Current situation in world economy Exam •if any problem then consultation •structure •DON´T PANIC! – basic knowledges •goal – to include the whole problemacy •not convenient for all •demands •questions with different level of difficulty… •BUT attempt to create comparable tests as much as possible •textbook + lectures •information only from these sources! •knowledge of years – enough to know the decades •number of terms – according to the Study Regulations •equal conditions for all •X cheating •mistakes in papers in circulation •Šik´s reform, convrgency criteria, war communism, monetary reforms in Czechoslovakia, Keynes plan, Large-scale economy, land and lease, •+ key words not enough – unsuitable for the ABCD •control according to the list of participants + ISIC ð don´t be in hurry • •I am interested in successful results ð the earliest you do it, the least work for me ! Content A.Current economic situation by regions B.Basic macroeconomic indicators C.Globalization Current economic situation by regions 1.Asia – Japan, Southeast Asia, China 2.Africa 3.America – Latin America, USA 4.Europe • • • • A1. Japan •problems since early 1990s •deflation •small C ð small AD ð attempt to ñ AD = fiscal expansion BUT not successful •restrictive monetary policy •relatively small integration in WE ð negligible effects on WE but enormous on Asia •2000 – 2002 stagnation (ñ GDP around 1%) •but in 2003 relatively rapid growth •since 2008 recession – huge decline A1. Southeast Asia •1997 financial crisis •capital outflows •Singapore and Taiwan not affected •1998 huge ò in the economy •the most affected – Indonesia and South Korea •1999 - 2000 •better situation ð also less strict conditions of IMF •since 2000 relatively strong growth Crisis in Southeast Asia ·before 1996 −significant growth + balanced state budgets (even surpluses) + current account deficit considered as normal (support of INV) ·ð inflow of foreign capital -acceleration after 1995 (Mexico) + ñ after 1996 -mainly short-term capital in the form of bank loans •1997 outflow of capital (7% GDP) • mainly bank loans Net foreign capital inflow to Asia (USD billion) 1991 1992 1993 1994 1995 1996 1997 Inflow total 29 30.3 32.6 35.1 62.9 72.9 -11 Direct investment 7.2 8.6 8.6 7.4 9.5 12 9.6 Portfolio investment 3.3 6.3 17.9 10.6 14.4 20.3 11.8 Others 18.5 15.4 6.1 17.1 39 40.6 -32.3 ·July 1997 - Thai baht abandoned the fixed exchange rate system ð ò exchange rate + ò share prices + ñ capital outflows (also domestic) ·ñ debt service+ ñ risk + ò price of real estates ð banks in problem ·spread of the crisis ·ò baht ð ñ other currencies ð ò their competitiveness ·investors assumed that local countries had similar problems ·regional linkage – mainly bank loans •monetary crisis -> into real economy • ò INV + ò C (b/c ò private incomes) ð ñ U + ò production •+ bad situation in Japan •help of the IMF BUT „advices“ • ñ r •x ò exchange rate •high indebtedness •x speculations •+ structural reforms in the financial sector •+ relatively loose fiscal policy lð ò exchange rate stopped + later also ñ BUT ò econ. performance •criticism against IMF •same solutions for different problems •too strict restriction •moral hazard • Changes in real GDP (in %) and exchange rates (won per dollar) in Korea, 1990-2008 A1. China •gradualist econ. reforms since 1979 x policy •stable econ. and political situation •high % econ. growth BUT low initial level •Special Economic Zones along the coast •still relatively high % of state companies •loss-making •ð bad situation in the financial sector •2002 entrance to WTO •nowadays • ò GDP growth to approx.. 8% •exchange rate • Year on year GDP growth (%), 1980 – 2008 • GDP growth Average growth Shanghai-1990-vs-2010 • • A2. Afrika •good perspectives: •cheap labour force •raw materials and agricultural comodities •(selling) market •huge differences among countries •recently • é GDP + smaller crisis • é trade •indebtedness as the biggest problem BUT also quality of LF + labour productivity + EP + AIDS … •democratization • • Economic growth in Africa, South America and in the world, 2000-2013 Inflation (year-on-year proportional changes), 1980-2008 Nominal and real growth of the world GDP since 1980 • A3. Latin America •relatively stable situation •experience with high inflation, slow econ. growth, dictatorships •econ. reforms + econ. ñ + stable price level •2001 econ. crisis in Argentina •Fixed exchange rate pegged to dollar – devaluation in Brazil •state bankruptcy + devaluation •problems in banking sector •the last crisis •only moderate •result of the previous reforms •currently – only slowing down A3. Amerika - USA •very long conjuncture •low inflation •new technologies - implementation of PCs •new economy? •ñ productivity •mainly ñ INV to IT ð ñ productivity ð P under control ð ñ profitability and ñ stock exchange prices ð ð ò capital costsðð ñ INV + econ ñ ð strong $ ð helped to maintain low P and r •2001 recession •causes ò INV and no monetary restriction •reasonable EP but limited capabilities •after 2002 recovery •then current account deficit (6% of GDP) + budget deficit •2008 crisis •financial crisis ….. econ. crisis •fiscal and monetary expansion •2011 relatively good situation •problem with fiscal imbalances •confidence of the markets Unemployment in USA and Eurozone, 1988-2011 (in %) World GDP and USA, 1990-2007 A4. Europe •after 2001 ò dynamics •Germany – motor of the EU – long-term problems •insufficient growth of IT •unemployment •reforms – liberalization (posts, ... ), CAP ... •Stability and Growth Pact •Lisbon Strategy -> Europe 2020 •different course of crisis among the member states –serious problems – Ireland, Hungary, …, Island Eurozone crisis •Greece •Ireland, Portugal, Spain, Italy • =PIIGS •public sources in successful years •pressing solution – money to Greece or … •fiscal restriction – different attitudes •medium-term – fiscal integration – at least budget controls Labour costs index, 2000-2011 • Ireland Spain France Portugal Germany Greece Current account, 1999-2013 • Spreads in interest rates on sovereign bonds (as compared to German bonds) Basic economic indicators Shares on world GDP (according PPP) and population Real GDP growth (in %) – developed countries and emerging markets, 1980-2011 The last crisis •centrum USA •mortgages … banks … problems with financial sector •spread to real economy •interdependence in the WE … spread of the crisis to other countries •e.g. CR •expansive EP •problems if expansive policies already before the crisis To understand the financial crisis •https://www.youtube.com/watch?v=JVSpPXterd0 Globalization C. Globalization •no single definition ð various explications •ñ interdependence in the WE •both advantages and disadvantages •pros: •ñ competition (?) ð efficiency – better allocation of resources •ñproduction (?) •technological and knowledge spillover •better economic situation in DC (?) •ò role of governments •ò danger of international conflicts (?) • • •ambiguous: •interdependence •GDP growth in USA help to other countries vs current situation •prices … • •cons: •ò role of governments (?) •loss of own culture and identity (?) •ñ income differences (?) •Persistant impact on certain groups of population •mainly unqualified labor force in advanced economies C1. Integrace •international agreements (see previous lectures) •the most important one – EU + last lecture dnes •today at least 80 regional agreements •also arguments against international agreements •higher internal competition but higher protection against third parties •e.g. EU or MERCOSUR C2. International trade •enormous ñ international trade after WWII •GATT ð WTO •but the majority of world trade between relatively close states •within the last 20 years ñ world trade was two times higher than ñ world GDP (6% X 3%) •pros: •intention to maintain free trade in crisis •lessons from the development in 1930s ñ protectionism within the bounds of possibility •dispute settlement via WTO •new round of negotiations but only limited progress The world GDP and foreign trade (year-on-year proportional changes) Threats for international trade •USA - EU disputes •USA: steel, agricultural products, … •pressure groups – e.g. Seattle •ecology + agriculture + human rights + ... •antidumping •huge number of cases – agenda of the WTO •abuse •Real dumping only in 3% of the cases in EU and 4% in USA •regional blocks lð the most affected states = DC •liberalization – only trade with products 250 – 630 mld $ per year – DC 1/3 – ½ Number of antidumping cases • PEW, 2010 • C3. Capital flows •short-term capital •speculative capital – What does it mean? •foreign direct investment (FDI) •in advanced economies to services •in DC to manufacturing industry •majority between advanced economies (EU - USA) •financing of advanced from DC •investors´ preferences •knowledge of environment, low risk, political and economic stability, similar culture and level of development ð incentives not so important •FDI may • push out the domestic firms + abuse their economic power + make more difficult to get loans FDI in the world economy – total volume and year-on-year changes (USD billion) Territorial structure of the outflow of FDI (USD million) C4. Labour flows •Gastarbeiters •Ukrainians in the CR •Threat for employmet in the CR? •remittances •political x economic emigration •in general – the least connected international market •relatively small migration also within the EU Proportional share of remittances in GDP in selected countries in 2012 (% of GDP) C5. Supranational enterprises •according to OECD ñ influence of foreign companies BUT advantages: •Higher wages + increase differences •faster creation of new jobs •expenditures on R&D in FDI destinations •higher EX then domestic firms •+ the biggest impact on less developer countries (Turkey) •threat in the case of monopolization BUT … Share of sales of 5 biggest companies on total sales made in the business [%] C6. Technologies •telecommunication •information technologies •within the last 30 years ò real prices of computer processing by 99,999% = ò by 35% per year •ò prices ð faster implementation than electricity or steam •USA unambiguous leader • advantages for the followers •possibility for imitation and lessons from previous mistakes •nowadays – increasing productivity •+ development of new technologies •biotechnology and genetics - GMO •discoveries mainly in inter-disciplines Thank you for attention today and during the whole semester Good luck