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Presentation "Hitting g the ceiling or on track for a new normal?" Presentation Transcript

  • 1. Hitting the ceiling or on trackg gfor a new normal?Alicia Garcia-HerreroChief Economist Emerging MarketsBBVA Research30 May 2013EmNet Meeting "Out of the Woods?”EmNet Meeting Out of the Woods?
  • 2. Hitting the Ceiling or on track for a new normal?May 30, 2013New Normal in long run growth accounting?Higher productivity but still factor accumulation (labour) bias…Potential Output Contributions(in %)Source: BBVA ResearchPotential Output Contributions(in %)Source: BBVA ResearchLabourCapitalTFP911TFP572012 GDP Growth135-11Arg(19Arg(20Arg(20Bra(19Bra(20Bra(20Chl(199Chl(20Chl(20Col(199Col(20Col(20Mex(1Mex(2Mex(2Per(19Per(20Per(20Ven(19Ven(20Ven(20Chin(1Chin(2Chin(2Tur(19Tur(20Tur(20Arg Bra Chl Col202019202019202019202019221202019221221Mex Per Ven Chn Tur202019Page 2991-00)001-10)011-20)991-00)001-10)011-20)91-00)001-10)011-20)91-00)001-10)011-20)991-00)001-10)011-20)991-00)001-10)011-20)991-00)001-10)011-20)991-00)2011-10)2011-20)991-00)001-10)011-20)011-20001-10991-00011-20001-10991-00011-20001-10991-00011-20001-10991-00011-20001-10991-00011-20001-10991-00011-20001-10991-00011-20001-10991-00011-20001-10991-00
  • 3. Hitting the Ceiling or on track for a new normal?May 30, 2013This must change to avoid the slowdown as labordrivers are not promising…Working Age Population(% yoy)Source: BBVA ResearchLabor Participation Rates(% yoy)Source: BBVA Research2.53.03.575 080.085.01.01.52.065.070.075.00 50.00.555.060.0-0.519801985199019952000200520102015202020252030Argentina Brazil Chile ColombiaMexico Peru G750.0 EgyptTurkeyPakistanuthAfricaNigeriaIndiaItalyMalaysiaMexicoKoreaPolandChilehilippinesUkraineArgentinandonesiaColombiaFranceUSARussiangladeshJapanBrazilUKGermanyThailandCanadaPeruChinaVietnamPage 3SouPhAICBa
  • 4. Hitting the Ceiling or on track for a new normal?May 30, 2013Lower labor contribution will slow downpotential growthLabour Contributions to potential output(in %)Source: BBVA ResearchSource: BBVA Research1.61.82.01.01.21.40.40.60.80.00.291-0000-1011-2091-0000-1011-2091-0000-1011-2091-0000-1011-2091-0000-1011-2091-0000-1011-2091-0000-1011-2091-0000-1011-2091-0000-1011-20Page 4Arg Bra Chi Col Mex Per Ven Chin Turk
  • 5. Hitting the Ceiling or on track for a new normal?May 30, 2013Total Factor Productivity is improvingBut LATAM shows worrisome trendTotal Factor Productivity(1995=100, median countries)Source: Economydatabase conference board125130Eurozone USA115120EM Asia LatamEM Europe1001051109095100Page 590199019911992199319941995199619971998199920002001200220032004200520062007200820092010
  • 6. Hitting the Ceiling or on track for a new normal?May 30, 2013However, the contribution of capital should improve,at least based on needs….Capital Stock per Worker 2010(in constant 2005 international $, 000s)Source: World BankCapital Stock 2010 and 2030(in US$ tr (2010) and 2010 US$ tr)Source: World Bank Capital for FuturePage 6
  • 7. Hitting the Ceiling or on track for a new normal?May 30, 2013Infrastructure is probably the best exampleLatinAmerica: Infrastructure Investment(% of GDP)Source: World BankEM: Annual Regional Infrastructure Needs to 2030(US$ billions)Source: World Bank Capital for Futurep3.5%4.0%4.5%PublicPrivate300350Water/SanitationTelecoms2.0%2.5%3.0%150200250 TransportationPower0 5%1.0%1.5%2.0%501001500.0%0.5%0LATAM Africa East Asia EM Europe MENA South AsiaPage 7
  • 8. Hitting the Ceiling or on track for a new normal?May 30, 2013Will the capital needed be financed?QE to the rescue!Central banks balance sheet(% GDP and Local Currency)Source: Bloomberg and BBVA ResearchBalance sheets of major central banks(as % of GDP)Source: Bloomberg and BBVA Research gJan-07 Mar-13Dec-13(Forecast)Dec-14(Forecast)% GDPBoJ 22% 35% 46% 59%50%60%50%60%Oct-08: all 4 CBannouncedprogrammesECB 13% 28% 26% 24%BoE 6% 25%Fed 7% 20% 24% 23%Local currency20%30%40%20%30%40%BoJ (bn Yen) 114.622 164.312 220.112 290.112ECB (bn. Euros) 1.148 2.648 2.512 2.340BoE (bn pounds) 79 404Fed (bn USD) 896 3.249 3.872 3.9960%10%20%0%10%20%78901234Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14BoJ ECB BoE FedPage 8
  • 9. Hitting the Ceiling or on track for a new normal?May 30, 2013Western Quantitative Easing will oblige EMEs tochoose between difficult optionsSurge in Capital Flows: Origins, Options and VulnerabilitiesSource: EPFR and BBVA ResearchPush Factors (North) Free floating Exchange Rates(Beggar thy neighbor Policies)Low interest ratesofflowsLowerCreditLowerGDPExcess FXOvervaluationLowerInflationRisk AppetiteGlobal liquidityManaging Exchange RatesSurgeopitalInfPull Factors (South)CB Balance Sheetg g g(Fear of Floating)GrowingCreditMidGDPFXOvervaluationMidInflationCaFixed Exchange Rates(Bubbling thy Neighbor policies)Relative High yieldHigher growthLow VulnerabilityPage 9Low VulnerabilityCB Balance SheetExcessCreditHigherGDPFXOvervaluationHigherInflation
  • 10. Hitting the Ceiling or on track for a new normal?May 30, 2013Push factors from western CB’s have beensupporting… (Bubblying thy neighbour?)The Impact of Large Scale Asset Purchasesin 10 Yr Treasury billEM Risk premiums changes after Dragui`s and QE3announcementsin 10 Yr Treasury billSource: BBVA Research Through several FED empirical studies0QE1 QE2 MEP (Otwist) QE3100 EMEALatam(july 2012=0)Source: BBVA Research and Haver60-40-20Sep 2011Sep 2012050AsiaUS BaaEU Periphery-100-80-60Oct 2010-100-50-140-120Sept 2008 -200-150n-12b-12r-12r-12y-12n-12l-12g-12p-12t-12v-12c-12n-13b-13r-13r-13Page 10JanFebMarAprMayJunJuAugSepOctNovDecJanFebMarApr
  • 11. Hitting the Ceiling or on track for a new normal?May 30, 2013But also EM “pull” factors.Lower vulnerability is also part of the New Normal1001201402361684173101043External Debt 2013 (% GDP)Source: BBVA Research and IMFGross Public Debt 2013 (% GDP)Source: BBVA Research and IMF020406080StatesanadaJapanstraliaKoreaorwaywedennmarkinlandUKAustriaFrancermanyrlandselgiumItalySpainrelandortugalGreecechRepulgariaCroatiaungaryPolandmaniaRussiaTurkeyentinaBrazilChileombiaMexicoPeruChinaIndiaonesiaalaysiappinesailandUnitedSCaAuNoSwDenFAFGerNetherBeIrPoGCzecBuCHuPRoRTArgeColoMIndoMaPhilipThCorporate Sector Debt 2013 (% GDP)Source: BBVA Research and IMFHousehold Debt 2013(% GDP)Source: BBVA Research and IMF30 050,070,090,0110,0130,0150,050 0100,0150,0200,0250,0Source: BBVA Research and IMFSource: BBVA Research and IMF-10,010,030,0UnitedStatesCanadaJapanAustraliaKoreaNorwaySwedenDenmarkFinlandUKAustriaFranceGermanyNetherlandsBelgiumItalySpainIrelandPortugalGreeceCzechRepBulgariaCroatiaHungaryPolandRomaniaRussiaTurkeyArgentinaBrazilChileColombiaMexicoPeruChinaIndiaIndonesiaMalaysiaPhilippinesThailand0,050,0UnitedStatesCanadaJapanAustraliaKoreaNorwaySwedenDenmarkFinlandUKAustriaFranceGermanyNetherlandsBelgiumItalySpainIrelandPortugalGreeceCzechRepBulgariaCroatiaHungaryPolandRomaniaRussiaTurkeyArgentinaBrazilChileColombiaMexicoPeruChinaIndiaIndonesiaMalaysiaPhilippinesThailandPage 11Risk Thresholds
  • 12. Hitting the Ceiling or on track for a new normal?May 30, 2013Portfolio Flows have surged…Equity and Bond Flows 1Q13 – 2Q13(change in average flows between quarters)Source EPFR and BBVA RESEARCH2.03.04.7Source EPFR and BBVA RESEARCH1 00.01.0-3 0-2.0-1.0First column: variation between 2012 Q4 and 2013Q1Second column: variation between 2013 Q1 and 2013 Q23.0DevelopedEmergingUSA&CanadaSwitzerlandJapana&N.ZealandNordicsWestEuropepheryEuropeEastEuropeBalticsBalkansRussia&CISTurkeyAsiaLatinAmericaMiddleEastGCCNorthAfricaaharanAfricaPage 12UAustraliaWPeripLS.Sa
  • 13. Hitting the Ceiling or on track for a new normal?May 30, 2013Collateral damage of QE in EM should be closely monitored: mainly aP i di l (1996 2012 Q3)Collateral damage of QE in EM should be closely monitored: mainly a“bubblying thy neighbour” story as most of EM CBs have not allowedtoo much appreciationUS # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Japan # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Canada # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #20082001 2009 2010 2011 2012G42002 2003 2004 2005 2006 20071996 1997 1998 1999 2000US #Japan #Canada #20082001 2009 2010 2011 2012G42002 2003 2004 2005 2006 20071996 1997 1998 1999 2000Private credit colour map (1996-2012 Q3)(yearly change of private credit-to-GDP ratio)Source: BBVA Research and HaverReal housing prices colour map (1996-2012)(yearly change of real housing prices)Source: BBVA Research, BIS and GlobalpropertyguideUK # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Denmark # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # …Netherlands # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Germany # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #France # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Italy # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Belgium # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Greece # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Spain # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #I l dWesternEuropeCanada #UK #Denmark # …Netherlands #Germany #France #Italy #Belgium # --Greece #Spain #ropaOccidentalGIreland # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Portugal # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Iceland # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # … …Turkey # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Poland # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Czech Rep # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Hungary # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # …Romania # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Russia # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Bulgaria # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #WEuropeEMp #Ireland #Portugal #Iceland #TurkeyPoland #Czech Rep #Hungary #Romania #RussiaB l iEuropaEmergenteBulgaria # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # …Croatia # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # … …Mexico # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Brazil # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Chile # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Colombia # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Argentina # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Peru # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Uruguay # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # …China # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #LATAMBulgaria #CroatiaMexicoBrazilChile #Colombia #Argentina #Peru #Uruguay #China #EuroLATAMKorea # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Thailand # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #India # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Indonesia # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Malaysia # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Philippines # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Hong Kong # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #Singapore # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #### Booming: Credit/GDP growth is higher than 5%AsiaChina #Korea #Thailand #IndiaIndonesiaMalaysia #PhilippinesHong Kong #Singapore #9 Booming: Real House prices growth higher than 8%AsiaPage 13##################…De-leveraging: Credit/GDP growth decliningNon AvailableBooming: Credit/GDP growth is higher than 5%Excess Credit Growth: Credit/GDP growth between 3%-5%High Growth: Credit/GDP growth between 2%-3%Mild Growth: Credit/GDP growth between 1%-2%Stagnant: Credit/GDP is declining betwen 0%-1%97430.5-2 De-Leveraging: House prices are decliningNon Available DataBooming: Real House prices growth higher than 8%Excess Growth: Real House Prices Growth between 5% and 8%High Growth: Real House Prices growth between 3%-5%Mild Growth: Real House prices growth between 1%-3%Stagnant: Real House Prices growth between 0% and 1%
  • 14. Hitting the Ceiling or on track for a new normal?May 30, 2013Credit “Gaps” were excessive before both EM andDeveloped Crisis…Credit “Gap” before the EM Crisis (1997)(credit to private sector/GDP difference from equilibrium levels)Source: BBVA ResearchCredit “Gap” before the Developed s Crisis (2007)(credit to private sector/GDP difference from equilibrium levels)Source: BBVA ResearchPage 14
  • 15. Hitting the Ceiling or on track for a new normal?May 30, 2013But NOT Now according to our models…although they can grow over time if not tackledCurrent Private Credit “Gap” (2012)(credit to private sector/GDP difference from equilibrium levels)Source: BBVA ResearchPage 15
  • 16. Hitting the Ceiling or on track for a new normalMay 30, 2013Hitting the ceiling or on trackg gfor a new normal?Alicia Garcia-HerreroChief Economist Emerging MarketsBBVA Research30 May 2013EmNet Meeting "Out of the Woods?”Page 16EmNet Meeting Out of the Woods?