1. 1
RECENT TRENDS IN THE GLOBAL ECONOMY
AND THE NEAR TERM OUTLOOK
Andris Strazds
Adviser
29.04.2015

2. Global Economy

3. Source: IMF’s World Economic Outlook, April 2015
Where is the growth?

4. Commodity and oil prices have declined since mid-2014
Source: IMF’s World Economic Outlook, April 2015

5. Oil Spot and Futures Prices
(IMF APSP, U.S. dollars per barrel)
Lower oil prices are mainly caused by supply
growth
5
40
60
80
100
120
2011M1 2012M1 2013M1 2014M1 2015Q1 2016Q1
Global Oil Supply and Demand
(Million barrels per day)
Sources: IMF, GAS Live database; International Energy Agency (IEA).
-1
0
1
2
3
89
90
91
92
93
94
95
2012 2013 2014
Supply
Actual
-1
0
1
2
3
88
89
90
91
92
93
94
2012 2013 2014
Demand
IEA Fcst Dec
2013
Difference actual minus
forecast (RHS)

6. Oil trade balance
Source: IMF’s World Economic Outlook, April 2015

7. Source: IMF’s World Economic Outlook, April 2015
At the beginning of 2015 – slowdown in growth

8. Source: IMF’s World Economic Outlook, April 2015
Growth in emerging markets likely to stay moderate

9. Is the U.S. economy back on track?
Source: IMF’s World Economic Outlook, April 2015

10. Recovery in the euro area is still fragile
Source: IMF’s World Economic Outlook, April 2015

11. Source: IMF’s World Economic Outlook, April 2015
Sovereign bond spreads in the euro area have come down, but
differences in lending conditions to SMEs are still substantial

12. Asia’s growth is forecasted to hold steady in 2015, with a drop
due to decrease in trade and investment
Source: IMF’s World Economic Outlook, April 2015

13. Overview of the World Economic Outlook projections by the IMF (2015 vs 2014)

15. Inflation in the euro area is still significantly below 2%
Source: IMF’s World Economic Outlook, April 2015

16. 16
Central Bank balance sheet paths to diverge going
forward
• The U.S. Fed announced the end
of Quantitative Easing in October
2014
• The ECB announced the start of
Quantitative Easing in January
2015 and started its extended
Asset Purchase Program in March
2015
• Bank of Japan is continuing
agressive monetary easing
Source: IMF’s World Economic Outlook, April 2015

17. 17
U.S. Fed expected to start raising rates in 2015
Source: IMF’s World Economic Outlook, April 2015

18. Risk: Further strengthening of the U.S. dollar
Impact of Exchange Rate Shifts since August 2014
(Percent difference, unless noted otherwise)

19. Key near term risks going forward
• Geopolitical risks
• Risks from a financial market correction
• Protracted period of low inflation in the euro area
• Risk of stagnation and lower potential growth in a number of
advanced economies
• Considerably slower growth in China

20. Policy recommendations
• Both continued support to demand and supply side policies needed
• Increased public investment in most current account surplus countries
(other than China)
• (Continued) structural reforms in the (former) current account deficit
countries
• Macroprudential tools (such as loan-to-value, debt-service-to-income
ratios) to limit credit booms in a number of smaller advanced economies

21. Policy recommendations: Euro area
• Reestablish confidence in banks and improve financial intermediation in
the euro area
• Cost-effective active labor market policies, measures to lower the
opportunity cost of employment, and better-targeted training programs
• Complete the single market in services, including a single digital market
• Make progress with free trade agreements
• More closely integrate energy platforms and policies

22. Fiscal Outlook

23. The fall in oil prices is expected to help the public
finances of importers and hurt those of exporters

24. Some oil exporters could be hit particularly hard

25. In advanced economies debt levels remain high

26. Fiscal trends in emerging market and middle-income
economies are largely driven by losses of oil exporters

27. Fiscal policy can play a supportive role
Triple solution
• Monetary stimulus
• Structural reforms
• Supported by fiscal policy
– Use fiscal policy flexibly to support growth
– Seize the opportunity created by falling oil prices
– Strengthen institutional frameworks for managing
fiscal policy
Triple threat
• Low growth
• Low inflation
• High debt

28. Fiscal stabilization policies are asymmetric through the
cycle
A tendency to spend revenue
windfalls during good times
and to allow budget balances
to reflect revenue shortfalls
during bad times leads to an
upward drift in the ratio of
debt-to-GDP over time

29. Financial Stability

30. Global financial stability risks: Rising and rotating

31. Disinflationary forces have continued

32. How quantitative easing (QE) works

33. QE programs in Japan and the euro area have already
had a significant impact on financial markets

34. More than 30% (or €2.4 trillion) in short- and long-term
euro area government bonds have negative yields*
* As of March 2015

35. Past experience of QE suggests that bank lending in the
euro area and Japan may pick up with a lag

36. However, banks now need to meet a multidimensional
set of regulatory and economic targets

37. In the euro area improving asset quality at some banks
could further bolster bank credit

38. 38
THANK YOU!
Questions and Answers