Presentation on theme: "David Smith The Sunday Times. The Boustead Annual Globalisation Lecture The global financial crisis and the changing world economy."— Presentation transcript:
David Smith The Sunday Times
The Boustead Annual Globalisation Lecture The global financial crisis and the changing world economy
The global economys shifting sands
After the upheaval How did we get here and where are we going?
A self-feeding cycle Prolonged growth Rising confidence Excessive lending
The global economy looked unstoppable
The (brief) rise and fall of sub-prime
A leveraged buyout boom
The long credit boom
The rise of shadow banking
The financial sector lent to itself
… and to the rest of the economy
Housing boom and bust: Spain, UK, US, Japan
House of cards topples US house prices start to fall sharply, first big national fall since the depression. Subprime loans and securities start to look unsafe – not AAA but junk. Banks realise they are heading for huge losses and, importantly, so are other banks.
The biggest financial storm in a century
Extreme financial volatility (VIX)
Time heals – a long time since 2008
A dramatic response (central banks)
But the worst post-1945 world recession
The 1970s, 80s and 90s in context
A world trade collapse
And a rise in unemployment
Shrinking banking capacity
And very painful fiscal hangovers
… which will endure
Plenty of global green shoots
Global PMIs have recovered well
As world trade bounces back
Led by Asia
… globalisation threat averted
A more open world
A V-shaped recovery from the IMF
A fast-changing world
China and India were mighty before
Start of the great divergence
No double-dip with emerging economies strong
Not just an Asian story
But a recovery led by Asia
Barely a missed beat in China
Back to the future
But how quickly will it happen?
Where the growth will come from
Closing the per capita gap
China imports as well as exports
But global imbalances remain
A rising Asian middle class
Large reserve holdings
Closing the innovation gap?
Accelerating the global shift 2007: China was expected to overtake Japans GDP in 2015, America in the mid- 2030s. 2010: China has already overtaken Japan; will overtake America in the 2020s. Global crisis and its aftermath has accelerated the shift by 5-10 years. China, India and America will be the worlds big three: only one is flagging.
What could go wrong (short-term)? Credit Crunch II – refinancing and deleveraging by the banks. Sovereign debt – the euro zone and beyond. Currency wars – China versus America as the new heavyweight bout but also others. Protectionism – either provoked by or in addition to currency manipulation. Fiscal consolidation and the economic and political reaction to it. The unknown unknowns.
What could go wrong (long-term?) Politics – a backlash against capitalism; pressures for greater democracy; inequality. Growth momentum fades dramatically as the easy catch-up phase comes to an end. Globalisation goes into reverse, led by the actions of the advanced economies. Resource constraints.