Marco Soriano, CEO: "Expectations on Global Economics 2017-2018" --- P A R T    1

Marco Soriano, CEO: "Expectations on Global Economics 2017-2018" — P A R T 1



welcome to see Thalia TV we are at Oheka hotel and here we have Marco Soriano talking about the economy in the world today the fundamental structure of the world's economy is changing while the contribution of services to global output is on the rise investment and productivity remains stagnant savings keep accumulating and growth and inflation decline meanwhile globalization has increased codependence a rising number of countries can influence the world's economic performance and its financial stability yet the international monetary system is neither fostering an efficient allocation of global capital nor preventing currency volatility is the fundamental structure of the world's economy changing yes the global economy is undergoing a long-term structural transformation we have to understand the first in the past 30 years the contribution of key factors key sectors to global output shifted this is very important agriculture fell manufacturing decline and services rose as shares of global value added and employment number to capital expenditures are also declining for example in services we look in attack digital companies that still need little investment to be able to prosper another example would be the fast-growing sharing economy by relying on today's internet cheaply interfaces fast supply systems where the costs are with a large number of customers most likely the demand where the money is which basically in other words we can say that by inexpensively put in underutilized resources to use it creates value with very little capital as a result and this is probably the most important part global net investment grows investment – depreciation that is as a share of total capital stock it's close to about its lowest level since second world war and this is bad number three demographically speaking the trends support a decline in investment and consumption why because a falling birth rates and a rising life expensive expectancy are leading to aging populations especially in developed markets or what we call DMS B as the pool of working age 15 to 64 years all individuals shrinks in both DMS and emerging markets firms deploy less capital because there are fewer workers to hire and finally these labor force that were anticipated to participate in terms of rate decline and consumers refrain from spending so this is our issue why is productivity low and savings keep rising it's a very good question so the productivity boost of the new economy today the post manufacturing service based economic system is lower than in past industrial revolutions after the 2008 financial crisis as you know labor productivity growth failed across sectors in most OECD countries where 45 million workers are jobless at the same time technological progress and business optimization or automation are making white-collar jobs redundant traditional middle-class jobs have disappeared but savings keep on growing and this is actually interesting why because the inequality rises higher higher share of income goes to richer individuals with higher propensity to save also since 2008 emerging markets have accumulated massive foreign exchange reserves and the world's main central banks also known as CBS nearly double from about 10 trillion dollars to 18 point two trillion their combined balance sheets are just scary number three on this on this question the corporation's relentless they accumulate retained earnings which means that this rising supply of savings is rather unresponsive to interest rate cuts which is today's political rhetoric CB policy rates do not boost spending as a result and despite historically low interest rates economic growth as stagnates along with inflation so how do I come in citizen in a macroeconomic view in many economies with short term interest rates close to zero and decline in prices achieving full employment becomes a real challenge in line with the secularist Ignatian hypothesis negative real interest rates might be needed to equate saving an investment with full employment has globalisation increased codependence and systemic risks this is a very technical question so once again the answer to this admittedly I have to say is a yes rapid cross-border economic social technological exchange have enhance these interconnections and what happens in results as a consequence is increased resilience but also fragility capital has become an often unpredictable driving force more influential and systemic than actual trading the the good example would be the foreign exchange market where which have grown to be the world's largest market with an average daily trading volume of a bow or in excess of 4 trillion dollars and via micro financial linkages 25 economies because of this size and connections with other countries can have a very strong systemic impact on the performance of the global economy and its financial stability this is the problem that we're seeing today so what do we need we need regular monitoring as the scale of financial flows and their volatility goes up in a context of lower growth and higher uncertainty we we must examine the economic interdependence and increase the risk rather than diminishing the risk and obviously this is going to result in financial crisis because they become more and more recurrent for example the the southern unwinding of global imbalances that we saw number four on this would be anything that had to do with crisis transmission mechanisms as we know over the past six years emerging markets forced to invest their reserves in large liquid debt market kept finance in deficits in large developed countries the holdings of US sovereign debt by Brazil Russia India and China almost doubled from 1 trillion in 2008 to today in about I think it's close to 1.8 trillion dollars why is international monetary system neither preventing currency volatility nor fostering an efficient allocation of global capital so most currency have fluctuated very fast in the last few years we have seen this in commercial activity over time uncoordinated competitive devaluations for example currency wars aimed at supporting and boosting national economic activity which could faster from protected protectionism e/m foreign exchange holdings at two-thirds of the total de facto reduced global demand which means they should invest in their local economy emerging markets end up lending cheaply to wealthier economies that need to save rather than spend in other words to be clearer reserve accumulation increases global imbalances and by pushing down long-term interest rates so the seeds of future financial stability a mayor rethinking is needed with all economies with all governments to ensure capital flows trade relations and global prosperity the monetary system needs what we call a few Internet we trusted currencies the so called global reserve currencies along these lines so that we have a clear understanding on how this works these currencies facilitate the setting of prices the payment of goods and services in global markets the holdings by governments and institutions of foreign exchange reserves the denomination of balance sheets for both the public and the private sector and the private actors and finally the accumulation of savings and central bank reserves is the global economy in the middle of a lost decade this is sad to answer but that once again the answer is yes we are already seven years into the 2008 crisis where the world still faces below potential growth prospects low investments aging populations and stagnant wages which have weakened the aggregate demand in absence of a significant productivity boost led by let's call it innovation global growth is likely to language below potential for a few more years dragged down by this same deceleration in emerging markets and the European chronic short Commons

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