Regional Economic Outlook October 211 Oil and gas exporters Oil and gas importers Kazakhstan Georgia Uzbekistan Kyrgyz Republic Armenia Azerbaijan Turkmenistan Tajikistan
Overview Global outlook (CCA) outlook and policies 2
Global outlook has weakened. Revisions to GDP growth (Percentage point change; June 211 WEO to September 211 WEO) -.5-1. 211 212-1.5 World U.S. Euro area CEE Russia Emerging Asia Source: International Monetary Fund, World Economic Outlook. 3
and recovery is uneven Real GDP Growth 1 (percent change from a year earlier) 12 Advanced Economies Emerging Economies 12 1 Emerging Asia 1 8 8 6 4 United States Euro area Japan 6 4 2 2-2 -4-6 Central and Eastern Europe Russia -2-4 -6-8 -8-1 -1-12 2 2 4 6 8 1 12 2 2 4 6 8 1 12-12 1 Quarterly data, except for Central and Eastern Europe (CEE), where annual data are used. Source: International Monetary Fund, World Economic Outlook. 4
Equity markets have fallen Equity Markets (index; 27=1; national currency) 16 14 12 DJ EURO STOXX S&P 5 Asia Latin America 16 14 12 Russia Poland Turkey Romania 1 1 8 8 6 6 4 4 2 2 2 2 4 6 8 1 Sep. 11 Sources: IMF, World Economic Outlook; and Bloomberg. 2 2 4 6 8 1 Sep. 11 5
Financial stability risks have increased Government Bond Spreads (two-year yield spreads over German bunds; basis points) 4 35 3 25 2 15 1 5 Spain Italy Belgium France -5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Sources: IMF, World Economic Outlook; and Bloomberg. 1/ One-year yield spreads over German bunds. Sep. 11 6 75 7 65 6 55 5 45 4 35 3 25 2 15 1 5-5 Poland Romania 1/ Russia (RHS) Turkey (RHS) -1 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 24 22 2 18 16 14 12 1 8 6 4 2 Sep. 11
Commodity prices still high but may have peaked Commodity Prices (index; 25=1) 23 25 Food Beverages Agricultural raw materials 28 24 Energy Metals Gold (RHS) US$ per troy ounce 18 14 18 2 1 155 16 6 13 15 12 2 8 Jan-5 Aug-6 Mar-8 Oct-9 May-11 Dec-12 8-2 Jan-5 Aug-6 Mar-8 Oct-9 May-11 Dec-12 Source: IMF, Global Data Source. 7
Downside risks have increased sharply Prospects for world GDP growth (annual percent change) Downside risks: Euro area crisis Advanced economy sovereign risks Escalating global financial volatility Oil supply concerns (risk of higher oil prices) 9% confidence interval (Sep 211 WEO) 9% confidence interval (Apr 211 WEO) 8 7 6 5 4 3 2 1-1 28 29 21 211 212 Source: IMF, World Economic Outlook. 8
: Outlook and Challenges CCA region: Broadly positive growth outlook, but growing external risks Inflation remains a concern in many countries Banking sectors still impaired in some countries Oil and gas importers face: Limited fiscal space External vulnerabilities large current account deficits and debt burden Oil and gas exporters face: Large non-oil fiscal deficits The challenge of improving the quality of public spending Medium-term challenges: Creating jobs and fostering high and inclusive growth 9
Exports and remittances continue to grow solidly Exports of Goods (3-month moving average of year-on-year growth, percent) Remittance Inflows 12 6 ARM AZE GEO ARM GEO 9 KAZ KGZ TJK 4 KGZ TJK 6 3 2-3 -2-6 -9 May-9 Nov-9 May-1 Nov-1 May-11-4 May-9 Nov-9 May-1 Nov-1 May-11 Sources: National authorities; and IMF staff calculations. 1
Growth outlook broadly positive 15 12 9 Real GDP (annual growth, percent) Real GDP Growth projection 212 8 7 TKM UZB AZE 6 6 TJK KGZ 3 5 KAZ GEO -3 CCA oil and gas exporters CCA oil and gas importers 4 ARM World -6-9 Russia China 25-8 29 21 211 212 Sources: National authorities; IMF, World Economic Outlook; and IMF staff calculations and projections. 3 2 212 CEE 11
but with downside risks Risk Channel CCA Impact Russia - Remittances - Exports - FDI Global Slowdown Commodity Prices and Volumes Financial flows - Oil & gas - Aluminum - Cotton - Non-ferrous metals - Bank credit lines - FDI - Rollover needs - Investment in EUR banks and the region 12
Inflation remains a concern in the oil and gas exporters Headline and Core Inflation (average annual rate, in percent) 12 1 Headline inflation Core inflation 8 6 4 2 29 21 211 212 Sources: National authorities; IMF, World Economic Outlook; and IMF staff calculations and projections. 13
and in some oil and gas importers Headline CPI Inflation (12-month change; percent) 25 2 ARM GEO KGZ TJK CEE 15 TJK KGZ 1 5 GEO CEE ARM Sources: National authorities; and IMF staff calculations. 14
Fiscal consolidation is needed Fiscal Deficits (fiscal balance; percent of GDP) Public Debt (percent of GDP) 6-5 5-1 4-15 3-2 2-25 CCA oil and gas exporters¹ CCA oil and gas importers -3 CEE 25 26 27 28 29 21 211 212 1 25 26 27 28 29 21 211 212 Sources: National Authorities; and IMF staff calculations. ¹ Non-oil and gas fiscal balance over non-oil and gas GDP is used. 15
Monetary policy more tightening needed Nominal Policy Rates 1,2 (percent) Real Policy Rates 1,2 (percent) 14 6 12 4 1 2 8 6-2 4-4 2 CCA oil and gas exporters CCA oil and gas importers CEE Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jun-11 1 Weighted by PPPGDP. 2 CEE policy rate is the weighted average of Bulgaria, Hungary, Latvia, Lithuania, Poland, Romania, and Turkey. Sources: IMF, Global Data Source (GDS) database; and IMF staff calculations and projections. -6 CCA oil and gas exporters CCA oil and gas importers -8 CEE Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jun-11 16
Need to address external vulnerabilities in the oil and gas importers Current Account Balance (percent of GDP) External Debt (percent of GDP) International Reserves (percent of GDP) 15 75 35 1 5 7 65 6 55 3 25 2-5 -1-15 -2 27 28 29 21 211 212 5 45 4 35 3 27 28 29 21 211 212 15 1 5 27 28 29 21 211 212 CCA oil and gas exporters CCA oil and gas importers CEE Sources: National authorities, IFS database, and IMF staff calculations and projections. 17
Need to repair bank balance sheets in some countries 3 Nonperforming Loans (on a 9-day basis; percent of total loans) 28 29 21 211 (latest) 25 2 15 1 5 AZE POL TJK ² Emerging Europe¹ KGZ SRB KAZ Sources: National authorities; GFSR. ¹Simple average of NPLs for Albania, Bosnia, Bulgaria, Croatia, Hungary, Lithuania, Latvia, Macedonia, Montenegro, Poland, Romania, Russia, Serbia, Turkey, and Ukraine. 2 3-day basis. 18
Policy Advice in the Event that Risks Materialize Allow greater ER flexibility Step-up communications on risks now Allow flexibility if pressures emerge Avoid a re-run of the 28-9 response: limit loss of reserves Ease monetary policy, if conditions warrant Lower global commodity prices may allow for easing of monetary policy Improve quality of fiscal spending assess scope for targeted response Reorient spending to protect the most vulnerable In CCA countries with fiscal space, consider counter-cyclical response 19
Youth Unemployment Rate (29) Medium-term challenges: Need to address unemployment,... 35 3 25 2 15 1 5 Measuring Unemployment in the South Caucasus (29, percent) Alternative/unofficial¹ Official 18.7 6.8 9.9 6.1 16.9 Armenia Azerbaijan² Georgia ¹Sources: Armenia: Asian Development Bank (211); Azerbaijan: World Bank (21); Georgia: National Demographic Institute, Transparency International, and Oxford Analytica. ²Data for Azerbaijan refer to 28. 3 2 Youth Population and Unemployment¹ (percent) 45 4 35 3 25 2 15 1 5 Serbia Georgia Croatia EU27 Russia Ukraine Slovenia Armenia Turkey Azerbaijan Kazakhstan 1 2 3 4 5 Youth Population Share (21) Sources: United Nations; International Labour Organization; Eurostat; and national authorities. ¹ 28 youth unemployment for Azerbaijan, Croatia, and Georgia; 25 for Ukraine. Youth are those in the 15 24 age group. 2
Better business environment...improve the business environment,... 18 Doing Business Ranking (212 ) 16 14 12 1 8 6 4 2 GEO KAZ ARM AZE CEE KGZ EAP MENA LAC EM SA LIC SSA TJK UZB Source: World Bank, Doing Business Survey. 21
Better governance Better governance...and enhance governance 6 Rule of Law (country Rankings, 21) 6 Control of Corruption (country Rankings, 21) 5 5 4 4 3 3 2 2 1 1 Source: World Bank, Worldwide Governance Indicators 29. 1/ The Resource-rich group comprises the 41 resource-rich countries that are included in the Revenue Watch Institute's 21 index. 22
Policy Priorities Oil and Gas Importers: Aim for sustained fiscal consolidation Rein in large current account deficits Tighten monetary policy further (KGZ, TJK) Oil and Gas Exporters: Exit from accommodative fiscal and monetary policies to combat inflation Improve the transparency, quality, and efficiency of public spending If global growth deteriorates sharply, macroeconomic policy tightening may need to be put on hold in the short term Need to repair bank balance sheets and tackle high NPLs in some countries Medium-term policy priorities: Address unemployment Improve the business environment Enhance governance 23
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