Prospects for the Region

Transcription

1 Prospects for the Region OECD South Caucasus and Ukraine Initiative Workshop on Financial Market Development Warsaw, November 17, 29 Mark Allen Senior IMF Resident Representative for Central and Eastern Europe

2 First shock: collapse in trade

3 Second Shock: Sudden Stop of Capital This sudden stop % of GDP Portfolio FDI Other Total net capital flows 8Q1 8Q2 8Q3 8Q4 9Q1 Flows -13% Sudden stop in Q3 97 Q4 98 Q1 98 Q2 98 Q3-6 % Covers 28 EM countries.

4 Reversal of Bank Flows BIS-reporting bank flows to emerging markets

5 US$ mn The same pattern occurred in this region Bank flows to emerging Europe 6 Ukraine Russia 4 Romania Poland 2 Moldova -2 Sep.24 Dec.24 Mar.25 Jun.25 Sep.25 Dec.25 Mar.26 Jun.26 Sep.26 Dec.26 Mar.27 Jun.27 Sep.27 Dec.27 Mar.28 Jun.28 Sep.28 Dec.28 Mar.29 Jun.29 Hungary Bulgaria Belarus Kazakhstan -4 Georgia Azerbaijan -6 Armenia

6 Credit growth (27/6, percent) Credit Booms and External Deficits Made Countries Vulnerable Vulnerabilities in Emerging Markets, pre-crisis (27) Program (actual or under discussion) Non Program CA deficit, percent of GDP

7 Percent change in real GDP 1/ Fund lending resumed on a large scale Access levels and growth declines in Fund arrangements 1 ARG ARG 5 PHL RUS BRA MEX IDN BRA TUR COL BRA TUR PAK GTM BLR COL LKA POL MNG -5 ARG KOR UKR TUR URY IRQ SLV GEO HUN CRI BIH SRB MEX THA IDN IDN ARG ISL UKR SYC ARM ROM -2 = 1 percent of quota -25 LVA Sources: WEO and staff calculations. 1/ Maximum cumulative decline in three years from program inception; projected changes for current programs.

8 with many standby arrangements in Central and Eastern Europe

9 Growth is recovering but likely to be slow 15 Emerging 1 World 5 Advanced

10 Credit market conditions are easing Three-month Libor OIS Spreads (basis points) Corporate Spreads (basis points) U.S. dollar Sterling Swiss franc Euro area US High Grade US High Yield Europe High Grade Europe High Yield Oct. 9 Jun-7 Nov-7 Apr-8 Sep-8 Feb-9 Jul-9 Oct. 9 Jun-7 Nov-7 Apr-8 Sep-8 Feb-9 Jul-9

11 and the sudden stop is partially unwinding USD bn 12 Total cumulative net capital flows to EM (proxied by net reserves trade balance) M1 25M7 26M1 26M7 27M1 27M7 28M1 28M7 29M1 29M7

12 25-Q1 26-Q1 27-Q1 28-Q1 29-Q1 as portfolio flows rebound Money is flowing into emerging market equity funds Latin America Asia Europe and primary issuance is recovering strongly Emerging Market Private Sector Gross External Issuance (In billions of U.S. dollars) -4 Jan Mar May Jul Sep Source: Dealogic, as of September 8, 29.

13 but recovery in bank flows may be sluggish 1 9 Cross-border bank lending stays low after crises E Europe (Mar 29) (Bank exposures relative to recipient GDP) Latin America (Dec 1983) 8 Asia (Sep 1997) t-2 t-15 t-1 t-5 t t+5 t+1 t+15 t+2 t+25 t+3 Quarters

14 Half of bank write-downs lie ahead and more capital is needed (billions of U.S. dollars) Future United States Euro Area Asia United Kingdom Other Europe 15 1 Realized 8% T1/RWA 1% T1/RWA 4% TCE/TA Capital needed to reach various ratios 5 Total Writedowns Capital Raised

15 Growth forecast (1) Central and Eastern Europe Euro area Russia Belarus Bulgaria Hungary Poland Romania -1

16 Growth forecasts (2) Ukraine and Caucasus Euro area Russia Armenia Azerbaijan Georgia Kazakhstand Moldova Ukraine -2

17 Credit flows within Ems show signs of stabilizing Bank Credit to Private Sector (6-month percent change, annualized rate) Latin America Asia excluding China Europe and CIS China Dec-7 Jun-8 Dec-8 Jun-9

18 4 2 although there has been sharp contraction in some countries Private Sector Credit (Change since Sep 28, percent) GEO ARM BLR UKR SLV MNG LVA GTM HUN BIH SRB CRI ROM

19 EMs spared banking crises this time 1 5 Advanced economies Fiscal and Output Costs of Banking Crises (Size of bubble = fiscal cost) Output cost Emerging -5 markets Debt crisis ERM crisis Tequila crisis Asian crisis Current crisis

20 GEO MNG UKR BIH ARM SLV LVA CRI BLR SRB ROM HUN PAK GTM Reflecting that deposits have held up 15 1 Bank Deposits (Sept. 8 - latest, change in percent) Source: IFS. 1/ Adjusted for exchange rate changes.

21 External vulnerabilities have fallen due to sharp current account adjustments Current Account Balance (percent of GDP) 1/ Asia Middle East -2-4 Europe Latin America / Regional averages weighted by GDP

22 Fiscal vulnerabilities have risen due to rising deficits (and debt) Overall Fiscal Balance (percent of GDP) 2/ Middle East Europe Asia Latin America

23 Financial vulnerabilities also on the rise 25 2 Non-Performing Loans 1/2/ Middle East 15 1 Europe Asia 5 Latin America / Unweighted regional outreach.

24 Thank you!