1. Global Economic Outlook and Implications for Emerging Markets Otaviano Canuto Vice President and Head of Network Poverty Reduction and Economic Management (PREM) The World Bank www.worldbank.org/prem International Pensions Conference World Bank, September 16-19, Washington

2. Feedback loops and vicious cycles in Advanced Economies Source: Cecchetti, S. and Hofmann, B. “Breaking the vicious cycle: restoring balanced and sustainable growth in the global economy”, Vox EU, 29 June 2012.

3. Public money occupies the vacuum left by “private money” Central Banks balance sheets have expanded to unseen levels in both AEs and EMEs Monetary easing programs in AEs are flattening yield curves and bringing long term yields to historic low levels; Liquidity regulations are creating a sizeable captive demand for Government bonds implying further drops in yields; Public sector interventions to support banks either through bailouts and/or generous liquidity facilities => distortions in their cost of funding vis-à-vis other issuers; Currency manipulation has become a widespread behavior across AEs and EMEs generally to mitigate currency appreciation

4. Source: Canuto et al. (2012). The New Financial Landscape: What It Means for Emerging Market Economies, Economic Premise n.87, Sept., www.worldbank.org/economicpremise

5. Source: Canuto et al. (2012). The New Financial Landscape: What It Means for Emerging Market Economies, Economic Premise n.87, Sept., www.worldbank.org/economicpremise

6. Source: Canuto et al. (2012). The New Financial Landscape: What It Means for Emerging Market Economies, Economic Premise n.87, Sept., www.worldbank.org/economicpremise

7. Source: Canuto et al. (2012). The New Financial Landscape: What It Means for Emerging Market Economies, Economic Premise n.87, Sept., www.worldbank.org/economicpremise

8. Developing countries have been resilient in part because trend output remained de-coupled… at least heretofore 8

9. Structural Change and Cycle in the Global Economy (a) Fundamental changes: (i)marked improvement in macroeconomic policies in DCs and healthier private and public Balance Sheets (leverage; currency mismatch) (ii)ICT and transport innovations and global value chains; (iii)the mega process of labor transfer from subsistence to manufacturing industry in China and others; (iv)structural change of conditions in natural resource- based products (demand); and (v)successful poverty-reduction processes leading to new middle classes

10. A potential switchover of locomotives in the global economy Growth Interdependence Developing countries (growth rates) 10 Available to download at www.worldbank.org/prem/vp/publications

11. Structural Change and Cycle in the Global Economy (b) Super global cycle: The Great Leveraging/Deleveraging in Advanced Countries Metamorphosis into fiscal crises before completion of deleveraging Vicious circles and negative feedback loops Global imbalances Towards a New Normal

12. After narrowing during the recession, external imbalances could widen again as growth recovers Rebalancing growth a key element of structural reform agenda

13. Current Account Balance as a Percentage of Euro Area GDP, 1995-2010 13

14. Thanks www.worldbank.org/prem/vp/publications Also available to download www.huffingtonpost.com/otaviano-canuto 14