Global Outlook and Policy Challenges · 2014-09-12 · Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 United...
Transcript of Global Outlook and Policy Challenges · 2014-09-12 · Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 United...
February, 2009
Global Outlook and Policy Challenges
Olivier BlanchardEconomic CounsellorResearch Department
1
WEO Real GDP Growth ProjectionsWEO Real GDP Growth Projections((In percent change from a year earlier)In percent change from a year earlier)
U.S.U.S. Euro Japan China India WorldEuro Japan China India World
2002009 (Jan.09) 9 (Jan.09) --1.6 1.6 --2.0 2.0 --2.6 6.7 5.1 0.52.6 6.7 5.1 0.52002009 (Nov.08) 9 (Nov.08) --0.7 0.7 --0.5 0.5 --0.2 8.5 6.3 2.20.2 8.5 6.3 2.2Change Change --0.9 0.9 --1.5 1.5 --2.4 2.4 --1.8 1.8 --1.2 1.2 --1.71.7
202010 (Jan.09) 1.6 0.2 0.6 8.0 6.510 (Jan.09) 1.6 0.2 0.6 8.0 6.5 3.03.0202010 (Nov.08) 1.5 0.9 1.1 9.5 6.8 10 (Nov.08) 1.5 0.9 1.1 9.5 6.8 3.83.8Change 0.1 Change 0.1 --0.7 0.7 --0.5 0.5 --1.5 1.5 --0.3 0.3 --0.80.8
Source: IMF, World Economic Outlook.Source: IMF, World Economic Outlook.
Global Outlook Has Deteriorated, but Modest Global Outlook Has Deteriorated, but Modest Turnaround Anticipated with Policy StimulusTurnaround Anticipated with Policy Stimulus
2Deteriorated Outlook Reflects Abrupt Fall in Industrial Activity and Global Trade
Merchandise Exports(Annualized percent change of 3mma
over previous 3mma)
-20
-15
-10
-5
0
5
10
15
Jan-00 Jan-02 Jan-04 Jan-06 Jan-0830
35
40
45
50
55
60
65
Industrial Production(Annualized percent change of 3mma
over previous 3mma)
Global IP
Global Manf. PMI(sa, RHS)
-40
-30
-20
-10
0
10
20
30
40
50
60
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08
Dec.08
World
Nov.08
Advanced
Emerging
3
Behind the Forecasts—Advanced Economies
Causes of the collapse of output: Continued financial crisis.
Less through direct effects (so far) of credit crunch.
Than through indirect effects
Lower wealth
Collapsing confidence
Wait and see
4
40
50
60
70
80
90
100
110
120
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
U.S.
Japan
Euro area
U.K.
Fall in Stock Markets and Consumer Confidence
1/23 0
20
40
60
80
100
120
140
160
180
Jan-05 Jan-06 Jan-07 Jan-08
U.S.
Japan
Euro area
U.K.Dec.08
Equities(1/1/2007=100; FTSE)
Consumer Confidence(Jan. 2005=100)
LehmanBrothers
5
Behind the Forecasts—Emerging Economies
Three Major Shocks:
Declining External Demand and Exports.
Tighter Credit (External Financing).
Lower Commodity Prices.
6
-40
-20
0
20
40
60
03 04 05 06 07 08 09-10
-5
0
5
10
15
20
03 04 05 06 07 08 09
Emerging Economies Growth Slowed By Falling Exports and Industrial Production
Industrial Production(in percent change from a year earlier)
Emg. Asia
Nov.08
Merchandise Exports(in percent change from a year earlier)
Latin America
Emg. Asia
Latin America
Nov.08
Emg. Europe
Emg. Europe
7Sharply Lower Commodity PricesSharply Lower Commodity Prices
Commodity Price Indices(index: Jan. 2002=100)
0
100
200
300
400
500
600
700
Jan-02 Jan-04 Jan-06 Jan-08
Metal Index
Beverage Index
Food Index
Agricultural RawMaterialEnergy
Proj.
8
0
400
800
1200
1600
2000
2400
2800
3200
3600
Jul-07 Nov-07 Mar-08 Jul-08 Nov-08
External Financing PressuresExternal Financing Pressures
Selected Emerging Markets Sovereign CDS Spreads(index: 7/1/2007=100)
Current account surplus or small deficit
Current account deficit larger than 5% of 2007 GDP
1/23
9
0102030405060708090
100
2006Q1
Q2 Q3 Q4 2007Q1
Q2 Q3 Q4 2008Q1
Q2 Q3 Q4
LatamAsiaEMEA
Syndicated Lending to Emerging Markets(in billions of U.S. dollars)
Source: Dealogic
Syndicated lending to emerging markets Syndicated lending to emerging markets has contracted sharply as banks has contracted sharply as banks deleverdelever
10
0102030405060708090
100
2006Q1
Q2 Q3 Q4 2007Q1
Q2 Q3 Q4 2008Q1
Q2 Q3 Q4
CorporatePublic
Emerging Markets Bond Financing(in billions of U.S. dollars)
Market-based financing tighter with home bias
Source: Dealogic
11
0
50
100
150
200
250
300
350
400
450
500
2005 2006 2007 2008 2009 2010 2011 2012
SovereignCorporate
Historical Issuance and Upcoming FX-Denominated Debt (in billions of U.S. dollars)
Source: Dealogic, Bloomberg, Staff Estimates
Issuance Amortization
Emerging Market Emerging Market CorporatesCorporates will have Large Rollover will have Large Rollover Needs in Coming YearsNeeds in Coming Years
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Policy Challenges—Advanced Economies
Need to decrease uncertainty and tail risk
Need to repair financial system, get credit going 3 legs, but only 1 working
May need to substitute / do it yourself for some timeCentral banks and “credit easing”
Need to boost demand (fiscal stimulus)Spending more than general tax cuts, higher multipliers
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0
200
400
600
800
1000
1200
Worldwide Americas Europe Asia
Writedowns and Credit Losses vs. Capital Raised (In billions of US$; cumulative since 2007Q2)
0
200
400
600
800
1000
1200
Banks/Brokers Insurers GSE
Clarifying Asset Prices and Capital Adequacy
(By Region) (By Type)
Losses
Capital
Losses
Capital
Source: Bloomberg, L.P.
14
0
1
2
3
4
5
6
7
Jan-08 May-08 Sep-08 Jan-09
Counteracting Portfolio Shifts through “Credit Easing”
U.S. Commercial Paper Rates(30-day rates; in percent)
Non-Financial (A2/P2)
1/20
U.S. Credit Spreads(over Treasuries; in basis points)
Financial (AA)
Asset-backed (AA)
CPFF MMIFF
0
200
400
600
800
1000
Jan-08 May-08 Sep-08 Jan-09
. Corporates (BBB)
1/21Conforming
mortgage
Jumbo mortgage
TALFCredit
Cards ABS
MBSPrgm.
15
Global Growth and Contributions of Fiscal Stimulus 1/World
(in percent, GDP Growth)
-4
-3
-2
-1
0
1
2
3
4
5
6
7
06 07 08 09 10 11 12 13 14 15
WithoutFiscal
Package
WEO projection
United States(in percent, GDP Growth)
-4
-3
-2
-1
0
1
2
3
4
5
6
7
06 07 08 09 10 11 12 13 14 15
WithoutFiscal
Package
WEO projection
1/ GIMF simulation; fiscal shock based on G-20 fiscal packages plus two-year monetary accommodation.
16
Policy Challenges—Advanced Economies
Big challenge if long rates go up (sustainability concern), then much of the positive effects is offset
Need well defined, credible medium-run plans
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0
20
40
60
80
100
120
140
160
180
200
Jun-07 Oct-07 Feb-08 Jun-08 Oct-08
United States
United Kingdom
Japan
Industrial Economies(5yr Sovereign CDS; in basis points)
0
20
40
60
80
100
120
140
160
180
200
Jun-07 Oct-07 Feb-08 Jun-08 Oct-08
France
Germany
Italy
Spain
1/23 1/23
Selected Europe(5yr Sovereign CDS; in basis points)
Rising Concerns Over Fiscal Sustainability
Source: Bloomberg, L.P.
18Ireland Sovereign and Bank CDS SpreadsBefore and After Public Guarantees
Irish Bank and Sovereign CDS Spreads(5-year CDS Spreads; in basis points)
0
50
100
150
200
250
300
350
400
450
Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09
2/2
Bank of Ireland
Ireland Sovereign
Allied Irish Bank
Governmentguarantees
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Policy Challenges—Emerging Economies
Same as advanced economies (bad loans, tight credit), plus more:
Lower commodity prices.
Lower export growth.
Usual advice: Smooth if you can (reserves, exchange rates, fiscal policy).
Two issues:
How long? One year, or many more?
Capital account: ``Creeping stops’’ of financing (home bias)
Need liquidity support (reserves, swaps, new Fund facility)
20
New IMF Facility?
Some directions:
Creeping stops: Largely exogenous, Slow, Long Lasting.
Prequalification, not conditionality
Precautionary. Available for 6 months, one year?
Long lasting. Same terms as SBA?
21
Recovery Prospects and Risks
Recovery prospects based on: Slow improvement of financial system; housing price stabilization; fiscal impulses and other key policy actions.
Key Risks: Policies not in place soon enough (more serious real and financial feedbacks)
Policies in place, but do not work well (Japan, 1990s)
Policies cannot help avoid sustained deflation
Policies help some at expense of others
Still, some reasons for optimism. Crisis of confidence, but confidence can return fairly fast with right policies
22U.S. Housing – Signs of Stabilization?
Real House Prices(index, 1995 = 100)
Housing Inventories(new homes)
50
100
150
200
250
70 75 80 85 90 95 00 05
OFHEO
Case-Schiller
NAR
OFHEO trend
NAR trend
100
200
300
400
500
600
70 75 80 85 90 95 00 050
2
4
6
8
10
12
14
Months of supply
(RHS, SA)
Thousands of units(LHS)
23
Price of Oil(US dollar/barrel)
G3 Growth(year-on-year percent change)
-6-4-202468
2007 2008 2009 2010 2011 2012
US Inflation(year-on-year percent change)
Euro Area Inflation(year-on-year percent change)
5050thth percentile and confidence bandspercentile and confidence bands 1/1/
20
40
60
80
100
120
140
2007 2008 2009 2010 2011 2012
-4
-2
0
2
4
6
2007 2008 2009 2010 2011 2012-4
-2
0
2
4
6
2007 2008 2009 2010 2011 2012
How Great Are Deflation Risks?
1/ Simulations from Global Projection Model (GPM).
24
-60-40-20
020406080
100120140
Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08-60-40-20020406080100120140
Total
Advanced
EM
Syndicated Loans for Trade Finance(%yoy change on 3-month moving average)
12
A Global Credit Crunch may Contribute
to Sharp Drop in Trade Finance
Source: Dealogic
25
0.0
0.2
0.4
0.6
0.8
1.0
1.2
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 090
10
20
30
40
50
60
70
VIX and Standard Deviation of Forecasts (in percent)
VIX Index(RHS)
U.S. Consensus Forecasts (STDEV; following
year; LHS)
Gulf War I
AsianCrisis LTCM
Heightened Uncertainty a Defining Feature of the Crisis
9/11Jan.09
26Leading to Sharp Portfolio Shifts
0
2
4
6
8
10
12
Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09
U.S. Interest Rates(in percent)
Corp. BBB
10yr Treasury
Corp. AA
1/26
2yr Treasury
27
-40
-20
0
20
40
60
80
100
120
140
Recession Avg. 1/ 2008Q3
VIX
Consumer confidence
Consumer durables
Fixed investment
Residential investment
Elevated Uncertainty Weighing on Spending
VIX , U.S. Confidence& Spending
Source: Bloomberg L.P.1/ Average of year-on-year percent changes during NBER recession dates from 1980-2008.
-50
-40
-30
-20
-10
0
10
20
30
Jan-07 Jan-08 Jan-09-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
U.S. Vehicle Sales(in percent)
Auto and truck sales(yoy 3ma; RHS)
Auto and truck unit inventory
sales ratio(LHS)
(percent change, yoy)