Reflections on the Global Economic Outlook

A presentation to the ACI-ICA World Congress

Mahmoud Mohieldin @wbg2030 October 2018 Senior Vice President World Bank Group worldbank.org/sdgs

Global Megatrends

Demographic Fragility and Urbanization transitions violence

Market Volatility Technological Climate change and Debt Vulnerability changes

Renewed debate Shifts in the about global economy globalization There was a demographic turning point in 2010

Percent of total population that is working age World Advanced Economies 70 • Higher working-age Emerging Market and Developing Economies population shares are associated with higher per capita output 65 growth.

• Global demographic trends turned from 60 tailwinds to growth into headwinds around 2010.

55

1995 1960 1965 1970 1975 1980 1985 1990 2000 2005 2010 2015 2020 2025

Source: World Bank Global Economic Prospects, 2018 The world can be divided into four major demographic groups

Most of the global population lives in early- and late-dividend countries and while 78 percent of global growth was from late- and post-dividend countries, 90 percent of global poverty is in pre- and early-dividend countries

 Lagging in human development outcomes

 Job creation for rapidly growing share of working-age people, mostly youth

 Populations beginning to age; potential slowdown in growth of labor supply

 Adapting to aging to maintain living standards

* World Bank Global Monitoring Report 2015/2016 Urbanization and development outcomes

Proportion of population living in urban areas, 1960-2011 Proportion of urban population living in slums, 1990-2010 Climate change and development progress

The number of disasters and losses has been rising. Development progress needs to integrate resilience to avoid undoing hard fought development gains

Global disaster losses, 1980–2012 Index of risk preparation across countries

Process of integrating climate resilience into development Commodity cycles exacerbate global economic volatility

Commodity price indexes, annual The rate of technological advancement is unprecedented Violent conflict is increasing and becoming more complex

Number of people killed by violent conflict Number of conflicts, by type

Source: Pathways to Peace, World Bank, 2018 Multipolarity

The world’s economic center of gravity, Evolution of the earth’s economic center of 1980–2016, in black, at three-year intervals gravity: 1 CE to 2025

1989 2007 2049 1980 1998 2016

Source: Danny Quah, 2011

Source: McKinsey Global Institute, 2012 Source: Danny Quah, 2011 The global risks landscape in 2018

Source: World Economic Forum, The Global Risks Report 2018 Robust but Slowing Growth in Advanced Economies; Weakening Global Trade

(Percent, 3 months SA) (Index, 50+ = expansion) 3 8 56 Industrial production growth 2 6 54

1 4 52 0

2 50

2018 2017 2017 2018 2017 2018 2017 2018

2019-20 2019-20 2019-20 2019-20 Advanced United Euro Area Japan 0 48 economies States 2016 2017 2018

13 Tightening Financing Conditions; Diverging Commodity Prices

600 600 EMBI spreads EM CDS spreads (RHS)

500 400

400

200 300

200 0 2015 2016 2017 2018

14 Change from June 2018 2012-16 2017 2018e 2019f 2020f 2018 2019

World 2.8 3.0 3.0 2.9 2.8 -0.1 -0.1

Advanced economies 1.7 2.3 2.2 2.0 1.6 0.0 0.0

EMDEs 4.8 4.2 4.2 4.3 4.6 -0.3 -0.4

East Asia and Pacific 7.3 6.6 6.3 6.0 6.0 0.0 -0.1 Europe and Central Asia 3.2 4.0 3.1 2.5 2.7 -0.1 -0.6 Latin America and the Caribbean 2.2 0.8 0.7 1.8 2.4 -1.0 -0.5 Middle East and North Africa 3.5 1.2 1.8 1.9 2.7 -1.2 -1.4 South Asia 6.4 6.2 6.9 7.1 7.1 0.0 0.0 Sub-Saharan Africa 4.3 2.5 2.8 3.4 3.6 -0.3 -0.1

15 Financial stress Trade tensions

Policy uncertainty Geopolitical risks

Slower potential growth

16 (Percent, year-on-year) (Percent of labor 3 force) 6 4 Inflation Unemployment rate (RHS) FOMC median 3 United States Euro Area Japan 2 5 2

1 1 4 0

0 3 -1 2015 2016 2017 2018 2010 2013 2016 2019 2022 Bloomberg; Haver Analytics; World Bank

• Left Panel. Inflation is measured by year-on-year change in the personal consumption expenditures (PCE) price index. Both PCE price index and unemployment rate are seasonally adjusted. Dotted lines refer to projections over longer run in the latest FOMC) meeting (in September 2018), based on the central tendency. Last observation is August 2018. Right Panel.

17 110 105 0.0

100 100 -0.4

95

90 -0.8 90 China China Other EM7 Other EM7 EMDEs Global 80 85 -1.2 Apr May Jun Jul Aug Sep Apr May Jun Jul Aug Sep United States China

18 4 30 Short- term Malaysia 0 external debt South 20 Africa -4 Turkey Thailand Indonesia Argentina -8 U.A.E. Colombia Poland 10 Chile Hungary Saudi -12 Mexico China Arabia India Philippines Russia -16 Morocco Brazil Peru 0 EMDEs with current EMDEs with current -10 -5 0 5 10 account deficits account surpluses Current account (CA) balance

19 Public Debt in EMs, 2013-18s (percent of GDP)

20 Gross Financing Needs in EMs External Financing Needs and Reserves

21 EMs: Value of International Bonds Maturing External Variable Rate Debt Change in Credit Rating in EMs, 2012-18

22 Use swap and FX Ease capital flow regulation Build-up capital liquidity measures Consider temporary restrictions buffers on outflows

Financial stability Macro- FX liquidity Capital prudential measures flow measures measures measures

Decline in Risks Implement Allow exchange rate Decline in capital flows Materialize structural depreciation growth reforms

Macroeconomic policy FX reserve Monetary Fiscal buffers policy measures policy Use fiscal Use targeted stabilization if interventions Use conventional tools, space available; if weighing policy trade-offs not, build space

23 Investing in Inclusive Growth: The Common Characteristics of High, Sustained Growth

24 Investing in Inclusive Growth: Dashboard for inclusive, sustainable, and multidimensional growth

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Source: New Growth Models, World Economic Forum, 2014 Harnessing the impact of disruptive changes requires a comprehensive policy framework

Effects of disruptive changes e.g. tech

Invest in resilience Invest in human (incl. social Invest in infrastructure capital protection)

Enablers Data Finance STI

Achieving the SDGs

Adapted from: WDR 2019 Changing Nature of Work, World Bank, 2018 Data

How will we enable these Finance investments? Implementation Data is the new oil Finance for development will need to come from multiple sources Big picture of developing countries' total resource receipts

FDI Net Inflows (% of GDP) Tax revenues Fintech 10

5

0

2013 2015 2017

2011

2003 2005 2007

2001

2009

1993

1995 1997 1999 Low & middle income World Middle East & North Africa Maximizing Fintech’s Potential Opportunities, Challenges, Risks

Monitor Developments Closely to Deepen Reinforce Competition and Commitment Understanding of Evolving Financial Systems to Open, Free and Contestable Markets

Foster Fintech to Promote Financial Embrace the Inclusion and Develop Financial Markets Promise of Fintech Enable New Adapt Regulatory Framework and Supervisory Technologies to Practices for Orderly Development and Stability Enhance Financial of the Financial System Safeguard the Service Provision Integrity of Modernize Legal Frameworks Financial Systems to Provide an Enabling Legal Landscape Enhance Collective Surveillance of the International Monetary and Ensure Stability of Domestic Financial System Encourage Monetary and Financial Systems International Cooperation and Develop Robust Financial and Data Information Sharing Infrastructure to Sustain Fintech Benefits 31 Source: The Bali Fintech Agenda, World Bank, 2018

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Mahmoud Mohieldin @wbg2030 Senior Vice President World Bank Group worldbank.org/sdgs