Hans Timmer January 2010. Crisis, finance and growth The acute phase of the crisis is over, but with...
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Transcript of Hans Timmer January 2010. Crisis, finance and growth The acute phase of the crisis is over, but with...
![Page 1: Hans Timmer January 2010. Crisis, finance and growth The acute phase of the crisis is over, but with a muted recovery it will take several years to undo.](https://reader036.fdocuments.us/reader036/viewer/2022062417/551b5006550346d41a8b5f3b/html5/thumbnails/1.jpg)
Development Prospects Group
Hans Timmer
January 2010
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Development Prospects Group
Crisis, finance and growth
• The acute phase of the crisis is over, but with a muted recovery it will take several years to undo the damage
• In the medium run higher capital costs will reverse the process of capital deepening, lower potential output, and slow growth
• Developing countries may overcome the medium-term impacts by strengthening their domestic financial markets
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Development Prospects GroupSpreads appear to have stabilized at
about 150 basis points higher than during the boom period
Source: JP Morgan.
0
200
400
600
800
1000
1200
Corporate Bonds CEM...
Emerging market bond spreads in bps
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Development Prospects GroupBank-lending was very weak most of
the yearSyndicated bank loans
Source: DataStream, World Bank, Global Economic Prospects 2010: Crisis, finance, and growth
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000 PrivatePublic corporates and Sovereign
$ billions
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Development Prospects GroupPrivate capital flows are unlikely to
recover to the pre-crisis levels for some timeNet private capital flows to developing countries
Source: DataStream, World Bank, Global Economic Prospects 2010: Crisis, finance, and growth
0
200
400
600
800
1000
1200
1400
012345678910
of which LIC countries
Private capital flows
$ billions percent
2010
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Development Prospects Group
Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09-40
-30
-20
-10
0
10
20
WorldOECDDeveloping
Rebound in industrial production growth is easing
Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth
Industrial production growth, 3m/3m, saar
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Development Prospects GroupFor much of the world industrial
production has yet to recover pre-crisis levels
Industrial production, index, January 2008=100
Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth
80
85
90
95
100
105
High-income
Developing excl China
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Development Prospects Group
Rebound in trade led by East Asia
Quarterly import volumes, seasonally adjusted, annualized percentage change
Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09-80
-40
0
40
80
120High incomeEast Asia & PacificDev ex China
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Development Prospects GroupContinued financial-sector
restructuring, implies a weak recoveryReal GDP growth rates in percent
Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth
-4
-2
0
2
4
6
8
10
WorldHigh-incomeDeveloping countries
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Development Prospects Group
Regional growth
-10
-5
0
5
10
15
WorldEast Asia & PacificEurope & Central AsiaLatin America & Caribbean
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Development Prospects GroupDespite stronger growth, output
will remain depressed for a long timeOutput gap, percent difference between actual and potential GDP
-6
-4
-2
0
2
4
Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth
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Development Prospects GroupCrisis has cut four-year growth rates by two
or more percentage points in every regionfour year, average growth rate
Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth
Japan Euro zone
Europe & Cen-
tral Asia
USA Latin Amer-ica & Car-ibbea
n
Sub-Saha-ran
Africa
Middle-East & North Africa
South Asia
East Asia & Pacific
-2
0
2
4
6
8
102004-07 2008-11
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Development Prospects GroupCrisis will have serious poverty
impacts
• Increase in the global count of extremely poor of 64 million in 2010
• Possible 35-50,000 additional children in Africa may have died of malnutrition in 2009
• Unless aid is upped, program spending will have to fall even as need climbs
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Development Prospects GroupBoom period conditions will be
reversed
• Growth acceleration in developing countries was due to improved fundamentals (60%) and increased global liquidity (40%)
• As a result of the crisis capital costs will rise, capital deepening will be reversed and growth of production potential will slow
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Development Prospects Group
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
0
1
2
3
4
5
6
7
8
9
Developing countries
High-income countries
The boom did not reflect unusually strong demand from high-income countries
GDP growth
Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth
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Development Prospects GroupSince the early 2000s, credit
expansion has grown more than twice as fast as nominal GDP
Source: Bank of International Settlements, World Bankk
1990
0001991
0001992
0001993
0001994
0001995
0001996
0001997
0001998
0001999
0002000
0002001
0002002
0002003
0002004
0002005
0002006
0002007
0002008
0
100
200
300
400
500
600
700
Global Banking As-sets
World nominal GDP
Index, June 1990=100
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Development Prospects GroupLiquid capital markets prompted
surge in developing country finance and investment
Change in selected financial variables (2000-07)
Cost of capital (basis points) -400
(% of GDP)Capital inflows 5.0Stock market capitalization 78.6Private credit by deposits money banks
5.5
Investment 5.5Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth
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Development Prospects GroupDeveloping country potential output
growth was boosted by low borrowing costs
2
4
6
8
Potential output
without capital deepening
Percent growth in potential output
Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth
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Development Prospects GroupImpact on potential output of a return to
normal pricing of risk and higher base rates
Transition impact on growth of potential
Long-term impact on level of potential output
Base rates at boom-period levels, spreads at October 2009 levels -0.2 -3.4
Base rates at boom-period levels, spreads at “normal” levels
-0.4 -5.2
Base rates at 100 basis points higher than boom-period levels, spreads at October 2009 levels
-0.7 -8.0
Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth
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Development Prospects GroupHigh costs in domestic banking
sectors, because of poor regulation and a lack of competition
Net in
tere
st ra
te m
argi
n
Reven
ues to
ass
ets
Opeat
ring
cost
s/As
sets
Non-in
tere
st e
xpen
ses/ a
sset
s
Profi
t mar
gin
0
1
2
3
4
Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth
Index, high-income countries = 1
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Development Prospects GroupImpact of improved fundamentals on long-term
growth prospects may counteract impact of crisis
Growth of potential output; deviation from baseline; in percentage points
2009-15 2016-50
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5Post-crisis Improving fundamentals
Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth
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Development Prospects Group
Concluding remarks• Recovery too weak to undo damage done in
2009
• Going forward process of capital deepening will be reversed
• There remains enormous scope for policy to help improve performance
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Development Prospects Group
For more information visit:
www.worldbank.org/gep2010
www.worldbank.org/globaloutlook
http://blogs.worldbank.org/prospects