Presentation on theme: "WHERE IS THE WORLD ECONOMY HEADING? Jonathan Bradley Dean of Students and Principal Lecturer in Economics Year 12 Economics Conference University of the."— Presentation transcript:
WHERE IS THE WORLD ECONOMY HEADING? Jonathan Bradley Dean of Students and Principal Lecturer in Economics Year 12 Economics Conference University of the West of England Wednesday 25 June 2008
THIS LECTURE The global economy Resources and the environment New economic superpowers Poverty Whats going to happen in the world and in the UK?
THE GLOBAL ECONOMY Gross World Product (GWP) = $61,258,714 mn 2005 EU = 22% GWP USA = 21% GWP Japan = 7% GWP China = 12% GWP Russia = 3% GWP [Source: IMF 2006 ] The Population Explosion 1 billion people in the world in billion in billion in billion in billion in billion in 1999……………2050 = ???? Source:[UN est 2005]
POPULATION UN estimate for 2050 = 9 billion An extra 3 billion Source:[UN est 2005]
GLOBAL SHORT TERM INTEREST RATES Source: IMF
WORLD GDP GROWTH 2007 AND 2008 (est) Slowing down, except China Source: Economist poll of GDP forecasts, except for 2007 China – author guess! est
SO WHERE ARE WE NOW? Renewed threat of inflation Impact of rising interest rates Can growth impetus be maintained? Problem of US deficits and worlds ability to finance them Convergence of new challenges for global economy – unprecedented combination of pressures
THE ENERGY ISSUE A CLASSIC SUPPLY & DEMAND BATTLE
OIL World oil demand is increasing, driven by increasing population, the industrialization of China and India and huge US appetite for oil. Supply is keeping up with demand at present but world oil production peaks around when demand will then exceed supply. Among other consequences, the oil price will increase dramatically. Other fuel sources become economically viable – but can they replace oil at rate required?
OPEC estimates, 2006
PRICE OF A LITRE OF UNLEADED IN JUNE 2009??? 20% lower = 96 p 10% lower = £1.08 Same = £ % higher = £ % higher = £1.44
EMERGING SUPERPOWERS India and China
Demographic Trends in Japan, China & India Source: United Nations, World Population Prospects, 2004 Revision, Medium variant
WINNING THE ECONOMIC FUTURE: INNOVATION AND DESIGN USA and Europe seem to assume that future growth for them is innovation and design-led while India and China will act as low-cost producers. Appealing idea for economists since it maintains the Ricardian comparative advantage thesis intact – therefore, theory appears to strengthen this view of future world prospects Growing case-study evidence however that suggests the design and innovation element of business is being embedded more and more into leading companies in both emerging economies.
Growth has been very rapid GDP growth at constant prices
China: Trade Surplus Source: Capital Economics
CHINA Chinas GDP has quadrupled since Measured on a purchasing power parity (PPP) basis, China in 2004 was the second-largest economy in the world after the USA. Has the third largest stock of foreign direct investment in the world Has saving and investment = to 40% GDP Is the 3 rd largest importer and 4 th largest exporter in the world – huge impact on commodity market (esp. oil) Its imports will drive up price of commodities and its exports will cut prices of manufactured goods in world markets – huge competitive challenge to existing players
10 th most industrialised country in the world 4 th largest economy in terms of purchasing power 3 rd largest scientific and technical labour force in the world with well-established IT base 2 nd largest exporter of computer software and home to software developments centres of some of worlds largest companies. Over 200 of the Fortune Top 1000 global companies now use Indian software services and professionals Extremely well-educated and competitive labour force – another growing economic power for the future.
ENDING POVERTY Can we save Africa?
AFRICA – THE STRUGGLE FOR SURVIVAL Africas poverty is a scar on the conscience of the world (Tony Blair, World Economic Forum, Davos, June 2005). Only continent to have become poorer in last 25 years. 150m African children live below the poverty line and two-fifths of African children are malnourished (Oxfam). During this lecture, 900 children will have died from starvation and related illnesses, > two-thirds in Africa. WHO believes 34m people have AIDS, 25m of these are in sub- Saharan Africa. During this lecture, 400 children in Africa will have been made orphans due to AIDS.
AFRICA – THE STRUGGLE FOR SURVIVAL Universal free primary education in Africa, promised for 2015, at current rates will not occur until Half the population of sub-Saharan Africa (SSA) live on less than $1 per day. Africa's > $200 billion debt burden is the single biggest obstacle to the continent's development. SSA countries spend almost $14 bn annually on debt service but receive only $10 bn in aid. G8 finance ministers agreed at a meeting in London on 11 June 2005 to write off $40bn in debt owed by 18 of the world's poorest countries, most of them in sub-Saharan Africa. Promising step forward but of 40 countries targeted, only 18 have yet reached Millennium Development Goals to qualify for debt write-off.
SO WHERE is THE WORLD ECONOMY HEADING? USA recession, but probably not serious Europe varied, but still generally slower Japan will keep going Rest of world: contrast between resource- rich and resource-poor
…..AND THE UK ECONOMY? Rather sick! Slowing down Big public sector deficit Weak currency Rising unemployment Rising inflation Serious danger of stagflation
HOUSE PRICES: rate of change
HOUSE PRICES: average
UK interest rates Source: Daily Telegraph
The squeeze on household budgets THE TIGHTENING SQUEEZE