Nepali middle class and their expenditure

Middle Class and Expenditure in Nepal
HH Survey 2004/05 (means, 2005 PPP$) – per day	% of population	Total population (million)	Annual expenditure (billion)
$2-$4	16.74	4.45	4.32
$4-$10	5.3	1.41	2.91
$10-$20	0.85	0.23	1.09
Total	22.89	6.09	8.32
$20 plus	0.38	0.1	2.4
Middle class is defined as those earning between $2 and $20 (2005 PPP$)
Source: ADB 2010, p.46

The latest ADB’s report (Key Indicators for Asia and the Pacific 2010) states that total annual expenditure of middle class (defined as having income between $2 and $20 per day at 2005 PPP$-- whose number is 6.09 million) is around US$8.32 billion. This is approximately 27 percent of total value of goods and services produced in the country (i.e. gross domestic product -- GDP). In Nepal, total consumption level is above 90% of GDP. Private consumption is close to 80% of GDP. The data are derived from household survey done in 2004/05. The figures should have increased substantially as remittances has increased drastically since five years back. I wonder how someone earning $2 a day falls under middle class. These people are hardly above the global poverty line. The authors of the report might have taken the lower bound of middle class projections/definitions in literature. But, this does not give the true economic strength and potential of the middle class. Anyway, the above figures give an indication of a rough estimate of the market strength of Nepali middle class.

China in 2011

Gordon Orr, a director in McKinsey’s Shanghai office, predicts what might happen in Chinese economy this year:

• Inflation in food prices will take longer than expected to control.
• Middle-class bankruptcies will expand dramatically.
• Minimum wages will rise, but productivity gains will outstrip labor costs.
• China’s economic growth will be lower than expected.
• China will step up its “invest out” program in the new five-year plan.
• The state will again try to reduce its ownership role in business.

Global trade so far (2008-2010)

After the sudden drop in global trade in 2009, here are the major developments in global trade:

• World export volumes have regained pre-crisis levels (August 2008). As of October 2010 export volumes was 0.8 percent higher than their August 2008 levels. Although pre-crisis levels have been surpassed they remain below their pre-crisis peaks and about 13.6 percent lower than what might have been expected had the crisis not occurred.
• The recovery in trade is more advanced among developing countries than in high-income countries. By September 2010, high-income countries export volumes were still some 2 percent below their pre-crisis levels, whereas developing countries were 16 percent above their pre-crisis level by November 2010.
• Developing countries imports drove the rebound.Three quarters of the increase in high-income country exports during the first half of 2010 was sold to developing country importers, and overall developing country imports accounted for 58 percent of the increase in global exports during that period.
• Much of that import demand was in the form of capital goods, a sector of global activity still dominated by high-income countries. Exports of consumer non-durables fell 20 percent during the crisis, durables and machinery, transportation as well as minerals fell 30 percent. As a result, much of the recovery in trade was in these same categories.
• Low-income countries benefitted from the rebound in commodity prices.The increase in the demand for capital goods and durable consumer goods has also led to the recovery in demand for inputs that feed these markets including industrial metals. Partly as a result, industrial metal dependent economies  experienced a surge in export revenues.
• Global trade in services, which proved more resilient to the crisis than merchandise trade, is also on the recovery path. After services exports declined by 6 percent in 2009, it increased by 8.4 percent in the first ten months of 2010, with passenger fares and other travel services leading the way.
• Tourism services, which remains critical for many developing countries also rebounded in 2010.The World Tourism Organization estimates tourist arrivals to have grown by 4 percent in 2010.
• Global imbalances have declined substantially and are expected to continue falling. The increase in public sector and consumer spending in China as well as the increase in household savings rate in the United States in 2010 supported this reduction in global imbalances.
• The bounce-back phase of the trade recovery has ended. Many of the factors that helped drive the trade rebound were temporary in nature (e.g. inventory re-stocking, restarting of trade-finance, declines in crisis-induced precautionary savings, and the growth impact of government stimuli packages). As these factors faded, global trade decelerated. Thus after growing at a 21.1 percent annualized rate in the first half, global exports decelerated sharply, declining at an annualized pace of 1.65% in the third quarter of 2010.
• Global trade growth still remains below its pre-crisis trend. The long-term average annual growth in global trade volumes during the pre-crisis period (1991-2008) was 7.0 percent. Thus the sharp downward adjustment in global trade growth that occurred in the third quarter points to the fact that global trade growth, post-the bounce back phase, is well below the long-term trend and had not yet stabilized at a new equilibrium by September.
• Several factors suggest the pace of recovery will pick-up. The most recent trade data for instance points to a slowdown in the pace of deceleration. In October, the pace of deceleration in global trade volumes had moderated to -2.8 percent from the -4.8 percent that occurred in September. Indeed, industrial production after registering a similarly sharp deceleration is now accelerating once again in the fourth quarter. Moreover, demand-side indicators show continued positive growth, and in high-income countries there is reason to believe that the recovery is becoming more broadly based—involving more countries and more segments of aggregate expenditure.
• As a consequence of the increasing importance of developing countries in global trade, significant changes to trading partners could occur over the forecast horizon.
• South-South trade is also growing. Just as developing countries are becoming increasingly important markets for high-income exporters, so to are other developing countries becoming more important destinations for the exports of developing countries. China, in particular has become an increasingly important export market for all developing regions.
• The growing importance of developing countries in global trade has implications for the structure of global trade. Because demand patterns in developing countries are different than in high-income countries, their growing share in global imports is shaping the product structure of global trade. Rapidly industrializing developing countries demand proportionately more industrial raw materials, energy and food products, as opposed to manufactured consumer goods and non-tradable services. Hence with the growing importance of developing countries as an engine of growth, this is likely to sustain the high increases in commodity prices that occurred in 2010 over the forecast horizon.
• Although progress has been limited, concluding the Doha process remains critical to maximizing the potential benefit to developing countries from trade openness.The continued proliferation of bilateral and regional trade agreements only partly compensates for the lack of multilateral progress and has eroded the preferential margins of many low-income countries. A multilateral deal that takes into account the supply-side constraints in low-income economies, and therefore allows for greater transition periods and better market access opportunities for agricultural goods as well as processed commodities would be more development friendly than the current system. Nevertheless, some of the largest barriers to trading developing country goods and services are imposed by other developing countries. Removal of these barriers could reap significant benefits, spurring an even faster expansion of South-South trade.

Foreign Aid in Nepal–Donors & Amount

Foreign Aid in Nepal (total, million, current US$)
BA, OA, and ODA	1960-2008	1992-1999	2000-2008
Net bilateral flows	7582	2002	3116
Net ODA and Official Aid received	11732	3205	4289
Net ODA per capita (current US$)	561	147	160
GDP	159823	34859	70847
Net bilateral flows (% of GDP)	4.74	5.74	4.40
Net ODA (% of GDP)	7.34	9.19	6.05

Top bilateral donors (1960-2008):

• Japan has been the largest bilateral donor so far (1960-2008): US$ 2059 million
• Followed by the UK (1960-2008): US$ 1033 million
• Followed by Germany and the US (1960-2008): US$ 974 million and US$ 940 million
• Other top donors are European nations; the Scandinavian countries are very generous
• In this decade (2000-2008), top donors have jacked up bilateral assistance.

Average annual bilateral flows have been increasing. On average (annual), it was US$ 346 million between 2000 and 2008. The average annual net ODA flows during the same period was US$ 477 million.

Net ODA per capita (current US$) has been US$ 561 between 1960 and 2008, and US$ 147 over 1992-1999, and US$ 160 over 2000-2008.

• Net bilateral flows between 1990 and 2008 have been 4.74 % of GDP.
• Net bilateral flows between 2000 and 2008 have been 4.40 % of GDP.
• Net ODA between 2000 and 2008 have been 6.05 % of GDP.

Question: What has been the impact of this much of assistance so far on economic growth, enhancement of livelihoods, industrial development, poverty reduction, health, education, migration, conflict, governance, inclusion, and the slew sectors with development interventions? My earlier views on donors’ development strategy paper here, and a critical look at the aid industry in Nepal here. Fyi, the data is sourced from WDI website.

UNTCAD’s forecast: Developing countries to expand faster than developed countries in 2011 & 2012

The UN forecasts that the world economy will expand by 3.1 percent in 2011 and 3.5 percent in 2012 – far from sufficient to enable recovering the jobs lost because of the crisis. Consistent with other projections, UNTCAD notes that developing countries will continue to drive the global recovery. Their output growth will moderate to 6.0 percent during 2011-2012, down from 7.0 percent in 2010, because of the slowdown in the advanced countries and phasing out of stimulus measures. Developing Asia, led by China and India, continues to show the strongest growth performance, but some moderation (to around 7 percent) is expected in 2011 and 2012.

The recovery may suffer further setbacks if some of the downside risks materialize, in which case a double-dip recession is looming for Europe, Japan and the United States. WESP 2011 argues that in the short run more fiscal stimulus will be needed to reinvigorate the recovery, but that it will need to be better coordinated with monetary policies and reoriented to provide stronger support to employment generation and facilitate a sustainable rebalancing of the global economy. This cannot be done without better international policy coordination.

The recently released WB’s forecast is a bit optimistic than the UNCTAD’s forecasts in World Economic Situation and Prospects 2011 (WESP). But, both reports have the same forecasts for developing countries as a whole. According to the WB’s latest Global Economic Prospects 2011, global GDP (measured at 2005 market prices and exchange rates), which expanded by 3.9% in 2010, will slow to 3.3% in 2011, before it reaches 3.6% in 2012. Developing countries are expected to grow 7% in 2010, 6% in 2011 and 6.1% in 2012. They will continue to outstrip growth in high-income countries, which is projected at 2.8% in 2010, 2.4% in 2011 and 2.7% in 2012. The WB’s report notes that strong developing country domestic demand is leading the world economy but persistent financial sector problems in some high-income countries might threaten growth.

Here is UNTCAD’s forecasts:

Annual percentage change
Growth of world output, 2006–2012								Change from United Nations forecast of June 20 10c
	2006	2007	2008	2009	2010a	2011b	2012b	2010	2011
World outputd	4.0	3.9	1.6	-2.0	3.6	3.1	3.5	0.6	-0.1
of which:
Developed economies	2.8	2.5	0.1	-3.5	2.3	1.9	2.3	0.4	-0.2
Euro zone	3.0	2.8	0.5	-4.1	1.6	1.3	1.7	0.7	-0.2
Japan	2.0	2.4	-1.2	-5.2	2.7	1.1	1.4	1.4	-0.2
United Kingdom	2.8	2.7	-0.1	-4.9	1.8	2.1	2.6	0.7	-0.2
United States	2.7	1.9	0.0	-2.6	2.6	2.2	2.8	-0.3	-0.3
Economies in transition	8.3	8.6	5.2	-6.7	3.8	4.0	4.2	-0.1	0.6
Russian Federation	8.2	8.5	5.2	-7.9	3.9	3.7	3.9	-0.4	0.7
Developing economies	7.3	7.6	5.4	2.4	7.1	6.0	6.1	1.2	0.2
Africa	5.9	6.1	5.0	2.3	4.7	5.0	5.1	0.0	-0.3
Nigeria	6.2	7.0	6.0	7.0	7.1	6.5	5.8	0.6	-0.5
South Africa	5.6	5.5	3.7	-1.8	2.6	3.2	3.2	-0.1	-0.3
East and South Asia	8.6	9.3	6.2	5.1	8.4	7.1	7.3	1.3	0.2
China	11.6	13.0	9.6	9.1	10.1	8.9	9.0	0.9	0.1
India	9.6	9.4	7.5	6.7	8.4	8.2	8.4	0.5	0.1
Western Asia	6.1	5.1	4.4	-1.0	5.5	4.7	4.4	1.3	0.6
Israel	5.7	5.4	4.2	0.8	4.0	3.5	3.0	1.1	0.4
Turkey	6.9	4.7	0.7	-4.7	7.4	4.6	5.0	3.9	1.3
Latin America and the Caribbean	5.6	5.6	4.0	-2.1	5.6	4.1	4.3	1.6	0.2
Brazil	4.0	6.1	5.1	-0.2	7.6	4.5	5.2	1.8	-1.1
Mexico	4.9	3.3	1.5	-6.5	5.0	3.4	3.5	1.5	0.6
of which:
Least developed countries	7.6	8.1	6.7	4.0	5.2	5.5	5.7	-0.4	-0.1
Memorandum items:
World tradee	9.3	7.2	2.7	-11.4	10.5	6.6	6.5	..	..
World output growth with PPP-based weights	5.1	5.2	2.7	-0.8	4.5	4.0	4.4	0.6	0.0

• Source: UN/DESA.
• ^a Partly estimated.
• ^b Forecasts, based in part on Project LINK and baseline projections of the United Nations World Economic Forecasting Model.
• ^c See World economic situation and prospects as of mid-2010 (E/2010/73), available from http://www.un.org/esa/policy/wess/wesp2010files/ wesp1 0update.pdf.
• ^d Calculated as a weighted average of individual country growth rates of gross domestic product (GDP), where weights are based on GDP in 2005 prices and exchange rates.
• ^e Includes trade in goods and non-factor services. Previous WESP reports reported growth of merchandise trade only.

The report notes that between 2007 and the end of 2009, at least 30 million jobs were lost worldwide as a result of the global financial crisis. As more governments embark on fiscal austerity, the prospects for a fast recovery of employment look even gloomier. Worldwide, unemployment and underemployment rates are very high among young people (aged 15 to 24). At the end of 2009, with an estimated 81 million unemployed young people, the global youth unemployment rate stood at 13.0 percent -- a 0.9 percentage point increase from 2008. The global economy still needs to create at least another 22 million new jobs in order to return to the pre-crisis level of global employment. At the current speed of the recovery, this would take at least five years to achieve.

Five challenges for sustainable recovery:

• Provide additional fiscal stimulus, by using the ample fiscal space that, according to WESP 2011, is still available in many countries.
• Redesign fiscal stimulus and other economic policies to lend a stronger orientation towards measures that directly support job growth, reduce income inequality and strengthen sustainable production capacity on the supply side.
• Find greater synergy between fiscal and monetary stimulus, while counteracting damaging international spillover effects in the form of increased currency tensions and volatile short-term capital flows.
• Ensure that sufficient and stable development finance is made available for developing countries with limited fiscal space and large developmental deficits, including resources for achieving the Millennium Development Goals and investing in sustainable and resilient growth.
• Find ways to come to credible and effective policy coordination among major economies.