Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Recent Developments in the Region and Macedonia Opening of the NBRM-WB PIC Alexander Tieman 16 December, 2010 Overview • Regional outlook – Central, Eastern, and Southeastern Europe • Implications for Macedonia • Precautionary Credit Line 3 The backdrop: a global and regional recovery. 8 8 Euro Area and World: Real GDP Growth Outlook (Annual percentage change) 6 6 World, October 2010 WEO 4 World, April 2010 WEO Euro Area, October 2010 WEO 2 Euro Area, April 2010 WEO 0 4 2 0 -2 -2 -4 -4 -6 -6 2006 2007 2008 2009 2010 2011 Source: IMF, World Economic Outlook database. 4 Emerging Europe: After a 6 percent contraction in 2009, an expansion of 3.9 percent in 2010… Emerging Europe: Growth Outlook (annual percent change) 8 8 6 6 4 4 2 2 0 0 2006 2007 2008 2009 2010 2011 -2 -2 -4 -4 -6 -8 April 2010 WEO October 2010 WEO -6 -8 5 …led by exports… Emerging Europe. Real Exports, 2008:Q3 - 2010:Q2 120 120 120 110 110 110 100 100 90 90 100 Lithuania Estonia 90 120 Poland 110 100 90 Hungary 80 Latvia 70 60 50 2008:Q3 Baltics 80 80 80 70 70 70 60 60 50 2009:Q2 2010:Q1 120 50 2008:Q3 120 120 110 110 100 100 100 90 90 90 80 80 Romania 110 Croatia 80 Bulgaria 70 60 50 2008:Q3 Southeastern Europe 2009:Q2 70 70 60 60 50 2010:Q1 60 Central Europe 50 2009:Q2 2010:Q1 120 110 Russia 100 Turkey 90 80 Ukraine 70 60 European CIS and Turkey 50 2008:Q3 2009:Q2 50 2010:Q1 Sources: Eurostat; Haver Analytics; and IMF staff calculations. 6 …while domestic demand remains subdued… Emerging Europe. Real Domestic Demand, 2008:Q3 - 2010:Q2 110 110 110 105 105 105 100 100 100 100 95 95 95 95 90 90 90 85 85 80 80 80 75 75 75 70 70 65 65 2008:Q3 90 Estonia 85 80 Lithuania 75 70 65 2008:Q3 Baltics Latvia 2009:Q2 2010:Q1 110 105 Poland 85 Hungary 70 Central Europe 65 2009:Q2 2010:Q1 110 110 110 105 105 105 100 100 100 100 95 95 95 90 90 90 85 85 95 Croatia 90 Romania 85 80 Bulgaria 75 70 65 2008:Q3 Southeastern Europe 2009:Q2 80 80 75 75 70 70 65 2010:Q1 65 2008:Q3 110 Turkey 105 85 Russia 80 75 70 Russia and Turkey 2009:Q2 65 2010:Q1 Sources: Eurostat; Haver Analytics; and IMF staff calculations 7 …and the recovery is uneven across regions Strongest growth: European CIS countries and Turkey Weakest growth: countries that had deep recessions 8 Some upside risks, but significant downside risks for EE Revival of sovereign stress in advanced Europe: Spillover of sovereign debt concerns: lower exports higher financing costs lower capital flows spillovers to financial sectors 9 Why were some countries more affected than others? Common trigger of the crisis (external) yet different outcomes. Why? Domestic policies and vulnerabilities do matter ! Countries that had the largest imbalances and the strongest credit booms have seen the deepest recessions Countries that managed to avoid the excesses have seen much shallower recessions or avoided them altogether 10 What does this mean for Macedonia? • • • • 11 The economy in 2011 Risks and Uncertainties Policies PCL The Macedonian Economy in 2011 • 2011 is looking better than 2010 – 2011 GDP growth: 3 - 3½ percent – 2011 inflation: around 2½ percent • Supported by – Growth in trading partners – Lower interest rates – Growing bank deposits – Ample liquidity 12 Macroeconomic Overview • Current Account deficit – 2010: -3½ to -4 percent • Rapid adjustment • Supports stabilization of reserves – 2011: -4½ to -5 percent • Growth in exports (metal prices, capacity utilization) • Some growth in imports as well (inputs, consumption) – Beyond 2011 • Stabilization at levels that can largely be financed through FDI 13 Macroeconomic Overview • Reserves have increased further – To around € 1.65 billion – And are projected to continue a moderate increase in 2011 14 Risks and Uncertainties • Growth in trading partners – Lower European growth could spill over to Macedonia – And would put renewed pressure on the balance of payments – Given the peg, the c/a deficit needs external financing • Conditions in international financial markets – Higher uncertainty on financial markets might be here to stay for the foreseeable future – Market pressures (Ireland, Greece). – Such conditions could limit market access for Macedonia 15 Risks and Uncertainties • On the positive side – European growth could gain momentum, giving a strong boost to exports – Progress towards EU accession would improve prospects for growth and FDI 16 Policies • Fiscal stance – 2010 (-2.5 percent) and 2011 (-2.5 percent) appropriate in light of below-potential growth in both years – Possible as sound past policies have created room – Over the medium term, it will remain important to reduce the deficit somewhat further 17 Policies • Fiscal Challenges, 2011 and beyond – Financing the deficit, near term • Current reliance on private external borrowing • Prudent to access the market early in the year – Financing the deficit, medium term • Develop local public debt market • Including at longer maturities Which comes at a cost But reduces exposure to volatility of external financing 18 Policies • Fiscal Challenges, 2011 and beyond – Decrease in social contributions 2012-13 • Beneficial reduction in labor tax wedge • But burdens the budget – Important to continue to contain spending • While protecting investment spending, that raises longterm growth potential 19 Policies • Monetary policy – Rates lowered from 9 to 4% – Appropriate response • Easing of external finance pressure • Weak growth • Subdued inflation – Main guidance remains protection of the exchange rate peg 20 Precautionary Credit Line • Insurance against external vulnerabilities and risks • For countries with a solid macroeconomic track record • Precautionary, i.e., in the baseline case, no money is actually drawn from this credit line • Still, valuable to have insurance against risks – Will likely lower the spread on Eurobond issuance – Positive signal for potential investors • Request received, board date 2nd half January 21 Thank you Website: www.imf.org/skopje 22