Global Economic OutlookThe Great Recession and Recovery

Stephan S. Thurman, PhDBureau for Economic, Energy, and Business Affairs

for Wichita State University, October 2010

Disclaimer

1

The State Department does not generate or publish a global economic outlook. The information contained in the slides below is generated from organizations or companies whose data are in the public domain, and to which the State Department has access.

The Great Recession – Deepest in 30 Years

1

0.9

2.3

-0.6

-2

0

2

4

6

World GDP Growth 1980-2009 (% p.a.)

Source: IMF World Economic Outlook April 2010

Average (excl. recessions) = 3.5%

The Great Recession – Trade Transmission

2

-1.1

0.2

-10.7-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

World Trade Growth 1980-2009 (% p.a.)

Source: IMF World Economic Outlook April 2010

Average (excl. recessions) = 6.3%

Great Recession: Did We See it Coming?

3

-8

-6

-4

-2

0

2

4

6

8

10

United States 2009 European Union 2009

Japan 2009 China 2009 Other Advanced Economies 2009

Emerging and Developing

Economies 2009

IMF WEO Forecasts of GDP Growth for 2009 (%), April 08-April 10

April

08O

ct 08

April

09O

ct 09

April

10

Source: IMF World Economic Outlook, April and October 2008-10

The ‘Great’ Recovery – Trade Returns

4

-1.1

0.2

-10.7-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

World Trade Growth 1980-2011 (% p.a.)

Source: IMF World Economic Outlook April 2010

Average (excl. recessions) = 6.3%

The ‘Great’ Recovery …is a “V” …We Hope

5

0.9

2.3

-0.6

-2

0

2

4

6

World GDP Growth 1980-2011 (% p.a.)

Source: IMF World Economic Outlook April 2010

Average (excl. recessions) = 3.53%

July 2010 IMF WEO Update

6

Selected Country GDP Outlook

7

-8

-6

-4

-2

0

2

4

6

8

10

12

14

United States Canada Mexico EU Japan China

-2.4 -2.6

-6.5

-4.1

-5.2

8.73.

1

3.1 4.

2

1.0 1.9

10.0

2.6 3.

2 4.5

1.8

2.0

9.9

GDP Growth Rates (%ch, annual rate)20

0620

0720

0820

0920

10F

2011

F

Source: IMF World Economic Outlook April 2010

Selected Country Inflation Outlook

8

-2

-1

0

1

2

3

4

5

6

United States Canada Mexico EU Japan China

-0.3

0.3

5.3

0.9

-1.4

-0.7

2.1

1.8

4.6

1.5

-1.4

3.1

1.7 2.

0

3.7

1.5

-0.5

2.4

Consumer Price Inflation (%ch, annual rate)20

0620

0720

0820

0920

10F

2011

F

Source: IMF World Economic Outlook April 2010

Selected Country Current Accounts

9

-1000

-800

-600

-400

-200

0

200

400

600

United States Canada Mexico EU Japan China

-418.0

-36.1-5.2

-49.8

141.7

283.8-4

87.2

-40.

0

-11.

2

-34.

3

149.

7

334.

7

-523

.9

-40.

5

-14.

7

-21.

1

131.

1

391.

0

Current Account Balance ($ Bil.)20

0620

0720

0820

0920

10F

2011

F

Source: IMF World Economic Outlook April 2010

Risks to the Great Recovery-- UNCERTAINTY --

10

1. The “New Normal” – sluggish growth and little or no employment growth.

2. Sovereign Debt – the European periphery to besure, but other Advanced Economies?

3. Further Stimulus or Consolidation? – when toexit? – too early=renewed recession & too late=unsustainable debt load

4. Deflation – that combination of low or negativeGDP growth accompanied by negative inflation -- present in Japan – “not likely” in U.S. or EU

Policy Focus of the G20Washington, London, Pittsburg,

Toronto ….and next month, Seoul, Korea

11

1. Return to Growth with Quality Jobs2. Reform and Strengthen Financial Systems 3. Complete Reforms of the International Financial

Institutions4. Create Strong, Sustainable and Balanced Global

Growth

G20 Trade Surpluses Get Smaller,,,,

12

-$1.0

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0Brazil Trade Balance ($ billions)

Source: EIU

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

$16.0

$18.0

$20.0Russia Trade Balance ($ billions)

Source: EIU

-$20.0

-$10.0

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0 China Trade Balance ($ billions)

Source: EIU

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0 Germany Trade Balance ($ billions)

Source: EIU

-$15.0

-$10.0

-$5.0

$0.0

$5.0

$10.0

$15.0

$20.0 Japan Trade Balance ($ billions)

Source: EIU

G20Trade Surplus

Countries

….while G20 Trade Deficits Shrink

13

G20Trade Deficit

Countries

-$18.0

-$16.0

-$14.0

-$12.0

-$10.0

-$8.0

-$6.0

-$4.0

-$2.0

$0.0

$2.0

India Trade Balance ($ billions)

Source: EIU

-$12.0

-$10.0

-$8.0

-$6.0

-$4.0

-$2.0

$0.0

$2.0

$4.0 France Trade Balance ($ billions)

Source: EIU

-$2.0

-$1.0

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

Canada Trade Balance ($ billions)

Source: EIU

-$18.0

-$16.0

-$14.0

-$12.0

-$10.0

-$8.0

-$6.0

-$4.0

-$2.0

$0.0 UK Trade Balance ($ billions)

Source: EIU

-$80.0

-$70.0

-$60.0

-$50.0

-$40.0

-$30.0

-$20.0

-$10.0

$0.0 US Trade Balance ($ billions)

Source: EIU

14

No Significant Global Imbalances

-$1,000

-$800

-$600

-$400

-$200

$0

$200

$400

$600

$800

2.32 0.29

Global Current Account Imbalances 1980 ($ bil.)

Source: IMF WEO via ESDB

Deficits Surpluses

Source: IMF WEO via ESDB

Deficits Surpluses

15

Global Imbalances Emerge

-$1,000

-$800

-$600

-$400

-$200

$0

$200

$400

$600

$800

-417.43

20.52

Global Current Account Imbalances 1998 ($ bil.)

Source: IMF WEO via ESDB

Deficits Surpluses

Source: IMF WEO via ESDB

Deficits Surpluses

16

Global Imbalances Peak

-$1,000

-$800

-$600

-$400

-$200

$0

$200

$400

$600

$800

-856.7

238.5

Global Current Account Imbalances 2006 ($ bil.)

Source: IMF WEO via ESDB

Deficits Surpluses

17

Global Imbalances Shrink With Recession

-$1,000

-$800

-$600

-$400

-$200

$0

$200

$400

$600

$800

-418.0

283.8

Global Current Account Imbalances 2009 ($ bil.)

Source: IMF WEO via ESDB

Deficits Surpluses

18

Global Imbalances Re-Emerge with Recovery

-$1,000

-$800

-$600

-$400

-$200

$0

$200

$400

$600

$800

-638.2

759.5

Global Current Account Imbalances 2015 ($ bil.)

Source: IMF WEO via ESDB

Deficits Surpluses

Three Sources of Savings

19

Private Savings +

Govt. Savings+

Foreign Savings== 0

Disposable IncomeLess

ConsumptionLess

Investment---------------------------Taxes Less Revenues

----------------------------

Imports Less Exports

G20 Policy Recommendations

20

•Making more progress on rebalancing global demand •Advanced deficit countries should take actions to boost national savings while maintaining open markets and enhancing export competitiveness. • Surplus economies will undertake reforms to reduce their reliance on external demand and focus more on domestic sources of growth.

•Strengthening social safety nets, enhancing corporate governance reform, financial market development, infrastructure spending, and greater exchange rate flexibility in some emerging markets.

National Export InitiativeDouble Exports in 5 Years

21

@2010-II$1,817.9 bil.

@2015Q2$3,635.8 bil.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2000

-I

2000

-III

2001

-I

2001

-III

2002

-I

2002

-III

2003

-I

2003

-III

2004

-I

2004

-III

2005

-I

2005

-III

2006

-I

2006

-III

2007

-I

2007

-III

2008

-I

2008

-III

2009

-I

2009

-III

2010

-I

2010

-III

2011

-I

2011

-III

2012

-I

2012

-III

2013

-I

2013

-III

2014

-I

2014

-III

2015

-I

NEI Target = Double Nominal $ Exports ($ bil.)

Source: Department of Commerce BEA

Average Growth Rate Needed to Reach NEI

= 14.9% p.a.