Update on the Global Crisis: The Worst is Over, Is LAC Poised to Recover?

Transcription

1 Update on the Global Crisis: The Worst is Over, Is LAC Poised to Recover? 5 November 2009 Chief Economist Office Latin America and the Caribbean Region The World Bank 1

2 Structure of Presentation The worst is over for the global economy, but fragilities remain The nature of the incipient recovery How has LAC fared in comparative terms? Recession in LAC and elsewhere Growth collapse in LAC and elsewhere Explaining the differences in growth collapse Looking ahead: haziness in the horizon and challenges for LAC On average, LAC is well positioned to recover but medium-term global environment is clouded by risk & uncertainty LAC-specific opportunities and challenges 2

3 The Worst is Over for the World But Fragilities Remain Part 1

4 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 S&P Indexes VIX The catastrophic scenario was averted Standard & Poor's (Financial and Total Indexes) and VIX Index number Aug = 100 (S&P indexes) Total S&P Pandit's Memo Subprime eruption Financial S&P Bear Stearns VIX (rhs) 15 0 Lehman 0 Source: Bloomberg 4

5 Jan-07 Jan-07 Mar-07 Mar-07 May-07 May-07 Jul-07 Jul-07 Sep-07 Sep-07 Nov-07 Nov-07 Jan-08 Jan-08 Mar-08 Mar-08 May-08 May-08 Jul-08 Jul-08 Sep-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 thanks to bold risk absorption and countercyclical actions by central banks, led by the U.S. Fed 2,500 2,500 2,000 2,000 Other Other Central Central Bank Bank Liquidity Swaps Swaps New New Program Portfolio Loans Loans and and Discounts Including Float Float Term Term Auction Facility Facility (TAF) (TAF) Treasury Securities FED's Balance Sheet --Assets Side Factors Affecting Reserve Balances, US$ Billion US$ 2,259 Billions (16.1% of of GDP) Lehman 1,500 1,500 1,000 1,000 Subprime Eruption US$ US$ Billions Billions (6% (6% of GDP) of GDP) Bear Bear Sterns Pandit's Memo Memo 0 0 Source: Federal Reserve Bank St. Louis 5

6 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 and to substantial injections of fiscal and credit stimuli, including in large EMs, especially China 40% China: Real Private Domestic Credit Annual Variation 35% 30% 25% 20% 15% 10% 5% 0% Source: IFS 6

7 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 The large emerging economies, including Brazil, are leading the world s recovery 130 World Industrial Production Index Jan/2006= Advanced World Emerging The emerging economies with strongest recoveries include Brazil, China, India, Korea, Malaysia, Philippines and Thailand They represent 52% of emerging economies GDP Industrial production for this group increased by 18% from January to June 2009 Source: CPB (Netherlands Bureau for Economic Policy Analysis), Sep

8 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 With surprises on the upside, ST growth forecasts for the center and periphery are being revised upwards 2% Developed Countries: 2009 Real GDP Growth Forecasts Annual Growth Rate 3.0% Developed Countries: 2010 Real GDP Growth Forecasts Annual Growth Rate 0% 2.5% USA -2% -4% USA Euro Zone UK 2.0% 1.5% 1.0% Japan UK Euro Zone -6% Japan 0.5% -8% 0.0% LAC Countries: 2009 Real GDP Growth Forecasts Annual Growth Rate LAC Countries: 2010 Real GDP Growth Forecasts Annual Growth Rate 6% 4% 2% 0% -2% -4% Average Exc. Mexico High Average Low 6% 5% 4% 3% 2% 1% 0% High Average Exc. Mexico Average Low -6% -1% Source: Consensus Forecasts, Jan to Oct

9 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 However, the process of economic repair in rich countries is still incomplete Developed Economies: Manufacturing PMI Seasonally Adjusted Global Eurozone Pandit's Memo Expansion 50 UK Contraction US Subprime eruption Bear Stearns Lehman Japan 25 Manufacturing Purchasing Managers Index: assess business conditions in the manufacturing sector. A number above 50 indicates an expected increase of business conditions (expansion). A number below 50 indicates deterioration. Source: Bloomberg 9

10 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Durable Goods Nondefense US$ Billiion Feb-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 US$ Billiion as the stimuli is most of the story so far behind the incipient recovery, especially in the US Budget Balance of Central Government Accumulated in 12 Months Avg. in 2007: 1.3% of GDP 24% 20% Gross Nominal Public Debt Annual Variation 82% of GDP % % % 67% of GDP % % of GDP 0% 240 Manufacturers' New Orders US$ Billion, Seasonally Adjusted Exports of Goods and Services, BOP Basis Seasonally Adjusted Nondefense exc. Aircraft (rhs) Durable Source: Federal Reserve Bank St. Louis and Economist Intelligence Unit (EIU) 10

11 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Unemployment Rate, in % US$ Billion and fragilities remain in labor markets and in private demand Nonfarm Payrolls and Unemployment Rate Seasonnally Adjusted Nonfarm Payrolls (rhs) Unemployment Rate Private Demand Components US$ Billion, Chained (2005) Government consumption expenditures and gross investment Gross private domestic investment Personal Consumption Expenditures (rhs) Source: Bloomberg and Federal Reserve Bank St. Louis and IFS 11

12 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Consumer Credit Business Credit Mar-03 Dec-03 Sep-04 Jun-05 Mar-06 Dec-06 Sep-07 Jun-08 Mar-09 New Domestic Issues New Syndicated Loans Also, domestic credit to households and firms remains depressed Capital Markets in the US New Capital Raisings, US$ Billion New Domestic Issues (3 Months Moving Avg) New Syndicated Loans (rhs) Private Credit in the US by Banks US$ Billions Seasonally Adjusted Business Consumer Source: Federal Reserve Bank St. Louis 12

13 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 External financial conditions have improved significantly for LAC and other emerging regions Corporate EMBI & U.S. High Yield Bond Spread in basis points Subprime eruption Bear Sterns Lehman ECA High Yield LAC Pandit's Memo 0 EAP Source: Bloomberg US Credit Suisse High Yield Spread, JP Morgan CEMBI Global: Corporate Emerging Markets Bond Index. 13

14 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Wheat, Copper and Soybean, 01-Jan-05=100 Oil WTI, Current US$ And the rebound in commodity prices benefit net exporting countries in the region Commodity Prices Oil WTI in Current US$, Wheat, Copper and Soybean: Index 01-Jan-05= Copper Subprime eruption Bear Stearns Pandit's Memo Wheat About 95% of LAC s GDP and 90% of LAC s population reside in countries that are net commodity exporters Soybean About half the number of countries in LAC are net commodity importers and are mainly located in Central America and the Caribbean 50 Oil (rhs) Lehman 30 Source: Bloomberg 14

15 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Colombia, Venezuela, Ecuador and Mexico Uruguay Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 There is considerable heterogeneity in the pace of recovery across LAC countries 15% 10% 5% 0% Rebounding Industrial Production, YoY, 3 Months Moving Average Argentina Chile Brazil 20% 15% 10% 5% Still Falling Industrial Production, YoY, 3 Months Moving Average Peru -5% 0% -10% -5% -15% -10% -20% -15% 20% 15% Stabilized? Industrial Production, YoY, 3 Months Moving Average Colombia Uruguay 30% 25% 10% 5% 0% -5% Ecuador Mexico Venezuela 20% 15% 10% 5% 0% -10% -5% -15% -10% Source: Economist Intelligence Unit (EIU), GEM and IFS 15

16 How Has LAC Fared in Comparative Terms? Part 2

17 Ant. & Barb. Bahamas St. Lucia Jamaica St. Kts. & Nv. Barbados Grenada Venezuela Ecuador Guatemala Honduras Nicaragua El Salvador Belize Dominica St. Vc. & Grs. Paraguay Costa Rica Argentina Dom. Rep. LAC - Mex Haiti Uruguay Colombia Mexico Bolivia LAC Panama Suriname Guyana Peru Chile Brazil Mexico Ant. & Barb. Grenada Bahamas Jamaica Honduras Paraguay Barbados Argentina Costa Rica St. Lucia Nicaragua LAC El Salvador Ecuador St. Kts. & Nv. Chile Venezuela St. Vc. & Grs. Guatemala LAC - Mex Dom. Rep. Colombia Uruguay Brazil Belize Peru Dominica Panama Suriname Haiti Guyana Bolivia % % 2009 will be a year of recession for LAC (Mexico the hardest hit) but a broad recovery is expected for Real GDP Growth Forecasts for 2009 LAC countries Real GDP Growth Forecasts for 2010 LAC countries Weighted average calculated based on 2008 nominal GDP. Source: Consensus Forecast and IMF Regional Economic Outlook October

18 The 2009 recession in LAC is less pronounced than in other areas of the world 12% 10% Recent Real GDP Growth and Forecasts for Annual GDP Real Growth Rate, % 6% 4% 2% 0% -2% -4% -6% -8% Japan Eastern Europe Western Europe United States Latin America East Asian Tigers China Source: Consensus Forecasts (Oct. 2009) 18

19 Number of Poor People (Millions) But the recession in LAC threatens social gains Actual and Projected Poverty Numbers Projected Counterfactual Between 2002 and 2008, almost 60 million people in LAC moved out of poverty Poverty for LAC is measured at PPP-adjusted US$4 a day. Source: Based on Azevedo, Molina, Rubiano, and Saavedra (2009). 19

20 Argentina Mexico Costa Rica Panama Venezuela Paraguay Honduras Dom. Rep. Peru Colombia Guatemala Uruguay LAC Tri. & Tob. Chile Ant. & Barb. Nicaragua Brazil Jamaica Ecuador Guyana Bolivia Haiti Dominica Belize The growth collapse in LAC is significant on average, but cross-country variation is nontrivial 0% Collapse in Growth Difference in Real GDP Growth between 2007 and % -4% -6% -8% -10% -12% Weighted average calculated based on 2007 nominal GDP. Source: World Bank and IMF. 20

21 2009 Real GDP Growth Forecasts For many LAC countries, the collapse was from relatively high growth rates 12% Real GDP Growth in LAC 2007 and 2009 Forecasts 9% 6% 45 o 3% DOM HAI BOL GUY PAN BRZ ATB URY PER 0% T&T COL DMR GUA CHI VEN ECU NIC CRI -3% PRY ARG JAM HON -6% MEX -9% 0% 3% 6% 9% 12% 2007 Real GDP Growth Source: Consensus Forecast (Oct. 2009), World Bank and IMF 21

22 LAC s growth collapse is no greater than that in rich countries & the Tigers, and much smaller than ECA s 0 Growth Collapses Across the World GDP Growth collapse, in p.p. (diff. between growth in 2007 and 2009) ECA EA Tigers IND LAC China SSA MENA SA Source: World Bank, Consensus Forecasts (Oct. 2009) and IMF. 22

23 Index of Financial Turbulence All things considered, LAC was not hit as hard 2 Real and Financial Consequences of the Crisis 1 0 TUN CHL ECU BRA ISR MYS PER TWN SWE HKG PHL SVN DEU TUR JPN MEX CZE DNK PRT CAN FRA ZAF CHE NZL POL FIN SGP ESPGBRNLD THA USA NOR KOR LUX ITA BEL RUS SER AUT HRV GRC HUN COL MAR JOR IDN OMN AUS EGY IND VNM CHN MON -1 LVA LTU EST ROM BGR KAZ IRL ARG PAK -2 UKR -3-4 ICE Index of Real Turbulence Source: LCRCE Staff calculations. Computed as the "principal factor. Summarizes information of the following variables: (a) 2009.Q3 y-o-y GDP growth, (b) 2009.Q3 y-o-y industrial production, (c) 2009.Q3 y-o-y growth in exports, (d) March 2009 y-o-y % change in stock prices, (e) March 2009 y-o-y % change in the REER, and (f) March 2009 y- o-y % change in the Institutional Investor's country credit risk rating. (a), (b) and (c) for the real index and (d), (e) and (f) for the financial index. 23

24 Explaining cross-country differences in the collapse Regression analysis of the growth collapse from 2007 to 2009 Sample of 126 countries Collapses were larger in countries characterized by Greater trade and financial openness Higher share of manufacturing exports Greater export reliance on US and other rich country markets Weaker banking systems This helps explain contrasts in the collapse Brazil-Mexico; LAC-Eastern Europe; LAC-East Asian Tigers Better macro-financial policies in LAC no systemic damage They helped dampen the growth collapse somewhat but they mainly raised financial sector resilience (the Caribbean is an exception) and enabled countercyclical (particularly monetary) policy 24

25 Trade openness across emerging regions Structure of GDP as % of GDP Exports Imports Private Consumption East Asia South Asia Latin America Eastern Europe Regional aggregates are calculated as simple averages. Source: LCRCE Staff calculations based on EIU 25

26 LAC-7: foreign debt flows fell sharply but FDI remained stable and a rebound in debt flows is now underway 1,200 World in US$ Billion 1, Debt Flows Equity Flows LAC-7 Countries in US$ Billion Equity Flows Debt Flows Bank Flows * * 2010 Net private flows for the world; Gross total flows for LAC-7 countries. Equity flows include FDI and portfolio equity flows. Source: Institute of International Finance (IIF). (*) last three quarters 2005 and first two

27 Latvia Bos. & Her. Kazakhstan Georgia Lithuania Ukraine Chile Azerbaijan South Africa Russia Armenia Tunisia Romania Bulgaria Paraguay Croatia Ecuador Poland Sri Lanka Thailand Malaysia Bolivia Peru Mexico Morocco China India Brazil Turkey Indonesia Uruguay Argentina Egypt Philippines Healthy banking systems dampened the collapse 2 Deposit to Loan Ratios Emerging Countries, 2007 Data Emerging countries were defined as lower middle income and upper middle income, World Bank Classification. Source: Beck, Demirguc-Kunt and Levine (2009): Financial Structure Database 27

28 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Inflation-targeting countries in LAC undertook aggressive countercyclical monetary policies Monetary Policy Rates Inflation-Targeting LAC Countries, in % 14 Brazil Colombia 8 6 Mexico Chile Peru US Source: Bloomberg 28

29 The dog that did not bark: absence of domestic crises in a region traditionally plagued by them Banking Crises in LAC Countries Argentina 1980 Argentina 1995 Brazil 1985 Brazil 1995 Chile 1980 Colombia 1998 Colombia 1982 Ecuador 1996, 1998 Ecuador 1980 Honduras 1999 Mexico 1981 Jamaica 1996 Peru 1983 Nicaragua 2000 Uruguay 1981 Paraguay 1995 Peru 1999 The table shows the start year of banking crises. Source: Laeven and Valencia (2008) and Reinhart and Rogoff (2008) 29

30 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Colombia, Venezuela, Ecuador and Mexico Uruguay Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 There is considerable heterogeneity in the pace of recovery across LAC countries 15% 10% 5% 0% Rebounding Industrial Production, YoY, 3 Months Moving Average Argentina Chile Brazil 20% 15% 10% 5% Still Falling Industrial Production, YoY, 3 Months Moving Average Peru -5% 0% -10% -5% -15% -10% -20% -15% 20% 15% Stabilized? Industrial Production, YoY, 3 Months Moving Average Colombia Uruguay 30% 25% 10% 5% 0% -5% Ecuador Mexico Venezuela 20% 15% 10% 5% 0% -10% -5% -15% -10% Source: Economist Intelligence Unit (EIU), GEM and IFS 30

31 The Caribbean is LAC s softest spot, where delayed effects of the global crisis are most troublesome 0.60% Changes in Forecasts: LAC Countries Comparison Between the Projections in May-09 and Oct % 0.20% 0.00% -0.20% -0.40% -0.60% -0.80% Change in 2009 Forecast Change in 2010 Forecast Caribbean: Potentially explosive combination of financial sector fragility and high indebtedness, interacting with smallness -1.00% Caribbean Central America Mexico South America Source: May-09 forecasts are from World Bank s GDF and Consensus Forecasts (Aug. 2009). Oct-09 forecasts are from IMF s WEO and REO, and Consensus Forecasts (Oct. 2009) 31

32 Ant. and Barb. St. Lucia Tri. and Tob. Grenada Carib. Average Jamaica Barbados LAC Average Bahamas St. K. and Nevis St. Vct. and the G. Dom. Rep. Dominica Haiti Ant. and Barb. Grenada Tri. and Tob. St. Lucia Jamaica St. K. and Nevis Carib. Average LAC Average St. Vct. and the G. Barbados Bahamas Dom. Rep. Haiti Dominica Caribbean: general deterioration in economic growth forecasts for 2009 and % Changes in Forecasts: 2009 Real GDP Comparison Between the Projections in May-09 and Oct-09 4% 2% 0% -2% -4% -6% -8% -10% 2% 1% Changes in Forecasts: 2010 Real GDP Comparison Between the Projections in May-09 and Oct-09 0% -1% -2% -3% -4% -5% -6% Source: May-09 forecasts are from World Bank s GDF and Consensus Forecasts (Aug. 2009). Oct-09 forecasts are from IMF s WEO and REO, and Consensus Forecasts (Oct. 2009) 32

33 Looking Ahead: Haziness in the Global Horizon and Challenges for LAC Part 3

34 By and large, LAC is well-positioned for recovery Despite being financially globalized, LAC is coming out of the crisis without systemic damage Improved macro-financial inmune system passed a tough test In contrast with rich countries, LAC s fiscal and debt positions remain comfortable Exchange rate flexibility acted as cushion (countercyclicality) and facilitated external adjustment at lower output cost than otherwise LAC s economies with more diversified export destinations and complementary to China s are recovering ahead of the pack On average, LAC emerges out of this crisis as a relatively more attractive destination for investment 34

35 % of GDP % of GDP Unlike rich countries, LAC comes out of the crisis with comfortable fiscal & public debt positions 3 Fiscal Balance US Euro Japan UK OECD LAC Gross Nominal Liabilities US Euro Japan UK OECD LAC-7 Source: Economist Intelligence Unit (EIU) and Consensus Forecast (Sep. 2009) 35

36 But LAC prospects depend on world growth, where much haziness exist beyond the short run In the short run, the global recovery is looking a lot like a V......but economic repair is still incomplete and fragilities remain Will private sector demand be strong when stimulus fizzles away? Will exit from stimulus policies be well-timed and orderly? Premature retreat can kill the recovery; delayed retreat can rise inflation specter Medium-term growth for the world might be subdued Fiscal viability of the rich economies is in question Financial systems in rich countries are still impaired A slow expansion of world trade is likely in the context of rebalancing Possible adverse impact on MT investment of regulatory uncertainty 36

37 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 World trade volume unlikely to grow fast for a while in a context of global rebalancing 170 World Trade Volume Seasonally Adjusted, Index 2000= Exports Imports Source: CPB (Netherlands Bureau for Economic Policy Analysis) 37

38 LAC-specific challenges and opportunities LAC can grow robustly while contributing to global rebalancing In the short-run, larger LAC countries will: Monetary policy dilemmas due to e-rate appreciation pressures Challenges of orderly exiting from fiscal and credit stimulus policies while smaller LAC countries may: Endure a lagged and longer recessionary impact complicated by debt & financial fragility in many Caribbean countries Labor market adjustment patterns likely to change deeply In the medium-term, a premium will be on the long-delayed productivity-oriented agenda (to seize opportunities) While keeping the course of social and macrofinancial improvements 38

39 US$ Trillion at Current Prices At the margin, LAC can contribute to global rebalancing more than China Output and Demand: China vs. LAC GDP and Demand Components, Total GDP: 3.5 Total GDP: 3.7 Exports 24% Exports 39% % Investment 42% Investment 1.5 Consumption 77% Consumption 49% % Imports -30% Imports -1.5 Latin America China Source: World Bank s WDI 39

40 % of GDP while raising savings and investment rates to underpin a higher growth path 60% 50% Saving Savings and Investment Average Between Investment 40% 30% 20% 10% 0% LAC East Asian Tigers China Source: World Bank s WDI and EIU. East Asian Tigers include the following countries: Hong Kong, Indonesia, Korea, Malaysia, Singapore, Taiwan, and Thailand. 40

41 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Jan-96 May-96 Sep-96 Jan-97 May-97 Sep-97 Jan-98 May-98 Sep-98 Jan-99 May-99 Sep-99 Jan-00 May-00 Sep-00 Brazil: Real wage adjustment no longer via inflation Brazil - Past Crisis Index Sep.1997 = 100 price index real wage index Brazil - Present Crisis Index Sep = 100 price index real wage index Note: median wages in the industrial sector. Source: IPEA, IFS 41

42 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Jan-93 May-93 Sep-93 Jan-94 May-94 Sep-94 Jan-95 May-95 Sep-95 Jan-96 May-96 Sep-96 Mexico: Real wage adjustment no longer via inflation Mexico - Past Crisis Index Dec = price index real wage index Mexico - Present Crisis Index Sep = price index real wage index Note: median wages in the industrial sector. Source: BanXico, IFS 42

43 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Jan-99 May-99 Sep-99 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Uruguay: Real wage adjustment no longer via inflation Uruguay - Past Crisis Index Dec = price index real wage index Uruguay - Present Crisis Index Sep = 100 real wage index price index Note: median wages. Source: INE, IFS 43

44 Thank you 44