Samu Kurri: Outlook for the global economy - Bank of Finland Bulletin 4/2015
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The Bank of Finland's bulletin discusses the global economic situation, highlighting slow growth and uncertainty, particularly in the euro area. It addresses factors influencing the business cycle, such as declining commodity prices and the transformation of Chinese growth. The bulletin also outlines the Bank's forecasts for global GDP growth and the associated risks facing the economy, including potential disruptions from China and internal divergences within the euro area.
Samu Kurri: Outlook for the global economy - Bank of Finland Bulletin 4/2015
- 1. Julkinen Suomen Pankki Bank of Finland Bulletin 4/2015 Situation and outlook for the global economy Press conference 24 September 2015 124.9.2015 Samu Kurri
- 2. Suomen Pankki – Finlands Bank – Bank of Finland Julkinen Bank of Finland Bulletin 4/2015 Monetary policy and the global economy Main article – Signs of life in the euro area economy Theme boxes providing background on the main article – Increased uncertainty in the global economy – Structural reforms to provide boost during lean years in the global economy – China develops, growth slows *** Two theme articles – ‘How can we simultaneously maintain both price stability and financial stability in the euro area?’ Hanna Freystätter – ‘Protracted period of low interest rates places further demands on macroprudential supervision’ Katja Taipalus – Jouni Timonen 24.9.2015 Samu Kurri 2
- 3. Suomen Pankki – Finlands Bank – Bank of Finland Julkinen Themes of the presentation Seven lean years for the global economy – Three stories of slowing growth Current situation and outlook for the global economy – Factors shaping the business cycle – China and world trade changing more permanently Bank of Finland forecast for the global economy – Forecast summary – Risks 24.9.2015 Samu Kurri 3
- 4. Suomen Pankki – Finlands Bank – Bank of Finland Julkinen Seven lean years for the global economy 24.9.2015 Samu Kurri 4 80 90 100 110 120 130 140 150 160 170 180 190 90 95 100 105 110 115 120 125 130 135 140 145 2008 2010 2012 2014 Euro area United States Japan Russia Finland China (right-hand scale) Index, 2008 = 100 Index, 2008 = 100 Sources: National statistical authorities, Macrobond and calculations by the Bank of Finland. Effects of the recession on output
- 5. Suomen Pankki – Finlands Bank – Bank of Finland Julkinen Three stories of slowing growth The Great Recession – The financial crisis of 2008 led to a recession in the real economy. – Despite stimulus measures, output remains below potential. Prolonged period of slow growth – Expected slowing of potential output is already dragging down investment (Secular Stagnation, Hansen 1938). – Differences of emphasis: Larry Summers: low interest rates, prevention of path- dependency Robert Gordon: emphasis on supply-side factors. Opposing views: Joel Mokyr: Technological tailwind is more like a tornado Matti Pohjola: ICT utilisation is currently in the same phase as electricity utilisation in the 1930s. 24.9.2015 Samu Kurri 5
- 6. Suomen Pankki – Finlands Bank – Bank of Finland Julkinen Distribution of potential output for 2014–2031 (2031–2060) 24.9.2015 Samu Kurri 6 Potential output Potential output per capita Trend productivity excl. capital Capital/ output Potential labour force USA 2.4 (1.7) 1.6 (1.2) 1.7 (1.2) 0.2 (0) -0.3 (0.1) Euro area 1.7 (1.5) 1.5 (1.5) 1.5 (1.7) 0 (-0.1) -0.1 (0) China 5.0 (2.4) 4.7 (2.8) 4.4 (3.2) 0.7 (0) -0.4 (-0.5) India 5.8 (4.3) 4.8 (3.9) 3.4 (3.8) 0.5 (0) 0.8 (0.1) Source: OECD Economic Outlook (May 2014).
- 7. Suomen Pankki – Finlands Bank – Bank of Finland Julkinen Current situation and outlook for the global economy Near-term cyclical developments are shaped by: – Decline in oil and other commodity prices – Ample liquidity – Exchange rate changes – Deleveraging Longer-term changes – China’s growth will continue to slow – World trade growth has passed its peak 24.9.2015 Samu Kurri 7
- 8. Suomen Pankki – Finlands Bank – Bank of Finland Julkinen 0 10 20 30 40 50 60 1990 1995 2000 2005 2010 Private consumption Public consumption Fixed investment % of GDP Sources: CEIC and Macrobond. Changes in the structure of Chinese Growth 24.9.2015 Samu Kurri 8
- 9. Suomen Pankki – Finlands Bank – Bank of Finland Julkinen Slower growth in world trade 24.9.2015 Samu Kurri 9 0 0,5 1 1,5 2 2,5 3 3,5 2010 2011 2012 2013 2014 2015 2016 2017 Actual Average 1980-2014 (excl. 2009) Average 1994-2007 Average 2011-2014 Forecast Trade growth / GDP growth, four-quarter moving average Sources: IMF, World Bank, OECD and Bank of Finland.
- 10. Suomen Pankki – Finlands Bank – Bank of Finland Julkinen Structure of euro area and Finnish exports 24.9.2015 Samu Kurri 10
- 11. Suomen Pankki – Finlands Bank – Bank of Finland Julkinen Summary of Bank of Finland forecast for the global economy 24.9.2015 Samu Kurri 11 % change on the previous year (previous forecast below) GDP 2014 2015f 2016f 2017f United States 2,4 2,6 3,0 2,8 2,4 3,1 3,0 2,8 EU22 1,3 1,7 1,8 1,9 1,2 1,6 1,9 1,8 Japan -0,1 0,6 1,1 1,0 -0,1 0,6 1,4 1,0 China 7,4 7 6 6 7,4 7 6 6 Russia 0,6 -4 -2 1 0,6 -4,4 -1,8 0,5 World 3,1 3,0 3,2 3,5 3,1 3,3 3,5 3,7 World trade 3,4 1,8 3,7 4,5 3,5 4,2 5,0 5,4 f = forecast. EU22 = euro area, Sweden, Denmark and United Kingdom. Source: Bank of Finland.
- 12. Suomen Pankki – Finlands Bank – Bank of Finland Julkinen Risks for the global economy External risks – A sudden halt in Chinese growth is key external risk – Increases in US interest rates may cause turbulence – Situation in the Middle East and North Africa Internal risks – Permanent, even deepening divergence in the euro area – Country-specific consequences may be both sudden and long- term Longer-term risks – Long shadow of the financial crisis and ageing population – Weak risk resilience of public finances 24.9.2015 Samu Kurri 12
Editor's Notes
- #5: Effects of the recession on output Euro area United States Japan Russia Finland China (right-hand scale) Index, 2008 = 100 Index, 2008 = 100 Sources: National statistical authorities, Macrobond and calculations by the Bank of Finland.
- #9: Changes in the structure of Chinese growth Private consumption Public consumption Fixed investment Sources: CEIC and Macrobond.
- #10: Actual Average 1980–2014 (excl. 2009) Average 1994–2007 Average 2011–2014 Trade growth / GDP growth, four-quarter moving average Sources: ECB and Bank of Finland.
- #11: Euro area exports, 2014 (extra-euro area) Food and drink Raw materials and fuels Chemicals Basic manufactures and miscellaneous manufactured articles Machinery and transport equipment Other goods Source: Eurostat. Finnish exports, 2014 Food and drink Raw materials and fuels Chemicals Basic manufactures and miscellaneous manufactured articles Machinery and transport equipment Other goods Source: Finnish Customs.
- #12: % change on the previous year (previous forecast below) GDP 2014f 2015f 2016f 2017f United States EU22 Japan China Russia World World trade f = forecast. EU22 = euro area, Sweden, Denmark and United Kingdom. Source: Bank of Finland.