Covered in the ECON621 course. Topic 2: Trends in the World Economy

1. ECON621
Topic 2
Trends in the World Economy

2. Introduction
• What do we mean "trends in the world economy"?
• The long-run (when we are dead)
• The shifts in GDP
• But what does the future hold for production and employment
• The recent past
• Post the 2008 financial crisis: The Second Great Contraction
• This year
• Greece and the Euro
• And in the background there is the US fiscal cliff
• This week
• Global slowdown
• The pain in Spain

3. Long-run trends in growth and
development

4. Super-cycles in output, employment,
prices

5. The third industrial revolution
• New machines, processes and materials are changing
production:
• 3D printers and robots.
• More models from the same production line.
• Composite materials replacing steel and aluminum.
• Which has serious implications:
• Fewer workers are needed and they have to highly skilled.
• The cost of labour is less important and so is outsourcing.
• SMEs can participate and compete.
• More opportunities in the green economy.

6. Employment
• Globalisation has
brought people into the
global labour pool,
raising productivity and
incomes.
• But following the great
contraction there has
been increased
unemployment, rising
inequality and high
rates of youth
unemployment.

7. Why the Second Great
Contraction?
• Rogoff argues that it is more than a great recession.
• The contraction applies not only to output and
employment, as in a normal recession, but to debt and
credit, and the deleveraging that typically takes many
years to complete.
• This has important implications for policy.
• There is no quick escape without a scheme to transfer
wealth from creditors to debtors, either through defaults,
financial repression, or inflation.

8. So where is the world at?
• EU.
• US.
• Policy options?
• What does this imply for developing economies?
• What's happening in China?
• In India, Brazil?
• South Africa?
• Global slowdown…

9. The world this week
• Spanish borrowing costs
increase.
• Moody's outlook for the German
economy negative.
• In the UK, GDP contracts
for third quarter in a row.
• Thailand kept their repo rate unchanged.
• The Russian ruble lost ground to the dollar.
• Adverse weather conditions and food price inflation.

10. The way forward?
• Paul Krugman said that Rudi Dornbusch said that crises are always
like this:
"The crisis takes a much longer time coming than you think, and then it
happens much faster than you would have thought, and that's sort of
exactly the Mexican story. It took forever and then it took a night".
• A shotgun wedding in the EU?
• Lower interest rates or more inflation in the US?