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Hans Timmer January 2010

Hans Timmer January 2010. Crisis, finance and growth. The acute phase of the crisis is over, but with a muted recovery it will take several years to undo the damage

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Hans Timmer January 2010

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  1. Hans Timmer January 2010

  2. Crisis, finance and growth The acute phase of the crisis is over, but with a muted recovery it will take several years to undo the damage In the medium run higher capital costs will reverse the process of capital deepening, lower potential output, and slow growth Developing countries may overcome the medium-term impacts by strengthening their domestic financial markets

  3. Spreads appear to have stabilized at about 150 basis points higher than during the boom period Source: JP Morgan.

  4. Bank-lending was very weak most of the year Syndicated bank loans Source: DataStream, World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

  5. Private capital flows are unlikely to recover to the pre-crisis levels for some time Net private capital flows to developing countries Source: DataStream, World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

  6. Rebound in industrial production growth is easing Industrial production growth, 3m/3m, saar Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

  7. For much of the world industrial production has yet to recover pre-crisis levels Industrial production, index, January 2008=100 Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

  8. Rebound in trade led by East Asia Quarterly import volumes, seasonally adjusted, annualized percentage change Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

  9. Continued financial-sector restructuring, implies a weak recovery Real GDP growth rates in percent Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

  10. Regional growth

  11. Despite stronger growth, output will remain depressed for a long time Output gap, percent difference between actual and potential GDP Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

  12. Crisis has cut four-year growth rates by two or more percentage points in every region four year, average growth rate Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

  13. Crisis will have serious poverty impacts Increase in the global count of extremely poor of 64 million in 2010 Possible 35-50,000 additional children in Africa may have died of malnutrition in 2009 Unless aid is upped, program spending will have to fall even as need climbs

  14. Boom period conditions will be reversed • Growth acceleration in developing countries was due to improved fundamentals (60%) and increased global liquidity (40%) • As a result of the crisis capital costs will rise, capital deepening will be reversed and growth of production potential will slow

  15. The boom did not reflect unusually strong demand from high-income countries GDP growth Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

  16. Since the early 2000s, credit expansion has grown more than twice as fast as nominal GDP Source: Bank of International Settlements, World Bank k

  17. Liquid capital markets prompted surge in developing country finance and investment Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

  18. Developing country potential output growth was boosted by low borrowing costs Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

  19. Impact on potential output of a return to normal pricing of risk and higher base rates Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

  20. High costs in domestic banking sectors, because of poor regulation and a lack of competition Index, high-income countries = 1 Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

  21. Impact of improved fundamentals on long-term growth prospects may counteract impact of crisis Growth of potential output; deviation from baseline; in percentage points Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth

  22. Concluding remarks • Recovery too weak to undo damage done in 2009 • Going forward process of capital deepening will be reversed • There remains enormous scope for policy to help improve performance

  23. For more information visit: www.worldbank.org/gep2010 www.worldbank.org/globaloutlook http://blogs.worldbank.org/prospects

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