Lekcija: Pasaules tautsaimniecības izaicinājumi un perspektīvas

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Recent trends in the global economy and the near term outlook

Ieva SkrīvereChief Economist

International Relations and Communication Department

Bank of Latvia20.10.2016

Global GDP growth is projected to increase from 3.1% in 2016 to 3.4% in 2017

Sources: Bloomberg L.P.; Chicago Board Options Exchange (CBOE); Consensus Economics; Haver Analytics; and IMF staff estimates

Global growth weakened slightly in 2016, mostly due to softer activity in advanced economies

Sources: CPB Netherlands Bureau for Economic Policy Analysis; Haver Analytics; Markit Economics; and IMF staff estimates

Global trade contracted in second half of 2016, while industrial production remained subdued

Sources: CPB Netherlands Bureau for Economic Policy Analysis; Haver Analytics; Markit Economics; and IMF staff estimates

Trade growth in China has fallen significantly compared to GDP growth

China GDP and trade growth (Percentage change, year over year)

Source: IMF staff calculations

China's large footprint in commodity markets has an effect on commodity prices and global trade

Source: Bloomberg L.P., Kolerus, N'Diaye, Saborowski 2016, World Bureau of Metal Statistics, and IMF staff calculations

Oil prices have rebounded from the 10-year low recorded in January 2016

Sources: IMF, Primary Commodity Price System; International Energy Agency (IEA); OECD; and IMF staff estimates

APSP = average petroleum spot price

Headline inflation inched up in advanced economies as drag from lower commodity prices faded

Sources: Consensus Economics; Haver Analytics; IMF, Primary Commodity Price System; and IMF staff estimates

However, low inflation remains a widespread issue Share of Countries with Low Inflation (Percent)

Source: Consensus Economics; and IMF staff calculations

Markets expect advanced economy central banks to maintain low rates for longer

Sources: Bank of Spain; Bloomberg L.P.; Haver Analytics; Thomson Reuters Datastream; and IMF staff calculations

Credit to nonfinancial firms and households continues to grow, and household net worth has improved

Sources: Bank of England; Bank of Spain; Bloomberg L.P.; European Central Bank (ECB); Haver Analytics; Organisation for Economic Co-operation and Development; and IMF staff calculations

Fiscal balance is projected to improve slowly, while public debt levels reman very high

Source: IMF staff estimates

Gravity model of trade

The smaller the distance between two objects and the bigger the mass of one (or

both) objects, the bigger the gravity between the two

objects

The smaller the distance between two countries and the bigger the GDP of one (or both) countries, the bigger the "trade

gravity" between the two countries

Source: an advertisement for movie "Gravity"

Europe: Economic developmentsGrowth is low, and future prospects

do not look too encouraging

Source: Eurostat, IMF* - IMF forecasts

2014 2015 2016* 2017*0.00.51.01.52.02.53.0

1.6

2.31.9

1.7

Real GDP growth, %

Unemployment remains high, in some countries above 20%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

5

10

15

20

25

30

Individual EU-28 countries EU-28 average

Europe: Fiscal situationMany countries spend more than they earn. Only 4 countries had a

balanced budget in 2015

Source: Eurostat, European Commission

Government debt levels are very high, average in Europe:

85.2% of GDP

Only 11 out of 28 countries comply with Maastricht criteria (government debt <60% of GDP,

budget deficit <3% of GDP) -8.0 -7.0 -6.0 -5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.00.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

General government budget balance, % of GDP

Gene

ral g

over

nmen

t deb

t, %

of G

DP

Europe: Political challenges

Source: Business Insider, Wall Street Journal, NBC News 2015/16: 2017: and possibly

ELECTIONS

Economic center of gravity: On both sides of the Atlantic

Source: IMF World Economic Outlook data baseGDP data in USD bn1995 2005 2015

02000400060008000

100001200014000160001800020000

USAEU-28

USA: Economic developments

Source: IMF World Economic Outlook data base, U.S. Bureau of Labour Statistics* - IMF forecasts

2014 2015 2016* 2017*0.00.51.01.52.02.53.0

2.4 2.6

1.6

2.2

Real GDP growth, %2000

20012002

20032004

20052006

20072008

20092010

20112012

20132014

20150

2

4

6

8

10

12

Unemployment rate, %

Growth is stable, but lower than forecasted due to low oil price and drop in investment

Unemployment is very low: 5.3% in 2015, 4.9% in August 2016

USA: Political challenges

Source: NBC News

USA – still the largest economy in the world; but China is rising

Source: IMF World Economic Outlook data base, Bank of Latvia calculations* - IMF forecasts

1995 2005 2015 2021*

49.04% 49.03% 50.13% 50.25%

20.26% 19.46% 15.81% 14.62%

24.70% 21.66%16.92% 15.30%

5.90% 9.74%17.08% 19.76%

ChinaEU-28USAOther

1995 2005 2015 2021*

41.78% 37.06% 38.29% 37.02%

24.91%27.73% 24.53% 23.84%

30.92% 30.36%22.17% 20.54%

2.39% 4.85%15.01% 18.60%

World GDP (PPP) World GDP (USD)

Economic center of gravity: Now on both sides of the Pacific

Source: IMF World Economic Outlook data baseGDP data in USD bn

1995 2005 20150

2000400060008000

100001200014000160001800020000

USAChina

China: 1/3 of world GDP growth

Source: IMF World Economic Outlook data base, Bank of Latvia calculations* - IMF forecasts

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2017*

-1.5

-0.5

0.5

1.5

2.5

3.5

4.5

5.5

ChinaEU-28USAOtherWorld

China: A leader in world trade

Source: World Trade Organization

Leading exporters and importers in world merchandise trade, 2015, USD bn

Leading exporters and importers in world services trade, 2015, USD bn

Italy

South Korea

Hong Kong

The Netherlands

France

United Kingdom

Japan

Germany

USA

China

0 500 1000 1500 2000 2500 3000 3500 4000 4500

Export Import

India

Ireland

Singapore

Japan

The Netherlands

France

Germany

United Kingdom

China

USA

0 500 1000 1500 2000 2500 3000 3500 4000 4500

Export Import

China: Rising in importance also in financial sector

Source: Bloomberg, bank home pages, IMFBank assets in USD tn

Deutsche Bank

Bank of America

BNP Paribas

JPMorgan Chase & Co

HSBC Holdings

Bank of China

Mitsubishi UFJ Financial Group

Agricultural Bank of China

China Construction Bank Corp

Industrial & Commercial Bank of China

0 1 2 3 4

ChinaJapanEUUSA

Top 3 banks in China at the same time are Top 3 banks in the world

Chinese bond market – 3rd biggest in the world. Over the past 10 years increased 6 times

25

Thank you for your attention!

Q&A