Transcript Slide 1

Recent Developments in the
Region and Macedonia
Opening of the NBRM-WB PIC
Alexander Tieman
16 December, 2010
Overview
• Regional outlook
– Central, Eastern, and Southeastern Europe
• Implications for Macedonia
• Precautionary Credit Line
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The backdrop: a global and regional
recovery.
8
8
Euro Area and World: Real GDP Growth Outlook
(Annual percentage change)
6
6
World, October 2010 WEO
4
World, April 2010 WEO
Euro Area,
October 2010 WEO
2
Euro Area,
April 2010 WEO
0
4
2
0
-2
-2
-4
-4
-6
-6
2006
2007
2008
2009
2010
2011
Source: IMF, World Economic Outlook database.
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Emerging Europe: After a 6 percent contraction
in 2009, an expansion of 3.9 percent in 2010…
Emerging Europe: Growth Outlook
(annual percent change)
8
8
6
6
4
4
2
2
0
0
2006
2007
2008
2009
2010
2011
-2
-2
-4
-4
-6
-8
April 2010 WEO
October 2010 WEO
-6
-8
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…led by exports…
Emerging Europe. Real Exports, 2008:Q3 - 2010:Q2
120
120
120
110
110
110
100
100
90
90
100
Lithuania
Estonia
90
120
Poland
110
100
90
Hungary
80
Latvia
70
60
50
2008:Q3
Baltics
80
80
80
70
70
70
60
60
50
2009:Q2
2010:Q1
120
50
2008:Q3
120
120
110
110
100
100
100
90
90
90
80
80
Romania
110
Croatia
80
Bulgaria
70
60
50
2008:Q3
Southeastern Europe
2009:Q2
70
70
60
60
50
2010:Q1
60
Central Europe
50
2009:Q2
2010:Q1
120
110
Russia
100
Turkey
90
80
Ukraine
70
60
European CIS and Turkey
50
2008:Q3
2009:Q2
50
2010:Q1
Sources: Eurostat; Haver Analytics; and IMF staff calculations.
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…while domestic demand remains subdued…
Emerging Europe. Real Domestic Demand, 2008:Q3 - 2010:Q2
110
110
110
105
105
105
100
100
100
100
95
95
95
95
90
90
90
85
85
80
80
80
75
75
75
70
70
65
65
2008:Q3
90
Estonia
85
80
Lithuania
75
70
65
2008:Q3
Baltics
Latvia
2009:Q2
2010:Q1
110
105
Poland
85
Hungary
70
Central Europe
65
2009:Q2
2010:Q1
110
110
110
105
105
105
100
100
100
100
95
95
95
90
90
90
85
85
95
Croatia
90
Romania
85
80
Bulgaria
75
70
65
2008:Q3
Southeastern Europe
2009:Q2
80
80
75
75
70
70
65
2010:Q1
65
2008:Q3
110
Turkey
105
85
Russia
80
75
70
Russia and Turkey
2009:Q2
65
2010:Q1
Sources: Eurostat; Haver Analytics; and IMF staff calculations
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…and the recovery is uneven across regions
Strongest growth: European CIS countries and
Turkey
Weakest growth: countries that had deep
recessions
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Some upside risks, but significant
downside risks for EE
Revival of
sovereign stress in
advanced Europe:
Spillover of
sovereign debt
concerns:
lower exports
higher financing
costs
lower capital
flows
spillovers to
financial sectors
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Why were some countries more affected than
others?
Common trigger of the crisis (external) yet different
outcomes. Why?
Domestic policies and vulnerabilities do matter !
 Countries that had the largest imbalances and the
strongest credit booms have seen the deepest recessions
 Countries that managed to avoid the excesses have seen
much shallower recessions or avoided them altogether
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What does this mean for Macedonia?
•
•
•
•
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The economy in 2011
Risks and Uncertainties
Policies
PCL
The Macedonian Economy in 2011
• 2011 is looking better than 2010
– 2011 GDP growth: 3 - 3½ percent
– 2011 inflation: around 2½ percent
• Supported by
– Growth in trading partners
– Lower interest rates
– Growing bank deposits
– Ample liquidity
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Macroeconomic Overview
• Current Account deficit
– 2010: -3½ to -4 percent
• Rapid adjustment
• Supports stabilization of reserves
– 2011: -4½ to -5 percent
• Growth in exports (metal prices, capacity utilization)
• Some growth in imports as well (inputs, consumption)
– Beyond 2011
• Stabilization at levels that can largely be financed through
FDI
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Macroeconomic Overview
• Reserves have increased further
– To around € 1.65 billion
– And are projected to continue a moderate increase in
2011
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Risks and Uncertainties
• Growth in trading partners
– Lower European growth could spill over to Macedonia
– And would put renewed pressure on the balance of
payments
– Given the peg, the c/a deficit needs external financing
• Conditions in international financial markets
– Higher uncertainty on financial markets might be here to
stay for the foreseeable future
– Market pressures (Ireland, Greece).
– Such conditions could limit market access for Macedonia
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Risks and Uncertainties
• On the positive side
– European growth could gain momentum, giving a strong
boost to exports
– Progress towards EU accession would improve prospects
for growth and FDI
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Policies
• Fiscal stance
– 2010 (-2.5 percent) and 2011 (-2.5 percent)
appropriate in light of below-potential growth in
both years
– Possible as sound past policies have created room
– Over the medium term, it will remain important to
reduce the deficit somewhat further
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Policies
• Fiscal Challenges, 2011 and beyond
– Financing the deficit, near term
• Current reliance on private external borrowing
• Prudent to access the market early in the year
– Financing the deficit, medium term
• Develop local public debt market
• Including at longer maturities
 Which comes at a cost
 But reduces exposure to volatility of external financing
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Policies
• Fiscal Challenges, 2011 and beyond
– Decrease in social contributions 2012-13
• Beneficial reduction in labor tax wedge
• But burdens the budget
– Important to continue to contain spending
• While protecting investment spending, that raises longterm growth potential
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Policies
• Monetary policy
– Rates lowered from 9 to 4%
– Appropriate response
• Easing of external finance pressure
• Weak growth
• Subdued inflation
– Main guidance remains protection of the
exchange rate peg
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Precautionary Credit Line
• Insurance against external vulnerabilities and risks
• For countries with a solid macroeconomic track record
• Precautionary, i.e., in the baseline case, no money is
actually drawn from this credit line
• Still, valuable to have insurance against risks
– Will likely lower the spread on Eurobond issuance
– Positive signal for potential investors
• Request received, board date 2nd half January
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Thank you
Website: www.imf.org/skopje
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