Juha Kähkönen International Monetary Fund November 212
Overview Global outlook (CCA) outlook and risks CCA macroeconomic policies CCA structural challenges 2
The global recovery has weakened 6 Global Manufacturing PMI (Index; > 5 = expansion; SA) Merchandise Exports (Percent; 3mma annualized) 8 55 6 4 5 2 45 4 35 3 World Advanced Emerging Aug.12 6 7 8 9 1 11 12 Advanced Emerging Jul. 12 5 6 7 8 9 1 11 12-2 -4-6 -8 Source: IMF, Global Data Source. Global Outlook 3
European financial conditions remain fragile Government Bond Spreads (Two-year yield spreads over German bunds; basis points) Portfolio and Other Investment Capital Flows, Excluding Central Banks (Cumulative from December 29, in percent of GDP) 7 Spain Belgium Italy France 8 58 4 46 34-4 22 1-8 Core -2 Jan-7 Dec-8 Nov-1 Oct-12 Periphery 212:Q1-12 21 211 212 Sources: IMF, World Economic Outlook; and Bloomberg. Global Outlook 4
Commodity prices are still elevated Commodity Prices (Index; 25=1) Spot Prices of Major Crops (Index; 1/3/25 = 1) 32 28 Energy Metals Gold (RHS) US$ per troy ounce 18 14 4 35 Corn Rice Wheat Soybeans 24 3 2 1 25 6 2 16 15 12 2 1 8-2 Jan-5 Oct-6 Jul-8 Apr-1 Jan-12 Oct-13 5 25 26 27 28 29 21 211 212 Global Outlook Source: IMF, Global Data Source. 5
Against this backdrop, the global outlook has deteriorated 15 Real GDP (Annual growth; percent) Revisions to GDP growth (Percentage point change; April 212 WEO to October 212 WEO).1 1 Russia China 5 World U.S. Euro area -.4-5 212 213-1 25 27 29 211 213 -.9 World U.S. Euro area China Russia Global Outlook Source: International Monetary Fund, World Economic Outlook. 6
: outlook and risks CCA region: Broadly positive growth outlook, but growing external risks Oil and gas importers: Gradual fiscal consolidation, but not enough to rebuild buffers External vulnerabilities large current account deficits Oil and gas exporters: Declining fiscal surpluses amidst some overheating risks The challenge of improving the quality of public spending Medium-term challenges: Creating jobs, reducing informal sector, and fostering high and inclusive growth CCA Outlook 7
Growth outlook remains broadly positive Real GDP (Annual growth, percent) Real GDP Growth (Projection 213) 18 15 12 9 6 3 CCA oil and gas exporters CCA oil and gas importers Russia China 9 8 7 6 5 KGZ TKM UZB TJK KAZ GEO -3-6 -9 25-8 29 21 211 212 213 4 3 2 213 ARM World AZE CEE Sources: IMF, World Economic Outlook; and IMF staff calculations and projections. CCA Outlook 8
Remittances and commodity prices benefited CCA oil importers Remittances from Russia to CCA Countries¹ (Three month moving average, 28:Q2=1) Commodity Terms of Trade (Index; June 29=1) 24 2 ARM GEO KGZ TJK KGZ: $46m 27% of GDP TJK: $85m 45% of GDP 125 115 AZE KAZ TKM ARM GEO KGZ TJK 16 15 ARM: $33m 13% of GDP 12 95 GEO: $18m 5% of GDP 8 Jun-8 Jun-9 Jun-1 Jun-11 Jun-12 85 Aug-6 Aug-7 Aug-8 Aug-9 Aug-1 Aug-11 Aug-12 Source: Central Bank of Russia. ¹Boxes show the latest data available (212:Q2). Sources: National authorities; and IMF staff estimates. CCA Outlook 9
But downside risks are elevated CCA Risks 1
Financial sector: legacy NPLs but little exposure to Europe Nonperforming Loans (On a 9-day basis; percent of total loans) Foreign Liabilities of CCA Banking Sectors (Percent of total assets, end-211) 3 25 2 28 29 21 211 212 (latest) 3 25 2 Total (breakdown not available) Euro Area Non-Euro Area EU EU Non-EU GIIPS Non-GIIPS Euro Area 15 15 1 1 5 5 TKM UZB ARM GEO AZE TJK KGZ KAZ ARM GEO AZE KGZ KAZ TJK UZB Sources: National authorities; GFSR. Sources: National authorities; and IMF staff estimates. CCA Risks 11
Inflation is low but sensitive to food price developments Oil and Gas Importers Headline CPI Inflation (12-month change; percent) Oil and Gas Exporters 25 KGZ 15 UZB 2 12 15 9 AZE 1 5 ARM TJK 6 TKM KAZ World¹ -5 GEO Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 3 World¹ Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Sources: National authorities; and IMF staff calculations. ¹IMF world commodity price inflation. CCA Risks 12
High exposure to international food prices Food Imports as a Share of GDP (Percent) Weight of Food in the Consumer Price Index, 21 (Percent) 12 1 8 6 4 2 27-8 average 21 World average, 21 7 6 5 4 3 2 1 KGZ GEO ARM AZE KAZ UZB KAZ GEO KGZ ARM AZE TKM UZB TJK Sources: National authorities; and IMF staff calculations. Sources: IMF staff; OECD StatExtracts; and Eurostat. CCA Risks 13
Fiscal consolidation is needed, particularly in the oil and gas importers Fiscal Deficits (Fiscal balance; percent of GDP) Public Debt (Percent of GDP) -5 6 5 CCA oil and gas exporters CCA oil and gas importers CEE -1 4-15 3-2 2-25 -3 CCA oil and gas exporters¹ CCA oil and gas importers CEE 25 26 27 28 29 21 211 212 213 1 25 26 27 28 29 21 211 212 213 Sources: National authorities; and IMF staff calculations. ¹ Non-oil and gas fiscal balance as share of non-oil and gas GDP. CCA Policies 14
Need to address external vulnerabilities in the oil and gas importers 15 1 5-5 -1-15 Current Account Balance (Percent of GDP) 75 7 65 6 55 5 45 4 35 External Debt (Percent of GDP) 3 25 2 15 1 5 International Reserves (Percent of GDP) -2 27 28 29 21 211 212 213 3 27 28 29 21 211 212 213 27 28 29 21 211 212 213 CCA oil and gas exporters CCA oil and gas importers CEE Sources: National authorities, IFS database; and IMF staff calculations and projections. CCA Policies 15
Policy advice in the event that risks materialize Allow greater exchange rate flexibility Step-up communications on risks Avoid a re-run of the 28-9 response: limit loss of reserves Ease monetary policy, if conditions warrant Subdued inflation may allow for easing of monetary policy Improve quality of fiscal spending Reorient and better target spending to protect the most vulnerable In CCA countries with fiscal space, consider countercyclical response CCA Policies 16
Estonia Slovak R. Montenegro Latvia Uzbekistan Turkmenistan Belarus Slovenia Poland Hungary Turkey Lithuania Kyrgyz R. Macedonia Croatia Romania Bulgaria Georgia Azerbaijan Tajikistan Kazakhstan Albania Armenia Serbia Bosnia and H. Mongolia Moldova Ukraine Structural challenges: need to tackle the informal sector Large informal sectors undermine social protection and growth Policies to tackle informal sector improve business environment and regulation improve institutional quality/governance relax labor market rigidities while safeguarding adequate social protection reduce tax burden (income and social security taxes) provide access to skills upgrading for informal workers. 45 4 35 3 25 2 15 1 5 Size of the Informal Economy (Percent of GDP, 28) CCA Challenges 17 Source: IMF staff estimates.
Key messages Rebuild policy buffers - Fiscal consolidation Oil and gas importers - More exchange rate flexibility Oil and gas exporters - Improve quality and reduce rigidity of public spending - Diversify tax base If downside risks materialize: Limit loss of reserves allow currency depreciation Where possible, ease fiscal and monetary policies Reorient spending to protect the most vulnerable Revitalize economy for inclusive growth and job creation Improve business environment/institutional quality Address excess labor market rigidities and tax wedge on labor Provide access to training Conclusions 18
Key messages: Kazakhstan Restore the health of the banking system Move forcefully to tackle the NPL problem Address problem banks Improve corporate governance Reduce the nonoil fiscal deficit to the medium-term sustainable level Improve the quality of public spending Strengthen nonoil tax revenues Revitalize the economy for inclusive growth Focus on diversification Reduce the role of the public sector Improve competitiveness and the business environment Conclusions 19
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