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Global Engines of Growth

Global Engines of Growth. Professor Bernardo M. Villegas PhD (Harvard University). Engines of Growth. Growth Rates of Major Economies. F - forecasts Source: World Economic Outlook, IMF, Apr. 2007. Engines of Growth. World Growth (GDP Growth Rates). F - forecasts

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Global Engines of Growth

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  1. Global Engines of Growth Professor Bernardo M. Villegas PhD (Harvard University)

  2. Engines of Growth • Growth Rates of Major Economies F - forecasts Source: World Economic Outlook, IMF, Apr. 2007

  3. Engines of Growth • World Growth (GDP Growth Rates) F - forecasts Source: World Economic Outlook, IMF, Oct. 2007

  4. Threats to World Growth • Credit squeeze due to U.S. subprime mortgage market crisis • Higher interest rates • High oil prices • The U.S. twin (fiscal and trade) deficits continue to cause concern

  5. U.S. Economy • Previously robust private consumption spending has been depressed by the slump in the housing market • Recent inversion of treasury yield curve indicates a slowdown, but a growth pause is more likely at this stage than a recession as the inversion reflects low long-term rather than high short-term rates • Real GDP growth to fall to 1.9% for 2007 and remain at that level in 2008 • Corporate profitability and equity prices are at high levels which should support business investment

  6. Euro Area Economy • Activity in Western Europe gathered momentum in 2006. GDP growth in the Euro area reached 2.8%, double its pace in 2005 • Unemployment fell to 7.6%, its lowest level in 15 years • Germany was the principal locomotive, fueled by robust export growth • The expansion gained pace in the United Kingdom driven by strong domestic demand • On the other hand, the European Commission recently trimmed its forecast for eurozone economic growth to 2.5% from 2.6% in 2007 to reflect concern over the impact of the global credit market turmoil

  7. German Economy • GDP growth soared to 2.9% in 2006 from 0.9% in 2005 • The coalition headed by Angela Merkel has a large parliamentary majority and is expected to continue on its (largely) gradualist reforming path • General government deficit is expected to move to surplus by 2008 • Consumption growth has cooled in the wake of the V.A.T. increase

  8. French Economy • Nicolas Sarkozy was elected in early May 2007 and was rewarded with a parliamentary majority at the legislative election in mid-June • Mr. Sarkozy´s victory is expected to bring about a modest reduction in taxation and a relaxation of France´s restrictive labour market • France enjoyed a modest recovery in 2006, reaching GDP growth of 1.9% from 1.2% in 2005 • Large trade deficits are expected in 2007 and 2008

  9. Italian Economy • Italy´s fragile Unione government, led by prime minister Romano Prodi, is expected to remain in office until the next election in 2008 but not much beyond that date, due to high risk of a repeat of the February crisis • GDP growth is forecast to slow from 1.9% in 2006 to 1.7% in 2007 and 1.3% in 2008 • Fiscal deficit is projected to decline from 4.4% of GDP in 2006 to below 3% of GDP in 2007

  10. Spanish Economy • The fastest growing economy in the developed world for the past ten years • Will continue to outperform all the OECD countries in 2007 and 2008, despite real estate slowdown • Highly dependent on 4.5 million immigrant workers for growth • Private consumption and investment demand are projected to slow sharply over the remainder of 2007 and in 2008 • Continuing large current account deficit • On the other hand, the housebuilding boom has passed its peak and may provide negative shocks to economic growth

  11. U.K. Economy • Tony Blair stepped down as prime minister in late June 2007, replaced by the former chancellor of the exchequer, Gordon Brown • Opinion polls indicate the Labour Party is looking tired after a decade in office • Monetary policy is currently in a phase of tightening with official interest rates expected to peak at 5.75% during 2007 • The pound´s trade-weighted exchange rate will weaken in the second half of 2007 and into 2008

  12. Japanese Economy • Political instability caused by the decision of Prime Minister Abe to step down on 12 Sep 2007 • Recent acceleration in economic expansion slowed down to a near standstill, with GDP growth at 0.1% in the second quarter of 2007 • The yen will strengthen against the U.S. dollar in 2007-2008, reflecting both the ending of the U.S. monetary tightening cycle and further interest rate increases by the BOJ • Consumer prices will rise in 2008

  13. Asian Growth Rates(page 1/2) Source: Asian Development Outlook 2007, ADB (March 2007)

  14. Asian Growth Rates(page 2/2) Source: Asian Development Outlook 2007, ADB (March 2007)

  15. Emerging Engines of Growth • BRICA Source: World Economic Outlook 2007 (IMF), Asian Development Outlook 2007 (ADB), World Development Indicators 2006 (World Bank), www.aseansec.org, Hong Kong Monetary Authority

  16. Brazil GDP, Consumer Prices, and Current Account Balance Source: World Economic Outlook 2007, IMF (April 2007)

  17. Brazil • 186.4 million population with expanding middle class and GDP per capita of US$ 8,587 (PPP) • A dynamic emerging market and a leading destination for foreign capital • Potential to be a net exporter of oil • private consumption remained robust: rising employment and real incomes

  18. Russia Source: IMF, Sept. 2006; World Bank, April 2006;World Economic Outlook 2007

  19. Russia • 143.2 million population with GDP per capita of US$10,822 (PPP) • Impressive macroeconomic stability • Strong expansion in internal demand • Real wages rising faster than productivity • Widening balance of payments strengthens financial position • Energy sources will give boost to economic growth

  20. India Source: Asian Development Outlook 2007, ADB (March 2007);ADB Key Indicators, 2006

  21. India • 1.1 billion population: Indians are listed as one of the world’s most optimistic consumers with greater spending power • Significant increase in the demand for domestic services • Export-oriented IT and BPO continue to perform very well • A large pool of entrepreneurs • A partner of the Philippines in IT

  22. China’s Economy Source: Asian Development Outlook 2007, ADB (March 2007), Economist.com

  23. Threats in China • Overheating economy: possible credit and stock market bubble • Inflation rate reached 6.5% in August 2007, the highest monthly inflation in 11 years • Efforts to cool down economy may result in hard landing • Underdeveloped banking sector • Undervalued currency • Uncontrolled local officials • Shortage of local entrepreneurs and managers • High rates of poverty • Stricter regulations in IT

  24. Opportunities in China • GDP growth of 8% or over for the last two decades • Domestic market of some 250-300 million high-income consumers • High rate of investment at 50% of GDP • Foreign direct investments (FDIs) of US$60 billion or more yearly • Surging raw material demand • Greater integration of China and other Asian countries • Demand for middle managers

  25. ASEAN: GDP Growth Rates and Per Capita Income Source: Asian Development Outlook 2007, ADB (March 2007); www.aseansec.org

  26. Domestic Markets Source: ADB Key Indicators 2007

  27. Savings and Capital Formation Source: ADB Key Indicators 2007

  28. Selected Sunrise Industries in Asia • Four Fs: Food, Fashion, Furniture, Fun • Triple Ts: Transport, Telecom, and Tourism • Infrastructures • Automobiles • Consumer durables • IT-enabled and IT services • Logistics and retailing • Health care and medical tourism • Education • Construction and real estate

  29. Global Engines of Growth Professor Bernardo M. Villegas PhD (Harvard University)

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