WHERE IS THE WORLD ECONOMY HEADING? Dr Derek Braddon Reader in Economics UWE, Bristol Year 12 ECONOMICS CONFERENCE – 4 TH JULY, 2005
THE GLOBAL ECONOMY Gross World Product (GWP) = $53 trillion 2004 EU = 22% GWP USA = 21% GWP Japan = 7% GWP China = 12% GWP Russia = 3% GWP [Source: IMF est 2004 ] The Population Explosion 1 billion people in the world in 1802 2 billion in 1927 3 billion in 1961 4 billion in 1974 5 billion in 1987 6 billion in 1999……………2050 = 9 billion Source:[UN est 2004]
MAIN ISSUES AND PROBLEMS Inflation: rich nations = 1 to 4%; poor nations = 5 to 60%. Energy price problem, especially oil Start of new inflation problem? Major trade imbalances with USA Economic growth: major industrialised nations enjoying faster growth The elimination of poverty and growing concern about climate change
WORLD GDP GROWTH 2003 AND 2004 STRONGER! Source: Economist poll of GDP forecasts
WHAT IS DRIVING THE ECONOMIC RECOVERY? Very low interest rates Continued expansionary fiscal policy Recovery in company finances Buoyant consumer demand Some stock market recovery
So where are we now? In the world: Little danger of deflation Growth generally healthy in rich nations Limited stock market recovery Main threats from energy prices and politics/terrorism In Britain: Still strongest growth in Europe, BUT Highest interest rates in Western Europe – about to fall? Soft landing to housing asset price bubble Fiscal imbalance BUT……….
OIL: A supply and demand problem 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 2010- 2015 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?
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. This is a continent that is staggering backwards on almost every front - education, sanitation, infant mortality, disease eradication - while the rest of the world moves forward into the 21st century.
AFRICA – THE STRUGGLE FOR SURVIVAL Universal free primary education in Africa, promised for 2015, at current rates will not occur until 2130. Half the population of sub-Saharan Africa live on less than $1 per day. Economists and politicians search for solutions: Aid and/or Trade? Should the rich write-off African debts? (£8 billion per year). A Marshall Plan for Africa? (Nelson Mandela)
WAKING GIANTS: The explosive growth of china and india Let China sleep for, when she wakes, she will shake the world (Napoleon Bonaparte, 1800)
CHINA Chinas GDP has quadrupled since 1978. Measured on a purchasing power parity (PPP) basis, China in 2004 was the second-largest economy in the world after the US. 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
INDIA 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.
WHERE IS THE WORLD ECONOMY HEADING? In the short-run, faster economic growth for rich nations but with concerns about inflation returning and increasing job losses to Asia. In longer run, greater economic instability as the world tries to adjust to the emergence of new economic powers, resolve the issue of endemic poverty in Africa and contemplate a world without oil but with major climate change. The G8 leaders meet on Wednesday in Edinburgh – they are going to be busy!