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MACRO-ECONOMIC DIMENSIONS OF THE GLOBAL FINANCIAL CRISIS

MACRO-ECONOMIC DIMENSIONS OF THE GLOBAL FINANCIAL CRISIS. Presentation to Economic Society of Singapore Pre-University Junior College Seminar Manu Bhaskaran August 2009. IN A NUTSHELL. What will post-crisis world look like? Exit from the crisis - unusual Not U or V

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MACRO-ECONOMIC DIMENSIONS OF THE GLOBAL FINANCIAL CRISIS

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  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

  3. EXIT FROM CRISIS

  4. EXIT FROM CRISIS 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

  8. POST-CRISIS WORLD

  9. POST-CRISIS WORLD 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

  14. CONCLUSION: SINGAPORE AND ASIA MUST CHANGE

  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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