outflows

Developing countries’ role in financial markets will dramatically increase

• Developing countries aim to become less dependent on dollar and US monetary policy.

• Coming decade will show shift from ingoing FDI to outgoing FDI.

• While high-income countries look for regulating financial markets, developing countries need to deepen markets, partly through liberalizing them.

The recent boom was one of the largest, longest lasting and involved all commodities

MUV-deflated US$ (2000=100)

Source: World Bank

Agriculture

Metals

Oil

Source: The World Bank

Commodity intensity of demand, index 1971 = 1

Technological progress increases the efficiency of resource use

Source: World Bank.

BrazilChina

India

Russia

18

45

135

367

1,0

00

Gra

in C

onsu

mptio

n p

er

ca

pita

( K

g )

0.4 1.1 2.9 8.1 22.0 59.8GDP per capita (1,000 PPP $)

Note : Curve fitted on a log scale.

Most major countries have passed the point where food demand grows much faster than population

Source: World BankNote: Curve fitted on a log scale

2.1

1.51.2

2.3

1.7

0.0

0.5

1.0

1.5

2.0

2.5

Ag

ricu

ltu

ral

pro

du

ctiv

ity

All

fo

od

cro

ps

Cer

eals

Ed

ible

oil

s

Mea

t

Globally, agricultural productivity growth exceeds demand growth

Source: Productivity (Coelli and Rao, 2005); Food demand, FAO (2006)

Projected annual average growth rates 2000-2030, per cent

Production (history) and demand (forecasts)(annual average percent change)

Source: FAO (history) and FAO/OECD (forecasts)

Causes of the boom

• Sharp increase in Chinese demand for metals

• Decades of weak prices, during which as much as ½ of global demand was being met from idle capacity

• Impact of oil prices on agricultural prices

• Adverse weather patterns

• Larger role of financial market

High oil prices affect food prices

y = 2.1166x - 3.3711

R2 = 0.7527

0

50

100

150

200

250

300

350

50 100 150

Crude Oil ($/bbl)

Mai

ze P

rice

($/

ton

)

y = 0.4246x + 86.178

R2 = 0.0526

0

50

100

150

200

250

300

350

10 30 50

Crude Oil ($/bbl)

Mai

ze P

rice

($/

ton)

Source: DEC Prospects Group.

Oil < $50 Oil > $50

Improving our capacity to respond to commodity cycles

Domestic policy agenda– Improve targeting of social welfare schemes– Invest in rural infrastructure and agricultural R&D– Be prepared to react rapidly because of long-term costs of even a relatively

short bout of high food prices

Global policy agenda– Proceed with trade liberalization, including improved disciplines governing

export bans– Increase the financial independence of World Food Program– Improve information flows and coordination of food stocks

Hans TimmerWorld Bank

March 1, 2011

Transformational Changes in the Global Economy

Trade, finance and commodities after the crisis