Regional Economic Outlook. November 2014

Transcription

1 Regional Economic Outlook Caucasus and Central Asia November 214

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

3 An uneven global recovery continues Real GDP Growth Projections (Percent change from a year earlier) World U.S. Euro Area Emerging markets China Russia

4 Global recovery remains fragile Geopolitical risks (Russia-Ukraine, Middle East) Further risks to growth in emerging market economies Risks related to normalization of monetary policy in advanced economies Protracted period of slow growth in advanced economies 4

5 Oil prices have declined considerably since projections were made; risks are high g in both directions Brent Crude Oil Price¹ (U.S. dollars per barrel) 95% confidence interval 86% confidence interval 68% confidence interval F Futures Fall 214 WEO Oil Price for 214: $ Fall 214 WEO Oil Price for 215: $ Sources: Bloomberg; and IMF staff calculations. 1Derived from prices of futures and options on October 15,

6 Caucasus and Central Asia Kazakhstan Georgia Armenia Azerbaijan Uzbekistan Turkmenistan Tajikistan Kyrgyz Republic Oil and gas exporters Oil and gas importers 6

7 Growth is slowing due to spillovers from Russia and weaker domestic demand, yet remains robust Real GDP Growth (Annual percent change) 12 TKM CCA Oil Exporters CCA Oil Importers Russia UZB TJK KAZ AZE ARM GEO KGZ

8 Close linkages with Russia create downside risks to the outlook Linkages with Russia Exports Imports Remittances FDI ARM GEO KGZ TJK AZE KAZ Impact of 1 percentage point fall in Russia's GDP growth and investor uncertainty on CCA GDP growth (percent) Remittances Trade and other channels Investor Uncertainty t TKM UZB Oil exporters Oil importers <3% of GDP 3-1% of GDP >1% of GDP 8

9 Despite slowing growth, inflationary pressures are rising because of recent depreciations Inflation in CCA (CPI, percent change) 14 Inflation vs. Nominal Exchange Rate Depreciation (y-o-y percent change through end-feb 214) CCAOE CCAOI UZB KGZ TJK KAZ TKM GEO ARM AZE Inflatio on ARM TJK GEO KGZ UZB KAZ 2 2. AZE Exchange Rate Change (Positive = Depreciation) 9

10 Fiscal positions are vulnerable Fiscal Balances (In percent of GDP) CCA Oil Importers CCA Oil Exporters Fiscal breakeven oil prices (U.S. dollars per barrel) Avg. Brent Oil Price Fall 214 WEO Oil Price for 215 Oct. 15, 214 Brent Spot AZE KAZ TKM 3 1

11 External positions are weakening 15 Current Account Balances (Percent of GDP) 15 8 Reserve Coverage (Months of Imports) CCA Oil Exporters CCA Oil Importers CCA Oil Exporters CCA Oil Importers

12 Continued low oil prices would have mixed effects on the CCA oil exporters and importers Effects of a 2 Percent Decline in Oil prices from the Fall 214 WEO Baseline, 215 (Percent of GDP) 1.5 Real GDP CA Balance Fiscal Balance CCA Oil Exporters CCA Oil Importers 12

13 Financial risks (old and new) are significant 35 Private Sector Credit to GDP vs. Trend 8 High Dollarization (latest year available) Credit as a percent of GDP Linear trend FX deposits as % of total dep posits TKM KAZ RUS JOR SSA BRICS IND BRA ZAF AZE LAC UZB CCA GEO ARM AFG TJK KGZ FX loans as % of total loans 13

14 Near-term Policy Priorities Fiscal Weakening growth prospects justify a temporary pause in fiscal consolidation, where financing allows, in the context of credible medium-term plans. Countries with low buffers and financing shortages need to continue growth-friendly dy fiscal consolidation. Monetary & External Tighten monetary policy, if inflationary pressures persist. Otherwise, monetary policy can remain neutral, and greater exchange rate flexibility can help buffer against shocks and protect export competitiveness. Financial Stronger macro- prudential regulations to reduce NPLs and discourage unsustainable increases in consumer loans. Reduce dollarization through h financial i deepening. Discourage directed lending. 14

15 CCA medium-term growth prospects are weakening Potential GDP Growth (Percent) Potential GDP Growth Changes, vs (Percent) CCAOE CCAOI Asia EE LAC SSA -3.5 CCAOE CCAOI Asia sa EE LAC SSA 15

16 Growth has been driven by commodities, with little intra-regional trade 2 CCA vs. EMs: Economic Complexity (-3 to +3 scoring scale; higher is better) 3 Intra-regional Trade (Percent of total trade) Eco nomic complexity index ARM KGZ KAZ GEO UZB AZE TJK TKM GDP per capita, USD 2 1 CCA ASEAN

17 High unemployment and inequality suggest that growth has not been sufficiently inclusive Gini and Land Gini Indexes (Index, higher values are more unequal) Gini Land Gini All regions (Gini) All regions (Land Gini) Youth unemployment rate (percent) CCA Asia LAC SSA Unemployment rate (Decade averages, percent) 199s 2s CCA Asia LAC MENAPOE MENAPOI CCA Asia LAC SSA 17

18 Slowdown in structural reforms does not bode well for raising growth and inclusiveness 4 Reversals or delays in structural t reforms (1 to 4+ scale; higher is better) AZE KAZ TKM UZB ARM GEO KGZ TJK CCA Oil Exporters CCA Oil Importers 18

19 A new economic model is needed High Sustainable Growth Inclusive Diverse 19

20 Medium-term Policy Priorities Bolder Structural Reforms Structural reforms, especially in areas of governance and regulation, to address weak growth potential and low inclusiveness. Wider Economic Integration Balanced regional and multilateral trade integration ti initiatives, to diversify economies and improve medium-term growth prospects. Stronger Policy Frameworks Fiscal: More fiscal transparency, and stronger medium-term budget frameworks. Monetary: Modern monetary policy regimes with clear interest rate guidance, and widening exchange rate bands, to provide an anchor to the economy. 2

21 Bold reforms, particularly in governance and regulation, can improve growth and inclusiveness Structural Reform Priorities Labor Corrup ption Burea ucracy Infrast tructure Trade Educa ation Legal Financ ce Regula ations CCA Oil Exporters 84% 3% 13% 54% 45% 45% 46% 45% 36% Azerbaijan 77% 3% 3% 51% 47% 38% 42% 43% 34% Kazakhstan 9% 3% 23% 57% 44% 53% 49% 47% 38% CCA Oil Importers 49% 3% 3% 46% 59% 32% 44% 41% 6% Armenia 49% 3% 3% 46% 59% 39% 44% 51% 6% Georgia 71%.. 59% 88% 32% 45% 41% 73% Kyrgyz Republic 37%.. 2% 5% 26% 25% 33% 4% CCA 71% 3% 3% 51% 5% 38% 44% 43% 4% Sub-Saharan Africa 5% 21% 18% 18% 32% 29% 36% 28% 35% Latin America 26% 21% 23% 41% 39% 48% 38% 46% 55% Emerging Europe 49% 34% 4% 53% 61% 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% Lowest 2th Percentile 6th-8th Percentile 2th-4th Percentile Top 2th Percentile 4th-6th Percentile Data Unavailable 21

22 Successful economic integration in the CCA needs to be multilateral and market-driven By liberalizing their restrictive trade regimes within the WTO framework Through marketdriven structural reforms By involving all key trading partners 22

23 Greater exchange rate flexibility would help economies adjust to unanticipated shocks Exchange Rate Arrangement Monetary Policy Framework U.S. dollar or Euro anchor, Monetary Target, Other Inflation targeting Conventional peg, Stabilized arrangement, Crawl-like arrangement, Other managed arrangement Angola, AZE, Bangladesh, Belarus, China, Congo, Croatia, KAZ, KGZ, TKM, Macedonia, Nigeria, Rwanda, Russia, TJK, UZB, Venezuela, Vietnam ARM, Czech Rep., p, Dominican Rep. Brazil, Chile, GEO, Mexico, Floating, Free floating Poland, Romania, South Africa, Turkey 23

24 Increasing fiscal transparency would strengthen fiscal frameworks and enhance economic resilience Fiscal Transparency Index (Index, latest available data; higher values are better) AZE GEO KAZ KGZ TJK Central & Eastern Europe BRICS Advanced Economies 24

25 Takeaways Near-term Growth is slowing because of negative spillovers from Russia and weaker domestic demand, and risks are tilted to the downside. If buffers and financing allow, countries can slow the pace of fiscal consolidation, while maintaining credible medium-term plans. If inflation persists, monetary policy needs to be tightened. Macro-prudential policies need to be strengthened. Medium-term Potential growth is slowing. Inclusiveness remains an issue. Policy frameworks are not sufficiently robust to react to shocks. Countries need to reinvigorate structural reforms to create an economic model that is sustainable, more inclusive i and diverse and supported by modern policy frameworks. 25

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