RISI LATIN AMERICAN CONFERENCE. (São Paulo, 16 August 2016) The Latin American Economy: Some Successes, Many Disappointments

Transcription

1 RISI LATIN AMERICAN CONFERENCE (São Paulo, 16 August 2016) The Latin American Economy: Some Successes, Many Disappointments Andrea Boltho Magdalen College University of Oxford and Oxford Economics

2 GDP PER CAPITA (1990 $; in purchasing power parities; log scale) GDP PER CAPITA (1990 $; in purchasing power parities; log scale) Eastern Europe** Argentina Latin America* East Asia*** Mexico Brazil Source: Confer. Board. * Ex. Brazil ** Ex. Russia *** Ex. China Source: Conference Board.

3 GDP PER CAPITA (1990 $; in purchasing power parities; log scale) Korea Poland 5000 Brazil Indonesia Source: Conference Board.

4 THE MAIN INGREDIENTS OF EAST ASIA' S SUCCESS (some shared by Eastern Europe; none by Latin America) High savings (and, therefore, high investment in physical capital) Good education (and, therefore, high investment in human capital) Relatively equal income distribution (and, therefore, inter alia, relative political stability) Stress on manufacturing (and, therefore, low dependence on commodities)

5 40 EMERGING MARKETS GROSS SAVINGS (in per cent of GDP; 3 years mov. avrgs.) East Asia* 30 Latin America*** Eastern Europe** 20 Brazil Source: World Bank. * Excl. China. * Excl. Russia. ***Excl. Brazil.

6 EDUCATIONAL LEVELS Maths and Science Scores (15 years old; 2012) East Asia 495 East.Europe 492 Lat.Amer. 402 Korea 546 Poland 522 Mexico 414 Brazil 398 Argentina 395 Indonesia 379 Source: PISA Assessments. Note: International average = 500.

7 30 EMERGING MARKETS INCOME DISTRIBUTION Ratio of highest to lowest quintile Brazil 20 Latin America*** 10 East Asia* Eastern Europe** Source: World Bank. * Excl. China. * Excl. Russia. ***Excl. Brazil.

8 EMERGING MARKETS MANUFACTURING OUTPUT (in per cent of GDP; 3 years mov. avrgs.) EMERGING MARKETS MANUFACTURED EXPORTS (in per cent of total exports) 30 East Asia* 80 Eastern Europe** 25 East Asia* 20 Eastern Europe** 60 Brazil Latin America*** Latin America*** Brazil Source: World Bank. * Excl. China. * Excl. Russia. ***Excl. Brazil Source: World Bank. * Excl. China. * Excl. Russia. ***Excl. Brazil.

9 WHAT'S WRONG WITH COMMODITIES? i) They suffer from price volatility ii) Their prices decline relative to those of manufactured products iii) Demand for them grows relatively slowly iv) They do not enjoy economies of scale, unlike manufacturing v) They encourage the grabbing of rents from the natural resource endowment

10 60 PRICE VARIABILITY (annual percentage changes) Non-oil commodity prices Stand. devts. Comm Mfcts Manufactur. export prices Sources: WTO, Oxford Economics.

11 140 NON-OIL COMMODITIES REAL PRICES* (1970=100) * Deflated by export prices of manufactures. Sources: GATT, WTO, Oxford Economics.

12 COMMODITY PRICES IN REAL TERMS,

13 WORLD PRODUCTION WORLD EXPORTS (Indices: 1950 = 100) (Indices: 1950 = 100) 1500 Manufacturing 8 Thousands Manufacturing Mining* Agriculture 1 Mining* Source: WTO. * Including oil. Agriculture Source: WTO. * Including oil.

14 GDP PER CAPITA (1990 $; in purchasing power parities; log scale) 9000 East Asia* OPEC * NICs and ASEAN

15 HOW DO YOU IMPROVE MATTERS? Encourage savings, improve schooling, reduce income disparities, promote manufacturing, etc. Easy to say; not so easy to do! But the "Bolsa familia" did help Some possible steps: Improve infrastructure (e.g. harbour efficiency) Ease bureaucratic interference (and excessive regulation more generally) In Brazil's case in particular cut pension benefits

16 REGULATION Ranking in World Bank's Indicator of "Ease of Doing Business", E. Asia* E.Eur.** Lat.Am.*** Brazil Source: World Bank. * Excl. China. ** Excl. Russia. *** Excl. Brazil.

17 PENSION EXPENDITURE AND ENTITLEMENT (in per cent of GDP; around 2010) Pension expend. Share of over 65s* Brazil 13 7 Italy Germany * In total population. Sources: The Economist, ; OECD and UNPD.

18 HOW ABOUT THE FUTURE? Even if some of these things are done, the future does not look very inspiring The United States, Western Europe and Japan are constrained by low productivity growth and weak demography China's double digit growth rates are over World trade is no longer the buoyant engine of growth it used to be The rise of populism in many countries is adding to protectionism, and this could further weaken world growth

19 GROWTH RATES OF OUTPUT (GDP; average annual percentage changes) East Asia* East Eur.** Latin America*** Brazil * Exclud. China. ** Exclud. Russia. *** Exclud. Brazil. Source: Oxford Economics.

20 BRAZIL - RECENT GROWTH TRENDS (GDP; per cent changes; 3 quarter moving averages) Source: Oxford Economics.

21 BRAZIL - WHAT WENT WRONG? Growth was boosted by a spending boom fuelled by borrowing This is unsustainable over the longer run Growth was boosted by a sharp rise in commodity prices This has been reversed and may not return Growth was boosted by China's long boom This will not return Economic policies, sensible under Cardoso and Lula, became more populist This may now change (and will, hopefully, reduce deficits and debt)

22 50 BRAZIL - PRIVATE SECTOR DEBT (in per cent of GDP) Non-financial Corporations Households Source: BIS.

23 COMMODITY PRICES (January 2006 = 100; in dollars) Food commods Metals Oil Source: The Economist.

24 14 CHINA - SLOWING DOWN? (GDP; per cent changes; 3 yrs. mv. avrgs.) GDP Source: Oxford Economics.

25 BRAZIL - BUDGET BALANCE (in per cent of GDP) BRAZIL'S PUBLIC DEBT (in per cent of GDP) Source: Oxford Economics Source: Oxford Economics.

26 BRAZIL'S STRENGTHS Recessions do not last forever and Brazil will recover from the present one Two obvious sources of future growth stem from: Relative backwardness; hence a huge potential for catch-up that should lead to rapid productivity growth A demographic profile which is relatively dynamic; lots of young people coming onto the labour market; not too many old people slowing down necessary changes

27 GDP PER CAPITA (in purchasing power parity; USA=100) 100 United States 80 Korea Poland Mexico 20 Brazil Indonesia Source: Conference Board.

28 200 POPULATION LEVELS (1990 = 100) Mexico 40 THE AGEING POPULATION (share of people aged 65 and more in total population) 180 Indonesia 35 Korea 30 Poland 160 Brazil 25 Brazil Korea 15 Mexico 10 Indonesia 100 Poland Source: UNPD Source: UNPD.