Structural Transformation of the Global Economy Implications of Global Power Shifts

1. Structural Transformation of the Global Economy Implications of Global Power Shifts Amar Bhattacharya G-24 Secretariat Eurodad/Glopolis International Conference Prague, June 4, 2013

2. Overview • Structural transformation in the global economy • Implications of changing power dynamics

3. Overview • Structural transformation in the global economy • Implications of changing power dynamics

4. Structural Transformation • World Economy at a point of structural transformation in the relationship and position between developed and developing countries • Change has been highlighted and accentuated by the crisis but had started well before • For almost 60 years developing country growth tracked that of developed countries and with depreciating countries led to growing divergence • During the past decade there has been a structural decoupling even though there are strong cyclical links

5. Growth in EMDCs has consistently outpaced AEs for decades Source: G-24 calculations based on data from World Economic Outlook, IMF and World Development Indicators, World Bank

6. This trend is evident in G-24 countries, especially when GDP is weighted Source:Canuto (2013), World Bank Poverty Reduction and Economic Management Department

7. Structural Transformation • Not a story of China and India or of a few emerging markets and developing countries • Prior to crisis, 94 EMDCs recorded growth in excess of 5 percent per annum and 90 percent of EMDCs grew faster than the average of AEs • Trend will be continued; although average growth of both AEs and EMDCs lower than before the crisis, differential will be sustained • Particularly striking that low income countries and SSA are part of this trend • Underpinning this impressive growth has been a virtuous cycle of rising savings and investment, growing trade and macroeconomic resilience

8. Increasing Number of EMDCs are on path to convergence Dispersion of Average Growth Number of countries <2.5% 2.5-5% >5% AdvancedEconomies EMDCs Source: G-24 calculations based on data from World Economic Outlook Database April 2013, IMF.

9. Income groups are gradually converging

10. Structural Transformation • Sustained growth differential between AEs and EMDCs leading to a profound change in the global economic landscape with the share of EMDCs in the global economy measured in PPP terms greater than that of AEs • Similar trend between the G7 and the BRICS reflecting a new rebalancing of power • Convergence between GDP at market prices and GDP PPP in contrast to the pre-2000 an important element of the new story of convergence

11. EMDCs account for increasingly large shares of global GDP Share of GDP (Market Prices) Share of GDP (PPP) AdvancedEconomies EMDCs Source: G-24 calculations based ondata from World Economic Outlook Database, IMF

12. EMDCs account for increasingly large shares of global GDP Share of GDP (Market Prices) Share of GDP (PPP) G7 BRICS Source: G-24 calculations based ondata from World Economic Outlook Database, IMF

13. Growing Convergence Between GDP at Market Prices and GDP PPP (Share of EMDCs in Global GDP) Source: World Economic Outlook, IMF

14. Growth rates in EMDCs have withstood the crisis better than those in AEs GDP Growth AdvancedEconomies EMDCs Source: G-24 calculations based on data from World Economic Outlook, IMF and World Development Indicator, World Bank

15. Continued, differential growth prospects between EMDCs and AEs are forecast Real GDP, index 1980=100 Other high-income countries Euro-area

16. Though amongst EMDCs, there is heterogeneity across regions Average GDP Growth 2003-2008 2009-2012 2013-2015 Source: G-24 calculations based on data from World Economic Outlook, IMF and World Development Indicator, World Bank

17. Major Challenges to Sustained and Sustainable Growth • Infrastructure development and financing • The jobs crisis and prospects for long-term employment creation • Growing income inequality with lagging countries and growing inequality in both AEs and EMDCs • Sustainability including climate impact and resilience also a source of enormous concern

18. Overview • Structural transformation in the global economy • Implications of changing power dynamics

19. Implications for Global Governance • Growing interconnectedness poses new challenges in global coordination and governance arrangements • Recent waves of financial crises has underscored importance of coordination in the economic and financial sphere but also the inherent challenges of such coordination • The new wave of global challenges coincides with major shifts in relative positions and the role of old and new powers

20. The global rank of economies has shifted markedly in the last four decades GDP (PPP), $Billions Source: WEO Database, IMF

21. Contributions to World Growth(percent) Source: A. Virmani based on IMF data

22. IFI governance arrangements have failed to account for changing economic realities Evolution in Actual and Calculated IMF Quotas Relative to Weight in Global Economy Source: G24 calculations based on IMF data

23. With a Persistent Bias Against Poor Countries 1 Defined as EMDCS whose GDP PPP share divided by the 14th General Review Quota share is greater than 1 and not over-represented by more than 25% based on the current quota formula. 2 PRGT-eligible countries including Zimbabwe. Source: G24 calculations based on IMF data

24. Trends in GDP PPP and GDP at Market Prices Source: Calculations based on WEO data

25. Why Europe Needs to Adjust Its Quota and Voting Share in the IMF 1GDP Blend of 40 percent GDP at market exchange rates and 60 percent at GDP PPP 2 Based on current formula and 2007-2009 data

26. Thank you