International Monetary Fund International Monetary Fund Beijing, Beijing, January January 20, 2015 20, 2015 World Economic and World Economic and World Economic and World Economic and Market Developments Market Developments Olivier Blanchard Olivier Blanchard Olivier Blanchard Olivier Blanchard Economic Economic Counsellor Counsellor Gian Gian Maria Milesi Maria Milesi-Ferretti Ferretti Deputy Deputy Director, Research Department Director, Research Department Complex Cross Currents Complex Cross Currents The good, but complex, news: The good, but complex, news: Th d li i th i f il Th d li i th i f il The good, but complex, news: The good, but complex, news: Th d li i th i f il Th d li i th i f il • The decline in the price of oil The decline in the price of oil • Exchange rate adjustments Exchange rate adjustments • The decline in the price of oil The decline in the price of oil • Exchange rate adjustments Exchange rate adjustments The bad news: The bad news: • Hard numbers about 2014: slightly worse, except U.S. Hard numbers about 2014: slightly worse, except U.S. The bad news: The bad news: • Hard numbers about 2014: slightly worse, except U.S. Hard numbers about 2014: slightly worse, except U.S. • Further downward revisions to potential growth Further downward revisions to potential growth On net: Global growth down. But heterogeneity: On net: Global growth down. But heterogeneity: • Further downward revisions to potential growth Further downward revisions to potential growth On net: Global growth down. But heterogeneity: On net: Global growth down. But heterogeneity: Oil importers/exporters. Commodity importers/exporters. Legacies/no Oil importers/exporters. Commodity importers/exporters. Legacies/no legacies. Dollar linked/euro legacies. Dollar linked/euro-yen linked. Potential growth decline/not: yen linked. Potential growth decline/not: 2^5 ( 32) 2^5 ( 32) Oil importers/exporters. Commodity importers/exporters. Legacies/no Oil importers/exporters. Commodity importers/exporters. Legacies/no legacies. Dollar linked/euro legacies. Dollar linked/euro-yen linked. Potential growth decline/not: yen linked. Potential growth decline/not: 2^5 ( 32) 2^5 ( 32) 2^5 (=32) 2^5 (=32) 2^5 (=32) 2^5 (=32) 1
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World Economic andWorld Economic and Market Developments · 2015-01-30 · Source: Source: HaverHaver Analytics.Analytics. 2. Euro Area: Low Growth, Low Inflation 8 5y5y inflation
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International Monetary FundInternational Monetary FundBeijing, Beijing, JanuaryJanuary 20, 201520, 2015
Inflation and Inflation Expectations 1/Inflation and Inflation Expectations 1/(percent change from a year earlier)(percent change from a year earlier)
65Germany Spain Italy France
655
60
2
4 Min/max bands
45
50
0
30
35
40
-4
-2Inflation target
Dec. 1420
25
30
Dec. 14
08 09 10 11 12 13 14
Sources: Sources: HaverHaver Analytics; and IMF staff estimates.Analytics; and IMF staff estimates.1/ Figure reports euro area aggregate, and maximum and minimum of euro area economies. Data for the maximum and minimum is on1/ Figure reports euro area aggregate, and maximum and minimum of euro area economies. Data for the maximum and minimum is only ly available through available through November 2014.November 2014.
08 09 10 11 12 13 14
3
Contribution to GDP Growth 1/Contribution to GDP Growth 1/ Share of Gross Value Added 1/Share of Gross Value Added 1/
Sources: Haver Analytics; and National Bureau of Statistics of China.Sources: Haver Analytics; and National Bureau of Statistics of China.1/ 2014 observations represent the 2014Q3 data. 1/ 2014 observations represent the 2014Q3 data.
4
The Decline in the Price of OilThe Decline in the Price of Oil
Drivers of Oil PricesDrivers of Oil Prices
Fall in Oil Prices: Supply or Demand?Fall in Oil Prices: Supply or Demand?
Drivers of Oil Prices Drivers of Oil Prices (cumulative change of log oil price)(cumulative change of log oil price)
July 2014 July 2014 –– Oct 2014 Oct 2014 Oct 2014 Oct 2014 –– Jan 2015 Jan 2015
0
5( ) pp y ( ) p
0
10( %) pp y ( %) p
-10
-5
-20
-10
-20
-15
-40
-30
-30
-25
10/14/14 -60
-50
1/4/15
Jul-14 Aug-14 Sep-14 Oct-14 Oct-14 Nov-14 Dec-14
Source: IMF staff calculations.Source: IMF staff calculations.
5
Global GDPGlobal GDP Global CPI Inflation 1/Global CPI Inflation 1/
Simulation Results from Two ScenariosSimulation Results from Two Scenarios
0.9 Scenario 1 Scenario 20.2
Global GDPGlobal GDP(percent difference)(percent difference)
Global CPI Inflation 1/Global CPI Inflation 1/(percentage point difference)(percentage point difference)
0 6
0.7
0.8
0 2
0.0
0.4
0.5
0.6
-0.4
-0.2
0.2
0.3
0 8
-0.6
0.0
0.1
13 14 15 16 17 18 19-1.0
-0.8
13 14 15 16 17 18 19
Source: IMF staff projections.Source: IMF staff projections.Note: Scenario 1: persistent supply shift, accounting for 60% of the observed decline in futures prices.Note: Scenario 1: persistent supply shift, accounting for 60% of the observed decline in futures prices.Scenario 2: supply shift, accounting for 60% of the decline in prices initially, but gradually unwound over time.Scenario 2: supply shift, accounting for 60% of the decline in prices initially, but gradually unwound over time.1/ Dotted line corresponds to core CPI inflation and the solid line to headline inflation. 1/ Dotted line corresponds to core CPI inflation and the solid line to headline inflation. 6
EM Corporates: Bond SpreadsEM Corporates: Bond Spreads Oil Exporting Sovereigns: CDSOil Exporting Sovereigns: CDS
Financial RisksFinancial Risks
6000700
Ecuador Nigeria Russia Venezuela (RHS)
550CEMBI composite CEMBI oil & gas
EM Corporates: Bond SpreadsEM Corporates: Bond Spreads(basis points)(basis points)
US sanctions•• Political uncertainty: slowdown Political uncertainty: slowdown
in growth since 2011.in growth since 2011.•• Political uncertainty: slowdown Political uncertainty: slowdown
in growth since 2011.in growth since 2011.
90
100
Russia imposes retaliatory food
•• Geopolitical tensions and Geopolitical tensions and sanctions: about 1sanctions: about 1--1.5% lower 1.5% lower
•• Geopolitical tensions and Geopolitical tensions and sanctions: about 1sanctions: about 1--1.5% lower 1.5% lower
70
80
EU sanctions
Minsk agreement
retaliatory food import ban growth in 2014.growth in 2014.
•• Oil price decline: real incomeOil price decline: real income
growth in 2014.growth in 2014.
•• Oil price decline: real incomeOil price decline: real income
50
60
1/15/15
First round of US sanctions
New round of US and EU
ti
Oil price decline: real income Oil price decline: real income decrease by more than 7% of decrease by more than 7% of GDP (in USD dollars).GDP (in USD dollars).
Oil price decline: real income Oil price decline: real income decrease by more than 7% of decrease by more than 7% of GDP (in USD dollars).GDP (in USD dollars).
Source: IMF staff estimates. Source: IMF staff estimates. Note: 10% real effective dollar appreciation, 18% euro and yen (9% for UK pound) bilateral nominal depreciation. Note: 10% real effective dollar appreciation, 18% euro and yen (9% for UK pound) bilateral nominal depreciation.
9
The Ebbs and Flows of Capital.The Ebbs and Flows of Capital.What will Happen when US Interest Rates Increase? What will Happen when US Interest Rates Increase?
Asian EMsAsian EMs(Cumulative capital inflows, percent of GDP 1/)
Latin American EMsLatin American EMs
25
30FDI Equity Bond OI Bank OI Other
25
30
15
20
1
20
10
15
10
15
0
5
04-07 08-09 10-130
5
04 07 08 09 10 1304-07 08-09 10-13
14
04-07 08-09 10-13
Source: Source: IMF staff calculations.1/ Cumulative capital inflows by type, divided by GDP of the respective end of period.
The Bad NewsThe Bad NewsThe Bad NewsThe Bad News
Downward Revisions to Potential GrowthDownward Revisions to Potential GrowthDownward Revisions to Potential GrowthDownward Revisions to Potential Growth
Estimates of Potential GrowthEstimates of Potential Growth(potential growth projections; annual growth(potential growth projections; annual growth) )
U.S.U.S.Euro Euro AreaArea JapanJapan ChinaChina IndiaIndia RussiaRussia
RevisionRevision from from April 2011 1/ April 2011 1/ --0.10.1 --0.20.2 --0.60.6 --3.33.3 --1.41.4 --2.52.5 --1.31.3
Sources: IMF, Sources: IMF, World Economic OutlookWorld Economic Outlook, Jan.15 update; IMF, , Jan.15 update; IMF, World Economic Outlook, World Economic Outlook, Oct. 14; and IMF, Oct. 14; and IMF, World Economic Outlook, World Economic Outlook, Apr. 11.Apr. 11.1/ The revision for Latin America is calculated based on data for Argentina, Barbados, Brazil, Chile, Guyana, Mexico, and Per1/ The revision for Latin America is calculated based on data for Argentina, Barbados, Brazil, Chile, Guyana, Mexico, and Peru.u.
10
Metal Prices 1/Metal Prices 1/ Latin America Scenario: 30 percentLatin America Scenario: 30 percent
Commodity Prices and Latin American GrowthCommodity Prices and Latin American Growth
Latin America metals net exportersMetals
Metal Prices 1/Metal Prices 1/(index; January 2011=100)(index; January 2011=100)
Latin America Scenario: 30 percent Latin America Scenario: 30 percent Decline in Metals PriceDecline in Metals Price(percent difference)(percent difference)
1
2
p
Chile
Chile - actual deviation from Jan. 2011 WEO baseline
100
105
110
1
0
85
90
95
-2
-1
70
75
80
-4
-3
55
60
65
Dec. 14
10 11 12 13 14Jan-11 Jan-12 Jan-13 Jan-14
Sources: Sources: Bloomberg, L.P.; IMF, Bloomberg, L.P.; IMF, Primary Commodity Price SystemPrimary Commodity Price System, and IMF staff calculations and projections., and IMF staff calculations and projections.1/ Metals index is the weighted average of eight spot prices; aluminum, copper, iron ore, lead, nickel, tin, uranium, and zinc.
11
China: Evolution of Potential GrowthChina: Evolution of Potential Growth
12Change in Capital Change in trend employment Change in trend TFP Potential growth
10
6
8
4
0
2
18
Source: IMF staff calculations.
001 02 03 04 05 06 07 08 09 10 11 12 13 14
Projections for 2015Projections for 2015
2015 Growth Projections: Advanced Economies2015 Growth Projections: Advanced Economies(p(percent change from a year ercent change from a year earlier) earlier)
Euro Euro WorldWorld U.S.U.S. UKUK JapanJapan AreaArea GermanyGermany FranceFrance SpainSpain ItalyItaly
Sources: IMF, Sources: IMF, World Economic OutlookWorld Economic Outlook, Jan.15 update; and IMF, , Jan.15 update; and IMF, World Economic Outlook, World Economic Outlook, Oct. 14.Oct. 14.
12
2015 Growth Projections: Emerging Markets and LIDCs2015 Growth Projections: Emerging Markets and LIDCs(p(percent change from a year ercent change from a year earlier) earlier)
Emerging Emerging Market and Market and LowLow IncomeIncome
Revision from Revision from October 2014October 2014 --0.30.3 --0.60.6 --0.30.3 --0.10.1 --1.11.1 --3.53.5 --0.60.6
Sources: IMF, Sources: IMF, World Economic OutlookWorld Economic Outlook, Jan.15 update; and IMF, , Jan.15 update; and IMF, World Economic Outlook, World Economic Outlook, Oct. 14.Oct. 14.
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Policy Advice?Policy Advice?
New: Policy Advice for Oil Importers and ExportersNew: Policy Advice for Oil Importers and Exporters
Oil importers:Oil importers:
•• Given output gaps let demand and output increaseGiven output gaps let demand and output increase
Oil importers:Oil importers:
•• Given output gaps let demand and output increaseGiven output gaps let demand and output increase•• Given output gaps, let demand and output increaseGiven output gaps, let demand and output increase
•• Avoid passthrough of low headline into coreAvoid passthrough of low headline into core
Oil tOil t
•• Given output gaps, let demand and output increaseGiven output gaps, let demand and output increase
•• Avoid passthrough of low headline into coreAvoid passthrough of low headline into core
Oil tOil tOil exporters:Oil exporters:
•• Adjust government spending (choose the speed)Adjust government spending (choose the speed)
All f d i ti ( h th d)All f d i ti ( h th d)
Oil exporters:Oil exporters:
•• Adjust government spending (choose the speed)Adjust government spending (choose the speed)
All f d i ti ( h th d)All f d i ti ( h th d)•• Allow for depreciation (choose the speed)Allow for depreciation (choose the speed)
•• Avoid passthrough of depreciation into inflationAvoid passthrough of depreciation into inflation
•• Allow for depreciation (choose the speed)Allow for depreciation (choose the speed)
•• Avoid passthrough of depreciation into inflationAvoid passthrough of depreciation into inflation
AllAll
•• EMs: decrease energy subsidies and increase targeted transfersEMs: decrease energy subsidies and increase targeted transfers
AllAll
•• EMs: decrease energy subsidies and increase targeted transfersEMs: decrease energy subsidies and increase targeted transfers
•• AEs: consider increasing energy taxes, decreasing other taxesAEs: consider increasing energy taxes, decreasing other taxes•• AEs: consider increasing energy taxes, decreasing other taxesAEs: consider increasing energy taxes, decreasing other taxes
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Risks and (Old but Still Relevant) Policy AdviceRisks and (Old but Still Relevant) Policy Advice
Slump in Euro area and JapanSlump in Euro area and Japan
P li i Th th dP li i Th th d
Slump in Euro area and JapanSlump in Euro area and Japan
P li i Th th dP li i Th th dPolicies: Three arrows as the common remedyPolicies: Three arrows as the common remedy
(Fiscal: Juncker Plan not enough)(Fiscal: Juncker Plan not enough)
Policies: Three arrows as the common remedyPolicies: Three arrows as the common remedy
(Fiscal: Juncker Plan not enough)(Fiscal: Juncker Plan not enough)
Geopolitical risks. UkraineGeopolitical risks. Ukraine--Russia, Middle EastRussia, Middle East
Political risks. Greece. Rise of antiPolitical risks. Greece. Rise of anti--european partieseuropean parties
Geopolitical risks. UkraineGeopolitical risks. Ukraine--Russia, Middle EastRussia, Middle East
Political risks. Greece. Rise of antiPolitical risks. Greece. Rise of anti--european partieseuropean partiesp pp p