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WEO Outlook Oct 2012
 
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World Economic Outlook, October 2012 (Jaime Custodio Guajardo, Senior Economist, Research Department, International Monetary Fund)

World Economic Outlook, October 2012 (Jaime Custodio Guajardo, Senior Economist, Research Department, International Monetary Fund)

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    WEO Outlook Oct 2012 WEO Outlook Oct 2012 Presentation Transcript

    • World Economic OutlookCoping with High Debt and Sluggish Growth October 2012
    • Main Message: Action Needed to Put Recovery Back on Track • The global economy has suffered new setbacks • The forecasts are down • Risks are up sharply • AE: policies have progressed but much stronger actions are needed • EM: complex setting—rebuilding policy room for maneuver versus supporting growth
    • New Setbacks to the Global Recovery Global Manufacturing PMI Merchandise Exports60 (Index; > 50 = expansion; SA) (Percent; 3mma annualized) 80 6055 4050 2045 0 World -2040 Advanced Advanced -4035 Emerging Emerging -60 Aug. 12 Jul. 1230 -80 06 07 08 09 10 11 12 05 06 07 08 09 10 11 12Source: IMF, Global Data Source. 3
    • What Went Wrong?Increasing strains in the euro areaEnd of the emerging markets boomLarge growth impact of fiscal adjustment amid tight financial conditions 4
    • Euro Area: Growing fragmentation, despite policy responses Portfolio and Other Investment Capital Flows, 10-Year Government Bond Spreads over German Excluding Central Banks Bunds 8 (Cumulative from December 2009, in percent of GDP) (basis points) 700 6 1st LTRO 2nd LTRO Italy 600 4 2 Spain 500 0 France 400 -2 300 -4 Draghi speech -6 200 Aug. 2nd -8 100-10 Core Periphery Mar. 12 Sept. 12-12 0 2010 2011 2012 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Source: Bloomberg, L.P. and IMF staff estimates.Sources: Haver Analytics; and IMF staff estimates. 5
    • Emerging Markets: End of a boom? Real Credit Level Real Credit Growth Real GDP Growth (January 2007 = 100) (percent change from one year ago) (percent change from one year ago)250 40 16 Turkey Turkey Turkey Brazil Brazil 35 Brazil 14225 India India India China 30 China 12200 China 25 10175 20 8150 15 6125 10 4100 5 2 12:Q3 June 12 June 12 75 0 0 07 08 09 10 11 12 2010 2011 2012 2010 2011 2012Sources: Haver Analytics; IMF, World Economic Outlook; and IMF staff calculations. 6
    • Tight financial conditions and fiscal policies in AE Lending Conditions Fiscal Consolidation (Net percentage of domestic respondents (Change in structural balance as percent of GDP)100 1,5 tightening standards for loans) 1 80 U.S. Euro area 0,5 60 Japan 0 40 U.K. -0,5 Advanced economies 20 -1 Emerging and developing economies -1,5 0 -2-20 -2,5-40 12:Q2 -3 2007 2008 2009 2010 2011 2012 2009 10 11 12 13Sources: Lending surveys by the Bank of England, European Central Bank, Bank of Japan,and the U.S. Federal Reserve for households and corporations; and IMF staff estimates. 7
    • Outlook: Weak and UncertainKey • Strong euro-area policies improve financial conditions in 2013H2Assumptions • US policymakers avoid fiscal cliff, raise debt ceiling • Recovery gradually strengthensOutlook • Downside risks are large 7
    • The outlook has deteriorated since AprilWEO Real GDP Growth Projections(percent change from a year earlier) World U.S. Euro Area Japan Brazil India China Russia 2012 (September 2012) 3.3 2.2 -0.4 2.2 1.5 4.9 7.8 3.7 2012(Revision from Jul 2012) -0.2 0.1 -0.1 -0.2 -1.0 -1.3 -0.2 -0.3 2012(Revision from Apr 2012) -0.2 0.1 -0.1 0.2 -1.5 -2.0 -0.4 -0.3 2013 (September 2012) 3.6 2.1 0.2 1.2 4.0 6.0 8.2 3.8 2013(Revision from Jul 2012) -0.3 -0.1 -0.5 -0.3 -0.7 -0.6 -0.2 -0.1 2013(Revision from Apr 2012) -0.5 -0.3 -0.7 -0.5 -0.1 -1.3 -0.6 -0.1 Source: IMF, World Economic Outlook. 9
    • Downside risks are large: 1 in 6 chance of serious global slowdown (global growth < 2 percent) Prospects for World GDP Growth (percent change) 7 90 percent confidence interval 90 percent confidence interval (April 2012 WEO) 6 90 percent confidence interval (Sept 2011 WEO) Baseline 5 4 3 Downside: 1. More stress in euro area 2 2. US fiscal cliff, debt ceiling 3. Higher oil prices 1 4. Medium-term risks: high AE debt; lower EM growth 0 -12009 2010 2011 2012 2013
    • Key Risks: Escalating euro crisis and U.S. fiscal cliff Euro Area Downside Scenario (Output loss, percent deviation from baseline in 2013) 0 -1 -2 -3 -4 -5 -6 -7 Source: IMF staff estimates Note: This scenario assumes that sovereign and corporate spreads rise, credit contracts, and periphery governments are forced to front-load fiscal consolidation.
    • What Is To Be Done?• Removing • Euro Area: Restoring confidence immediate • United States: Avoiding the fiscal cliff, raise debt ceiling risks • AE: Managing medium-term fiscal adjustment• Adjusting • EM&DC: Managing risks vs rebuilding policy space policies • Developing Countries: Dealing with commodity price shock
    • Restoring Confidence in the Euro Area • Fiscal adjustmentPeriphery • Bank recapitalization/resolution • Structural reforms • Support adjustment through EFSF/ESMEA partners • Help recapitalize banks • Advance euro area fiscal and banking union • Help ease financial conditions in periphery—latest actionECB fully delivers on this front; ball is now in other courts
    • Advanced Economies: Managing fiscal consolidation • Gradual and sustained fiscal consolidation anchored by detailed medium-term plan—key for U.S and JapanFiscal • Growth contingency: – cyclically-adjusted targets to let automatic stabilizers operate – where room, smooth medium-term adjustmentMonetary • Maintain an accommodative stance 13
    • Reducing public debt is a marathon, not a sprint 240 After Crossing the 100 Percent Threshold (Percent of GDP, advanced economies) 220 200 180 160 140 120 100 80 60 40 Median 25th/75th percentile 10th/90th percentile 20 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 YearsSource: IMF staff calculations.
    • EMDEs: Complex setting—need to calibrate macro stance given potential for real and financial vulnerabilities • Pause monetary policy tightening or modestly ease Baseline scenario • Continue to rebuild fiscal position, especially India and Russia • Ease monetary policy further, strengthen macro-prudential measures Downside • Allow fiscal stabilizers to work risks • If needed and consistent with stronger medium-term growth, deploy fiscal stimulus (e.g. China) 15
    • Many EMDEs need to rebuild fiscal and monetary policy space over the medium term General Government Structural Balance Real Policy Rates (percent of GDP) (percent of GDP) 6,0 12,0 4,0 April 2008 10,0 April 2012 2,0 2008 Average 8,0 0,0 2012 Average -2,0 6,0 -4,0 4,0 -6,0 2,0 2007 -8,0 2012 0,0-10,0 2007 Average 2012 Average-12,0 -2,0 BR CL CN CO ID IN KR MY PE PL RU TH TR ZA BR CL CN CO ID IN KR MY PE PL RU TH TR ZABR: Brazil; CL: Chile; CN: China; CO: Colombia; ID: Indonesia; IN: India; KR: Korea; MX: Mexico; MY: Malaysia; PE: Peru; PH: Philippines; PL: Poland; RU: Russia; TH:Thailand; TR: Turkey; ZA: South Africa.
    • Developing Countries: Dealing with High Food Prices400 Spot Prices of Major Crops (1/3/2005 = 100) •Food: problems not as bad as350 Corn in 2008300 Wheat Rice •Support poor through250 Soybeans transfers, not subsidies200150 •Tighten monetary policy only if second-round effects arise100 50 Oct. •Avoid export bans 2012 0 2005 2006 2007 2008 2009 2010 2011 20121/ Food Index derived from average price of corn, wheat, rice and soybeans.Source: IMF, Primary Commodity Price System; IMF staff calculations 17
    • World Economic Outlook October 2012