Regional Economic Outlook. May 2015

Transcription

1 Regional Economic Outlook Caucasus and Central Asia May 215

2 Outline Global Environment CCA Outlook, Risks, and Policies 2

3 Global growth remains moderate and uneven World U.S. Euro Area Emerging markets China Russia

4 Oil prices are expected to remain lower than in the recent past, but uncertainty is large Oil Price Prospects (Brent crude oil; U.S. dollars a barrel) B t Futures Brent F t Curve C 14 (October 214 REO vs. May 215 REO Update)) % confidence interval 4 68% confidence interval Jun'19 Nov'18 Apr'18 Sep'17 Feb'17 Dec'15 May'15 Oct'14 Mar'14 Aug'13 Jan'13 Jul'16 October 214 REO May 215 REO Update % confidence interval Futures, Feb. 11,

5 32 Other commodity prices have also declined, although not by as much as oil prices Commodity Prices (25=1) Food Metals Crude oil (APSP) Natural gas (Asia) 7 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 5

6 Caucasus and Central Asia Oil & gas exporters Oil & gas importers 6

7 Growth is expected to weaken further in 215 with lower oil prices and Russia s economic contraction Real GDP Growth (Annual percent change; dots reflect 215 growth projections) Oil price (APSP) - LHS CCA Oil Exporters CCA Oil Importers Russia TKM UZB TJK GEO KAZ KGZ AZE ARM

8 Ties to Russia go beyond exports and include remittances, FDI and confidence ARM GEO KGZ TJK Linkages with Russia Ex ports Imports Remittances FDI AZE KAZ TKM UZB <3% of GDP 3-1% of GDP >1% of GDP 8

9 Lower oil prices and Russia s contraction are key reasons for downgrading of CCA forecasts Oil Exporters Oil Importers Russia slowdown Russia slowdown Oil price decline 214 Oil price decline 214 Other country-specific factors Other country-specific factors

10 Weakening revenues and countercyclical spending are widening fiscal deficits Fiscal Balances (Percent of GDP) Fiscal Breakeven Oil Prices, 215 (U.S. dollars per barrel) CCA Oil Exporters CCA Oil Importers WEO Oil Price AZE KAZ TKM 1

11 Currencies are weakening against the dollar yet losing competitiveness in real terms Nominal Exchange Rates, Jan. 211-Feb. 215 Real Effective Exchange Rates, Jan. 213-Feb. 215 (U.S. dollars per unit of national currency; Index, Jan. (Index, Jan 214=1) 211=1) CCA Oil Exporters 7 CCA Oil Importers Russia CCA Oil Exporters CCA Oil Importers United States Russia 11

12 Depreciations are raising inflationary pressures, despite lower growth and commodity prices Inflation (CPI, percent change; dots represent 215 inflation) CCAOE TJK 12 CCAOI 12 KGZ 1 1 UZB 8 AZE 8 TKM 6 ARM 6 KAZ 4 4 GEO

13 External positions are worsening, especially for oil exporters Current Account Balances (Percent of GDP) 15 CCA Oil Exporters CCA Oil Importers Reserve Coverage (Months of Imports) 12 CCA Oil Exporters 1 CCA Oil Importers

14 The financial sector faces multiple challenges Non-performing Loans, Dollarization (Percent of total loans; latest available data) Loan dollarization (% of total) RHS Capital Adequacy Ratios (Percent of risk-weighted assets; latest available data) Dec 13 2 Dec KAZ TJK ARM AZE KGZ UZB ARM KAZ KGZ TJK UZB 14

15 Risks have increased and remain tilted to the downside Weaker growth in trading partners (especially Russia, also China and Europe) Further weakening of prices for oil and other commodities Risks related to the normalization of U.S. monetary policy 15

16 Near-term policy priorities center on preserving macro-financial stability while shoring up growth Fiscal Temporary countercyclical policies if buffers and fiscal space allow. Fiscal consolidation over the medium term, as soon as cyclical conditions allow, to reflect new oil market realties for oil exporters and the need to rebuild buffers among oil importers. Monetary & External Greater exchange rate flexibility can help buffer shocks, prevent reserve drawdowns, and protect competitiveness. Tighten monetary policy, if inflationary pressures remain elevated and if it does not undermine financial sector stability. Financial Monitor and manage the financial stability risks. Banks should be required to appropriately classify the loans and have adequate provisions. Crisis management frameworks should be strengthened. 16

17 Stronger macro-financial policy frameworks can increase resilience to unexpected shocks Fiscal Policy: More fiscal transparency, and stronger medium-term budget frameworks Monetary Policy: Modern monetary policy regimes with clear interest rate guidance Financial Sector Policy: Clear definition of responsibilities, modern supervision practice 17

18 Medium-term growth prospects are weakening in the CCA: a new mediocre? Potential GDP Growth (Percent)¹,² CCAOE CCAOI Differences with EMDC (Percentage points) Capital Labor Productivity CCA OE CCA OI CCA OE CCA OI

19 Structural reforms can help improve competitiveness, raise economic growth and make it more inclusive Structural Reform Priorities Labo or Corru uption Bure eaucracy Infra structure Trad e Educ cation Lega al Finan nce Regu ulations CCA 71% 3% 3% 51% 5% 38% 44% 41% 4% Armenia 49% 3% 3% 46% 59% 39% 44% 51% 5% Azerbaijan ebaja 77% 3% 3% 51% 47% 38% 42% 3% 34% Georgia 71%.. 59% 88% 32% 45% 41% 73% Kazakhstan 9% 3% 23% 57% 44% 53% 49% 47% 38% Kyrgyz Republic 37%.. 1% 5% 26% 25% 33% 4% Sub-Saharan Africa 5% 1% 18% 18% 32% 29% 36% 28% 35% Latin America 26% 1% 23% 41% 39% 48% 38% 46% 55% Emerging Europe 49% 5% 3% 53% 5% 53% 5% 5% 66% Developing Asia 53% 48% 23% 37% 42% 43% 46% 41% 37% Advanced Economies 84% 81% 83% 87% 84% 82% 78% 64% 9% Sources: Labor: World Economic Forum (WEF); Corruption: PRS; Infrastructure: WEF; Trade: WEF; Education: WEF; Legal: WEF and World Bank Doing Business; Finance: WEF and World Bank Doing Business; Bureaucracy: PRS; Regulations: World Bank Worldw ide Governance Indicators. Lowest 2th Percentile 2th-4th Percentile 4th-6th Percentile 6th-8th Percentile Top 2th Percentile Data Unavailable 19

20 Key Messages The region is facing new, possibly long-lasting, realities. Policy responses so far have been partial and focused on the short term. Medium-term fiscal consolidation and greater exchange rate flexibility are needed to maintain macroeconomic stability. Enhanced policy frameworks would improve shock resilience. Structural reforms would enhance long-term growth potential and make it more inclusive. 2

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