Recent financial developments from an Emerging Market Economy perspective. Joaquín Vial Deputy Governor, Central Bank of Chile

Transcription

1 Recent financial developments from an Emerging Market Economy perspective Joaquín Vial Deputy Governor, Central Bank of Chile Central Bank of Chile, May 218

2 International scenario

3 We have seen a consolidation of a higher global growth Global growth projections (year on year, percent),, 3,8 Dec.17 Dic.17 Mar.18 3,8 3,6 3, Jun.17 Sep.17 3,6 3, 3,2 3, Mar.17 3,2 3, 2, (e) 218 (f) 219 (f) 22 (f) 2,8 (e) Estimaction. (f) Projection. Source: Central Bank of Chile 3

4 Commodity prices have recovered from the 216 lows Commodity prices (US$/b; US$/lbs) oil (*) Copper (right axis) (*) Brent and WTI average Sources: Bloomberg and Cochilco

5 Local economy developments

6 Terms of trade are more positive than previously expected IPoM Jun.17 IPoM Sep.17 IPoM Dec.17 IPoM Mar.18 Terms of trade (index 213=1) (*) Moving average of two quarters. Source: Central Bank of Chile 6

7 Exports had recovered, in line with better external conditions 2 Goods export volume(*) (year on year, percent) Industry Mining Total (*) Moving average of two quarters. Source: Central Bank of Chile 7

8 In spite of recent turmoil in financial markets, long-term rates remain low Nominal 1 year rate (percent) Source: Central Bank of Chile 8

9 The investment cycle, led by the large and prolonged adjustment in mining investment is turning the corner Gross fixed capital formation (*) (percent) Mining Rest Non Mining Housing (*) For 217 the mining investment is estimated using information from the FECUS. Housing investment includes information of households from National Accounts Statistics. The rest of the gross fixed capital formation in treated residually. The projections for 218 and 219 is formed by Central Bank internal models and sectorial sources. Source: Central Bank of Chile 9

10 All in all, the baseline scenario projects a higher growth range for this year and a rate beyond the potential for 219 and 22 Growth range projections (year on year, percent) IPoM Dec.217 Source: Central Bank of Chile. 1

11 Factors behind the recent financial turmoil

12 Sustained growth and rising inflation in the US calls for monetary policy normalization there United States: Output gap (percent of GDP) United States: Inflation (year on year, percent) Current IPC CPI PCE Meta actual target Source: WEO Source: Bloomberg 12

13 But a strong pro- cyclical fiscal expansion and rising oil prices make the process more hazardous United States: Fiscal Balance (percent of GDP) United States: Fiscal Debt (percent of GDP) CBO Apr.18 Abr CBO Jun.17 CBO Abr.18 Apr CBO Jun Source: CBO Source: CBO 13

14 The markets are adjusting expectations and are pricing-in a faster and stronger monetary tightening, especially in the US Monetary policy rate expectation(*) (to december of each year, percent) 3 2 Fedfund 16-may-18 1-dic-17 Libor 1-mar-18 Euribor Source: Bloomberg. 1

15 Recently (last 3 weeks) we have seen a sell-off in emerging markets Nominal Exchange (1)(2) (percent) Turquía Brasil Rusia Suecia Hungría Polonia México N. Zelanda Sudáfrica India Reino Unido Zona Euro Dinamarca Japón Chile Indonesia Australia Singapur Rep. Corea China Perú Colombia EE.UU. (3) Canadá Brasil Indonesia Hungría Perú Canadá India Italia Singapur EE.UU. México Grecia Australia España Portugal Rep. Corea Zona Euro Reino Unido Japón Suecia N.Zelanda Chile Polonia China Colombia 1 year rate(1) (percent) Stock exchange (1) (percent) Reino Unido Colombia Japón Alemania Portugal España Zona Euro Italia Chile Canadá Australia Brasil Perú N.Zelanda Rep. Corea EE.UU. India Malasia Polonia Hungría México Grecia China Indonesia CDS spread 5 years (1) (bps) Brasil Indonesia Grecia Italia Polonia España Hungría Japón Portugal México Chile Alemania Reino Unido Perú Colombia Australia N.Zelanda EE.UU. China Rep. Corea (1) Green bars denote emerging economies, oranges Latam countries and blue developed economies. Bold bars indicates the variation between the 2/3/218 and 16/5/218. The empty bars denote the changes between the minimum and maximum within the period. (2) An increase indicates depreciation. (3) Refers to the multilateral exchange rate. Source: Bloomberg and Central Bank of Chile 15

16 How well prepared are we?

17 Comparing with 27, lower inflation and the output gap gives more room for maneuver to monetary policy. Fiscal position remains strong, but not so much as in Inflation deviation from target (percent) Non mining output gap 1. (percent) Gross Central Government Debt (percent of GDP) General government savings (percent of GDP) Source: Central Bank of Chile 17

18 Debts (firms and households) are higher than in the past. There are not large mismatches and the amount do not seem excessive. Domestic Savings rates are lower Non financial corporate debt (percent of GDP) Households debt (percent of disposable income) Current Account (percent of GDP) Trend prices Current prices Domestic savings rate (percent of GDP) Government Rest Source: Central Bank of Chile 18

19 Even though debts are higher, the main sources of funding are domestic due to the large share of Institutional Investors Chile: sovereign debt investors (billions US$) Foreign Domestic Institutional investors Banks and others Chile: corporate debt by investor (billions US$) Source: Central Bank of Chile Source: Central Bank of Chile 19

20 Final remarks The global outlook remains positive for Emerging Markets in general, and for Chile too. However, there are significant risks for long-term growth: Weakening of multilateral arrangements supporting globalization and trade Technological disruptions have impacted in the social and political climate across the World and especially in the More Advanced countries. Geopolitical climate has become more divisive and locally focused at a time that global issues require more cooperation Rising political & military tensions across the World Recent financial turmoil is part of the reaction to the better short term outlook for growth in the US In Chile most of the impact has been on the exchange rate, the cyclical position of the economy allows us to absorb it without problems. In the event of major adverse shocks, Chile remains strong, but it has less room for counter cyclical policies, especially on the fiscal side. 2

21 Recent financial stability developments from an Emerging Market Economy perspective Joaquín Vial Deputy Governor, Central Bank of Chile Central Bank of Chile, May 218

22 Even though debts are higher, the main sources of funding are domestic due to the large share of Institutional Investors Chile: sovereign debt investor (percent) Chile: corporate debt by investor (percent) Pension and mutual fund Banks and others Foreign Source: Central Bank of Chile Pension Fund Mutual Fund Banks Life insurance companies Others Foreign Source: Central Bank of Chile 22