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
GDP PER CAPITA (1990 $; in purchasing power parities; log scale) GDP PER CAPITA (1990 $; in purchasing power parities; log scale) 10000 9000 Eastern Europe** 10000 9000 Argentina 6000 6000 Latin America* East Asia*** Mexico Brazil 3000 3000 2000 2000 900 900 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Confer. Board. * Ex. Brazil ** Ex. Russia *** Ex. China. 900 900 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Conference Board.
GDP PER CAPITA (1990 $; in purchasing power parities; log scale) 30000 Korea 10000 Poland 5000 Brazil Indonesia 2000 500 500 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Conference Board.
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)
40 EMERGING MARKETS GROSS SAVINGS (in per cent of GDP; 3 years mov. avrgs.) East Asia* 30 Latin America*** Eastern Europe** 20 Brazil 10 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: World Bank. * Excl. China. * Excl. Russia. ***Excl. Brazil.
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.
30 EMERGING MARKETS INCOME DISTRIBUTION Ratio of highest to lowest quintile Brazil 20 Latin America*** 10 East Asia* Eastern Europe** 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: World Bank. * Excl. China. * Excl. Russia. ***Excl. Brazil.
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*** 15 40 Latin America*** Brazil 10 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: World Bank. * Excl. China. * Excl. Russia. ***Excl. Brazil. 20 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: World Bank. * Excl. China. * Excl. Russia. ***Excl. Brazil.
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
60 PRICE VARIABILITY (annual percentage changes) 50 40 Non-oil commodity prices 30 20 Stand. devts. Comm. 13.2 Mfcts. 6.7 10 0-10 -20 Manufactur. export prices 1960 1970 1980 1990 2000 2010 Sources: WTO, Oxford Economics.
140 NON-OIL COMMODITIES REAL PRICES* (1970=100) 120 100 80 60 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 * Deflated by export prices of manufactures. Sources: GATT, WTO, Oxford Economics.
COMMODITY PRICES IN REAL TERMS, 1845-2000
WORLD PRODUCTION WORLD EXPORTS (Indices: 1950 = 100) (Indices: 1950 = 100) 1500 Manufacturing 8 Thousands Manufacturing 1300 7 1100 6 5 900 4 700 3 500 Mining* 2 300 Agriculture 1 Mining* 100 1950 1960 1970 1980 1990 2000 2010 Source: WTO. * Including oil. Agriculture 0 1950 1960 1970 1980 1990 2000 2010 Source: WTO. * Including oil.
GDP PER CAPITA (1990 $; in purchasing power parities; log scale) 9000 East Asia* 6000 4000 OPEC 2000 1000 195019551960 196519701975 198019851990 1995200020052010 2015 * NICs and ASEAN
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
REGULATION Ranking in World Bank's Indicator of "Ease of Doing Business", 2015 120 100 80 60 40 20 0 E. Asia* E.Eur.** Lat.Am.*** Brazil Source: World Bank. * Excl. China. ** Excl. Russia. *** Excl. Brazil.
PENSION EXPENDITURE AND ENTITLEMENT (in per cent of GDP; around 2010) Pension expend. Share of over 65s* Brazil 13 7 Italy 14 20 Germany 11 21 * In total population. Sources: The Economist, 24.3.2012; OECD and UNPD.
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
GROWTH RATES OF OUTPUT (GDP; average annual percentage changes) 2005-15 2015-25 East Asia* 4.2 3.2 East Eur.** 2.7 2.7 Latin America*** 3.6 3.0 Brazil 2.8 1.9 * Exclud. China. ** Exclud. Russia. *** Exclud. Brazil. Source: Oxford Economics.
BRAZIL - RECENT GROWTH TRENDS (GDP; per cent changes; 3 quarter moving averages) 8 6 4 2 0-2 -4-6 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Oxford Economics.
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)
50 BRAZIL - PRIVATE SECTOR DEBT (in per cent of GDP) Non-financial Corporations 40 30 Households 20 10 0 2000 2002 2004 2006 2008 2010 2012 2014 Source: BIS.
COMMODITY PRICES (January 2006 = 100; in dollars) 225 195 Food commods. 165 135 Metals 105 75 Oil 45 2010 2011 2012 2013 2014 2015 2016 Source: The Economist.
14 CHINA - SLOWING DOWN? (GDP; per cent changes; 3 yrs. mv. avrgs.) 12 10 8 6 4 GDP 1990-2015 9.7 2015-2025 5.5 1990 1995 2000 2005 2010 2015 2020 2025 Source: Oxford Economics.
BRAZIL - BUDGET BALANCE (in per cent of GDP) BRAZIL'S PUBLIC DEBT (in per cent of GDP) 0 70-2 60-4 50-6 -8 40-10 30 2003 2005 2007 2009 2011 2013 2015 Source: Oxford Economics. 1998 2001 2004 2007 2010 2013 2016 Source: Oxford Economics.
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
GDP PER CAPITA (in purchasing power parity; USA=100) 100 United States 80 Korea 60 40 Poland Mexico 20 Brazil Indonesia 0 1980 1985 1990 1995 2000 2005 2010 2015 Source: Conference Board.
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 140 20 120 Korea 15 Mexico 10 Indonesia 100 Poland 5 80 1990 2000 2010 2020 2030 2040 2050 Source: UNPD. 0 1990 2000 2010 2020 2030 2040 2050 Source: UNPD.