Outlook for the World Economy: Implications for the Caribbean Saul Lizondo Associate Director Western Hemisphere Department International Monetary Fund Trinidad id d and Tobago, September, 1
Presentation Outline 1. Global baseline scenario Key assumptions (requires active policies). Global downside risks 3. Implications for the Caribbean Headwinds (external and domestic) to persist
Baseline scenario: Moderation in global growth in 1 (downward revisions to forecast more recently in China) 3 Scenario of very active policies Real GDP Growth by Region 11 1 13 World 3.9 3.5 3.9 Advanced Economies 1.6 1.4 1.9 United States 1.7..3 Euro area 1.5 -.3.7 Emerging Economies 6. 5.6 5.9 Emerging Asia 7.8 7.1 7.5 China 9 9. 8 8. 85 8.5 Source: World Economic Outlook, July 1. Change in Consensus Forecast Growth for 1 (since Jan 11, Percentage points) 5.5. -.5-1. 1-1.5 -. China United States Euro Area -.5 Jan-11 Apr-11 Jul-11 Oct-11 Jan-1 Apr-1 Sources: Haver Analytics; and IMF staff calculations. Figures in chart refer to the most recent consensus forecast 5.5. -.5-1. 1-1.5 -. -.5
U.S. baseline scenario: Tepid recovery of labor and housing markets, as households deleverage 4 United States: Household Leverage (Percent of disposable income) 18 18 United States: Employment and Housing Indicators Change in private employment (thousands of people) 16 14 16 14 6 4 Standard & Poor's/Case-Schiller house price index (January 5 = 1, right scale) 1 11 1-9 1 1-4 -6-8 8 7 1 1995 1998 1 4 7 1 1-1 5 6 7 8 9 1 11 1 6 Sources: Haver Analytics; and IMF staff calculations. Sources: Haver Analytics; and IMF staff calculations.
Europe baseline scenario: Policy actions help to lower borrowing costs in the periphery and contain crisis 5 Italy: 1-Year Bond Spread (over bunds; basis points) 6 55 5 45 4 35 3 5 Spread July WEO Update Spain: 1-Year Bond Spread (over bunds; basis points) 6 55 5 45 4 35 3 5 Spread July WEO Update 15 Jun-11 Nov-11 Apr-1 Sep-1 Feb-13 Jul-13 Dec-13 15 Jun-11 Nov-11 Apr-1 Sep-1 Feb-13 Jul-13 Dec-13 Source: IMF staff calculations.
EM Asia baseline scenario: Growth in China moderates, but remains robust, yet less dependent on exports 6 China: Merchandise Exports, 7-1 China: Fiscal Policy 4 Export Values (US$ billions, rhs) Growth (1-mo percent change, 3mo-ma) 1 Fiscal balance (percent of GDP, 1-month cumulative) 3 15 1 8.9 1-1 -1-5 - Tightening Tightening Easing -3 Sources: Haver Analytics; and IMF staff calculations. -3 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-1 Jul-1
Baseline scenario: Cheap financing for an extended period and relatively high commodity prices 7 Accommodative monetary ypolicy for an extended period United States: Federal Funds Rate Expectations (Percent) Still high h commodity prices Commodity Prices (Index, 4=1) 4 4 Oil Metals Food 4 FF rate 4 3 FF futures, August 1 FF futures, April 11 3 3 3 1 1 1 1 8 9 1 11 1 13 4 6 8 1 1 14 Sources: Bloomberg, LP; and IMF staff calculations. Sources: World Economic Outlook; and IMF staff calculations.
LAC baseline: Growth in Latin America is moderating ( but still in line with potential); Tourism dependent Caribbean lags. 8 Real GDP Growth by Region 11 1 13 Latin America and Caribbean 4.5 3.4 4. South hamerica 5.7 3.5 48 4.8 Mexico 3.9 3.9 3.6 Central America 1/ 3.7 3.4 3.7 Caribbean Tourism dependent d t/ 4.4 15 1.5 19 1.9 Commodity dependent 3/.5 3.3 4.1 Some downward revisions expected Source: Worl d Economi c Outl ook, Jul y 1. 1/ Central America includes the Dominican Republic, yet excludes Panama ma. / Tourism dependent economies include: Bahamas, Barbados, Jamaica, and ECCU economies. 3/ Commodity dependent Caribbean includes: Belize, Guyana, Suriname, and Trinidad and Tobago.
LAC baseline: Revisions have been sharpest in Brazil, where domestic policies/factors are also playing a role 9 Consensust Forecast: Growth in 1 (Percent) Brazil Chile and Peru 6 Mexico Colombia and Uruguay 6 5 5 4 3 38 3.8 4 3 1.9 1 J F M A M J J A S O N D J F M A M J J A S O N D 1 11 1 Sources: Haver Analytics and IMF staff calculations
Presentation Outline 1 1. Global baseline scenario Key assumptions (requires active policies) i. Global downside risks 3. Implications i for the Caribbean Headwinds (external and domestic) to persist
Downside scenario #1: In Europe, insufficient policy actions could result in a strong global slowdown and credit crunch 11 Simulation: Impact of Euro Area Shock (Deviations from baseline, percent; quarters on x-axis) 1-1 - -3 Global GDP 1 3 4 5 6 7 8 Euro area shock¹ 5-5 -1-15 - Oil prices 5-5 -1-15 1 3 4 5 6 7 8 - Non-oil commodity prices 1 3 4 5 6 7 8 Source: IMF, World Economic Outlook. April 1. ¹ Assumes European banks reduce credit by 7 billion in 1 13 (compared with under baseline).
Downside scenario #: In the United States, delays in near-term fiscal agreement could lead to an overly front loaded consolidation 1 United dstates: Change in Structural Fiscal Balance 13-- Baseline vs. Fiscal Cliff (in percent of GDP) 4.5 4.3 4. 3.5 3. 5.5. 1.5 1 1..5 1.3 Other Spending sequester Unemployment benefits Payroll tax cut Alternative Minimum Tax (AMT) Bush tax cuts. Baseline Fiscal Cliff Sources: CBO and Fund staff estimates.
Presentation Outline 13 1. Global baseline scenario Key assumptions (requires active policies) i. Global downside risks Short-term vs. medium term 3. Implications for the Caribbean Headwinds (external and domestic) to persist
Caribbean Outlook: External headwinds to persist for some time... 14 Weak external demand d Weak terms of trade United States and Europe: Non-Oil Import Volume Growth (average annual percent change) 1 Latin America and the Caribbean: Terms of Trade (5 = 1, simple average by region) South America Caribbean² Central America¹ 1 United States Europe 13 13 8 7.5 8. 1 1 6 11 11 4 4.4 1 1 5-6 1-13 Proj..4 5-6 1-13 Proj. Source: World Economic Outlook and Fund staff calculations. 9 8 8 6 7 8 9 1 11 1 13 Sources: IMF, World Economic Outlook; and IMF staff calculations. 1 Central America includes the Dominican Republic and Panama. Includes The Bahamas, Barbados, Jamaica, and ECCU member states. 9
... while impact of downside risks from Europe are non-trivial 15 Exports to Europe by Region (Percent of GDP, average 9 1) 16 14 1 1 8 6 4 EM Europe¹ EM Asia² Latin America 4.1 Caribbean 4 35 3 5 15 1 European Claims by Region (Percent of GDP, average 9 1) 5 EM Europe¹ EM Asia² Latin America 11.1 Caribbean Sources: Bank for International Settlements; and IMF, Direction of Trade Statistics, World Economic Outlook. 1 Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Poland, Romania, Russia, and Slovenia China, India, Indonesia, Malaysia, Philippines, Thailand, and Vietnam.
High debt levels now limit the fiscal policy space... 16 LAC: Public Debt, 8-11 (Percent of GDP) 1 8 8 Increase 8-11 15.5 6 4 17 1.7 6.9 LA5 Central America Caribbean (Tourism Depedent) Sources: National authorities; and IMF staff calculations. ¹ Simple average of Brazil, Chile, Colombia, Meixco, and Peru. Simple average of Costa Rica, Dominican Republic, El Salvador, Guatemala, and Honduras. 3 Simple average of Antigua and Barbuda, Bahamas, Barbados, Dominica, Grenada, Jamaica, Simple average of Antigua and Barbuda, Bahamas, Barbados, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines
... and risk persist from financial sector fragilities 17 16 14 1 Caribbean: Non-Performing Loans 1 (Percentage of total loans) ECCU Jamaica Belize (RHS) 5 1 8 6 15 1 4 5 8 Q 9 Q1 9 Q4 1 Q3 11 Q1 1 Q1 Sources: National Authorities and IMF Staff Calculations Sources: National Authorities and IMF Staff Calculations. 1 Data on NPLs through Q1 1.
Most recent food price shock may have an adverse impact 18 Latin America and the Caribbean: Net Food Exports (Percent of GDP) International Food Prices (US$ per unit, index Jan 5=1) 8 6 35 3 1st shock nd shock 3rd shock 4 5-15 -4 1-6 Southern Cone¹ CentralAmerica² Caribbean³ Sources: COMTRADE and IMF staff calculations. 1 Simple average for Argentina, Brazil, Bolivia, Paraguay and Uruguay. Simple average for Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama 3 Simple average for Antigua and Barbuda, Bahamas, Belize, Barbados, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, and St. Vincent and the 5 soy/corn/wheat / coffee/sugar rice 6M1 7M1 8M1 9M1 1M1 11M1 1M1 Source: IFS and IMF staff calculations.
Caribbean: Summary of Policy Challenges 19 1. Improve competitiveness to boost growth What type of structural reforms?. Strengthen fiscal consolidation efforts How to do so in a growth-friendly fashion? 3. Tackle financial sector vulnerabilities
Outlook for the World Economy: Implications for the Caribbean Thanks