Presentation on theme: "1 MACRO-ECONOMIC DIMENSIONS OF THE GLOBAL FINANCIAL CRISIS Presentation to Economic Society of Singapore Pre-University Junior College Seminar Manu Bhaskaran."— Presentation transcript:
1 MACRO-ECONOMIC DIMENSIONS OF THE GLOBAL FINANCIAL CRISIS Presentation to Economic Society of Singapore Pre-University Junior College Seminar Manu Bhaskaran August 2009
2 IN A NUTSHELL What will post-crisis world look like? Exit from the crisis - unusual Not U or V The new “normal”: a tougher world Big changes in global landscape Big shift in economic power Singapore and Asia must change too The benign era is over
4 We are not out of the woods yet Deleveraging process not over Banks reducing leverage, cutting loans… Households doing same A few more shocks/stresses to come Commercial property etc in US Emerging Europe to hurt Western banks Currency turmoil?
5 EXIT FROM CRISIS (2) Huge policy response huge costs Monetary easing: huge increase in $$$
6 EXIT FROM CRISIS (3) Implications Short term: party time! Economic recovery firmed up Asset bubbles: stocks, housing booming Longer term: payback time! Inflation fears interest rates surge Asset bubbles burst, more crises
7 EXIT FROM CRISIS (4) What is the shape of the exit? Looks like V initially But more shocks W-shaped A messy, troubled exit Will we recover? Yes, adjustments underway, will take time Cut debt, raise savings, … all happening
9 Global economy transformed Slower growth for many years Patterns of growth changed Different structure of competitiveness New balance of economic power Distribution of income shifts
10 SLOWER GROWTH Coming decade Lower growth in US, Japan, EU Household savings must rise Banks have to clean up Shadow banking system dead Energy prices likely to rise Shift of power to OPEC from non-OPEC Demand growing
11 SLOWER GROWTH (2) No escaping climate change By 2020, 2-3deg rise in temperatures Businesses will face taxes, other costs Increased regulation Financial: much tighter, curtail innovation Income distribution: political backlash Protectionism
12 IMPLICATIONS A WORLD TRANSFORMED Balance of global economic power US declines but not as fast as some say China stronger but gradually US Dollar will gradually lose role Will have to share role with EUR etc
13 IMPLICATIONS (2) Changed structure of competitiveness Currency changes Chinese RMB must rise Other Asian currencies as well Country changes China: moving up value chain India: a rising manufacturing power Taiwan?Indonesia/Vietnam: a new surge
15 CONCLUSION Old economic models may not work well Main source of growth changes Not G3 but emerging markets World trade and FDI growth may slow Regulation, protectionism More volatile more shocks, stresses Countries must raise resilience
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