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
The Global Crisis and its Impact on Latin America April 24th, 2009 International Economic Outlook The economic crisis has developed gradually from a mortgage and credit problem in industrial countries into a systemic financial crisis and a generalized collapse of confidence which has affected the world economy. • • The international crisis is the deepest in the post-war period and is characterized by the following: • A global recession and financial crisis. • A process of deleveraging in the international financial system. • A run in favor of more liquid and less risky financial instruments leading to a generalized contagion of emerging markets. • A generalized lack of confidence. • An adjustment in households’ balance sheets, with an increase in savings and lower consumption. The most important economies of the world are in a recession, and a slow recovery is expected given the weakness in the balance sheets of households and financial intermediaries. 2 Perspectives for 2009 The latest expectations for the United States are of a fall of 2.6% and 9.0% in GDP and industrial production in 2009, with a recession in other industrial countries and a marked deceleration in Emerging Markets. 4.0 Lehman’s Bankruptcy Growth Expectations of Emerging Economies for 2009 (%) Brazil China Mexico Chile India Czech Rep. 16 14 2.0 12 0.0 10 8 -2.0 -8.0 4 2 0 -2 Lehman’s Bankruptcy -4 Feb-08 Mar-08 Abr-08 May-08 Jun-08 Jul-08 Ago-08 Sep-08 Oct-08 Nov-08 Dic-08 Ene-09 Feb-09 Mar-09 Abr-09 -6.0 UK Eurozone Canada Japan US Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 -4.0 6 International Trade Volume of Goods and Services (annual change, %) 14 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010e Growth Expectations of Industrial Economies for 2009 (%) 3 Perspectives for 2009 The deterioration in global growth perspectives has also led to lower commodity prices, even though these seem to have stabilized. 8 World Growth (annual change, %) UBS-Bloomberg Commodity Price Index (Index) 7 6 1,750 5 1,650 1,550 4 1,450 3 1,350 2 1,250 1 1,150 0 1,050 -1 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 -2 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 950 4 Economic Evolution All emerging markets, including Latin America, have been affected through the following channels: Real Effects of the International Crisis Financial Confidence External Demand Exports Remittances Consumption Commodity Prices National Income & Public Revenues Tourism Services FDI Investment International Financing and Markets Investment Higher Risk Perception: Markets and Domestic Intermediaries Consumption & Investment Consumption & Investment 5 Economic Evolution Even though the importance of each channel may differ, all countries in the region have been affected. External Demand Industrial Terms of Exports Production Trade (latest data available, %) Mexico Argentina Brasil Chile Colombia Peru Venezuela -13.2 3_/ -14.0 3_/ -17.0 3_/ -11.5 3_/ -10.7 2_/ -2.7 2_/ -25.4 1_/ Financing EMBI+ (jul-08 - latest (latest data (2008-2009, data available, available, %) %) bp) -26.9 3_/ -24.0 3_/ -20.1 3_/ -44.5 4_/ -13.2 2_/ -30.8 1_/ - -6.3 -7.2 -5.4 -19.1 -21.4 -5.2 -46.5 169 1226 173 n.a 212 174 708 Consumer Confidence (jul-08 - latest data available, %) -12.5 -3.7 -2.6 0.3 -107.4 n.a n.a 1_/ December 2008 2_/ January 2009 3_/ February 2009 4_/ March 2009 6 Effect on Latin America Overall, all countries in the region will experience a sharp slowdown in growth and a deterioration of the external accounts. 10 -6 0 -8 -2 -10 -12 Venezuela 2 Uruguay -4 Peru 4 Colombia -2 Chile 6 Brazil 0 Argentina 8 Mexico Venezuela Difference in Current Account Deficit 2007-2009 (% of GDP) Uruguay Peru Colombia Chile Brazil Argentina Mexico Difference in GDP Growth 2007-2009 (%) 7 Mexico’s Economic Evolution In the case of Mexico, the collapse in international confidence and demand at the end of 2008 led to a sharp contraction in exports and production. However, activity has started to stabilize. Industrial Production (Index, Jan-08=100) Non-Oil Exports (billion dollars) Industrial 22 105 21 Construction Manufacturing 20 100 19 95 18 17 90 16 85 15 14 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 80 8 Mexico’s Economic Evolution Domestic sales have started to increase and the monthly job loss has moderated significantly. Employment (monthly change, thousand persons) ANTAD and Wal-Mart Total Sales (Index) Wal-Mart 99 Mar-09 Jan-09 Nov-08 Sep-08 Jul-08 May-08 Mar-08 Jan-08 Nov-07 Sep-07 98 Mar-09 100 Ene-09 101 Nov-08 102 Sep-08 103 Jul-08 104 May-08 105 Mar-08 106 Ene-08 80 60 40 20 0 -20 -40 -60 -80 -100 -120 -140 Nov-07 ANTAD Sep-07 107 9 Mexico’s Economic Evolution The trend in inflation has reverted due to non-core and services inflation. Given that the last one is more rigid, its reduction is very positive in the convergence to the medium-term inflation target. Inflation (annual change, %) 7.5 7.0 6.5 CPI Merchandises Services 13 11 6.0 Non Core Primary Sector Administered Prices 9 5.5 7 5.0 4.5 5 4.0 3 3.5 3.0 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 1 10 Monetary Policy The exchange rate has stabilized and long term domestic rates are at the levels observed before Lehman’s bankruptcy. Exchange Rate (pesos per dollar) Government Bonds (%) 11.5 16 Announcement of daily auction 15 10.5 9.5 14 13 12 1Year 5 Years 20 Years 30 Years 8.5 Lehman’s Bankruptcy 7.5 11 6.5 Announcement of FCL request 10 Apr-09 Feb-09 Dec-08 Oct-08 Aug-08 Jun-08 Apr-08 Apr-09 Mar-09 Feb-09 Jan-09 Dec-08 Nov-08 Oct-08 Sep-08 Aug-08 Jul-08 Jun-08 Feb-08 5.5 9 11 Mexico’s Economic Evolution The effect of the global recession has been partially mitigated by the implementation of fiscal, financial and structural measures. Counter-cyclical measures to sustain aggregate demand Real 2 Measures to promote financing and orderly conditions in financial markets Financial 3 Structural Reforms 1 1 Confidence 12 Perspectives for 2009 A conservative estimation implies an effect on aggregate demand of the countercyclical measures of 1.8% of GDP (229 bn pesos), with a direct effect on domestic aggregate demand of 1.4% of GDP (171 billion pesos). Impact of Countercyclical Measures (billion pesos) 250 46 200 15 -17 100 48 10 Nat. Supp. of PEMEX, Emp. and Health 150 Prices and tariffs 30 171 -41 80 50 Total Effect Imports Savings Effect of Development Bank Credit Unemployment Benefits Investment by PEMEX and States PICE 0 13 Economic Evolution in 2009 The approved budget together with the counter-cyclical measures imply that fostered investment will be the highest in the last 30 years. Fostered Investment (% of GDP) 5.0 4.5 4.0 3.5 3.0 2.5 2009 Approved 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 2.0 14 Programmable Expenditure Paid by Entities Up to March and consistent with the counter-cyclical strategy, programmable expenditures and investment by the Federal Government were 49.5% and 116.5% higher, in real terms, relative to the same period of 2008. Programmable Expenditures 2009 vs 2008 (billion pesos, accumulated January-March) 180 160 169.0 25 21.0 Real expansion of 49.5% 20 140 120 Investment Expenditure 2009 vs 2008 (billion pesos, accumulated January-March) Real expansion of 116.5% 113.1 15 100 80 10 9.7 60 40 5 20 0 0 2008 2009 2008 2009 15 Monetary Policy Stable inflation expectations in an environment of lower growth have allowed Banco de Mexico to reduce its reference interest rate. Reference Interest Rate (%) Inflation (%) 8.5 14 CPI 8.0 12 Core Inflation 10 7.5 8 7.0 6 6.5 Dic-09 Mar-10 Dic-10 Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 Mar-04 Mar-03 Mar-02 Mar-01 Feb-09 Mar-09 Nov-08 Dec-08 Jan-09 0 Aug-08 Sep-08 Oct-08 5.5 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 2 Jan-08 6.0 Mar-00 4 16 Economic Evolution in 2009 In contrast to the period before 2003, total commercial bank credit is expected to increase by 6.0% – 8.0% during 2009, sustained in high capital levels. Commercial Bank Capitalization Index (%) Credit by Commercial Banks (annual change, %) 100 80 60 Housing 16 15.3 Business 15 Total 40 14 13.7 20 13 0 -20 12 11.6 -40 11 -60 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 -80 10 1994 2000 2008 17 Economic Evolution in 2009 In addition, commercial bank credit is being complemented by a very ambitious expansion in credit by development banks. Sector Business Infrastructure Housing Rural Others Total Portfolio of Direct Credit and Induced by Development Banks (billion pesos, feb 09 =100) Change Jan 08/09 Change Feb 08/09 Jan-08 Feb-08 Jan-09 Feb-09 (bp) (%) (bp) (%) 98.3 97.9 136.5 146.3 38.1 38.8 48.4 49.4 69.2 68.9 103.0 102.6 33.8 48.8 33.7 49.0 132.1 116.5 231.6 202.2 99.5 75.4 85.8 73.7 67.6 66.9 86.2 88.5 18.6 27.5 21.6 32.2 6.2 6.4 8.1 8.4 1.9 30.3 2.0 32.0 373.5 356.5 565.4 548.0 191.9 51.4 191.5 53.7 18 Mexico’s Economic Evolution Regarding financial markets, actions were implemented in all markets to promote the restoration of orderly conditions. In terms of bond markets: • Modifications to the program of auctions of government and IPAB bonds, as well as the buy back of government and IPAB bonds. • Auctions of interest rate swaps. • Changes in pension and mutual funds regulations. • The establishment of partial guarantees refinancing windows in development banks. and 19 Use of International Reserves In addition, to further promote normal operating conditions in the exchange rate market and reinforce confidence on the balance of payments, the following actions have been taken: • A daily auction of 100 million dollars, providing the market with the positive net reserve flows expected for the year. • Establish the FCL with the IMF by 47 billion dollars to reinforce confidence. • Use the 30 billion dollar swap line with the Federal Reserve to provide dollar liquidity to corporations. The initial auction of 4 billion was undersubscribed (3.2 bn) and the rate was 0.7%. This confirms that corporates don’t have significant dollar liquidity requirements. • Resources from the FCL, the swap and current reserves (80bn) imply close to 157 billion dollars in available foreign exchange. 20 The G-20 Process In the context of the G-20, some positive steps have been taken but important challenges remain. • We have focused our efforts in the G-20 to preserve the macroeconomic stability of emerging markets. • It is necessary to prevent further impacts from the retrenchment of international financial flows, derived from: i. Indiscriminate increase in risk aversion by investors and ii. Increasing demand for financial resources in developed economies due to large fiscal stimulus packages. • This is expected to represent a flow of around 6 trillion US dollars to developed economies and a reduction in 2009 of around 82% in flows to emerging markets with respect to 2007. • In addition, protectionism in the real and financial sectors must be avoided. 21 The G-20 Process IFIs can play a significant role to help countries to face the current credit crunch and an environment of lower financing in the medium term by providing the necessary resources and adequate tools. • In this regard, the recent approval of the Flexible Credit Line by the IMF is very positive and will help ease this transition. • We need an increase in Multilateral Development Banks’ resources not only in the short, but also in the medium and long terms. In addition, credit must be provided in a more expedite way. • In particular we need to increase the IADB’s and IFC’s resources as soon as possible given that they are already facing restrictions and review the capital needs of the WB. 22 Conclusions Concluding Remarks • There is no doubt that the Latin American region will be affected by the current negative environment. • The impact will be mitigated by: Stronger macroeconomic fundamentals. Sound financial systems. Countercyclical fiscal and monetary policies. Support by IFI’s for which important reforms need to be made. • Structural reforms are of the essence to reinforce confidence. 23