International Monetary Fund World Economic Outlook Jörg Decressin Senior Advisor Research Department, IMF IMF Presentation April 3,
The recovery is solidifying but it will take some time before it significantly lowers unemployment. Old policy challenges remain unaddressed: insufficient fiscal adjustment and financial repair in advanced economies; insufficient rebalancing of demand in key Asian surplus economies. New policy challenges are arising: overheating in EM; high commodity prices.
Equity markets have recovered to a large extent and volatility is close to normal. Equity Markets (index; 7=; national currency) Implied Volatility (percent) DJ EURO STOXX S&P 5 Asia Latin America U.S. (VIX) May, 9 8 7 Emerging Markets (VXY) 8 5 3 8 Mar. Mar- Jan- Jan- Jan- Jan- Jan-8 Jan-
Still, credit growth is low in advanced economies. But, credit is buoyant in many EM! 5 Real Private Credit Growth (yoy percent change) 5 3 United States Euro Area Japan 3 - - 8 Jan. Source: Bank of Japan, European Central Bank, and the Federal Reserve Board. Spike in late due to securitized credit card assets that banks owned and that were brought onto their balance sheets in. Hong Kong Brazil China - India Turkey 7 8 9 - Dec. 3
Capital flows to EM recovered quickly after the crisis. But they have slowed since fall. Emerging Bond Funds Emerging Equity Funds (billions of U.S. dollars, weekly flows) (billions of U.S. dollars, weekly flows) 8. EMEA QE (Nov. 3).5. LatAm Asia excl. Japan Global Greece crisis QE (Nov. 3) Total Greece crisis.5 -. - -.5 Ireland crisis 3/9/ -. Jan- Mar- Apr- Jun- Aug- Oct- Dec- Feb- Source: EPFR Global. - Ireland crisis 3/9/ -8 Jan- Mar- Apr- Jun- Aug- Oct- Dec- Feb-
Commodity prices have been boosted by structural, cyclical, and special factors. 5 Real Commodity Prices (index; 995=) Oil prices (left scale) Contribution to Global Annual Growth of Oil Demand (percent) U.S. Other Industrial Countries China Emerging and Developing Economies World GDP 8 3 8 Food (right scale) Total demand - 98 9 8Q 9Q 9Q Q Q - Simple average of spot prices of U.K. Brent, Dubai Fateh, and West Texas Intermediate crude oil.
Low inventories and bad harvests have caused large food price increases. Prices are expected to recede amid better harvests but pose social challenges. 35 Global Food Commodity Markets Stocks and Prices 3 Grain inventories (percent, left scale) 5 5 Food price index (5=, right scale) 8 99 9 Global end-year inventories as percent of consumption with USDA projections for.
After an inventory acceleration-slowdown cycle, activity seems poised to reaccelerate in. 3 Industrial Production (annualized percent change of 3mma over previous 3mma) Manufacturing PMI (index) 55 5 5 - - Advanced economies Advanced economies 35 Emerging economies Emerging economies -3 5 7 8 9 Dec. 8 3 Feb. 7
Multispeed recovery: ½ percent growth in EM ½ percent growth in AE = ½ percent global growth. Real GDP Growth (percent change from a year earlier) 8 8 - - - -8 Advanced economies Emerging economies..5 MENA Developing Asia Latin America Sub-Saharan Africa CIS CEE. 8..7 5.5 5. 3.7 - - - -8-8 8-8
Downside risks have diminished but continue to dominate. Prospects for World GDP Growth (percent change) 9% Confidence interval 5% Confidence interval Baseline forecast. Dotted lines show width of fan chart in April Upside risks: Buoyant EM activity Strong corporate balance sheets 8 Downside risks: Sovereign/financial risks Oil supply concerns - 8 9 9
EM in Asia and Latin America are operating above strong pre-crisis trends. In AE, CEE, CIS activity is lagging. Real GDP in in percent of 997 trend 5 5 95 9 85 World AE EM Asia LATAM MENA SSA CEE CIS 8 Source: IMF staff calculations. Pre-crisis trend obtained by extrapolating 99 real GDP growth. AE: Advanced economies, EM: Emerging economies, CEE: Central and eastern Europe, CIS: Commonwealth of Independent States, Asia: Developing Asia, LATAM: Latin America and the Caribbean, MENA: Middle East and North Africa, SSA: Sub-Saharan Africa.
Inflation has picked up. However, in AE this is mostly due to commodities. In EM, inflation pressures are broadening amid strong activity. Headline Inflation (Twelve-month change) Core Inflation (Twelve-month change) 5 8 3 - Advanced economies Emerging economies 8 Jan. Advanced economies Emerging economies 8 Jan.
In many EM, real policy rates and fiscal balances are well below pre-crisis levels, although output is above pre-crisis trends and inflation broadening. Real Policy Rates (relative to core inflation) 55 Fiscal Balance and Public Debt (percent of GDP) Latin America Emerging Asia 5 8 5 Fiscal Balance (right scale) - - 35 Public Debt (left scale) -3 3-3 5 7 8 9 Jan. 5 8-5
In various EM, credit over the past 5 years has been booming. Macroeconomic and prudential tightening appear essential to avoid boom-bust cycles. Per Capita Real Credit (percent change over 5 years) 99 95 7 98 9 7 Current (5-) Previous (label indicates year of prior peak) % 8 97 97 8 7 7 98 CN BR TR PE CO IN ID CL HK JO ZA BR: Brazil, CL: Chile, CN: China, CO: Colombia, HK: Hong Kong SAR, IN: India, ID: Indonesia, JO: Jordan, PE: Peru, ZA: South Africa, TR: Turkey. 3
In many AE, policy rates can stay low because activity and inflation are still subdued. Key policy challenge: fiscal consolidation. Real Policy Rates (relative to core inflation) 5 Fiscal Balance and Public Debt (percent of GDP) Europe Japan US Fiscal Balance (right scale) - 3 8 - Public Debt (left scale) - - -8 - - 8 Jan. Feb. 98 99
For, withdrawal of fiscal stimulus will be limited. In many advanced economies, much more adjustment is needed to achieve sound public finances. Fiscal Impulse (percent of GDP) Required Adjustment (percent of GDP), Advanced economies Emerging economies October WEO Planned Adjustment 5 8 - - -3 9 JP US GB ES FR CA IT DE Sources: IMF, Fiscal Monitor; and IMF staff calculations. CA: Canada, FR: France, DE: Germany, IT: Italy, JP: Japan, ES: Spain, GB: United Kingdom, US: United States. Cyclically adjusted primary balance adjustment needed to the debt ratio to percent in 3, except for Japan. 5
Global demand rebalancing is incomplete and has mostly been driven by negative structural forces. Global Imbalances (percent of world GDP) 3 ROW CHN+EMA OCADC DEU+JPN Oil exporters U.S. Total Domestic Demand (percent) Average Growth 3-7 Average Growth - October WEO 9 3 - Excessive external surpluses Excessive external deficits,,3 Aligned, - -3 Discrepancy 99 8 CHN+EMA: China, Hong Kong SAR, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan Province of China, and Thailand; DEU+JPN: Germany and Japan; OCADC: Bulgaria, Croatia, Czech Republic, Estonia, Greece, Hungary, Ireland, Latvia, Lithuania, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Turkey, and United Kingdom; ROW: rest of the world; US: United States. Sources: Federal Reserve Board; and IMF staff calculations. Based on the IMF staff s Consultative Group on Exchange Rate Issues (CGER). CGER countries include Argentina, Australia, Brazil, Canada, Chile, China, Colombia, Czech Republic, euro area, Hungary, India, Indonesia, Israel, Japan, Korea, Malaysia, Mexico, Pakistan, Poland, Russia, South Africa, Sweden, Switzerland, Thailand, Turkey, United Kingdom, and United States. For a detailed discussion of the methodology for the calculation of exchange rates over- or undervaluation, see Lee and others (8). These economies account for 8.5 percent of global GDP. 3 These economies account for 7. percent of global GDP. These economies account for 39. percent of global GDP.
Growth and policies are not strong enough to significantly lower high unemployment, especially of the young. Projected Unemployment Rate by Regions, (percent) Youth Unemployment in Major Regions (percent) 35 8 % 3 5 5 % 5 Advanced Econ. Middle East North Africa CEE & CIS SSA LAC South East Asia & Pacific Other Asia Middle East North Africa CEE & CIS Advanced Econ. LAC South East Asia & Pacific SSA South Asia East Asia Sources: Haver Analytics; International Labor Organization; and IMF staff calculations. CEE&CIS: Central and South-Eastern Europe (non-eu) and Commonwealth of Independent States, LAC: Latin America and the Caribbean, SSA: Sub-Saharan Africa. 7
International Monetary Fund World Economic Outlook Jörg Decressin Assistant Director Research Department, IMF IMF Internal Presentation March 7,
Domestic demand in EM Asia is not projected to accelerate much reserve buildup fuels inflation & credit, hampers RER appreciation & rebalancing. Net Financial Flows, 8 (billions of U.S. dollars) Current account Private financial flows Change in reserves REER Change in EM (percent change from June 7 to January ; GDP weighted) 8 5 8 9 3 Asia MENA LAC - Asia: Developing Asia, MENA: Middle East and North Africa, LAC: Latin America and the Caribbean. Excessive external surpluses Excessive external deficits Aligned 9