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Regional Economic Outlook Middle East and Central Asia Department International Monetary Fund October 2009 1 Caucasus and Central Asia Energy exporters Energy importers Southwestern Asia INTERNATIONAL MONETARY FUND 2 October 2009 Outline World Economic Outlook CCA Economic Outlook INTERNATIONAL MONETARY FUND 3 October 2009 World Economic Outlook: Key Messages The global economy is beginning to grow again, but recovery is likely to be sluggish. The slow recovery calls for sustained policy support until the expansion is firmly entrenched. Financial market conditions continue to improve but remain tight, with the global financial system remaining far from normal. Expansionary monetary and fiscal policy will continue to underpin the global recovery, but to safeguard price and financial stability and the soundness of public finances, credible exit strategies will be needed. Two key factors for the medium-term: private demand replacing public demand; and demand in external surplus economies rising to make up for shrinking demand in external deficit economies. INTERNATIONAL MONETARY FUND 4 October 2009 Exports and manufacturing helped by a turn in the inventory cycle Merchandise Exports Industrial Production (Percent change; 3mma; annualized) (Percent change; 3mma; annualized) 20 60 40 10 20 0 0 -10 -20 -40 Advanced Advanced World Emerging -20 World Emerging -30 -60 -80 Jan-07 Jan-08 Jan-09 Jan-07 Jul-09 Jan-08 Jan-09 -40 Jul-09 INTERNATIONAL MONETARY FUND 5 October 2009 Consumer confidence slowly recovering, but unemployment still rising Consumer Confidence Unemployment (January 2005=100) (Percent; weighted by labor force) 200 8.5 Advanced World Emerging 180 8.0 160 7.5 140 120 7.0 100 6.5 80 60 U.S. (Conf. Board) 6.0 Japan (Econ. Soc. Res. Inst.) 40 U.K. (Building Society) 20 5.5 Germany (Eur. Comm.) 5.0 0 05 06 07 08 09 05 Aug. 09 06 07 08 09 Jul. 09 INTERNATIONAL MONETARY FUND 6 October 2009 Policy has taken risk of another Great Depression off the table, but financial conditions remain tight Interbank Spreads (Basis points) Corporate Spreads Equity Markets (Basis points; averages of Europe and United States) (March 2000 = 100; national currency) 1800 500 400 U.S. dollar BB Yen AAA 130 DJ Euro Stoxx 1600 120 Wilshire 5000 Topix Euro 110 1400 100 300 1200 90 1000 200 80 800 70 100 600 60 400 50 0 200 -100 2000 02 04 06 08 Sep. 09 2000 02 04 06 08 0 Sep. 09 40 30 2000 02 04 06 08 Sep. 09 INTERNATIONAL MONETARY FUND 7 October 2009 Expansionary monetary policy has been key, but will not forestall a credit crunch Bank Lending Conditions Credit Growth in Private Nonfinancial Sectors (q/q changes; billions of local currency) 250 2500 200 2000 150 -15 100 United States (LHS) Euro Area (LHS) Japan (inverted; RHS) 80 -10 60 -5 40 0 20 5 1500 100 1000 50 500 0 0 United States (RHS) Euro area (LHS) -50 -500 2000 02 04 06 08 09: Q2 0 10 -20 15 -40 20 2000 02 04 06 08 09: Q3 INTERNATIONAL MONETARY FUND 8 October 2009 Fiscal policy too has played a major role, but fiscal support will diminish Fiscal Balance Public Debt (Percent of GDP) (Percent of GDP) 120 2 0 Advanced Advanced Emerging and developing Emerging and developing World World 100 -2 80 -4 60 -6 40 -8 20 -10 1970 80 90 2000 10 14 1970 80 90 2000 10 14 0 INTERNATIONAL MONETARY FUND 9 October 2009 Rebalancing will be a drawn-out process, implying slow global growth Global Imbalances1 (Percent of world GDP) U.S. Oil exporters DEU+JPN OCADC CHN+EMA ROW 3 2 1 0 -1 Discrepancy -2 -3 1996 98 2000 02 04 06 08 10 12 14 1 OCADC: Bulgaria, Croatia, Czech Republic, Estonia, Greece, Hungary, Ireland, Latvia, Lithuania, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Turkey, and United Kingdom. INTERNATIONAL MONETARY FUND 10 October 2009 Global growth is expected to pick up in 2010, but the recovery will be sluggish Real GDP Growth1 Prospects for World GDP Growth (Percent change from a year earlier) (Percent change) 12 6 10 4 8 6 2 4 2 0 0 -2 -2 World 90% Confidence interval Advanced -4 70% Confidence interval 50% Confidence interval Emerging and developing -4 -6 2000 1 Quarterly 02 04 06 08 10 12 2006 14 07 08 09 10 data through 2010 and annual data afterwards. INTERNATIONAL MONETARY FUND 11 October 2009 Key risks, mainly on the downside • Premature withdrawal of public support, because recovery seemingly self-sustaining—public’s appetite for fiscal support seems low. • New financial disaster, geopolitical issues/oil price surge, swine flue: economy’s capacity to absorb new shocks is very low. • Fiscal credibility loss or questions about continued independence of central banks. • Upside: we may underestimate effects of reduced uncertainty/greater confidence. INTERNATIONAL MONETARY FUND 12 October 2009 CCA Economic Outlook • Global crisis has severely affected CCA energy importers and Kazakhstan: • Energy importers hit by sharp drop in remittances • Kazakhstan held back by lingering banking crisis • Other energy exporters still growing • Modest recovery in prospect for 2010; stronger for energy exporters than for importers. • Effective countercyclical policies have limited the downturn; concessional donor support has been important for energy importers. • Financial sectors remain under stress, with NPLs expected to rise further. INTERNATIONAL MONETARY FUND 13 October 2009 CCA in the grip of the global crisis Global crisis hit the region in 2009; only a modest recovery is projected for 2010 Per capita incomes are declining in the energy importing countries Real GDP Growth Gross National Disposable Income Per Capita 1/ (Annual change; in percent) (In U.S. dollars) 15 4500 10 3000 5 Armenia Georgia Kyrgyz Republic Tajikistan 0 -5 Commonwealth of Independent States CCA energy exporters CCA energy importers World Russia 1500 -10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 proj. proj. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1/ GNDI is defined as GDP + non-factor income + transfers. INTERNATIONAL MONETARY FUND 14 October 2009 Remittances down sharply Many migrants worked in the Russian construction sector A collapse in remittances affects household incomes Remittances Outflow from Russia to the CCA 1/ Remittances Inflows (Percent change; year-on-year) (Percent change; year-on-year) 100 100 CCA Russian construction 80 ARM 80 GEO KGZ 60 60 TJK 40 40 20 20 0 -20 0 Ju n- 09 9 M ar -0 8 D ec -0 -0 08 n- ar M Ju Ju -0 09 n- 9 ar -0 M D ec -0 08 Se p- Ju n- 8 ar -0 M Se p -80 8 -40 8 -60 08 -20 8 -40 1/ Includes compensation of employees and migrants capital transfer. INTERNATIONAL MONETARY FUND 15 October 2009 Exports contracted sharply in 2009, but imports also falling Exports of Goods in U.S. Dollars Imports of Goods in U.S. Dollars (In percent; year-on-year) (In percent; year-on-year) 150 160 Energy exporters Energy exporters Energy importers Energy importers 120 100 80 50 40 0 0 Ja Ja nFe 08 bM 08 ar Ap 08 r M -08 ay Ju 08 n0 Ju 8 lAu 08 gSe 08 pO 08 ct N 08 ov D -08 ec Ja 08 nFe 09 bM 09 ar Ap 09 r-0 9 -40 nFe 08 bM 08 ar Ap 08 r M -08 ay Ju 08 n0 Ju 8 l-0 Au 8 gSe 08 pO 08 ct N 08 ov D -08 ec Ja 08 nFe 09 bM 09 ar Ap 09 r-0 9 -50 INTERNATIONAL MONETARY FUND 16 October 2009 Net external demand holding back growth in 2009, but contributes to 2010 recovery Net External Demand (Annual change; in percent) 120 2009 100 2010 80 60 40 20 0 -20 -40 -60 -80 AZE KAZ TKM UZB ARM GEO KGZ TJK INTERNATIONAL MONETARY FUND 17 October 2009 Macroeconomic policies have been accommodative in 2009 Country Fiscal stimulus Armenia Azerbaijan Georgia Kazakhstan Exchange rate depreciation Monetary easing Liquidity support Increased provisioning Capital injections Kyrgyz Republic Tajikistan Deposit guarantees Enhanced Enhanced Enhanced Turkmenistan Uzbekistan INTERNATIONAL MONETARY FUND 18 October 2009 Fiscal policy expansionary in 2009, but some countries face limited fiscal space in 2010 Fiscal Space Indicators Change in the Non-oil Primary Fiscal Deficit, 2009 (In percent, 2009) (In percent of non-oil GDP) 10 160 Fiscal stimulus Automatic stabilizer Change in primary deficit Less fiscal space Total Public Debt/GDP 8 6 4 2 0 120 80 Kyrgyz Republic Tajikistan 40 Georgia Armenia -2 Azerbaijan 0 -4 -10 AZE KAZ TKM UZB ARM GEO KGZ TJK 0 10 20 30 40 Real Lending Rates Note: methodology based on IMF (2009), and is briefly described in the Amex. Source: IMF staff estimates; lending rates are from the International Financial Statistics. INTERNATIONAL MONETARY FUND 19 October 2009 Where debt levels were already high, donor support has helped finance the fiscal stance Some governments are constrained by already high debt levels 2009 increase in donor support expected to reverse in 2010 Public Debt Grants to Energy Importers (In percent of GDP) 60 50 (In percent of GDP) 7 2008 2009 proj. 2010 proj. 2008 2009 proj. 2010 proj. 6 5 40 4 30 3 20 2 10 1 0 0 AZE KAZ TKM UZB ARM GEO KGZ TJK ARM GEO KGZ TJK INTERNATIONAL MONETARY FUND 20 October 2009 Inflation down sharply, but pressures may return in 2010 … but commodity prices on the rise again Inflation down sharply from historical highs… Consumer Price Index Commodity Prices (Annual change; in percent) (Index 2008 = 100) 40 ARM GEO KGZ TKM 30 150 AZE KAZ TJK UZB 100 20 10 50 Aluminum Cotton Crude oil Gold 0 Ja n Fe -08 b M -08 ar Ap -08 M r-0 ay 8 Ju -08 nJu 08 Au l-08 g Se -08 p O -08 ct N -08 o D v-08 ec Ja -08 n Fe -09 b M -09 ar Ap -09 M r-0 ay 9 Ju -09 nJu 09 Au l-09 g09 0 Ja n Fe -08 b M -08 ar Ap -08 M r-08 ay Ju -08 nJu 08 Au l-08 g Se -08 p O -08 ct N -08 ov D -08 ec Ja -08 n Fe -09 b M -09 ar Ap -09 M r-09 ay Ju -09 n09 -10 INTERNATIONAL MONETARY FUND 21 October 2009 Currencies have depreciated ... …. against dollar, and energy Importers’ currencies have caught up with weakening ruble … … helping reverse competitiveness losses suffered in 2008 Local Currencies Against the U.S. Dollar and Russian Ruble Real Effective Exchange Rate (Index Jan 2005 = 100; increase indicates appreciation) (Aug 31, 2008 – Aug 31, 2009, increase indicates appreciation) 180 30 20 160 10 140 0 120 -10 100 -20 80 -30 -40 60 Against the U.S. dollar Against the Russian ruble AZE KAZ TKM UZB ARM AZE GEO KAZ KGZ TJK UZB 5 ARM GEO KGZ n-0 Ja TJK 6 5 l-0 Ju n-0 Ja 7 6 l-0 Ju n-0 Ja 8 7 l-0 Ju n-0 Ja 8 l-0 Ju 9 9 n-0 Jul-0 Ja INTERNATIONAL MONETARY FUND 22 October 2009 Financial sectors are under stress, with NPLs set to rise further Nonperforming Loans (In percent of total loans) 20 2007 2008 2009, latest 16 12 8 4 0 AZE KAZ TKM UZB ARM GEO KGZ TJK INTERNATIONAL MONETARY FUND 23 October 2009 In response, credit growth has slowed Credit boom has come to an abrupt halt Real lending rates on the rise as inflation declines Credit to the Private Sector Real Lending Rate (Percent change; year-on-year) (In percent) 120 25 ARM 100 AZE 20 GEO 80 60 KAZ 2007 2008 2009, latest 1/ 15 KGZ 10 40 5 20 0 0 -5 -20 Ja n Fe -08 b M -08 ar Ap -08 M r-08 ay Ju -08 nJu 08 Au l-08 g Se -08 p O -08 ct N -08 ov D -08 ec Ja -08 n Fe -09 b M -09 ar Ap -09 M r-09 ay Ju -09 nJu 09 l-0 9 -10 AZE KAZ TKM UZB ARM GEO KGZ TJK 1/ Lending rate for Georgia is on loan flows for all maturities. INTERNATIONAL MONETARY FUND 24 October 2009 Social Impact of the Crisis • With per capita income and social spending rising in the oil exporters, poverty is expected to fall • In the oil importers, despite some increase in social spending, poverty is expected to pick up via the following channels: – Disposable income is projected to drop by 5 percent on account of lower remittances alone – Softening of labor markets will likely see unemployment edging up – Depreciated exchange rates have led to some increases in import prices for consumers – Simulations for several countries suggest the poverty rate could increase as much as 5 percentage points INTERNATIONAL MONETARY FUND 25 October 2009 Policy Priorities • Fiscal stimulus needs to be sustained in most countries in 2010 – more concessional donor financing would support growth and social protection and limit debt increase in energy importers • Flexible exchange rate regimes will help preserve competitiveness • Further steps to stabilize financial sectors important in some countries • Not too early to start thinking about exit strategy, to reverse debt increase and take best advantage of global recovery: – – – – Medium term fiscal consolidation Further reforms to improve business environment Enhanced regional cooperation Financial sector development INTERNATIONAL MONETARY FUND 26 October 2009 Please visit the IMF’s website Full report and copy of the presentation: http://www.imf.org/external/pubs/ ft/reo/2009/MCD/eng/mreo1009.htm What do you think? Make your point on the related blog: http://blog-imfdirect.imf.org INTERNATIONAL MONETARY FUND 27 October 2009