Transcript Global Economic Crisis: Opportunities & Threats

Global Economic Crisis:
Opportunities & Threats
Kursus Minda
Lembaga Pertubuhan Peladang
31 July 2008
Steven C.M. Wong
Assistant Director General
Institute of Strategic and International Studies (ISIS) Malaysia
[email protected]
Definitions
Global Economic Crisis?
Crisis – long period of negative/low economic
growth, negative/low prices and high
unemployment
Correction – short period of negative/low
economic growth, negative/low prices and
moderate/high unemployment
Definitions
Global Economic Crisis?
Recession – negative economic growth for two
consecutive quarters (i.e. 6 months)
Depression – economic downturn that lasts
several years (Great Depression 1929 – 10
years)
Definitions
VWUL
Short &
sharp
recovery
Short &
volatile
recovery
Prolonged
recovery
No
recovery?
Components
GOODS &
SERVICES
(Inflation rate)
INVESTMENT
(Rate of return)
LABOUR
(Wage rate)
Global
Economy
CURRENCY
(Exchange
rate)
MONEY
SUPPLY
(Interest rate)
Components
GLOBAL
MONEY
SUPPLY
(Interest rates,
money supply)
GLOBAL
FISCAL
BALANCE
(US, Europe, East
Asia, etc)
PRODUCT
DEMAND
(Income, price &
substitution elasticity)
FINANCIAL
ASSETS
(Commodity funds,
derivative trading)
TRADE
(Tariffs, quotas, licenses,
export restrictions)
FACTOR
INPUTS
(Capital, labor,
technology)
PRODUCT
SUPPLY
(Price & substitution
elasticity)
EXOGENOUS
FACTORS
(e.g. weather,
natural disasters,
armed conflict)
Global Economic Crisis
Is monetary
policy
GLOBAL
stance anti-inflationary
MONEY
SUPPLY
or pro-inflationary?
(Interest rates,
money supply)
Is fiscal policy antiGLOBAL
inflationary
or proFISCAL
inflationary?
BALANCE
PRODUCT
DEMAND
(US, Europe, East
Asia, etc)
Is excess liquidity
fuelling
a commodity
FINANCIAL
bubble and
ASSETS
(Commodity
funds,
raising prices
generally?
derivative trading)
Is there evidence of
TRADE
increasing
demand(Tariffs, quotas,
supply
mismatch?
licenses,
export
restrictions)
Is existing capacity &
FACTOR
planned investment
INPUTS
sufficient to (Capital,
meetlabor,
current
technology)
& future needs?
PRODUCT
SUPPLY
Are there external
EXOGENOUS
factors
that are
FACTORS
restricting
(e.g. weather,
natural
disasters,
production?
armed conflict)
Global Economic Crisis
• Slowdown of US economy
• High inflation rates (energy, food & metals)
• Excess money supply growth
• US dollar weakness
• Financial institution collapse in US & Europe
• Losses/reduction in financial wealth
• Low rates of employment/high unemployment
(?)
Global Economic Crisis
• Faced with an imminent economic recession and financial crisis,
the US Federal Reserve has been:
– Cutting interest rates
– Increasing money supply
– Lending to US financial institutions
As a result, the US dollar has weakened and inflation has risen
• In order to avert ‘importing’ US recession, most major economies
have:
– Kept interest rates low/stable
– Increased domestic expenditure
Global Economic Crisis
• Slowdown of US economy
• High inflation rates (energy, food & metals)
• Excess money supply growth
• US dollar weakness
• Financial institution collapse in US & Europe
• Losses/reduction in financial wealth
• Low rates of employment/high unemployment
(?)
Economic Growth Rates
14
11.6
12
11.9
9.7 9.8
10
8
7.1
2006
6.3
6
4
5.1
2007
6
5.5
5
2008
2009
4.1 3.9
3.3 3.1
2.9
2.2
2
1.8 1.7
1.3
0.8
0
World
US
European Union
China
Malaysia
Inflation Rates
7
5.9
6
5
4
4.8
4.7
3.95
3.6
3.6
3.6
3.2
2.9
3
3.1
3.6
2006
3.1
2.3 2.4
2
2007
2.4 2.5
2.2
2.1
2
1.5
1
0
World
US
Euro area
China
Malaysia
2008
2009
Interest Rates
6.0
5.3
5.3
5.0
5.3
5.0
4.3
4.0
3.7
3.5
3.6
3.8
3.6
US dollar
3.0
Euro
2.8
Yen
Malaysia
2.0
1.5
1.1
1.0
0.9
0.4
0.0
2006
2007
2008
2009
Commodity Prices
Demand & Supply of Oil
World Oil Supply and Demand
2004
2005
2006
2007
Total Supply
83.4
84.6
85.4
85.6
Total Demand
82.5
83.9
84.9
85.8
87.5
OECD
49.4
49.7
49.3
49.1
49.3
China
6.4
6.7
7.2
7.6
8.0
India
n.a.
2.6
2.6
2.8
2.9
Other Asia
8.7
8.8
8.9
9.2
9.5
Middle East
5.7
6.0
6.4
6.7
7.1
Source: International Energy Agency – Oil Market Report, 11 March 2008.
2008
Demand & Supply of
Wheat & Rice
Figures and Estimate for World Wheat Supply and Use
(million metric tons)
Production
Use (human)
Use (feed)
Import
Export
Ending
Stocks
2005/2006
621.30
512.97
111.40
110.15
116.16
147.69
2006/2007
592.96
510.14
105.66
112.33
110.69
124.85
2007/2008(e)
606.69
521.73
97.33
105.25
107.28
112.48
Figures and Estimate for World Rice Supply and Use (milled basis)
(million metric tons)
Production
Use
Import
Export
Ending
Stocks
2005/2006
418.06
416.03
25.94
30.21
76.47
2006/2007
420.56
420.92
27.67
30.65
76.11
2007/2008 (e)
425.29
424.31
25.77
27.53
77.09
Threats (1)
• Risks of slow/no economic growth are greater
than inflationary spiral
• Inflation may moderate but high prices will
remain problem for many
• Not enough jobs will be created and
unemployment will rise in most countries
• Real income will fall and income distribution
worsen
• Wealth will decline and poverty will increase
Threats (2)
• Trade will slow due to low economic growth,
unstable US dollar and protectionism
• Foreign direct investment will decline although
portfolio investment (esp. from Middle East)
may be sustained
Opportunities (1)
• Significant investment opportunities
– Invest in foreign companies with good
brand names, technology, market share, etc.
– Acquire capital and technology
– Build national and international supply
chains
– Develop niche markets
Opportunities (2)
• Restructure the economy
– Invest don’t subsidise
– Increase productivity
– Innovation is critical
– Raise wages
– Lower business costs and liberalise
– Regionalise production
Take-Away
• Production subsidies are not the way forward;
investment is
• Food prices cannot keep rising if demand
falls; increasing domestic production could be
unprofitable
• Malaysia’s competitiveness can no longer be
found inside the economy; companies must go
offshore
• Productivity and wages must rise