Download Blanchard Presentation - Carnegie Endowment for International Peace

Where Are We In the Global Crisis?
Olivier Blanchard
Economic Counsellor and Director
Research Department
International Monetary Fund
April 30, 2009
Two Cross Currents

One pulling down. Dynamic multipliers.

One pulling up. Natural stabilizers? Demand policies.

Balance.




Today, the first strongly dominates.
With right policies, balance should shift later this year.
Growth should turn positive at the end of 2009.
Unemployment should crest at the end of 2010.
Central: Health of financial system. To avoid vicious cycles,
and determine the strength of recovery.
1
Growth Projections
Real GDP Growth
(in percent; QoQ; saar)
12
10
Emerging and
Developing economies
8
World
6
4
2
Advanced
economies
0
-2
-4
-6
-8
2006
2007
2008
2009
2010
2
Unemployment Rate Projections
Unemployment Rate
(in percent)
12
10
Euro area
8
U.K.
6
U.S.
4
Japan
2
2006
2007
2008
2009
2010
3
Growth Revisions, and 2008 Q4
Advanced: Real GDP Growth
(in percent; QoQ; saar)
Emerging: Real GDP Growth
(in percent; QoQ; saar)
6
12
08Q4
08Q4
10
4
8
Jan. 09
2
Jan. 09
0
4
Apr. 09
-2
-1.5
-4
-6
-8
-10
Mar-07
6
Apr. 09
2
0
-5.6
-2
-7.5
-4
-4.5
-6
Mar-08
Mar-09
Mar-10
Mar-07
Mar-08
Mar-09
Mar-10
4
Natural Stabilizers?
U.S. Vehicle Sales
Housing Indicators
(in millions; sa)
(in millions of units)
1.6
6
1.6
U.S. Inventories
(LHS)
Total Inventories
5
1.4
1.4
1.2
1.2
1.0
1.0
4
3
2
Permits
U.S. Auto Sales
(RHS)
0.8
1
Mar. 09
Mar. 09
0
05
06
07
08
0.8
09
0.6
Jan-06
0.6
Jan-07
Jan-08
Jan-09
1/ NAHB index; a reading over 50 suggests “Good” conditions for current and prospective home sales.
5
Fiscal Policies in 2009 and 2010
Overall Deficit: Contributions from Automatic Stabilizers
and Discretionary Measures
(fiscal deficit in percent of GDP; change from 2007)
10
2009
10
2010
8
8
6
6
4
4
2
2
0
0
-2
-2
1/
a
in
Ch
n
pa
Ja
y
an
m
er
G
ce
an
Fr
.
.K
.
.S
U
U
0
-2
G
1/
a
in
Ch
n
pa
Ja
y
an
m
er
G
ce
an
Fr
.
.
.K
U
.S
U
0
-2
G
1/ PPP GDP-weighted average.
6
Sustainability Concerns and Fiscal Projections
G-20 Advanced Countries
Fiscal Balance and Public Debt
G-20 Advanced Countries
Public Debt
(in percent of GDP; PPP GDP weighted)
-14
(in percent of GDP; PPP GDP weighted)
160
160
Contingent
Liabilities
-12
140
140
-10
Public debt
(RHS)
-8
120
-6
Baseline
100
-4
Fiscal Balance
(LHS; inverse)
120
Low growth
100
80
80
-2
0
60
07
08
09
10
11
12
13
14
60
07
08
09
10
11
12
13
14
7
Fiscal Sustainability and Financial Strains
Ireland CDS Spreads
Sovereign CDS Spreads
(5-year CDS Spreads; in basis points)
(5yr; in basis points)
700
400
U.S.
350
Government
guarantees
U.K.
600
Germany
300
France
500
Ireland
250
200
Italy
400
Bank of Ireland
Austria
Greece
300
150
200
100
Allied Irish
Bank
50
0
Jun-08
4/23
Sep-08
Dec-08
Mar-09
Jun-08
Sep-08
100
Sovereign
Dec-08
4/23
Mar-09
0
8
Central Bank Policy Rates and Balance Sheets
Policy Rates
Central Banks Total Assets
(in percent)
(index, 1/5/2007=100)
7
360
Lehman
Brothers
6
U.K.
320
U.K.
280
5
Canada
240
4
Euro area
U.S.
3
200
2
160
U.S.
Euro area
Canada
120
1
Japan
Japan
0
07
08
09
4/23
07
08
09
80
4/17
9
Credit and Quantitative Easing
90-day U.S. Commercial Paper
10yr Government Bond Yield
(n percent unless otherwise noted)
5
(in percent)
5
2000
QE
CPFF
4
U.K.
1500
3
4
Financial
(AA; LHS)
2
1000
3
500
2
Non-Financial
(AA; LHS)
1
U.S.
0
Net Holdings
(RHS;$ bil.)
-1
Jan-08
CPFF
4/23
0
May-08
Sep-08
Jan-09
4/17
1
Nov-08
Dec-08
Jan-09
Mar-09
Apr-09
10
Bank Lending and Economic Recovery 1/
Apr. 2009 WEO Baseline
Credit conditions improve
Bank lending tightens further
Changes in Credit Standards
U.S. Output Gap
(index of tightening; bank lending standards)
(in percent of potential; based on GPM)
2
100
80
0
Tightening
60
-2
40
2010Q1
-4
20
-6
0
-20
Loosening
-8
2010Q4
-40
06Q1
07Q1
08Q1
09Q1
10Q1
11Q1
12Q1
-10
06Q1
1/ Simulations using the Global Projection Model (GPM).
07Q1
08Q1
09Q1
10Q1
11Q1
12Q1
11
International Credit Provision
Emerging Economies: Net Capital Flows
(US$ billions)
120
60
0
-60
Net derivatives
Direct investment
-120
Other investment
Portfolio investment
-180
Total
08Q4
-240
04Q1
05Q1
06Q1
07Q1
08Q1
12
In Summary

Need for strong policies still acute.

With those policies (especially financial):




Turnaround in growth (advanced) at the end of 2009.
Turnaround in unemployment at the end of 2010.
Emerging and developing countries: higher but in sync.
Need to start thinking now about exit policies. Debt,
money, regulation, external imbalances.
13