Emerging Trends in Developing Countries

Emerging Trends in Developing Countries Lección inaugural Master en Desarrollo, Instituciones e Integración Económica Álvaro Ortiz Vidal-Abarca - Chief Economist Cross Emerging Markets BBVA Research Valencia, October 213

Multidimensional Emerging Markets Trends Income & Wealth Increasing World Presence Inclusive Growth Poverty and Inequality Demography & Urbanization The Rise of Emerging Middle class Infrastructure & Financial Deepening Technology, Productivity & Education Vulnerability & Resilience Openness & Trade Institutions

Income & Wealth Wealthier and Healthier: Emerging Markets are Catching Up with Developed World but still a sizeable Gap

First, the static picture to identify where do we stand? World: Wealth and Health (212) (GDP per cápita in US$ and Life Expecancy) Source: Gapminder through World Bank Data Income & Wealth Developed Economies Emerging Economies Frontier Economies

The Catch Up will continue: GDP per capita growth differences will remain important GDP per capita Growth Rate (198-22) (% yoy, in nominal PPP-adjusted USD) Source: BBVA Research Advanced Economies Advanced economies Major advanced economies (G7) European Union Other advanced economies Income & Wealth 199-2-1 21-2 Central and eastern Europe 1 2 3 4 5 6 7 8 9 1 Emerging Economies Commonwealth of Independent States Newly industrialized Asian economies Developing Asia Latin America and the Caribbean Middle East and North Africa 1 2 3 4 5 6 7 8 9 1

Which is allowing Emerging economies to increase their role in global growth Contribution to global growth by period and country groups (198-222) (in percentage points) Source: BBVA Research and IMF 5 Income & Wealth 4 3 2 1 8s 9s s pre crisis Crisis 212-222 Advances Emerging

The new growth will be increasingly based in EM with a bias in the pacific region Expected contribution to global growth between 212 and 222 (%) Source: BBVA Research and IMF Eastern Europe Western Europe 6.4 Africa 4.9 6.8 4.5 Middle East 56.4 Emerging Asia 1. Japan 1.7 Pacific Region 77.5% Oceania North America 1.9 Latin America 7.5 Income & Wealth

Increasing World Presence Emerging Markets are increasing their share in World GDP but Balance of Power Quotas remain unchained

Emerging markets are increasing their share in world GDP Share of world GDP: developed and emerging markets (%) Source: IMF/WEO Increasing World Presence 1 9 8 7 6 5 4 3 2 1 198 199 2 27 213 218 Emerging Economies Developed Economies

China and India play in another league Incremental GDP between 212 and 222 (% share of world growth and bn USD for the 3 big players) Source: BBVA Research and IMF/WEO Other EMs 3% Other DMs 5% G7 17% Nest 1% RoW 8% EAGLEs 57% 275 25 225 2 175 15 125 1 75 5 25 12971 12428 492 15727 536 4756 China USA India 212 212-222 Increasing World Presence

Other relevant players in Asia, as well as in Latin America and Europe Incremental GDP between 212 and 222 and GDP level in 212 [EAGLEs] (bn USD) (incremental GDP in y-axis and 212 level below country labels) (bubbles are proportional to 212 level) Source: BBVA Research and IMF/WEO Increasing World Presence 13 12 11 Indonesia 1219 Brazil 2363 Russia 252 1 9 8 7 6 5 Korea 1618 Japan 4623 Turkey 1126 Germany 327 Mexico 1768 UK 2335 Taiwan 95 G6 avg. 262 4 3

And there are more candidates, some of them really close to the threshold Incremental GDP between 212 and 222 and GDP level in 212 [Nest] (bn USD) (incremental GDP in y-axis and 212 level below country labels) (bubbles are proportional to 212 level) Source: BBVA Research and IMF/WEO 5 45 4 35 3 25 2 15 1 G6 avg. 262 Egypt 54 Nigeria 453 Thail. 655 Australia 967 S.Arabia 744 France 226 Colombia 5 Canada 1451 Malaysia 498 Vietnam 322 Poland 86 Spain 1415 Bang. 37 S.Africa 58 Philip. 425 Iraq 156 Argentina 745 Peru 328 Increasing World Presence Iran 12 Pakistan 517 G6 min. (Italy) 188 Chile 322

A new global economic order is pushing for a new view on international relations Emerging & Developed Economies(%) Source: IMF and BBVA Research Population GDP IMF Voting Increasing World Presence Stock Mket Capitalisation 16 33 5 5 45 55 67 84 Emerging & Developing Economies Developed Economies

Inclusive Growth Reducing Poverty but Rising Inequality Social Protection should increase to cope with increasing social demands

The EM growth has been somehow a pro poor growth Inclusive Growth Selected Asia: Change in Poverty Headcount Ratio (in percentage points, since 199) Source: IMF Regional Economic Outlook: Asia and Pacific Poverty: % of People living under 1.5$ per day (at 25 ppp prices) Source: IMF Regional Economic Outlook: Asia and Pacific

But with raising inequality in some fast growth areas Inclusive Growth Change in Gini Index since 199 (percentage points) Source: UNICEF Change in Gini Index since 199 (percentage points) Source: IMF Regional Economic Outlook: Asia and Pacific O t h e r A s i a S o u t h A s i a I n d u s t r i a l A s i a N I E s A S E A N S u b - S a h a r a n A f r i c a M i d d l e E a s t a n d N o r t h A f r i c a L a t i n A m e r i c a a n d t h e C a r i b b e a n C e n t r a l a n d E a s t e r n E u r o p e 5 5 1 1 5 Average Weighted Average by population

The Safety Net on EM is still far from Western Levels Inclusive Growth Old-age pension beneficiaries (% of population above retirerment age) Source: ILO

In many aspects Inclusive Growth Unemployment effective coverage worldwide (% of unemployed) Source: ILO

One of the reason is low Fiscal Revenue Inclusive Growth Fiscal revenue and spending 21 (% GDP) Source: IMF

Which limits Social Spending and inclusiveness Inclusive Growth Social spending (% of GDP) Source: IMF Pension 21 1/ ASEAN-5 Health 21 1/ Education 27 1/ Indonesia.9 1.3 3.5 Malaysia 2.9 2.9 4.5 Philipines 1.1 1.4 2.6 Singapore.6 1. 3.2 Thailand.8 1.6 4.9 Other Asian Economies China 2.2 2.2 1.9 India 1.7.9 3.2 Vietnam 1.6 1.5 5.3 Regional average ASEAN-5 1.3 1.6 3.7 Advanced 7.4 7. - Emerging 4.2 2.7 - Education and inclusiveness Source: IMF Regional Economic Outlook: Asia and Pacific Health and inclusiveness Source: IMF Regional Economic Outlook: Asia and Pacific

But in some dimensions is improving very fast compared with previous historical experiences Health protection coverage for selected countries (% of total population) Source: ILO Inclusive Growth

Increasing World Presence Population will moderate but the premium is still alive and Households will increase Urbanization & Agglomeration a new challenge

195 1955 196 1965 197 1975 198 1985 199 1995 2 25 21 215 22 225 23 235 24 245 25 195 1955 196 1965 197 1975 198 1985 199 1995 2 25 21 215 22 225 23 235 24 245 25 Population will gradually decline in EM but still maintains an important premium with developed Demography & Urbanization Labor Force Population Growth (% yoy) Source: BBVA Research and UN 4 3 Mid term Long term World Labor Force: Ratio of Working Age to non Working Age Population Source: World Bank 2 1-1 -2 China Korea India Indonesia G7 4 3 Mid term Long term 2 1-1 Russia Turkey Brazil Mexico G7-2

Household size...but Household size will also decline limiting the population decline impact in some goods Demography & Urbanization Household Size and GDP Per cápita (in members ans log of gdp per capita) Source: BBVA Research and UN 8 7 6 5 4 3 2 1 1 2 3 4 ln of real PPP-adjusted GDP World Household Size (members per houesold unit) Source: BBVA Research and UN 7, 6,5 6, 5,5 5, 4,5 4, 3,5 3, 2,5 2, Ireland Spain Russia Bulgaria Lithuania Hungary Canada France Belgium United Kingdom Netherlands Germany Finland Yemen Jordan Sudan India Central African Republic Tunisia Chad Tanzania Iran Bangladesh Vietnam Paraguay Belize Mexico Malawi Botswana Panama Costa Rica FYR Macedonia Sri Lanka Brazil Bosnia and Herzegovina Israel Uruguay Slovenia Poland

Different Population Pyramids will create different oportunities and challenges Population pyramids for selected economies (21) Source: BBVA Research and UN Demography & Urbanization 1+ 9-94 Female G7 Countries Male Eagles Ageing Advanced Female Male Eagles Populating Premiun Female Male 8-84 7-74 6-64 5-54 4-44 3-34 2-24 1-14 -4 4 3 2 1 1 2 3 4 5 4 3 2 1 1 2 3 4 5 5 4 3 2 1 1 2 3 4 5

196 1965 197 1975 198 1985 199 1995 2 25 21 215 22 225 197 1975 198 1985 199 1995 2 25 21 215 22 225 Urbanization will increase very fast in some of the regions Demography & Urbanization World Urbanization Rates(198-22) (Urban population as a % of total) Source: United Nations 9 8 7 6 World Urbanization Rates(198-22) (Annual Change in Urbanization Rates) Source: United Nations,8,7,6,5 5 4 3 2 1,4,3,2,1 -,1 West Europe N.América East Europe Asia Latam Africa West Europe N.América East Europe Asia Latam Africa

Regional Aggregates mask some rapid changes in some countries (Andeans & South East Asia) Demography & Urbanization World Urbanization Rates(211) (Urban population as a % of total) Source: United Nations World Urbanization Rates(23) (Urban population as a % of total) Source: United Nations

and we will observe an intensive Urban Agglomeration process specially in Asia Percentage of urban population and agglomerations by size class Source: UN Urbanization Prospects, 211 revision Demography & Urbanization 211 225

The Rise of EM Middle Classes The Emerging Middle Classes revolution has already started changing consumption patterns and social demands

198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 214 216 218 22 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 214 216 218 22 The EM Middle Classes revolution accelerated at the beginning of this century Estimation of income distribution by GDP per capita in emerging economies (198-22) (millions of people and % of total population; original data in real PPP-adjusted USD) Source: BBVA Research 6 5 Slow Motion Distribution changes Fast Track 1% 9% 8% Slow Motion Distribution changes The Rise of Emerging Middle Classes Fast Track 4 3 2 1 7% 6% 5% 4% 3% 2% 1% % Affluent High Middle Class Medium Middle Class Low Middle Class Low Income Poor Affluent (>4 USD) High Middle Income (25 to 4 USD) Medium Middle Income (15 to 25 USD) Low Middle Income (5 USD to 15 USD) Low Income (1 USD to 5 USD) Poor( <1 USD) Affluent High Middle Class Medium Middle Class Low Middle Class Low Income Poor

198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 214 216 218 22 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 214 216 218 22 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 214 216 218 22 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 214 216 218 22 and is being specially intensive in some areas The Rise of Emerging Middle Classes Estimation of income distribution by GDP per capita in emerging economies regions (198-22) (millions of people and % of total population; original data in real PPP-adjusted USD) Source: BBVA Research 25 East Asia 2 2 16 South Asia 15 12 1 8 5 4 35 3 Emerging Europe 6 5 Latam 25 2 15 1 5 4 3 2 1 Affluent (>4 USD) High Middle Income (25 to 4 USD) Medium Middle Income (15 to 25 USD) Low Middle Income (5 USD to 15 USD) Low Income (1 USD to 5 USD) Poor( <1 USD)

Nigeria Pakistán Vietnam India Filipinas Egipto Ucrania Tailandia Perú Colombia Sudáfrica Brasil Turquía México Malasia Rusia Argentina Chile Polonia Corea We will observe a gradual change in consumption patterns The Rise of Emerging Middle Classes Consumption Patterns in S. Korea (198-21): (spending distribution by COICOP groups. ( PPA Adjusted GDP per cápita) Source: BBVA Research 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % 198 (6.95$) 199 (13.68$) 2 (2.91$) 21 (29.717$) Emerging Markets Consumption Patterns (GDP pre capita order, % en consumer price index basket, 212) Source: BBVA Research & IMF 1 9 8 7 6 5 4 3 2 Food & Non. Alc. Beberages Dressing & Shoes Menaje Transport Leisure & Culture Hotels and Catering Tobacco & Alcohol Housing Health Communications Education Other Business Services 1

Infrastructure & Financial Deepening Population, Wealth Creation, Urbanization & Agglomeration will generate pressures on Infrastructure. Financial Deepening will help

Car ownership (units per 1, people) Income transition and changing consumption patterns: auto industry Infrastructure & Financial Deepening Increase of world car fleet by decades (millions of units) Source: BBVA Research 35 3 GDP per capita (PPP-adj. USD) and car ownership (units per 1, people) Source: BBVA Research 6 5 G7 (22) 25 2 4 3 G7 (198) 15 1 5 198-199 199-2 2-21 21-22 China EAGLEs exchina Nest US G6 Others EAGLEs = Brazil, China, India, Indonesia, Korea, Mexico, Russia, Taiwan and Turkey Nest = Bangladesh, Pakistan, Malaysia, Philippines, Thailand, Vietnam, Argentina, Chile, Colombia, Peru, Poland, Egypt, Nigeria, South Africa 2 1 Nest (22) EAGLEs (22) Nest EAGLEs (198) (198) -1 7 8 9 1 11 12 log of GDP per capita (real PPP-adjusted USD)

Expected annual increase in car fleet for the next decade concentrated in Asia and Latam Expected annual increase in World Car Fleet (21-22) (% yearly growth) Source: BBVA Research Infrastructure & Financial Deepening % 2% 4% 6% 8%

Thus infrastructure needs will continue to grow specially in the high growth areas Infrastructure & Financial Deepening Annual Infrastructure Investment Needs in Developing Markets: Changes 21-23 ( Total in USD bns) Source: World Bank 1. USD billions 9 8 7 Sanitation Fixed Water Regional Infrastructure Investment Needs in Developing by Markets 23 ( Total in USD bns) Source: World Bank USD billions 35 3 25 6 5 Mobile 4 3 Transportation 2 1 Power 212 215 218 221 224 227 23 2 15 1 5 AFR EAP ECA LAC MNA SAR Power Transportation Telecoms Water/Sanitation AFR: SubSaharan Africa, EAP:East Asia Pacific, ECA: Eastern Europe and Central Asia, LAC: Latin America, MNA: Middle East N Africa, SAR:South Asia

But remember that the fiscal base is till low so new forms of financing are coming Infrastructure & Financial Deepening Public Private partnership infrastructure projects (in USD bns) Source: World Bank 17 15 13 11 9 7 5 3 1 Public Private partnership infrastructure projects by Countries (in 25 USD bns) Source: World Bank 18 16 14 12 1 8 6 4 2 7 6 5 4 3 2 1-1 1984 1987 199 1993 1996 1999 22 25 28 Energy Telecommunications Transport Water 2 21 22 23 24 25 26 27 28 29 21 Other developing Brazil China India Russia Turkey

And the traditional financial deepening will acceletaredireccion Completa Infrastructure & Financial Deepening Private Credit to GDP: Changes 1998-28 (Average Annual Change in the ratio) Source: BBVA Research Private Credit to GDP: Changes 1998-28 (Average Annual Change in the ratio) Source: BBVA Research

Technology, Productivity & Education Facing a global productivity slowdown but with still higher productivity growth than developed Countries. Younger and increasingly well prepared labor force: A real challenge for Developed

Total factor productivity is slowing down but EM premium is still alive Total Factor Productivity Growth (199-212) (median, 5 years mov.avg growth rates) Source: Total Economy Database and Own Calculations) 2,5 Technology, Productivity & Education 2, 1,5 1,,5, -,5-1, -1,5 WEurope USA Japan Europe Latam Asia M.East Africa 9-95 95- -5 5-12

*Human Capital Index In some regions Education performance is near the OECD average and human capital is not far from ours Technology, Productivity & Education Secondary school student performance (score; 29) Source: BBVA Research and OECD PISA Report Education index* and median age (21) Source: Mckinsey (212) *Median Age

Pakistan Nigeria Bangladesh India Malaysia Indonesia Vietnam Thailand Turkey China Egypt Philippines Argentina Mexico Chile Russia Peru S.Africa Ukraine US Colombia Poland Korea Italy Canada Brazil UK Japan Avg G7 Germany France Pakistan Nigeria Bangladesh S.Africa India Vietnam Indonesia China Mexico Philippines Egypt Peru Brazil Malaysia Colombia Turkey Thailand France UK Chile Japan Italy Avg G7 Argentina Poland Russia Ukraine US Korea Differences in enrolment are centered in tertiary education School enrolment (total enrollment over population of corresponding age; 21*) Source: BBVA Research and World Bank Technology, Productivity & Education Secondary education 1 Tertiary education 1 9 8 7 6 5 4 3 2 1 9 8 7 6 5 4 3 2 1 More divergences in tertiary education *Or latest year available

Egypt Nigeria Bangladesh Pakistan Turkey South Africa Ukraine Colombia Chile Vietnam Peru Poland India Italy Argentina Russia Brazil Indonesia Canada Germany Mexico G7 Japan US UK Thailand France China Korea Malaysia Philippines Nigeria Chile Brazil Peru Turkey Egypt South Africa Russia Colombia Ukraine Pakistan France Italy Vietnam Argentina Japan Indonesia G7 Bangladesh Canada Germany UK US Poland Korea China Thailand Mexico Malaysia Philippines India Which is increasingly reflected in the Tech content of manufactures and services exports High Tech Exports (21) (as % of manufactures exports) Source: World Bank 7 65 6 55 5 45 4 35 3 25 2 15 1 5 ICT Goods and Services Exports (as % of goods and service exports) Source: World Bank 4 35 3 25 2 15 1 5 Technology, Productivity & Education ICT goods exports ICT service exports

Vulnerability & Resilience The last EM crisis (199s) are key to explain the Special Resilience to the 28 crisis and Low Vulnerability

Sovereign Rating Index 27-213 Source: BBVA Research by using S&P, Moodys and Fitch Data 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 18 19 2 AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- CC D 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 18 19 2 AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- CC D 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 18 19 2 AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- CC D 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 18 19 2 AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- CC D 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 18 19 2 AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- CC D 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 18 19 2 AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- CC D A vulnerability convergence Vulnerability & Resilience

United States Canada Japan Australia Korea Norway Sweden Denmark Finland UK Austria France Germany Netherlands Belgium Italy Spain Ireland Portugal Greece Czech Rep Bulgaria Croatia Hungary Poland Romania Russia Turkey Argentina Brazil Chile Colombia Mexico Peru China India Indonesia Malaysia Philippines Thailand United States Canada United States Canada Japan Australia Korea Norway Sweden Denmark Finland UK Austria France Germany Netherlands Belgium Italy Spain Ireland Portugal Greece Czech Rep Japan Australia Korea Norway Sweden Denmark Finland UK Austria France Germany Netherlands Belgium Portugal Greece Czech Rep Bulgaria Croatia Bulgaria Croatia Hungary Poland Romania Russia Turkey Hungary Poland Romania Russia Turkey Argentina Brazil Argentina Brazil Chile Colombia Mexico Peru Chile Colombia Mexico Peru China India China India Indonesia Malaysia Philippines Thailand Indonesia Malaysia Philippines Thailand United States Canada Japan Australia Korea Norway Sweden Denmark Finland UK Austria France Germany Netherlands Belgium Italy Spain Ireland Portugal Greece Czech Rep Bulgaria Croatia Hungary Poland Romania Russia Turkey Argentina Brazil Chile Colombia Mexico Peru China India Indonesia Malaysia Philippines Thailand United States Canada Japan Australia Korea Norway Sweden Denmark Finland UK Austria France Germany Netherlands Belgium Italy Spain Ireland Portugal Greece Czech Rep Bulgaria Croatia Hungary Poland Romania Russia Turkey Argentina Brazil Chile Colombia Mexico Peru China India Indonesia Malaysia Philippines Thailand 245 18 417 311 12 Somehow justified by Stock vulnerability data Gross Public Debt 213 (% GDP) Source: BBVA Research and IMF External Debt 213 (% GDP) Source: BBVA Research and IMF Vulnerability & Resilience 14 3 12 25 1 8 6 4 2 15 1 2 5 Household Debt 213 (% GDP) Source: BBVA Research and BIS Corporate Sector Debt 213 (% GDP) Source: BBVA Research and BIS 15. 25. 13. 11. 9. 2. 15. 7. 5. 3. 1. 5. 1. -1.. Risk Thresholds

Asia Asia LATAM LATAM Europe EM Europa Emergente Western Europe Europa Occidental G4 G4 Credit Bubbles are not particularly relevant to worry in excess but some incipient signs have been appearing Private credit colour map (1996-213 Q2) (yearly change of private credit-to-gdp ratio) Source: BBVA Research and Haver US Japan Canada UK Denmark Netherlands G ermany France Italy B elgium G reece S pain Ireland Portugal Iceland Turkey Poland Czech Rep Hungary Romania Russia B ulgaria Croatia Mexico B razil Chile Colombia Argentina Peru Uruguay China Korea Thailand India Indonesia Malaysia Philippines Hong Kong S ingapore 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 B ooming: Credit/G DP growth is higher than 5% Excess Credit Growth: Credit/GDP growth between 3%-5% High Growth: Credit/GDP growth between 2%-3% Mild Growth: Credit/GDP growth between 1%-2% Stagnant: Credit/GDP is declining betwen %-1% De-leveraging: Credit/G DP growth declining Non Available Real housing prices colour map (1996-213 Q2) (yearly change of real housing prices) Source: BBVA Research, BIS and Globalpropertyguide 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 US # Japan # Canada # UK # Denmark # Netherlands # G ermany # France # Italy # B elgium # G reece # S pain # Ireland # Portugal # Iceland # Turkey Poland Czech Rep Hungary Romania Russia B ulgaria Croatia Mexico B razil Chile # Colombia # Argentina # Peru # Uruguay # China # Korea # Thailand # India Indonesia Malaysia # Philippines Hong Kong # S ingapore # B ooming: Real House prices growth higher than 8% Excess Growth: Real House Prices Growth between 5% and 8% High Growth: Real House Prices growth between 3%-5% Mild Growth: Real House prices growth between 1%-3% Stagnant: Real House Prices growth between % and 1% De-Leveraging: House prices are declining Non Available Data Vulnerability & Resilience

Latvia Croatia Lithuania Georgia Bulgaria B.Herzegovina Romania Macedonia Moldova Ukraine Poland Turkey Russia Czech R. Uruguay Peru Paraguay Honduras Chile Brazil Colombia Argentina Singapore Hong Kong Indonesia Korea India Besides, some important previous vulnerabilities are now lower (except for EM Europe) Emerging Markets: FX Loans 212 (% Total Loans, 212 or latest available data) Source: IMF 1 9 8 7 6 5 4 3 2 1 Vulnerability & Resilience

Which is the result of several years of reforms Vulnerability & Resilience Policies and reforms after late 9s-early s crises Exchange rate flexibility Fiscal discipline and debt consolidation Central bank independence Lower price increases and inflation-targeting Banking supervision Better business environment

Openness & Trade Increasing share in World Trade with South- South flows increasing. Diminishing influence of GATT but increasing bilateral agreements

The share of EM in World Trade is increasing Openness & Trade Distribution of world exports (% of total exports) Source: WTO Distribution of world Imports (% of total exports) Source: WTO

And trade routes are changing Openness & Trade Share of Total Trade between Geographic regions in World Trade 211 (199 shares in brackets) Source: WTO and BBVA Research (7.8%) (3.6%) (.7%) (1.2%) (1.6%) (3.4%) (2.5%) (8.1%) (2.6%) (.9%) (3.2%) (.8%) (.7%) (.6%) Increasing Share About Same Share Declining Share

Rapid growth in emerging countries increases South-South relations Openness & Trade Read more at: Asia-driven South-South trade intensifies specialization patterns in the rest of emerging regions www.bbvaresearc h.com/ketd/fbin/ mult/ewsouthsout htrade_i_tcm348-3932.pdf?ts=3 8213 Distribution of world exports according to origin and destination (% of total exports) Source: BBVA Research and IMF/DOTS 198s-199s 21-212 North-North 61% South-North 16% North-South 17% South- South 6% North- North 4% South- North 24% North-South 2% South- South 15% South in 4% of transactions South in 6% of transactions

GATT loosing influence but Increasing bilateral agreements The Asian Noodle (Trade agreements in Asian Countries) Source: BBVA Research and IMF/DOTS Openness & Trade

Institutions Still far from Developed Economies Institutional challenges remain to keep growth momentum

1996 1998 2 22 23 24 25 26 27 28 29 21 211 212 Colombia Japan Turkey Korea Mexico Taiwan Indonesia Poland Brazil Chile Peru Nigeria France Russia Canada Germany Vietnam China Malaysia US India Bangladesh S.Africa UK Philippines Italy Pakistan Egypt Argentina Thailand EMs improvements have been limited and the gap is still wide relative to the G7 Institutions Governance Indicators 1996-212 (average of six indicators) Source: BBVA Research and WB Governance Indicators 1996-212 (average of six indicators) Source: BBVA Research and WB 2,5 2, 1,5 1,,5, -,5-1, -1,5-2, -2,5.4.3.2.1. -.1 -.2 -.3 -.4 -.5 -.6 EAGLEs Nest G7

FDI Stock as a % of GDP (21) FDI Stock as a % of GDP (21) FDI Stock as a % of GDP (21) Institutions matter for capital attraction Institutions FDI stock and institutional factors (FDI in % of GDP and institutional indicator as specified) Source: BBVA Research, UNCTAD, World Bank and CSP Ease of Doing Business (ordinal ranking) 8 Governance (-2.5 to +2.5; inverted scale) 8 State fragility ( to 25) 8 7 7 7 6 6 6 5 5 5 4 4 4 3 3 3 2 2 2 1 1 1 2 4 6 8 1 12 14 16 Ease of Doing Business Rank (212) -1.6-1.2 -.8 -.4..4.8 1.2 1.6 Governance (21) 2 4 6 8 1 12 14 16 18 State fragility (21)

PPP- adjusted GDP per capita Institutions matter for welfare Institutions Global competitiveness index and GDP per capita (PPP-adjusted) (GCI from 1 to 7 and GDP per capita in logs) Source: BBVA Research and World Economic Forum 12 11 1 9 8 7 6 2.5 3. 3.5 4. 4.5 5. 5.5 6. Global Competitiveness Index (1-7)

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