Global Storms, Latin Spillovers - bcrp.gob.pe · Global Storms, Latin Spillovers Charles Collyns Lima, Peru June 16, 2008

Global Storms, Latin SpilloversGlobal Storms, Latin Spillovers

Charles CollynsCharles Collyns

Lima, PeruLima, PeruJune 16, 2008June 16, 2008

1

Road MapRoad Map

•• Global downturn Global downturn —— Have risks receded?Have risks receded?

•• Commodities and inflation Commodities and inflation —— 1970s rerun?1970s rerun?

•• Financial winds Financial winds —— Which way will they Which way will they blow on Latin America?blow on Latin America?

2

0

1

2

3

4

5

6

7

8

1970

1975

1980

1985

1990

1995

2000

2005

2010

April 2008 WEO: Two Years of Slower Growth

TrendTrend19701970--20062006

Average Average downturndownturn

growth rategrowth rate19701970--20062006

Emerging & developingEmerging & developingeconomieseconomies

Advanced Advanced economieseconomies

Global GDP Growth(percent change, ppp-GDP weighted average)

3

0

1

2

3

4

Real GDPPotential GDP

Advanced economies are being most Advanced economies are being most affected by financial turbulenceaffected by financial turbulence

20062006 07 08 0907 08 09United StatesUnited States

20062006 07 08 0907 08 09Euro areaEuro area

20062006 07 08 0907 08 09JapanJapan

Real GDP Growth Rates(percent change)

4

0

2

4

6

8

10

Real GDPAverage 1995-2007

Emerging and developing economies Emerging and developing economies slowing, but still above trendslowing, but still above trend

06 07 08 0906 07 08 09AfricaAfrica

06 07 08 0906 07 08 09EmergingEmerging

AsiaAsia

06 07 08 0906 07 08 09Latin AmericaLatin America

06 07 08 0906 07 08 09Middle EastMiddle East

06 07 08 0906 07 08 09EmergingEmerging

Europe & CISEurope & CIS


5

45

50

55

60

65

-4

-2

0

2

4

6

8

10

12

Global economy is already cooling

Global Industrial Production and PMI

(In percent, 3m, saar)

-2

0

2

4

6

8

10

GDP(Percent change from a year ago)

042000 02 042002 06 Mar08

06 Q108

Advancedeconomies

Emergingeconomies

LatinAmerica

PMI(RHS)

Industrial Production(LHS)

6

-25

-20

-15

-10

-5

0

5

10

15

0

20

40

60

80

100

120

140

160Euro Area (right scale)United States (left scale)

Leading indicators point to slower growth ahead

Consumer Confidence(United States, 1985 = 100; Euro Area,

percent balance)

40

45

50

55

60

65Euro area

United States

Manufacturing Confidence(Values greater than 50 indicate expansion)

042000 02 Apr.08

042000 06 Apr.08

0206

7

0

100

200

300

400

500

600

700

800

Goldman SachsBear StearnsMerrill LynchLehman BrothersMorgan Stanley

0

50

100

150

200

250CitigroupJP MorganBank of AmericaDeutsche BankCredit SuisseBarclaysUBS

Tail risks in the financial system have been reduced—but fragilities remain

5-Year CDS Spreads of U.S. Banks

(Basis points)

5-Year CDS Spreads of U.S. Investment Banks

(Basis points)

Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420072007

Q1 JunQ1 Jun20082008

Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420072007

Q1 JunQ1 Jun20082008

8

0

50

100

150

200

250

300

350

400

450

500

550

AsiaEuropeUS

Writedowns*Writedowns* Capital RaisedCapital Raised

Financial balance sheets are being repairedFinancial balance sheets are being repaired(Billions of U.S. dollars)(Billions of U.S. dollars)

* Includes writedowns due to asset valuation yet to be passed through income statement.

$ 382 bn

$ 270 bn

$ 430-510 bn

Total Estimated LossesTotal Estimated Losses

9

0.0

0.5

1.0

1.5

2.0

2.5

Liquidity strains and volatility remain high

Interbank Markets(3-month LIBOR minus T-bill rate; in percent)

UnitedStates

Japan

Market Pricing of Volatility(10-years; medians in basis points)

Euroarea

TAFTAFDec 12Dec 12

Q1 Q2 Q3 Q42006

Q1 Q2 Q3 Q42007

May2008

0

25

50

75

100

125

150

175

200

Equities (VIX)Interest rates (MOVE)Currencies (VXY)

2000 01 02 03 04 05 06 07 May2000 01 02 03 04 05 06 07 May0808

10

0

100

200

300

400

500

600

700

U.S. - AU.S. - BBBU.S. - BBEuro - BB

Corporate Spreads(basis points)

0

100

200

300

400

500

600

700

0

4000

8000

12000

16000

20000

24000

28000

32000Conforming

Jumbo

Subprime (right scale)

U.S. Mortgage Spreads(over 1 month LIBOR rates, basis points)

2006

Interest spreads have moderated Interest spreads have moderated –– but still but still widewide

2007 Jun.2008

2006 2007 Jun.2008

11

Issuance of debt has dropped off

0

100

200

300

400

500

600

Leveraged loans

Investment grade debt

High yield debt

20012001 20022002 20032003 20042004 20052005 20062006 20072007 20082008

US Corporate Debt Issuance(billions of U.S. dollars)

12

-5

0

5

10

15

20

25

United States

Euro Area

How much is bank credit being squeezed?

1 Change in the balance of respondents between the “tightened considerably and tightened somewhat” and the “eased somewhat and eased considerably.”

Total Loan Growth(3m percent change of 3m mov average)

-30

-20

-10

0

10

20

30

4050

60

70

80

90

100

110

120U.S.: C&I loan standards

U.S.: Mortgage lending standards

ECB: Standards for lending to largecompaniesECB: Standards for lending tohouseholds for house purchase

Changes in Credit Standards(percent of respondants1)

072005 06 08 Q2 042000 06 Apr.08

02

13

3

4

5

6

7

8

9

10

11

ThousandsMonths of supply

-40

-30

-20

-10

0

10

20

30

40

New home startsNew home sales

0

1

2

3

4

5

6

7

8

Mortgage DelinquenciesForeclosures

Inventories(3 month moving average)

Mortgage Delinquencies & Foreclosures

(percent of total mortgages)

New Home Sales & Starts(y/y pct change of 3m moving average)

U.S. housing correction continues full blastU.S. housing correction continues full blast

0000 0202 0404 0606 Apr.Apr.0808

0000 0202 0404 0606 Q1Q10808

0000 0202 0404 0606 Apr.Apr.0808

-15-10-505

1015202530

OFHEOCase-Shiller

House Prices(y/y percent change)

0000 0202 0404 0606 Q1Q10808

14

-0.14-0.12-0.10-0.08-0.06-0.04-0.020.000.020.040.060.08

Financialconditions

Domesticdemand inthe U.S.

Domesticdemand inEurope and

Japan

Domesticdemand inemergingmarkets

Inflationrisks

Oil markets Globalimbalances

January 2008 update

Spring WEO (April 1, 2008)

Current

Concerns shift from financial risk to inflation riskConcerns shift from financial risk to inflation risk(Percentage points of global GDP growth)(Percentage points of global GDP growth)

Downside risk to global growth

Upside risk to global growth

15

Risks around baseline look more Risks around baseline look more balancedbalanced

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

2004 2005 2006 2007 2008 2009

90% Confidence interval70% Confidence interval50% Confidence interval

April 2008Baseline forecast

Global GDP Growth(percent change, ppp-GDP weighted average)

16

Road MapRoad Map




17

Historical perspective on the commodities boom

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

0

50

100

150

200

250

Real Oil, Metals and Food Prices(1970 = 100)

1970 75 Q208

Food (LHS)

Metals (LHS)

Oil (RHS)

80 85 90 95 2000 05

18

50

100

150

200

250

300

0

100

200

300

400

500

600

700

How Much Higher Will Commodity Prices Go?

Energy

Agriculturalraw materials

Beverages

Food

2002 04 06 08

Soybean

Corn

Wheat

2006 07 08 09

Futures curvesas of June10, 2008

Metals

Rice

Selected Commodity Prices(January 2002 = 100)

Selected Food Prices(January 2006 = 100)

19

Oil options prices show a wide band of Oil options prices show a wide band of uncertaintyuncertainty

30

50

70

90

110

130

150

170

19090% confidence interval



Spot/futures price

Crude Oil Prices(Brent; from futures options; as of May 15 2008; Brent; from futures options; as of May 15 2008;

U.S. dollars per barrelU.S. dollars per barrel)

20062006 20072007 20082008 Mar.Mar.20092009

40

50

60

70

80

90

100

110

120

130

140

150




Spot/futures price

Crude Oil Prices(Brent; from futures options; as of May 24 2007; Brent; from futures options; as of May 24 2007;


20052005 20062006 20072007 Mar.Mar.20082008

20

Oil demand has caught up with capacityOil demand has caught up with capacity

World Oil Demand, Production Capacity and Spare Capacity (million barrels a day)

40

50

60

70

80

90

100

110

120

1970 1982 1994 20060

2

4

6

8

10

12

14

16Others spare capacity(RHS)Saudi Arabia spare capacity(RHS)Capacity (LHS)

Demand (LHS)

21

Global oil consumption is now driven by the Global oil consumption is now driven by the emerging marketsemerging markets

-4

-3

-2

-1

0

1

2

3

4

5

1972 1984 1996 2008

Emerging and Developing Economies

India

China

Other Industrial Countries

US

World Oil Consumption(in percent of world oil consumption)

22

0

50

100

150

200

250

300

Other Factors

Higher Fuel Prices

Due to Ethanol

CornCorn

Estimated Contributions to Food Price Changes of Major Food Crops(January 2006-March 2008; in percent)

WheatWheat SoybeanSoybean RiceRice

Energy Markets Spill Onto Food MarketsEnergy Markets Spill Onto Food Markets

23

Global Food Demand has Outrun SupplyGlobal Food Demand has Outrun Supply

-20

-10

0

10

20

30

40

50

60

70

80

Advancedeconomies

China

19951995--20002000

averageaverage

Corn usedFor U.S.Ethanol

Emerging &developing economies

20012001 0202 0303 0404 0505 0606 0707 0808-50

0

50

100

150

200

250

WheatRiceSoybeanCornTotal Crops

19951995--20002000

averageaverage

20012001 0202 0303 0404 0505 0606 0707 0808

Demand for Major Food Crops(annual change in millions of tonnes)

Production of Major Food Crops(annual change in millions of tonnes)

24

Commodity prices fall during global downturns

Commodity Price Changes By Category(in US dollars; peak to trough change)

-80

-60

-40

-20

0

20

40

60

80Crude oil (IMF APSP)�Metals�Food�BeveragesAgricultural Raw MaterialIndustrial Production

Dec73-Jun75

Feb80-Sep80

Aug81-Sep82

Nov90-Jun93

Sep00-Jan02

25

Booming commodity prices and inflation

Food Price Inflation(12 month percent change)

-2

0

2

4

6

8

10

12

14

16

18

20

Fuel Price Inflation(12 month percent change)

Emerging economies

Advanced economies

Latin America

-2

0

2

4

6

8

10

12

14

16

18

20

20062006 Mar. Mar. 20082008

20062006 2007200720072007 Mar. Mar. 20082008

Emerging economies

Advanced economies

Latin America

26

Inflation is on the rise worldwide

Core Price Inflation(12 month percent change)

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

Headline Inflation(12 month percent change)

Emerging &developingeconomies

Advanced economies0

1

2

3

4

5

6

7

8

9

20032003 Apr. Apr. 0808


Advanced economies

Latin America

Latin America

0404 0505 0606 0707 20032003 Apr. Apr. 0808

0404 0505 0606 0707

27

Monetary policy: shift to tightening biasMonetary policy: shift to tightening bias(Policy rates; percent)(Policy rates; percent)

0

1

2

3

4

5

6

7

01 02 03 04 05 06 07 08 090

1

2

3

4

5

6

7

UnitedStates

Euro area

Japan

Futures ratesas of 6/13/08

28

-20

-15

-10

-5

0

5

10

Col

ombi

aIn

dia

Cro

atia

Mal

aysi

aH

unga

ryM

exic

oSl

ovak

iaP

olan

dK

orea

Turk

eyTa

iwan

Sout

h A

fric

aIc

elan

dR

oman

iaP

eru

Bra

zil

Cze

chIn

don

esia

Ch

ina

Thai

land

Ch

ileH

ong

Ko

ngR

uss

iaSi

ngap

ore

Isra

elEg

ypt

Phi

lippi

nes

Bu

lgar

iaLi

thua

nia

Kaz

akh

stan

Latv

iaU

krai

ne

Latest

Change from end-2006

Falling behind the curve?Falling behind the curve?

Real Policy Rates: Latest Levels and Changes from End-2006(in percent)

29

Road MapRoad Map




30

Emerging markets have been resilient

Emerging Market CorporateBond Spreads

(basis points)

0

50

100

150

200

250

300

350

400

450

500Emerging EuropeLatin AmericaEmerging Asia

Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420062006

Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420072007

Q1 May Q1 May 20082008

Emerging Economy Equity Markets

(2001 = 100; national currency)

0

100

200

300

400

500

600 Emerging AsiaLatin AmericaEastern Europe

Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420062006

Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420072007

Q1 May Q1 May 20082008

31

Emerging Market Inflows Have Dipped(Bond, equity and loan issuance, billions of U.S. dollars)

0

20

40

60

80

100

120

140

160

180

200

Western Hemisphere

Middle East

Europe

Asia

Africa

20022002 Q2 Q2 0808

0303 0404 0505 0606 0707

32

Reduced external vulnerabilities, greater resilience

Emerging and Developing Economy External Indicators

(percent of total GDP)

-4

-2

0

2

4

6

8

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

15

20

25

30

35

40

45

Change inreserves

Externaldebt

Current account

Latin America External Indicators

(percent of regional GDP)

-6

-4

-2

0

2

4

6

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

0

10

20

30

40

50

60

Change inreserves

Externaldebt

Current account

33

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

30Central and Eastern EuropeAfricaEmerging AsiaLatin AmericaC.I.S.Middle East

Large Current Account Deficits May Be A Large Current Account Deficits May Be A Source Of VulnerabilitySource Of Vulnerability(2007 Emerging market country current accounts in percent of GDP(2007 Emerging market country current accounts in percent of GDP))

34

-12

-10

-8

-6

-4

-2

0

0

2

4

6

8

Outlook for Global Imbalances Has Improved(Percent of Global GDP)

U.S. External PositionGlobal Imbalances

(sum of absolute value of global current account balances)

Latestestimates

July 2007estimates

Average1980-2005

latest

latest

July2007

July2007

9797 20002000 0303 0606 0909 1212 9797 20002000 0303 0606 0909 1212

Net foreignliability position

Current accountbalance

35

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

97 99 2001 03 05 07 09 11 13

Where will the savings go?Where will the savings go?

Oil exportersChina and otheremerging Asia

Euro area

United States

Japan

Latin America

Current Account Imbalances by Region(percent of world GDP)

36

•• Global outlook:Global outlook: financial tail risks have financial tail risks have been reduced, but global slowdown will been reduced, but global slowdown will not be not be avoided.avoided.

•• Commodities and inflation:Commodities and inflation: monetary monetary policy discipline is needed to ensure that policy discipline is needed to ensure that relative price shock does not reverse relative price shock does not reverse inflation gains.inflation gains.

•• Financial winds:Financial winds: Latin America should be Latin America should be ready for another surge of capital inflows.ready for another surge of capital inflows.

Key MessagesKey Messages

WEO Can Be Downloaded FromWEO Can Be Downloaded From

http://http://www.imf.org/weowww.imf.org/weo

38

-2

-1

0

1

2

3

4

5

6

7

05 06 07 08

U.S.

Japan

U.K (RPI)Canada (20-yr)

Euro area

Inflation Risks Have Intensified in Several Advanced Economies

-2

-1

0

1

2

3

4

5

6

7

05 06 07 08

U.S.Japan U.K.Canada Euro Area

-2

-1

0

1

2

3

4

5

6

7

05 06 07 08

U.S.Japan U.K.Canada Euro Area


Core Inflation(12 month percent change)

Inflation Exp.(Percent from 10yr index

linked bonds)

39

More flexible exchange rates in some countries would help control inflation and reduce imbalances

-8 -6 -4 -2 0 2 4 6 8

India

Malaysia

Saudi Arabia

U.S.

Canada

U.K.

Japan

China

Russia

Australia

Euro area

Brazil

U.S. dollar per national currency REER

Exchange Rates 1/(percent changes;

4/4/08 vs. 1/30/08-2/27/08 average)

1/ Positive numbers denote appreciation of local currency.

Current Account Balances(In percent of GDP; estimates for 2008)

-8 -4 0 4 8 12 16 20 24 28 32

India

Malaysia

Saudi Arabia

U.S.

Canada

U.K.

Japan

China

Russia

Australia

Euro area

Brazil

40

Food and Fuel Inflation Heat Map(Contribution of Food and Fuel Inflation to Headline Inflation)(Contribution of Food and Fuel Inflation to Headline Inflation)

Contribution over 5 percentContribution between 1 percent to 2.5 percentContribution between 2.5 percent to 5 percentContribution over 5 percent

No data

41

-9-6-303691215

2003 04 05 06 07 08 09

Domestic demand is also key in emerging Domestic demand is also key in emerging Asia Asia (percent change)(percent change)

Vietnam

Total domestic demandTotal domestic demand Net exportsNet exports Terms of trade gainTerms of trade gain

-9-6-303691215

2003 04 05 06 07 08 09

-9-6-303691215

2003 04 05 06 07 08 09

Indonesia

Singapore

-9-6-303691215

2003 04 05 06 07 08 09

Thailand

Total growthTotal growth

42

0

1

2

3

4

5

6

7

8

9

10

11

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

Advanced economies and emerging economies have diverged…

Emerging Asia

Advancedeconomies

Real GDP Growth Rate(percent change)

43

… but not decoupled

-4

-3

-2

-1

0

1

2

3

4

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Advancedeconomies

Emerging Asia

Real GDP Growth Rates(deviation from trend)

44

Projected food price increases (in 2008) and their impact on trade Balances(year-on-year percent changes)

Large gainers (trade balance improving greater than 1 % of 2005 GDP)Moderate gainers (trade balance improving less than 1 % of 2005 GDP)Moderate losers (trade balance worsening less than 1 % of 2005 GDP)Large losers (trade balance worsening greater than 1 % of 2005 GDP)

No data

45

Emerging economies account for a rising share of global growth

-1

0

1

2

3

4

5

6

7

8 United States Euro Area

Japan Other Advanced

China IndiaOther Developing

-6

-3

0

3

6

9

12

15

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Contributions to Global Growth(percent change)

Contributions to Global Import Volume Growth(percent change)

46

China’s exports are starting to slow, but domestic demand is still strong

0

10

20

30

40

50

60Merchandise exports

Merchandise imports

0

10

20

30

40

50

60Real GDP Growth

Investment in fixed assets

Retail sales

20002000 Mar. Mar. 20082008

20002000 Q1Q120082008

0202 0404 0606 0202 0404 0606

China’s Trade(12 month percent change)

China’s Domestic Activity(12 month percent change)

47

0

1

2

3

4

5

6

7

8

9

World AdvancedEconomies

DevelopingCountries

April 2007 October 2007 March 2008

0

1

2

3

4

5

6

7

8

9

World AdvancedEconomies

DevelopingCountries

April 2007 October 2007 March 2008

2007 Real GDP Growth(percent change)

2007 up, 2008 down2007 up, 2008 down

2008 Real GDP Growth(percent change)

48

-0.12

-0.10

-0.08

-0.06

-0.04

-0.02

0.00

0.02

0.04

Financialstability

Domesticdemand inthe United

states

Domesticdemand inEurope &

Japan

Domesticdemand inemergine

economies

Inflationrisks

Oil markets Globalimbalances

October 2007 WEO

January 2008 WEO update

April 2008 WEO

Most global risk factors are negativeMost global risk factors are negative(Percentage points of global GDP growth over next 12 months)(Percentage points of global GDP growth over next 12 months)

Downside risk to global growth

Upside risk to global growth

49

6.8

7.0

7.2

7.4

7.6

7.8

8.0

8.2

8.4

8.6 85

89

93

97

101

10595

100

105

110

115

120

125

130 62

66

70

74

78

82

86

90

80

84

88

92

96

100 EuroU.S. dollar (2000=100)

U.S. dollar had depreciated, but limited real appreciation U.S. dollar had depreciated, but limited real appreciation in key surplus countries in key surplus countries

1.101.151.201.251.301.351.401.451.501.551.60

110

115

120

125

130

135

20052005 20062006 20072007 Mar.Mar.20082008

20052005 20062006 20072007 Apr.Apr.20082008

REERREER(right scale, 2000=100)(right scale, 2000=100)

dollar/eurodollar/euro(left scale)(left scale)

REERREERNEERNEER

RenminbiYen

20052005 20062006 20072007 Apr.Apr.20082008 20052005 20062006 20072007 Apr.Apr.

20082008

Renminbi/dollarRenminbi/dollar(inverted left scale)(inverted left scale)

yen/dollaryen/dollar(inverted(invertedleft scale)left scale)



50

Some Signs of Stress in Some Emerging Markets(Interbank 1-month rates; percent)

0

2

4

6

8

10

12

14

16

18

20

Argentina

Kazakhstan

Russia

Jan2007

Turkey

Mar May July Sept Nov Jan2008

51

0

10

20

30

40

50

60

70

80

90 Exports to the United States Exports to the European UnionExports to China Exports to emerging Asia

AsiaAsia’’s trade patterns are increasingly diversifieds trade patterns are increasingly diversified

19901990 20072007AsianAsianNIEsNIEs

19901990 20072007ASEANASEAN--55

19901990 20072007South AsiaSouth Asia

19901990 20072007ChinaChina

Exports to Selected Destinations(Percent of merchandise exports of country/region)

52

0

20

40

60

80

100

120

140

U.S. Banks European Banks Asian Banks

Expected Bank Losses Are Sizeable in Relation Expected Bank Losses Are Sizeable in Relation to Capital for Global Banksto Capital for Global Banks(Bank losses, billions of U.S. dollars)(Bank losses, billions of U.S. dollars)

Total expected losses:Total expected losses:Conduits/Conduits/SIVsSIVsLoansLoansABSABSCDOsCDOs

Total reported losses:Total reported losses:AllAll

53

90

110

130

150

170

190

210

230

250

Equity Markets Have Weakened(January 4, 2005 = 100)

2005

S&P 500

DJ Euro Stoxx

Topix

MSCIEmerging Economy

Equity Markets

2006 2007 Apr 172008

54

...including in emerging Asia

Food Price Inflation(12 month percent change)

0

5

10

15

20

25

30

35


Indonesia

China

Vietnam

0

5

10

15

20

25

30

35

Indonesia China

Vietnam

20062006 Mar. Mar. 20082008

20062006 2007200720072007 Mar. Mar. 20082008

Singapore

Singapore

55

Emerging Market Inflows Are Now Sagging(Bond, equity and loan issuance, billions of U.S. dollars)

0

20

40

60

80

20022002 Jan. Jan. 0808

0303 0404 0505 0606 0707

56

-10 0 10 20 30

Brazil

Australia

Euro area

Russia

Japan

Malaysia

Canada

China

Saudi Arabia

India

United States

United Kingdom

-12 -8 -4 0 4 8 12

Brazil

Australia

Euro Area

Russia

Japan

Malaysia

Canada

China

Saudi Arabia

India

United States

United Kingdom

U.S. dollar / national currency REER

Exchange Rate Adjustments Still Not Reflecting Current Exchange Rate Adjustments Still Not Reflecting Current Account PositionsAccount Positions

Current Account Balances, 2007(percent of GDP)

Exchange Rate 1(percent change 8/22-9/19/07 to 2/29/08)

11 Positive values indicate domestic currency appreciationPositive values indicate domestic currency appreciation

57

Meeting U.S. Financing Needs at RiskMeeting U.S. Financing Needs at Risk(Three(Three--month moving average, billions of U.S. dollars)month moving average, billions of U.S. dollars)

-60

-40

-20

0

20

40

60

80

100

120

140

160Short term

Long term

Net foreign portfolio flows

Dec.Dec.20072007

2006200620052005200420042003200320022002

58

Sources: Moody's Economy.com, Equifax, Case-Shiller and OFHEO.1/ = National Average; size of regional marker reflects relative size of the mortgage market (in outstanding $).2/ Delinquency rate defined in percent of outstanding mortgages (in dollar amounts).

Falling U.S. house prices and rising mortgage delinquencies 1

-2

0

2

4

6

8

-30% -20% -10% 0% 10% 20%

House Price Changes, 06Q2 - 07Q3(in percent)

Cha

nge

in M

ortg

age

Del

inqu

ency

Rat

e, 0

5Q4

- 07Q

4(in

per

cent

poi

nts)

2/

MidwestWest

SouthNortheast

59-1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

China

India

Korea

Japan

Indonesia

Philippines

Thailand

Malaysia

Hong Kong SAR

Singapore

Taiwan POC

2001 RecessionAugmented VAR 1991-2007

Impact on Asia of a fall in U.S. GrowthImpact on Asia of a fall in U.S. Growth(Percentage point reduction in GDP growth from 1 percentage poin(Percentage point reduction in GDP growth from 1 percentage point t reduction in U.S. growth)reduction in U.S. growth)

Real GDP Growth Rates(Percentage point reduction in GDP growth from one percentage point reduction in U.S. growth)

60

50

100

150

200

250

300

0

100

200

300

400

500

600

How Much Higher Will Commodity Prices Go?How Much Higher Will Commodity Prices Go?

Energy

Agriculturalraw materials

Beverages

Food

20022002 0404 0606 0808

Soybean

Corn

Wheat

20062006 0707 0808 0909

Futures curvesFutures curvesas of Aprilas of April16, 200816, 2008

Metals

Rice

Selected Commodity Prices(January 2002 = 100)

Selected Food Prices(January 2002 = 100)

61

0

200

400

600

800

1000

1200

1400

1600

Some Historical Perspective

United States(corporate bond spreads, basis points)

0

100

200

300

400

500

600

700

800

Euro Area(corporate bond spreads, basis points)

BB

BBB

AA

BB

BBB

AA

19971997 9999 20012001 0303 0505 AprApr0808

19971997 9999 20012001 0303 0505 AprApr0808

62

Three lines of defense

•• ReposRepos for illiquid assets (Federal Reserve/BoE)for illiquid assets (Federal Reserve/BoE)•• Maintaining supply of commercial mortgages Maintaining supply of commercial mortgages

(Freddie & Fannie)(Freddie & Fannie)•• Preventing collapse of systemic institutions Preventing collapse of systemic institutions

(Bear Sterns)(Bear Sterns)•• Facilitating refinancing of underwater Facilitating refinancing of underwater

mortgages (Barney Frank plan)mortgages (Barney Frank plan)•• Holding company for impaired assets (RTC)Holding company for impaired assets (RTC)

2. Fiscal 2. Fiscal StimulusStimulus

1. Ease monetary 1. Ease monetary policypolicy

3. Use of public 3. Use of public balance sheets balance sheets to support to support housing and housing and credit markets credit markets

63

Where the U.S. leads, the Euro zone is Where the U.S. leads, the Euro zone is likely to followlikely to follow

-1.0

0.0

1.0

United States Euro Area

19801980 8282 8484 8686 8888 9090 9292 9494 9696 9898 20002000 0202 0404 0606

PeaksPeaks

TroughsTroughs

64

Housing-Related vulnerabilities are widespread

-10

-5

0

5

10

15

20

25

30

35

Irelan

d

Nether

landsU.K

.Aust

ralia

France

New Z

eala

ndDenm

arkSpai

nSw

eden

Ital

yJa

panU.S

.Fi

nland

Germany

Canada

Source: IMF staff calculations.

House “Price Gaps”(1997-2007; in percent of real house prices)

-50

0

50

100

150

200

Irelan

d

Nether

landsU.K

.Fr

anceSpai

nDenm

arkAust

ralia

Swed

en

New Z

eala

ndIt

aly

U.S.

CanadaFi

nland

Germany

Japan

price/disposable income

price/rent

House Valuation Ratios(1997-2006; percent change)

65

-10

-5

0

5

10

15

20

25

30

35

40United Kingdom GermanyFrance ItalySpain Ireland

European Housing Markets are Turning DownEuropean Housing Markets are Turning Down(Four quarter percent change)(Four quarter percent change)

19951995 19971997 19991999 20012001 20032003 20052005 2007:2007:Q4Q4

66

But industrial production and exports seem little affected… so far

Merchandise Exports(12 month percent change of 3mma)

-6

-4

-2

0

2

4

6

8

10

12

14

16

Industrial Production(12 month percent change of 3mma)


Advancedeconomies

-15

-10

-5

0

5

10

15

20

25

30

35

20002000 Feb. Feb. 20082008

20002000 Feb. Feb. 20082008

0202 0404 0606 0202 0404


Advancedeconomies

0606

67

0

1

2

3

4

5

6

7

8

9

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

Advanced economies and emerging economies have diverged…


Advancedeconomies

Real GDP Growth Rate(percent change)

68

… but not decoupled

-4

-3

-2

-1

0

1

2

3

4

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Advancedeconomies

Emerging &developing economies

Real GDP Growth Rates(deviation from trend)

69

-6

-3

0

3

6

9

12

15

2003 04 05 06 07 08 09

And domestic demand has strong And domestic demand has strong momentum in BRICs momentum in BRICs (percent change)(percent change)

Brazil

Total domestic demandTotal domestic demand Net exportsNet exports Terms of trade gainTerms of trade gain

-6

-3

0

3

6

9

12

2003 04 05 06 07 08 09

-6

-3

0

3

6

9

12

15

2003 04 05 06 07 08 09

Russia

India

-6

-3

0

3

6

9

12

15

2003 04 05 06 07 08 09

China

Total growthTotal growth

70

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

Central and Eastern EuropeAfricaEmerging AsiaLatin AmericaC.I.S.Middle East

And 2007 Looks Worse Than 1996And 2007 Looks Worse Than 1996(Emerging market country current accounts in 1996 and 2007; perc(Emerging market country current accounts in 1996 and 2007; percent of ent of GDP)GDP)

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

Central and Eastern EuropeAfricaEmerging AsiaLatin AmericaC.I.S.Middle East

1996 2007

71

Oil Prices have reached new highs, amid Oil Prices have reached new highs, amid tight market conditionstight market conditions

0

1

2

3

4

5

6

7

8

1996 98 00 02 04 06 08

OPEC Spare Capacity(percent of world oil consumption)

Crude Oil Prices(Brent; from futures options; as of April 16 2008; Brent; from futures options; as of April 16 2008;


1996-2006average

SaudiArabia

Other OPEC

Forecast

40

50

60

70

80

90

100

110

120

130

140

150




Spot/futures price

20062006 20072007 20082008 Mar.Mar.20092009

72

Winners and losers(Estimated impact of projected oil and food price changes in 200(Estimated impact of projected oil and food price changes in 2008 in percent of GDP)8 in percent of GDP)

1/ indicate countries where the trade balance losses resulting from higher food and fuel prices are more than offset by gains from increases in prices of other commodities (mostly metals).

Large gains (Trade Balance improving by more than 2.5 percent of GDP)Small gains (Trade balance improving by less than 2.5 percent of GDP)Smaller losses (Trade balance worsening by less than 2.5 percent of GDP)Large losses (Trade balance worsening by more than 2.5 percent of GDP)

No data

73

United States

Euro Area

Japan

-2

-1

0

1

2

3

4

5

Headline vs. CoreHeadline vs. Core(12 month percent change)(12 month percent change)

United States

Euro Area

Japan

-2

-1

0

1

2

3

4

5

6Headline inflation Core inflation

Apr.08

20022002 0303 0404 0505 0606 0707 Apr.08

20022002 0303 0404 0505 0606 0707

74

-6

-4

-2

0

2

4

1995 1997 1999 2001 2003 2005 200770

80

90

100

110

120

Rising pressure on manufactured import prices(indices; December 2005 = 100)

United States

Japan

Euro area

Emerging economies output gap

(percent of potential GDP; right scale)

U.S., Euro area and Japan aggregate

75

70

80

90

100

110

120

130

140United StatesEuro AreaJapan China

REER(index, 2001 = 100)

80

100

120

140

160

180

200

Euro

Yen

Renminbi

Nominal Exchange Rates Against U.S. Dollar

(index, 2001 = 100)

U.S. Dollar Has Depreciated, But Limited U.S. Dollar Has Depreciated, But Limited Real Appreciation in Key Surplus Countries Real Appreciation in Key Surplus Countries

2001 2003 Apr.2008

2005 2001 2003 Mar.2008

2005

76

Title

0

50

100

150

200

250

300

350

400

450

Real Oil, Metals and Food Prices(2007 = 100)

1970 75 Q108

Food

Metals

Oil

80 85 90 95 2000 05

77

US Forecast: mild recession, slow recovery

-4

-2

0

2

4

6

8

OtherResidential investmentPrivate consumptionNet ExportsReal GDP growth

Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420072007

Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420082008

Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420092009

Real GDP Growth and its Components(percent change)

78

0

2

4

6

8

10

Real GDPAverage 1995-2007

April 2008 WEO: Two Years of Slower April 2008 WEO: Two Years of Slower GrowthGrowth

06 07 08 09 1006 07 08 09 10Global economyGlobal economy


06 07 08 09 1006 07 08 09 10Advanced economiesAdvanced economies

06 07 08 09 1006 07 08 09 10Emerging economiesEmerging economies

79

How Much Higher Will Commodity Prices Go?How Much Higher Will Commodity Prices Go?

50

100

150

200

250

300

350

Jan-06 Jan-07 Jan-08 Jan-09

1/ Food index is composed of barley, corn, soybean, soybean meal, soybean oil, pork, palm oil, sugar and wheat. Base metals index comprises aluminum, copper, lead, nickel, tin and zinc.

Commodity Indices 1/(dotted lines are futures prices)

Selected Grain Prices 2/(January 2006 =100)

Futures

2/ Futures prices are as of 4/24/2008.

Rice (CBOT)

Corn

Soybean

Wheat

50

100

150

200

250

300

350

400

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

Futures

Food

Metal

Oil

80

-1

0

1

2

3

05 06 07 08

United States

Japan

Euro area

Inflation expectations drifting upwards(in percent; from 10-yr index-linked bonds)

81

-600

-500

-400

-300

-200

-100

0

100

200

300

400

500

600

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

2008

Recession

Change in payrolls

U.S. employment is beginning to contract

Change in Employment Payrolls(Average monthly change over the previous 3 months, thousands of people)

82

Have commodities prices reached a peak?Have commodities prices reached a peak?

30

50

70

90

110

130

150

170




Spot/futures price

0

100

200

300

400

500

600

700

Crude oil prices Crude oil prices (Brent from futures options, US dollars per barrel)(Brent from futures options, US dollars per barrel)

83

Advanced economy monetary policy stances are accommodative

Real Long-Term Interest Rates(deviation from 2000-2007 average)

-4

-3

-2

-1

0

1

2

3

4

Real Short-Term Interest Rates(deviation from 2000-2007 average)

United States

Japan

-4

-3

-2

-1

0

1

2

3

4

20002000 May May 20082008

20002000 May May 20082008

0202 0404 0606 0202 0404 0606

Euro area

United States

Japan

Euro area

84

-2

-1

0

1

2

3

4

5

-4Q Onset 4Q 8Q 12Q

Current U.S. projections

Typical advanced economy pathfollowing housing correction

Past U.S. recessions and recoveries, 1974-2001

Downturns and Recoveries(Real GDP; in percent change from year earlier)

2008Q1

How does the US downturn compare?How does the US downturn compare?

85

Tale of three cycles

Weakeningconsumption

Fallinginvestment

Fallingoutput

Fallingemployment

Business Cycle

Fallingdebt prices

Increasingloan losses

Reducedbank capital

Creditde-leveraging

Forcedassetsales

Tighteningcredit

conditions

Credit Cycle

Falling homeprices

Risinghouseholdnegative

equity

Harder torefinance

Increasingforeclosures

Rising inventoriesOf unsold homes

Housing Cycle

Global Storms, Latin Spillovers - bcrp.gob.pe · Global Storms, Latin Spillovers Charles Collyns Lima, Peru June 16, 2008

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