International Monetary Fund September 9, 16 International Economic Outlook Alejandro Werner Director Western Hemisphere Department 1
Global and Regional Developments Relevant Issues
Global and Regional Developments Relevant Issues 3
World Advanced Economies U.S. Japan Euro Area Emerging Market and Developing Economies China India Brazil Russia 3 7.1.8.9 1.8. 7.8 11.7 8.8 4. 7. 1.4 3.1. 4.7.1 7.4 1.6 1.3 7. 4. 3.1 1.9.4. 1.7 4. 6.9 7.6-3.8-3.7 16 3.1 1.8..3 1.6 4.1 6.6 7.4-3.3-1. 17 3.4 1.8..1 1.4 4.6 6. 7.4. 1. Source: IMF, World Economic Outlook (July 16 Update) database. 4
World: Real Investment and Real Imports (Percent change) 1 1 - - -1 Real investment Real imports -1-1 3 4 6 7 8 9 1 11 1 13 14 16 - Sources: IMF, World Economic Outlook database; and IMF staff calculations.
Contribution to Real GDP Growth (Percent change from previous quarter; SAAR) Payrolls and Unemployment Rate Inflation and Expectations (Year-over-year percent change) 6 4 Net exports Change in private inventories Residential investment Govt. consump. and invest. Non-residential investment Personal consumption exp. Real GDP growth 4 3 Unemployment rate (percent; right scale) Average, 4 6 Change in nonfarm payrolls (thousands) 8. 7. 6. 3 1 Market implied inflation expectations (TIPS year breakeven rate) CBO projection Core PCE (percent, yoy) FOMC projection 3 1 1. - 14Q 14Q4 Q Q4 16Q 13 14 16 4. Source: U.S. Bureau of Economic Analysis. Sources: Bloomberg, L.P.; Federal Reserve; and IMF staff estimates. Sources: Bloomberg L.P.; HCBO; FOMC; Haver Analytics; U.S. Bureau of Economic Analysis; and IMF staff calculations. Note: dotted lines represent projections. 6
Real GDP Growth (Percent change) Inflation (End of period; percent change) Stock Market (Index: July 1, = 1) 1 1 11 - -1-1.6 1 8 6 4 - -4 Price stability objective. 1 9 8 7 6 Eurostoxx Eurostoxx banks S&P Source: IMF, World Economic Outlook (July 16 Update) database. Note: Includes Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovak Republic, Slovenia, Spain. Source: IMF, World Economic Outlook (July 16 Update) database. Note: Includes Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovak Republic, Slovenia, Spain. Sources: Bloomberg, L.P.; and IMF staff calculations. 7
4 Real GDP, Consumption, and Investment Growth (Percent change) Real GDP (right scale) Real consumption Real investment 16 14 Real GDP Growth, Imports, and Industrial Production (Percent change) 3 Real GDP Real imports Industrial production Total Social Financing (Adjusted; Percent of GDP) 1 18 48 46 1 8 6 1 16 14 44 4 1 4 4 7 9 11 13 4 6 8 1 1 14 16 1 6Q4 7Q4 8Q4 9Q4 1Q4 11Q4 1Q4 13Q4 14Q4 Q4 Source: IMF, World Economic Outlook (July 16 Update) database. Sources: Haver Analytics; and IMF, World Economic Outlook (July 16) database. Note: for 16 the data correspond to the second quarter. Sources: CEIC Data Company Ltd., and IMF staff calculations. 8
Global Commodity Prices (Index: = 1) 8 4 16 1 8 Energy Agricultural raw materials Metals 8 4 16 1 8 4 4 9:Q1 9:Q3 1:Q1 1:Q3 11:Q1 11:Q3 1:Q1 1:Q3 13:Q1 13:Q3 14:Q1 14:Q3 :Q1 :Q3 16:Q1 16:Q3 17:Q1 17:Q3 Source: IMF, World Economic Outlook database. 9
Equity and Bond Flows (Cumulative flows in billions of U.S. dollars) 1 8 48 38 Brazil Colombia Peru Sovereign Spreads (Basis points) Chile Mexico Argentina (rhs) 16 14 1 1 8 LA Foreign Bond Issuance: Nonfinancial Corporates (Billions of U.S. Dollars, 1-month rolling sum) 9 8 7 6 Brazil Colombia Peru Chile Mexico - 8 6 4-1 - - 14 16 18 8 4 3 1 Sources: EPFR database; and IMF staff calculations. Note: Includes Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela. Sources: Bloomberg, L.P.; national authorities; and IMF staff calculations. Sources: Dealogic and IMF staff calculations. ¹Data for Brazil include issuance by foreign subsidiaries of Brazilian firms. 1
16 LAC growth: -.4% LAC: Real GDP Growth (Percent) Projections 1 14 16 17 LAC 6.1 1.3. -.4 1.6 South America 6.6.7-1.3-1.9 1. Excluding ARG, BRA, ECU, VEN.9 3.3.9. 3. CAPDR 4.9 4.8 4.9 4.4 4. Caribbean Tourism-dependent -1..8.6 1.6 1.9 Commodity exporters 3.7. -.9 -.6.1 Memorandum items: LA6 6.4 1.4 -.4 -.1 1.8 Brazil 7..1-3.8-3.3. Mexico.1....6 Source: IMF, World Economic Outlook (July 16 Update) database. Note: Historical average refers to the average growth from 13. Source: IMF, World Economic Outlook (July 16 Update) database. Note: Purchasing-power-parity GDP-weighted averages. 11
U.S. and Euro Area Potential Output Growth (-1) (Percent change) U.S. Average Total Factor Productivity Growth (Percent) 4 3. United States Euro area 1. 1. 3 1. 1...9 Projection.9 1..6.6 1..3.3 1 3 4 6 7 8 9 1 11 1 13 14 16 17 18 19 1. 198s 199s s 1-¹ 1. Source: IMF, World Economic Outlook (July 16 Update) database. Note: dotted lines represent projections. Sources: Federal Reserve Bank San Francisco; Haver Analytics; and IMF staff calculations. ¹For multi-factor, 11-. 1 is included in s. 1
Major Advanced Economies 1-year Yield (Percent; GDP-weighted) 6 6 4 1-year yield in 1 years time 4 3 3 1 1-year yield 1 1 1 14 16 Source: Bloomberg L.P. 13
The U.S.: Real Neutral Rate: Declining Trend (Percent) Lower global neutral rates Lower medium-term growth in LA 6 4 3 1-1 FOMC median LT rate Uncertainty surrounding output gaps - -3 9/1/1983 8/1/198 7/1/1987 6/1/1989 /1/1991 4/1/1993 3/1/199 /1/1997 1/1/1999 1/1/ 11/1/ 1/1/4 9/1/6 8/1/8 7/1/1 6/1/1 /1/14 4/1/16 3/1/18 /1/ Source: IMF Working Paper /13, Lower for Longer: Neutral Rates in the United States. Note: FOMC median LT rate is as of July 16. 14
4 LAC and Brazil Potential Output Growth (-1) (Percent change) Latin America and the Caribbean Brazil 4 3 3 1 1-1 -1 Source: IMF, World Economic Outlook (July 16 Update) database. Note: dotted lines represent projections.
Global and Regional Developments Relevant Issues 16
16 Moderate Inflation Episodes and Convergence to Low Inflation Number of countries 14 1 1 8 6 4 Armenia Azerbaijan Brazil Georgia Kazakhstan Armenia Belarus Bulgaria Dom. Rep. Kyrgyz Rep. Peru Mexico Turkmenistan Ukraine Uruguay Bolivia Guatemala Hungary Iceland New Zealand Poland Tajikistan <4 4-6 7-1 >1 Years until reaching single digit inflation Chile Colombia Costa Rica Egypt Ghana Greece Israel Moldova Paraguay Russia South Africa Tanzania Uzbekistan Source: Fund staff estimates. 17
Inflation and Real Effective Exchange Rate in Chile and Colombia, 198-16 Chile (Inflation: y/y percent change; REER: 1=1, + appreciation) Colombia (Inflation: y/y percent change; REER: 1=1, + appreciation) 3 3 31% 6% Central Bank independence Inflation REER (r.h.s) 1 11 1 9 3 3 4% 9% 1% Central Bank independence Inflation REER (r.h.s) 13 1 11 1 1 13% 8% 4% 4% 9 8 8 7 1 9% 8% 9 8 7 7 6 Sources: IMF, World Economic Outlook database and staff calculations. Note: Lighter bars represent inflation less than 1 percent. 18
Inflation and Real Effective Exchange Rate in Mexico and Brazil, 198-16 Mexico (Inflation: y/y percent change; REER: 1=1, + appreciation) 6 4 3 1 3% 19% % 1% Central Bank independence 9% 7% Inflation REER (r.h.s) 3% 13 1 11 1 9 8 7 Brazil (Inflation: y/y percent change; REER: 1=1, + appreciation) 3 1 % 9.6% Inflation Max. inflation,477% 13% REER (r.h.s) 11% 11 1 9 8 7 6 6 4 Sources: IMF, World Economic Outlook database and staff calculations. Note: Lighter bars represent inflation less than 1 percent. 19
Primary Government Expenditure (Percent of GDP) Primary expenditure Average 1 7 Average 8 4 4 3 3 4 4 3 3 Argentina Brazil Chile Colombia 34 9 8 33 7 3 6 3 31 4 1 3 19 9 17 8 1 9 13 17 1 9 13 17 1 9 13 17 1 9 13 17 Ecuador Mexico Peru Uruguay 7 3 1 3 8 19 1 6 18 19 17 4 17 16 1 9 13 17 1 9 13 17 1 9 13 17 1 9 13 17 Sources: IMF, World Economic Outlook (July 16 Update) database; and IMF staff calculations.
General Government: Primary Balance and Gross Debt, End of (Percent of GDP) Emerging economies Advanced Economies LAC countries Gross Debt 1 BRA ARG MEX URY COL CHL PER - -1-1 Primary Balance Source: IMF, World Economic Outlook database. 1
General Government Expenditure (Percent of GDP, ) Debt-Stabilizing Primary Balance (Percent of GDP) 4 4 3 3 1% ARG LATAM average Argentina Venezuela Brazil Ecuador 4 3 1 9.4%.6% Primary balance Debt-stabilizing primary balance 41.9%.% 4.1% 1 4% BRA % ARG % BRA BRA BRA ECU -1 - -3 16 17 18 19 1 16 17 18 19 1 16 17 18 19 1 16 17 18 19 1 16 17 18 19 1 Total Transfers Wages Pensions Interest G&S Capital Brazil Chile Colombia Mexico Peru Source: IMF staff estimates. Sources: IMF, World Economic Outlook (July 16 Update) database; and IMF staff estimates. Note: Number next to the red line refers to the 1 debt-to-gdp ratio.
Net secondary school enrollment (in percent)n 1 8 6 4 Secondary School Teachers and Outcomes¹ (Latest Available Value) Colombia Chile Peru Mexico Argentina Uruguay EMs 1 Teacher-student ratio, per 1 students OECD Health Adjusted Life Expectancy, 13 8 7 7 6 6 4 4 3 3 Health Spending Efficiency Frontier¹ (Latest Available Value) Colombia Peru Chile Mexico Uruguay Argentina Brazil EMs 1 3 Health expenditure per capita, PPP$ OECD Sources: World Bank and IMF staff estimates. ¹Dashed line is LA6 average. Sources: World Bank and IMF staff estimates. ¹Dashed line is LA6 average. 3
Composition- revenues and expenditures (expenditure measures tend to have higher multipliers than revenue multipliers in the short-term) Rebalancing the composition of spending and of revenue (e.g. shifting in the revenue composition toward more growth-friendly taxes: property taxes>indirect taxes>labor income>corporate income taxes) Base broadening measures (e.g. rationalizing tax exemptions and preferential regimes) Improvements in revenue administration Prioritizing and better targeting spending Improving efficiency Ensuring sound pension and health systems Building strong fiscal institutions Source: Fiscal Policy and Long-term Growth (IMF, ). 4
General Principles: Rationalizing social assistance programs and improving targeting; Introducing and expanding conditional cash transfer programs as administrative capacity improves; Expanding noncontributory means-tested social pensions, while ensuring long-term sustainability; Improving access of low-income families to education and health services; Expanding coverage of the personal income tax (and making it progressive) During Normalization: Strengthening social safety nets to protect vulnerable households during normalization Cutting less progressive spending, such as generalized subsidies and government wages, improving targeting of social spending, and improving the incidence of in-kind spending such has education and health Enhancing the efficiency and equity of the tax system through greater reliance on progressive taxation Source: fiscal policy and income inequality (IMF, 14)
Investment and Consumption (Percent of GDP; constant prices) 9 3 86 1 19 8 78 17 74 13 7 Final consumption expenditure Gross fixed capital formation (right scale) 11 9 66 198 1988 1991 1994 1997 3 6 9 1 7 Sources: IMF, World Economic Outlook database; and IMF staff calculations. 6
86 84 8 8 78 76 74 7 7 Consumption () (Percent of GDP) 3 1 Investment () (Percent of GDP) Source: IMF, World Economic Outlook (July 16 Update) database. Source: IMF, World Economic Outlook (July 16 Update) database. 7
6 4 3 Investment Surge Episodes (Median Size and Duration) 9 7 3 Investment-to-GDP Ratio During Investment Surge Episodes (Percent of GDP) 1 Duration Years Source: IMF staff calculations. Size Percent of GDP 1 19 17 - -1 1 3 4 Source: IMF staff calculations. Years Median across episodes Australia Interquartile range of episodes 8
International Monetary Fund September 9, 16 International Economic Outlook Alejandro Werner Director Western Hemisphere Department 9