Pierre-Olivier Gourinchas is the Economic Counsellor and the Director of Research of the IMF. He is on leave from the University of California at Berkeley, where he is the S.K. and Angela Chan Professor of Global Management in the Department of Economics and at the Haas School of Business. Professor Gourinchas was the editor-in-chief of the IMF Economic Review from its creation in 2009 to 2016, the managing editor of the Journal of International Economics between 2017 and 2019, and a co-editor of the American Economic Review between 2019 and 2022. He is on leave from the National Bureau of Economic Research, where he was director of the International Finance and Macroeconomics program, a Research Fellow with the Center for Economic Policy Research CEPR (London), and a Fellow of the Econometric Society.
Professor Gourinchas’s main research interests are international macroeconomics and finance. His recent research focuses on the scarcity of global safe assets, global imbalances, and currency wars; on the International Monetary System and the role of the U.S. dollar; on the Dominant Currency Paradigm; on the determinants of capital flows to and from developing countries; on international portfolios; on the global financial crisis and the impact of the COVID-19 crisis on business failures. Professor Gourinchas is the laureate of the 2007 Bernácer Prize for best European economist working in macroeconomics and finance under 40, and of the 2008 Prix du Meilleur Jeune Economiste for best French economist under 40. In 2012-2013, Professor Gourinchas was a member of the French Council of Economic Advisors to the Prime Minister.
He attended Ecole Polytechnique and received his PhD in Economics in 1996 from MIT. He taught at Stanford Graduate School of Business and Princeton University before joining the UC Berkeley Department of Economics in 2003. He grew up in Montpellier, France.
Thank you and welcome everyone it’s really very nice to be here today and to be uh to have this time to um have a conversation about the stage uh of the global economy so I’m going to give you a brief uh overview of uh what um are
The sort of the major forces shaping the Outlook and what are the key policy trade-offs that uh countries are facing right now uh and especially emerging market economies so let me start uh right away with uh sort of a summary slide on um uh what’s been happening in
The last three months we do this uh projections this round of projections four times a year the last one was in October um this is a the October round is a more complete round of projections the January one is a is a smaller uh uh projection we call that an update but it
Still gives us a lot of details on the on the global economy and what we’re seeing here is an economy that has been um very resilient you see on the left uh world real GDP growth um 2022 up until 2025 the dash line is uh what we were
Anticipating as of our October round of projection and you can see that um this has been lifted up so there’s been more resilient growth we’re expecting about 3.1% growth this year uh 3.2% growth next year um and this is in the context of uh a global economy that’s been
Dealing with a series of um pretty significant shocks and um whether you think about the impact of the Russian invasion of Ukraine the reopening after covid the energy crisis the surge in inflation so there have been a number of things that led us in early rounds to be
A little bit uh um cautious about what we were seeing in terms of growth performance and be worried that maybe the global economy would slow down and it has slowed down but it has been also very very resilient now what we’re seeing also in terms of when we look
Under the hood when we look at the this growth number but we look where the growth was what we’re seeing also is is a number of resilience in in in many different parts of the world so the US economy has been growing more strongly than expected you see that in this
Middle figure here uh China which has been slowing down but has been also growing a little bit faster than what was anticipated in our uh uh October round of projections and many other uh large emerging market economies Brazil uh India many Southeast Asian economies Russia have been have been doing better
Uh the regions that have not been doing as well one of them chiefly is the Euro area been suffering the brunt of the surge in Energy prices coming from the aftermath of the Russian invasion of Ukraine and and also tight monetary policy and that has been weighing down
On on growth and continues to weigh down and maybe even a little bit more than was anticipated earlier the other piece of good news besides the growth the economy being more resilient is inflation coming down faster than expected you can see that you can see that on the right here when you look
Both at headline inflation and underlying inflation what we call Core inflation excluding food and energy prices and you see that here again the sort of the solid line is below the dash line that’s kind of the extent of the surprise revision and and inflation has been coming down faster where now
Expecting Global inflation around 5.8% this year coming down to 4.4% next year uh so um this is uh a better environment this is one where we are now uh there’s a higher likelihood that the global economy may be able to bring down inflation back to Central Bank targets without having a global
Recession or even a recession in many parts of the world and so the likelihood of a soft lending uh as we call it uh affect Ely is as increased um now that doesn’t mean that everything is good uh there are still a number of risks ahead of us and our report and our
Update discusses some of them and list some of them on the right hand side uh but these risks are a bit more balanced uh compared to previous uh exercises so we are seeing risk that things could get worse but there are also chances that things could get better and it’s it’s
Worth acknowledging so on the upside risk we could again be surprised by the speed at which inflation is coming down a lot of that disinflation is the result of uh Energy prices uh coming down faster uh and so we could uh again see some of that going forward there could
Be a faster recovery in China China as I mentioned has slow down on the back of ener uh property sector problems and it could rebound a little bit faster depending on the policies that will be put in place in the country and more maybe at a medium-term horizon not
Immediately maybe not for 24 25 but in terms of what we might see uh down the road uh the artificial intelligence uh Revolution that is taking place offers the chance that there could be a boost to productivity growth and uh that would also lift uh standards of living around
The world now there are also downside risks the downside risks are on the uh of course uh uh we we know what they are uh Supply disruptions could come back in particular linked to geopolitical shocks we all read the news we see what’s happening in the Middle East in the Red
Sea the maritime traffic is being disrupted shipping costs are increasing there could be it’s not the case right now but there could be uh uh you know some uh disturbances when you think about oil shipments as well if things were to escalate so that’s clearly a downside risk inflation as said it could
Come down faster but maybe it won’t and maybe in fact Services inflation which is the component of uh inflation that is still running a little bit hot could remain so and so then there would delay a little bit the uh inflation coming down to to Target and then uh through
This episode financial markets have remained relatively optimistic about the Outlook in terms of when central banks might cut interest rates and how quickly we might return to normal and these Financial conditions could change they could tighten markets could all of a sudden become much more risk averse what
We call risk off episode and that would also weigh down on on on activity um in terms of policies what our report emphasizes is that although we are almost there we’re not quite there when we’re think about a monetary policy and so central banks still have to secure
That Landing we have a soft Landing inside but we’re not quite on the runway yet um and then the next big item that’s going to be in front of us it’s particularly relevant in a country like South Africa but it’s relevant in many other countries around the world is uh
Fiscal policy many countries come out from the pandemic the energy crisis with much higher debt levels and also higher interest rates so the cost of debt is higher and the amount of debt is higher and that is something that is weighing down on public finances uh and countries
Need to rebuild their buffers because having that room uh uh you know in front of them in terms of fiscal space is what allows them to deal with shocks when shocks happen and and there will be shocks that’s the one thing we can be sure of um second uh Beyond monetary and
Fiscal policy making sure that countries Implement reforms that will help uh ignite growth and lift growth around above where it is right now 3.1% is okay but it’s not great historically the world economy has been growing more at a rate of around 3.8% when we look at the average between 2000
And 2019 so 3.1% is significantly lower than that and we have to think about ways in which we can boost uh output growth in uh in in in coming in coming years and finally uh we all see also that we are uh leaving in an increasingly complicated World in terms
Of geopolitical forces that are at play and some of these forces are leading to uh what we call geoeconomic fragmentation separation of the world into different quasi blocks and of course that’s not a recipe for growth and so we need to make sure that we strengthen resilience and and
Multilateral cooperation so that’s kind of the broad over view of the themes we we touch in our report now let me dive in a little bit um and so of show you some some more granular data so here um on this slide I’m showing you you know
When I said that the economy was more resilient on the left you can see the uh growth surprises in 2023 uh the third quarter of 2023 and you can see that most countries are above the 45 degree line meaning that they grew faster than was projected the horizontal AIS is what
We were projecting back in October and many of this uh so the red circles here are emerging market economies and they’re uh sized by their GDP you can see that a number of emerging market economies contributed to that at the same time we’re seeing a Slowdown especially in advanced uh economies when
We look at the G7 and we look at high frequency indicators things like pmis uh purchasing manufacturer index and we look at both in manufacturing or services or we look at nowcast indicators of growth you see on the middle that this is slowing down so the G7 economies are kind of overall uh
Expected to slow down and we see that a little bit in the in the data as well and finally in terms of the geopolitical risks here what you have on the right is uh showing you the uh some indicators high frequency indicators of some of these metrics for geopolitical risk so
You can you look at the geopolitical Risk Index and you see that it spikes uh in uh uh the latter part of last year it was also very elevated in February of 2022 and that’s the time of the Russian invasion of Ukraine uh you can see that
In the blue line the cized cargo index which is an index for shipping cost is also increasing rapidly and that’s related to the disruptions in the Red Sea and the dash the dots there in Gray that’s US economic policy uncertainty and that’s another risk factor that we
Have ahead of us uh 2024 is a it’s a global uh election year uh half more than half the world’s population is going to be going to the voting booth and of course that generates potentially policy uncertainty one of those countries is of course uh the
US now if I zoom in on emerging uh market economies uh what we see there is a is again this theme of resilience we see it in number of Dimensions I’m going to I’m going to highlight a few when we first when we look at uh currencies so
The dollar exchange rate for many emerging market economies you have them on the right side of the first figure uh through uh 20 uh 20 uh um uh 2 2023 and up until now what we have is uh a number of these countries have uh let their currency depreciate against the US
Dollar and this is in a context in which the US dollar uh us monetary policy has been tightening so interest rates in the US have been increasing and of course it’s been attracting Capital flows from uh the rest of the world has been putting depreciating pressure on uh currencies in particular in emerging
Market economies and you can see that sort of the overall amount of depreciation uh varies across countries there is a lot of differentiation but still there is quite a bit of of depreciation against the US Dollar South Africa is to the right there uh it’s about 16% uh depreciation against the uh
Against the US dollar since the beginning of of 2022 uh now when we dig a little bit deeper we did some work in our research department and we tried to unpack the drivers of the movements in the global uh dollar rate against Emerging Market currencies this is the figure on the
Right so this one is sort of seen from the dollar perspective so up is an appreciation of the dollar um you what you can see is a big part of the drivers of the the dollar the global dollar here is really us monetary policy that’s the
That’s the green bars in fact um Global risk in red has been relatively muted or has been in fact going in the other direction so the financial markets have not been uh taking on huge risk Premier on on on Emerging Markets as a whole and that’s
Not being a driver of the of the depreciation of the the currencies against the dollar it’s mostly a consequence of what’s happening with uh us monetary policy and so when we look at the If instead of looking at the prices now and let me look at the
Quantities if I look at the capital flows themselves that’s a figure on the left um we see um a lot of differentiation across emerging market economies but the big uh first order um lesson here is that Capital didn’t leave emerging market economies on mass we didn’t have any sudden stop we didn’t
Have any major crisis in emerging market economies despite a 500 basis point increase in policy rates in in the US and if you had asked me back in uh the end of 20 uh uh 2021 beginning of 2022 before the US started increasing interest ratees if you had asked me
Based on my you know years of working in that in international macroeconomics and finance and looking at what happened historically if you’d ask me look the US is about to increase interest rates by 500 basis points what do you think will happen in emerging market economies and
I would have said well it’s going to be incredibly complicated it’s going to be there’s going to be massive depreciation there going to be currency crisis they’re going to be sudden stops they’re going to be contagion it could really be very very bad and this has not happened
Emerging market economies have been very resilient in fact many of them continue to experience Capital inflows you see the cumulative flows here on the left uh whether you look at emerging Europe you look at Latin America uh you look at uh Africa they sort of increased a little
Bit but then tapered off um you haven’t had major Capital outflows except flows out of China and that could also be reflecting other forces than just interest rates moving it could also be reflecting some of this geoeconomic fragmentation now why is that well the figure on the right provides uh the
Beginning of an answer it’s not a complete answer there are a number of forces it’s not we don’t have a single explanation for what’s going on here but what we are seeing when we look at emerging market economies is we’ve seen a number of them that have improved
Their monetary policy framework so the quality of the monetary policy they are implementing and the institutions around the central bank and uh the Frameworks for monetary policy and also improve their fiscal policy framework so this in blue you have the uh some indicators of the monetary policy framework in red you
Have the fiscal uh Frameworks and you see that most countries are to the right of the 45 degree line so they’re improved in 2021 compared to 2007 and to us this suggest that these improved Frameworks allowed emerging market economies to be much more resilient in
The face of what was for many of them a very large external uh shock now uh when we look at monetary policy if we look uh uh more specifically at monetary policy one of the ways in which this uh improved monetary policy framework manifested themselves is in fact many emerging market economies
Started raising interest rates uh very quickly and aggressively uh when inflation started surging even before advanced economies started raising interest trade before the Federal Reserve before the European Central Bank and you can see that on the on on the left the left is showing you sort of the
Number of rate hikes in emerging market economies uh um that’s the dark uh colors and uh uh in uh in um um in U advanced economies that’s sort of the light colors you see that the the dark uh uh if uh don’t know if I have a yeah
If you look at here sort of already in the beginning in 2021 before the end of 2021 you had a number of emerging market economies starting to increase rates the advanced economies were not doing anything and then they continued increasing rates until you know the
Middle of uh uh 2022 and last part of 2022 and that really this very strong response of their uh central banks allowed them also to have uh to be more resilient in terms of capital outflows it also implied that inflation Dynamics turned the corner faster in in emerging
Market economies you can see that on the right headline inflation starting turning down faster in many emerging market economies than in advanced economies and they found themselves in a position to start easing uh uh monetary policy earlier than uh than advanced economies Central Bank so they were very
Much on the ball they were they were irresponsive to what was happening on to inflation and they were able to do so and they were able in the process to let their exchange rate also also adjust and that flexibility was really very important um now I’m um mentioned that Capital has continued
Flowing there hasn’t been a sudden stop we haven’t had a major crisis but of course it doesn’t mean that there aren’t vulnerabilities and uh when we look at the vulnerabilities we we can have here um one of the things we see is the capital flows that are going uh to
Emerging market economies but also other parts of the world increasingly are passive flows things like ETF exchange traded funds they are not actively managed flows and and um you can see on the left that the the share of ETFs in in all investment funds that’s the black
Line has been increasing from you know a little bit more than 14% is now close to 20% it’s been increasing pretty rapidly now what is the problem with that well we also know that um passive funds uh passive flows are much more responsive to Global risk so if there is a spike I
Told you that so far Global risk has not been part of the picture well if there is a sudden increase in Global risk then it’s likely that these passive flows are going to be much more responsive and could be pulling out much more rapidly and you see in the middle estimates that
We’ve done of the responsiveness of passive flows Bond and Equity flows um to a change in global risk here measured by the VIX Index uh and it’s much much higher for this uh uh this exchange traded funds than it is for actively managed funds um when we do scenario
Analysis this is something we do in the in in the research department where we put out a projections we have a b Baseline projection but then we look at a number of scenarios and we model them and try to figure out what would happen if they were to uh uh materialize one of
The one of the uh uh scenarios I’m showing you two of them here one on the right is if we have indeed tighter Financial conditions in emerging market economies what would be the impact on global growth but also what would be the impact on emerging market economies
Growth uh at the Horizon of 2025 the blue bar is is showing you what happens if you have a a a stronger slowdown in China if China’s uh property sector problems become worse uh of course we’re all hoping that they get better but what if they become worse and what are the
Spillovers to other uh economies in both cases there is some impact on the on the world economy but really the important point is the green diamonds there the impact on Emerging Markets is much larger than is on advanced economies so these economies remain remain vulnerable um now this is looking at the
Flows but now let me look a little bit at the uh um also at the financial conditions more specifically and at the long-term rates um what we’ve seen in uh in uh especially in advanced economies when we look at Financial condition indicators is of course they’ve tighten
Somewhat uh between 2021 and 2023 and that’s just a result of central banks tightening policy rates but they’ve also been very volatile and they’ve been seawing and the way you can see the seawing and you you’ve seen how the markets for instance especially in the US started expecting the Federal Reserve
To cut interest rate very soon so there’s a lot of discussion about when will they start cutting and the market seems to convince itself that they will start cutting very very soon so they get very optimistic and then Financial conditions ease Market valuations increase long-term interest Tres
Decrease and so it it sort of eases the overall stress and financial conditions and we’ve seen this sort of seawing many many times in the last year year and a half the last cycle was you know from October of 2023 to now uh in October 2023 tenure rates in the US were about
5% there was a lot of concern about long-term rates and then all of a sudden mid December the FED announced that it might be thinking about starting easing rates and then the market got OV excited about how quickly they would do that and then Financial conditions eased you can
See some of this sewing in the in the blue line there um so some of these uh changes in financial conditions they could have implications for Emerging Markets now if you step back a bit and if you look at the long-term rates it’s definitely the case that they’ve been
Going up and so financing conditions have been tightening in in in many parts of the world and especially so in uh emerging market economies you can see that in the middle chart here the G20 emerging markets in South Africa is the country on the right here uh you compare
The real rates in October 2019 to 2023 and they’ve gone from about 4% to close to 7% for South Africa that’s a general movement upwards as central banks have been uh tightening policy rates so that’s certainly something that is uh uh making that Dynamics much less stable
And something that is a concern for uh uh for the future it’s a particular concern for low-income countries and when you look at low-income countries this is what you have on the right here what we’re seeing is that the increased pressure on borrowing cost basically means that these countries have been
Priced out of private funding uh and and instead what we’re saying now is most of the funding that is coming to these count is is official funding and there’s not so much coming in terms of in terms of private funding and that is increasing the risk of the rollover risk
For some of these countries that need to basically go back to the market and refinance uh some of their debt I mentioned as a policy challenge uh now that inflation is coming down but interest rates remain high and and that have increased uh the some of the fiscal
Policy that needs to be implemented and just to illustrate this uh this point here on this slide I want to talk about the need to rebuild fiscal buffers so on the left what I’m showing you is the path of uh General government uh gross debt as a fraction of GDP for advanced
Economies emerging market economies and low-income and developing countries and the three lines and the dash line is showing you what we had uh in our earlier uh projection exercise and and you can see uh back as of 2019 I believe and and what you can see here is the
Really sharp increase in debt that happened during the pandemic and the energy crisis uh especially so for advanced economies and that’s one of the benefits of having fiscal space if you have more fiscal space you can do more to protect households and and and and businesses when a shock of that
Magnitude happens emerging market economies low-income countries you see the increase at the time of the pandemic was much slower much smaller why well because they didn’t have as much room to increase it in the first place even though their debt levels were lower but their debt levels are constrained by
Their capacity to repay um and so we’ve seen but we’ve seen in all three groups of countries we’ve seen this uptick in debt to GDP some of it came down after that that’s in part the surge in inflation at least as long as it’s not anticipated is going to erode the real
Value of the debt but that’s that’s kind of a oneoff thing you that’s cannot be repeated and then after that you see sort of the debt drifting up and that’s the concern that we are uh we have as at the fund is we’re looking at these pictures and the the
Right side here is projections this is you know our estimates based on what government have announced in terms of their fiscal plans and we see this debt to GDP drifting up and for many countries maybe getting into a relatively dangerous Zone where uh they would be more vulnerable to a sudden
Increase in in in funding cost the middle uh chart is showing you not the stocks of that but the structural balance so the deficits the structural component of the of the deficits and here again we see that they uh you know they increase the negative numbers here
This is the size of the deficit so the deficit increased during the during the pandemic and the energy crisis and there’s been some correction but not all the way towards you know consolidating uh the uh uh the debt Dynamics and this is why we still have
This path sort of increasing on the left and on the right we did some exercise where we try to figure out what countries have announced they will be doing those are the sort of the red diamonds compared to what they need to do if they want to stabilize their debt
To GDP uh at the uh um at the level of that they will achieve by 2028 and you see that many countries including South Africa here are below what would be necessary in terms of uh uh the primary balances I want to sort of take a a longer perspective here and look not
Just at monetary policy and fiscal policy for the near term but I also want to think about the medium and longer term and here one of the concern we have at the fund is we’ve seen a medium-term growth decreasing it’s been decreasing for advanced economies it’s been decreasing for emerging market
Economies it’s been decreasing for the world as a result this is what you see on the left this is sort of the 5ye out projections growth rates have been coming down from a little bit more than four for the world to about 3.5 and they’ve been coming down both for
Advanced and emerging market economies but they’ve been coming down faster for emerging market economies now now what does that imply what it implies that the rate at which emerging market economies are catching up to the advanced world is slowing down it’s going to take if if these growth rates
Materialize and they’ve started already it’s going to take much longer for emerging market economies to catch up to the advanced economies uh standards of living and of course that’s a that’s a a serious problem so this convergence is is is expected to slow that’s a that’s a
Serious concern uh for us and and that is something that leads us to want to think about what are the factors behind uh this slowdown in in growth especially in emerging market and developing economies and what we do in if you if you do a growth decomposition if you
Sort of try to unpack what is behind this medium-term growth in terms of accumulation of factors capital accumulation accumulation of human capital uh and and and versus U productivity growth what we are seeing is quite a bit of it is coming it’s coming from a little bit all of the
Different factors but it significant chunk is coming from a decline in productivity the the line the bar that says tfp total Factor productivity here is contributing quite a bit to this decline in growth rate in emerging market and developing economies so there isn’t as much incorporation of new
Technologies into the the way uh inputs are being combined in order to sustain growth and that’s that’s a concern um one of the work we’ve done at the fund trying to unpack that a little bit further is to identify reforms that could be helpful in trying to lift
Growth and the way we’ve been thinking about this is there are sort of you know Bedrock reforms so we’d call them first generation reforms things like governance or business regulation or external sector reforms that are really necessary and there are sort of the the foundation layer upon which other
Reforms can really have a much higher much larger impact uh and I’m showing you here on the right the impact of credit reforms so if you uh facilitate access to credit if you uh uh um open up credit markets but you’ve already put in place these first generation reforms
That’s the solid red line you have a much bigger impact on your economy uh you have a 4% higher uh output compared to the dash line which says well if you haven’t done this Foundation layer of reforms in the first place so there is something there that is arguing the
Sequencing matters you want to start with the foundational layer of reforms the first generation reforms and then your second generation reforms are going to have a much bigger bang for the buck now of course I mentioned as’s a medium-term upside risk uh artificial intelligence uh and that’s something
That we’ve done quite a bit of work on at the fund recently and we’re going to do some more we just released a staff discussion note uh uh in the middle of this month uh that was looking at the labor market impact of uh artificial intelligence and really here the
Progress and at least on the technological side is is astonishing uh you know 10 years ago there was no machine that could perform some of the basic tasks that a human could perform whether you’re thinking about handwriting recognition language understanding image recognition or uh taking the GRE math test
Uh and uh but if you look at the slope for each of these Line This is the progress that’s been accomplished the zero line here is sort of the uh Human Performance as a benchmark and now many uh uh in many of these different tasks machines are performing at a level that
Is higher and sometimes much higher than the average human performance so progress has been has been enormous and there’s uh a lot of um both excitement and anxiety about how this is going to reshape our economies the work we did at the fund was was looking specifically at
How it might Impact labor markets and one of the uh uh one of the uh findings that we have is that it’s going to Impact labor markets uh there are number of occupations that are going to be are exposed to AI uh but some of these occupations are exposed to a high some
Of them will be enhanced by artificial intelligence it will make those occupations more productive and some of them are going to be um you know they’re going to be competed Away by AI they’re going to be come it’s going to be harder for these occupations to compete with
Some of these algorithms or or or um uh uh artificial intelligence products and so we uh look both at overall exposure and within that exposure we look at those that are likely to be substituted away from uh by Ai and those that are likely to be uh complemented by by Ai
And what we found is overall that um there’s a a very sharp gradient when you look at advanced economies emerging market economies low-income countries advanced economies are much more exposed so there are much higher share of jobs about 60% of jobs are exposed to AI uh emerging market economies it’s like the
World average around 40% and low-income countries around 26% so low-income countries are not very exposed yet uh emerging market economies are less than 50% of the jobs are exposed and exposure is higher than 50% about 60% for advanced economies but then within each of these groups the uh share that can be
Enhanced by artificial intelligence versus it can be uh you know adversely affected is about 50/50 uh so the picture that emerges is there could be potentially a lot of uh reshuffling and a lot of Transformations happening in labor markets especially in advanced economies and as you go down
And look at emerging market economies and and low-income countries are maybe a little bit more protected but also that means that they’re not necessarily going to get as much of the benefits of artificial intelligence um on this slide here in the middle I’m showing you one
Of the countries we looked at is South Africa we are you know we had Micro Data for a number of countries and and we also can look at the exposure between what I call this low complimentarity these are uh uh the jobs that are going to be adversely affected by AI that
Going to be substituted away and the high complimentarity uh and uh and you can see that um there is an interesting also gender component here that women tend to be more in jobs that potentially are exposed uh because there are some of the clerical jobs that the type of
Things where artificial intelligence can also make inroads and finally on the right we look also across countries at the uh degree of preparedness for AI adoption and that varies a lot and here we look at indicators that include um you know what happens in labor markets
In terms of training of the of the labor force uh we look at the digital infrastructure in order to adopt AI you need to have a digital infrastructure that is ready and that is uh that is uh uh performing well we look at the Innovation sector that can also be
Helpful in terms of promoting some of these new technologies and adapting them to the situation in different countries and then also at the ethical environment in terms of what will be allowed what AI will be allowed to do and it will not be allowed to do and what you can see here
Is we get uh um low-income countries and emerging market economies are sort of less exposed but are also less prepared uh when we combine all of these all these factors and so our recommendation is for uh uh emerging market economies to also work on their digital infrastructure on training their their
Labor force so they can benefit as as best as they can from from this um final slide and I will stop there is one of the theme I’ve already mentioned is geoeconomic fragmentation and here this is something that is is sort of unraveling at slow speed it’s not something that is necessarily happening
In front of our eyes uh in a way that is noticeable but it’s more of a trend that is going on and and that trend is already having some noticeable effects on the global economy so what I’m showing you on the left is the result of
An exercise where we we uh put countries in different groups now this is for the purpose of the exercise and so we put countries on in different uh in different quote unquote blocks and we look at the extent to which trade within blocks has been changing versus trade
Between blocks and we look at overall trade and then we look also at trade in strategic sectors things like Advanced chips and uh um uh things like that or trade in low carbon technology which is relevant for us because this is necessary if we want to think about the
Climate transition it’s very important that countries get access to low carbon technology products so that they can Implement uh a green transition and what you see from this graph very clearly you don’t need to do fancy econometrics here you can look at this graph and what you
See is the trade between these blocks has been decreasing sharply compared to trade within blocks uh and that’s a sign of this growing geoeconomic fragmentation that we’re seeing if you you have more or less the same thing when you look at foreign direct investment that’s the middle chart uh
Where we have less direct investment between blocks there’s a little bit of a decline also within blocks but here there’s an interesting twist if you have a third category of countries which let’s call them non-aligned so they’re not in one block or the other they seem to be beneficiaries of uh that
Reorientation of trade and financial flows you see a surge in in direct investment um and because these countries become more pivotal in in sort of intermediating trade and financial flows um and that relocation risk is particular when we look at FDI is is very relevant in many emerging market
Economies it’s much more so than in advanced economies um and it’s particularly relevant as well in in subaran Africa