Global Prospects and the Global Trade Downshift 21 MARCH 2016, GIC Meeting at Banque de France
Catherine L. Mann OECD Chief Economist ECOSCOPE blog: oecdecoscope.wordpress.com/
Themes
Stronger global growth remains elusive
Global trade downshift Collective policy action to create virtuous cycle
2
Global Growth Projections GDP projections: Interim Economic Outlook, Feb 18, 2016
3
Source: OECD Economic Outlook databases; and OECD calculations.
Projections Downgraded Projections downgrades Feb 2016 vs. November 2015 Outlooks
5
Source: OECD Economic Outlook databases; and OECD calculations.
Sluggish Real Investment mixed projected improvement Real fixed investment
Projected improvement assumes favourable structural and demand policy settings 1. OECD commodity exporters includes Australia, Canada, Chile, Mexico and Norway. Source: OECD November 2015 Economic Outlook database.
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Low inflation and weak wage growth Core inflation
Compensation per employee
Note: Latest month available. Core inflation is for consumer prices excluding food and energy. The private consumption deflator is used for the United States. Source: OECD Economic Outlook databases.
7
Global Trade Downshift Dramatic in EMEs and drags down global growth Import volumes 8 Y o Y % change 7 6 5 4 3 2 1 0 -1 -2 -3 Dec-12 Jun-13 Dec-13
15 % 10
non OECD OECD
World
Jun-14
Dec-14
Jun-15
Dec-15
Global trade volumes and GDP, USD Market exchange rates
5 0 -5 World trade growth
-10 -15
Source: Economic Outlook database.
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Global Trade Downshift: Temporary or Permanent? Demand (austerity) factors (Europe) China slowdown, knock-on to Asia and commodities (EMEs) Sluggish investment and GVCs China rebalancing, on-shoring more permanent?
9
Austerity and Weak Intra-EU trade: Important post crisis but less so lately Ratio of Global import volume to global GDP volume, index 2007=100
Excluding Intra-EU trade, trade/GDP ratio remains closer to its long-term trend, but 2015 slowdown still apparent even excluding intra-EU trade
10
East Asia at the centre of 2015 trade slowdown Trade goods and services, volume % change
% change
10
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
EA15
EU27
USA
JPN
Avg. 2011-2014
Source: OECD Economic Outlook Database
CHN 2015
DAE
WLD
Weaker import growth in China key factor in overall trade slowdown Commodity price changes and China’s share of global consumption
China: Real GDP and import volumes 20 18
20
Y-o-y % change
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
Real GDP
Import volumes
Sources: OECD Economic Outlook database.
Note: Commodities shown are aluminium, coal, copper, iron ore, lead, natural gas, nickel, oil, uranium and zinc. Sources: IMF; BP Statistical Review of World Energy; 12 World Bureau of Metal Statistics.
Falling commodity prices; Mfg downshift Commodity prices
World trade prices 210 190 170 150 130 110 90 70
Dec-15
Dec-14
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
50
Manufactures Primary commodities excluing fuels 13
Source: Thomson Reuters Datastream
China knock-on effects slowdowns among other EMEs Change in GDP growth Y-o-y growth in 2015 Q2 compared to y-o-y growth in 2014 Q2
Sharpest slowdowns in countries with close trade links to China and/or dependent on commodities
Note: For Korea, 2015 Q3 compared to 2014 Q3. Intensive trade with China is where merchandise exports to China were above 2% of GDP in 2014. Sources: OECD National Accounts database; IMF; UNCTAD.
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Rebalancing in China Permanent effect on trade growth? Composition of growth in China
Note: Manufacturing (secondary) includes construction. Source: Chinese National Bureau of Statistics; People’s Bank of China; and Thomson Reuters.
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China on-shoring value chain Permanent effect on trade growth? China is doing less assembling, with the share of ordinary trade (i.e. domestic demand driven) picking up % of goods exports
% of goods imports
Export by custom regime
70
70
Processing and Assembling Processing with Imported Material Ordinary Trade
60
50
40
40
30
30
20
20
10
10
0
0
1993
1997
2001
2005
2009
Processing and Assembling Processing with Imported Material Ordinary Trade
60
50
2013
Import by custom regime
1993
1997
2001
2005
2009
2013
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Sluggish Investment, GVCs, and Trade Slowdown Length of GVCs by Industry, 2008
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Emerging Markets and GVC Intensity EME poor performance accentuates slowdown Value added share in GVCs of manufactured goods, 1995-2011 (%) 90 80 70 60
USA JPN
50
CHN 40
EU28 OECD
30
NONOECD
20 10 0 1995
2000
2005
2008
2009
2010
2011
Source: OECD/WTO Statistics on Trade in Value Added 18
Technology: permanent downshift? Global Internet Traffic
Source: OECD (2015) Digital Economy Outlook 19
Services trade: No general downshift
Trade volume growth 12
%
10 8 6 4 2 0 -2
‌ USA
JPN
DEU
Goods avg 2010-2014
Goods 2015
FRA
GBR
Services avg 2010-2014
CHN Services 2015 20
Temporary vs. permanent downshift: openness, investment and productivity
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Trade helps explain productivity spillovers % difference in MFP productivity spill-over between max and min value of each variable across countries
Trade with the frontier measures the intensity of trade with the productivity leader by industry (Minimum Austria, Maximum : Canada)
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Trade, Investment, GVCs, Productivity downshift vs virtuous circle Productivity
Openness 105
90 85 80 75
Trade Elas. Low (2015) (1.1)
104.5
Trade Elas. Med (2008-14) (1.4)
103.5
Trade Elas. High (1988-2007) (2.1)
104
Level
Exports+Imports/GDP
95
103 102.5
102
MFP Low Trade Elasticity MFP Med Trade Elasticity MFP High
101.5
70
101
65
100.5
60
100 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Year
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Year
A drop in the elasticity of trade to GDP growth from the historical average of 2.1 to 1.1 (observed in 2015) would result in productivity 4 percentage points lower after 20 years, all else equal. Note: Calibrated with 2% real GDP growth and assuming a 4 percentage point increase in openness (imports+exports/GDP) increases productivity (MFP) by 0.8% after 5 years based on current work in the Economics Department
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WHAT CAN BE DONE?
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Roll back protectionist measures Number of discriminatory trade related measures 600
500
400
300
200
100
0 2009
2010
2011
2012
2013
2014
2015
Source: Global Trade Alert 25
Set the stage for more robust investment Estimated impact of shocks on investment Percentage change after 5 years 1.2 1.0 0.8 0.6
0.4 0.2 0.0
Product market liberalisation
Two-standard-deviation reduction in global uncertainty
1% increase in foreign demand
1% increase in domestic demand
1. 16% reduction in OECD index of regulation in energy, transport and communications (ETCR) over 5 years, equivalent to the average pace of reduction among 15 OECD countries during the period 1993-2013. 2. Two-standard-deviation reduction in index corresponds 2 to a 26% reduction. Source: OECD calculations.
Structural issues, sluggish demand (local and global), and credit in the Euro area hold back investment
Focus on Regulatory Barriers in Services Product Market Regulation , 2013
Services increasing are traded, are intermediates for goods trade, and are elements of trade facilitation Source: Going for Growth Interim Report Economic Policy Reforms, 2016
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European Union Example: Regulatory reforms, Investment, and Trade Juncker investment plan slow off the starting blocks %
14
Regulatory Reform and increase in Trade intensity within the EU
12 10 8 6 4 2 0
Cut in regulatory heterogeneity by 20%
Juncker is less about the money and more about regulatory harmonization; limited projects reflects lack of progress on both Source: European Commission; Eurostat; and Fournier et al. (2015).
Cut in regulatory stringency to align to the average of the top half best performers “Source: Fournier, J.-M. (2015), “The Negative Effect of Regulatory Divergence on Foreign Direct Investment”, OECD Economics Department Working Paper No. 1268 (forthcoming), OECD Publishing, Paris.
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European Union Example Reform finance and credit channel Deleveraging needed for financial health Household and non-financial corporate debt
Source: Eurostat; OECD National Accounts Database.
And to promote new credit creation Bank credit to non-financial corporations Year-on-year percentage change
1. Gross non-performing debt instruments as a percentage of total debt instruments. Source: European Central Bank.
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Robust Global Demand Needed Role for Collective Fiscal Action 1st year effects of a ½ per cent of GDP public investment stimulus by all OECD economies Change from baseline
Collective action, quality projects, structural policy efforts required to realise gains to GDP and to improve debt/GDP ratios Note: Simulation using the NiGEM model, based on a two-year increase in the level of government investment equivalent to ½ per cent of GDP per annum in all OECD countries. The euro area figures are a weighted average of Germany, France and Italy. Source: OECD calculations.
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Robust Global Demand Needed External rebalancing temporary or permanent?
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Messages Stronger global growth requires collective action • Rollback protectionism; revive pace of structural policies • Monetary, financial policies to promote new credit/equity • Focus fiscal policies on investment-led spending
Global trade downshift—temporary or permanent? • China rebalancing changes GVCs • Trade dematerialization puts premium on services reforms • Sluggish investment is demand related
External rebalancing—temporary or not? • Will US return to being the global buyer? • Will China become like the US or like Germany? • Implications for development prospects around the world
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Sources
1. IEO 2. GfG 3. Future of productivity
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