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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