Transcript Slide 1

International Monetary Fund
World Economic Outlook
October 2012
Resilience in Emerging Market and
Developing Economies: Will It Last?
Abdul Abiad, John Bluedorn, Jaime Guajardo, and Petia Topalova
with support from Angela Espiritu and Katherine Pan
EMDEs have done well over the past decade,
and through the global crisis
8
Contribution to Growth in World Real GDP per
Capita
Growth of Real GDP per Capita
5
4
6
3
4
1
0
Percent
Percent
2
2
0
-2
-4
-1
Emerging Market and Developing Economies
Emerging Market and Developing Economies
Advanced Economies
Advanced Economies
-2
World Growth
-6
1990
1993
1996
1999
2002
Source: World Economic Outlook database.
2005
2008
2011
1990
1993
1996
1999
2002
2005
2008
2011
-3
1
EMDE resilience has improved since the
1970s and 1980s.
Dynamics of Output per Capita Following Peaks
50s and 60s
140
70s and 80s
1990s
Advanced Economies
2000–06
Great Recession
Emerging Market and Developing Economies
140
130
130
120
120
110
110
100
100
90
90
80
Peak t + 1 t + 2 t + 3 t + 4 t + 5 t + 6 t + 7 t + 8 t + 9 t + 10
Years
80
Peak t + 1 t + 2 t + 3 t + 4 t + 5 t + 6 t + 7 t + 8 t + 9 t + 10
2
Years
In fact, from the 2000s, EMDEs spent more time in
expansion—and had smaller downturns—than AEs
50s and 60s
100
70s and 80s
1990s
2000s
Median Downturn (Peak-to-Trough Amplitude)
Time Spent in Expansion
5
0
80
60
-10
40
Percent
Percent
-5
-15
20
-20
0
-25
Advanced Economies
Source: IMF staff calculations.
Emerging Market and
Developing Economies
Advanced Economies
Emerging Market and
Developing Economies
3
While AE growth in expansion has fallen over time,
EMDE growth in expansion has been more stable.
50s and 60s
5
70s and 80s
1990s
2000s
Median Growth in Real GDP per Capita during Expansion
Percent
4
3
2
1
0
Advanced Economies
Source: IMF staff calculations.
Emerging Market and
Developing Economies
Emerging Market Economies
Low-income Countries
4
Unpacking further, what factors are associated with
greater resilience?
We look at three broad areas:
• External and domestic shocks
• Policy frameworks and policy space
• Structural characteristics
Analytical approach: Look at how these factors affect the length of
expansions and the speed of recoveries using standard tools of
duration analysis
• Bivariate – consider factors one-by-one
• Multivariate – consider multiple factors simultaneously
5
Shocks, both external and domestic, tend to bring
EMDE expansions to an end…
Average Probability of Expansion Coming to an End
Without shock
EXTERNAL SHOCKS
With shock
Spike in global uncertainty*
Large rise in U.S. real interest rates*
Recessions in AEs*
Sudden stop in capital flows*
Terms-of-trade bust*
DOMESTIC SHOCKS
Banking crisis*
Credit boom*
0
5
10
15
20
25
30
35
Percent
Source: IMF staff calculations.
Note: Statistically significant differences at the 10 percent level are denoted by starred labels.
6
…but improved policy frameworks and enhanced policy
space help prolong expansions, and hasten recoveries…
Effects of Policies on Expansion Duration
Without characteristic
Effects of Policies on Speed of Recovery
With characteristic
POLICY FRAMEWORKS
Without characteristic
With characteristic
POLICY FRAMEWORKS
Inflation targeting*
Inflation targeting*
Countercyclical fiscal policy*
Countercyclical fiscal policy*
Nonpegged exchange rate*
Nonpegged exchange rate
POLICY SPACE
POLICY SPACE
Low inflation*
Low inflation*
Fiscal surplus*
Fiscal surplus
Low public debt
Low public debt*
Current account surplus*
Current account surplus*
Low external debt*
Low external debt*
High reserves*
High reserves*
0
2
4
6
8 10 12 14 16
Years
0
2
4
6
8 10 12 14 16
Years
Source: IMF staff calculations.
Note: Statistically significant differences at the 10 percent level are denoted by starred labels. Recovery is defined as the number of years
required to get back to pre-downturn levels of per capita output.
7
…while structural characteristics are more of a mixed
bag, with fewer robust relationships.
Effects of Structural Characteristics on Expansion Duration Effects of Structural Characteristics on Recovery Duration
Without characteristic
With characteristic
Without characteristic
Trade openness
Trade openness*
Trade liberalization
Trade liberalization
High intra-EMDE exports
High intra-EMDE exports*
High financial integration
High financial integration*
High capital account openness
High capital account openness*
High FDI flows*
High FDI flows*
Low income inequality*
Low income inequality
With characteristic
0 2 4 6 8 10 12 14 16
0 2 4 6 8 10 12 14 16
Source: IMF staff calculations.
Note: Statistically significant differences at the 10 percent level are denoted by starred labels. Recovery is defined as the number of years
8
required to get back to pre-downturn levels of per capita output.
Improved performance from the 1980s to the 2000s
has been mainly due to policies and policy space
Contribution to Change in Expected Mean
Duration of Expansions from 1980s to 2000–07
Expected Mean Duration of Expansions
50
18
40
15
12
20
9
10
Years
Percent
30
6
0
-10
3
-20
0
External
shocks
Domestic
shocks
Source: IMF staff calculations.
Policies
Structure
Total
1980s
1990s 2000–07
2008–09 2010–11 AE Crisis
Scenario
9
Concluding remarks
EMDE resilience is not a recent phenomenon; it has been building
over many years. Not just in EMs, but low-income countries as well
Better policymaking has a lot to do with it
But resilience cannot be taken for granted:
• These economies remain vulnerable to external and domestic shocks
• Policy space, partly used up in response to the 2008-09 crisis, needs to be
rebuilt
• Improvements in policymaking (e.g., greater ER flexibility, more countercyclical
policies, inflation targeting) should be maintained
10
It is not just a commodity story…
Dynamics of Output per Capita Following Peaks
50s and 60s
130
70s and 80s
1990s
Commodity Exporters
2000–06
Noncommodity Exporters
Great Recession
130
120
120
110
110
100
100
90
90
80
Peak t + 1 t + 2 t + 3 t + 4 t + 5 t + 6 t + 7 t + 8 t + 9 t + 10
Years
80
Peak t + 1 t + 2 t + 3 t + 4 t + 5 t + 6 t + 7 t + 8 t + 9 t + 10 12
Years
…nor is it only for the largest EMDEs.
Dynamics of Output per Capita Following Peaks
50s and 60s
130
Largest EMDEs1
70s and 80s
1990s
2000–06
Other EMDEs
(excluding the largest)
Great Recession
130
120
120
110
110
100
100
90
90
80
80
Peak t + 1 t + 2 t + 3 t + 4 t + 5 t + 6 t + 7 t + 8 t + 9 t + 10
Peak t + 1 t + 2 t + 3 t + 4 t + 5 t + 6 t + 7 t + 8 t + 9 t + 10
Years
13
Years
1Refers to the 30 largest emerging market and developing economies based on their average real GDP over the sample period.
Among EMDEs, EMs did better from the 1990s,
while LICs improved most from the 2000s.
Dynamics of Output per Capita Following Peaks
50s and 60s
140
70s and 80s
1990s
Emerging Market Economies
2000–06
Low-income Countries
Great Recession
140
130
130
120
120
110
110
100
100
90
90
80
Peak t + 1 t + 2 t + 3 t + 4 t + 5 t + 6 t + 7 t + 8 t + 9 t + 10
Years
80
Peak t + 1 t + 2 t + 3 t + 4 t + 5 t + 6 t + 7 t + 8 t + 9 t + 10 14
Years
Among regions, EMD Asia and Latin America have
seen the most dramatic improvements.
Dynamics of Output per Capita Following Peaks
50s and 60s
140
70s and 80s
1990s
Emerging and Developing Asia
2000–06
Latin America
Great Recession
140
130
130
120
120
110
110
100
100
90
90
80
Peak t + 1 t + 2 t + 3 t + 4 t + 5 t + 6 t + 7 t + 8 t + 9 t + 10
Years
80
Peak t + 1 t + 2 t + 3 t + 4 t + 5 t + 6 t + 7 t + 8 t + 9 t + 10 15
Years
Sub-Saharan Africa also improved, but mostly in the
2000s. CIS-EM Europe was derailed by the crisis.
Dynamics of Output per Capita Following Peaks
50s and 60s
140
70s and 80s
1990s
Sub-Saharan Africa
2000–06
Great Recession
Commonwealth of Independent States and
Emerging Europe
140
130
130
120
120
110
110
100
100
90
90
80
Peak t + 1 t + 2 t + 3 t + 4 t + 5 t + 6 t + 7 t + 8 t + 9 t + 10
Years
80
Peak t + 1 t + 2 t + 3 t + 4 t + 5 t + 6 t + 7 t + 8 t + 9 t + 10 16
Years
What is behind the gains in EMDE resilience?
Higher steady-state growth and lower variability
50s and 60s
4.0
Median Steady-State Growth
70s and 80s
90s and 2000s
5.0
Median Growth Variability
4.5
3.5
4.0
3.0
2.5
Percent
3.0
2.0
2.5
Percent
3.5
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
Advanced Economies
Source: IMF staff calculations.
Emerging Market and
Developing Economies
Advanced Economies
Emerging Market and
Developing Economies
17
Why has performance improved? Some shocks have
become less frequent, others more frequent…
Relative frequency of shock in EMDEs (percent)
5
Banking Crises
15
4
12
3
9
2
6
1
3
0
0
120
100
80
60
40
20
0
Spikes in Global Uncertainty
12
10
8
6
4
2
0
Credit Booms
Sudden Stops in Capital Flows
120
100
80
60
40
20
0
Recessions in AEs
18
…but EMDE policy frameworks have improved, and
policy space has increased.
Share of EMDEs with characteristic (percent)
60
Pegged Exchange Rate
50
50
Countercyclical Fiscal Policy
12
30
30
9
20
20
6
10
10
3
0
0
0
100
High International Reserves
100
80
80
60
60
40
40
20
20
0
0
Inflation Targeting
15
40
40
18
Low Public Debt
90
Single-Digit Inflation
60
30
0
19
Structural factors are mixed –
some are more supportive, others less so.
Share of EMDEs with characteristic (percent)
120
100
80
60
40
20
0
High Trade Openness
120
100
80
60
40
20
0
120
100
80
60
40
20
0
High Financial Integration
90
60
30
0
High Intra-Emerging Market
and Developing Economies
Trade
High Net Foreign Direct
Investment
70
60
50
40
30
20
10
0
Low Income Inequality
20
Mixed patterns in other factors
Relative frequency of shock in EMDEs (percent)
35
30
25
20
15
10
5
0
Terms-of-Trade Busts
80
60
Spikes in U.S. Real Short-Term
Interest Rate
40
20
0
Share of EMDEs with characteristic (percent)
50
40
30
20
Current Account Surplus
80
60
40
10
20
0
0
Low External Debt
30
25
20
15
10
5
0
Fiscal Surplus
21
What Ends Expansions?
Expansions
Explanatory Variable
All Years
Z statistic
Pre-1990
Z statistic
Post-1989
Z statistic
1
Implied S&P 100 Volatility (VXO)
0.951***
0.981
0.943***
[-4.179]
[-0.985]
[-4.565]
U.S. Ex Ante Real Interest Rate
0.956
0.993
0.835***
[-1.461]
[-0.158]
[-3.479]
Terms-of-Trade-Bust Indicator
0.968
0.802
1.134
[-0.214]
[-1.034]
[0.740]
Sudden Stop (capital inflows) Indicator
0.590***
0.497*
0.841
[-2.927]
[-1.885]
[-1.254]
Advanced Economy Recession Indicator
0.642***
0.668**
0.680*
[-4.074]
[-2.420]
[-1.911]
Credit Boom during Past Three Years
0.616***
0.591***
0.705***
[-3.913]
[-2.621]
[-2.610]
Banking Crisis Indicator
0.550***
0.504***
0.538***
[-3.376]
[-3.302]
[-2.830]
Single-Digit Inflation Indicator
1.473***
1.574**
1.276**
[3.185]
[2.474]
[2.102]
Low Public Debt to GDP Indicator
1.009
0.998
1.019
[0.0713]
[-0.0117]
[0.132]
International Reserves to GDP
1.009***
1.006
1.004
[2.866]
[1.289]
[0.903]
Income Inequality (Gini coefficient)
0.986**
0.976***
0.997
[-2.144]
[-2.833]
[-0.459]
Trade Openness (exports plus imports to GDP)
0.999
1.001
1.000
[-0.451]
[0.373]
[-0.170]
Financial Openness (external assets plus liabilities to
GDP)
0.999***
0.999***
1.000
[-3.121]
[-4.840]
[-0.549]
Observations
1,264
Number of Episodes
188
Number of Exits
126
Number of Economies
75
Weibull Shape Parameter
1.516
1.408
2.277
Z statistic of Shape Parameter
6.829
3.258
2.928
Log Likelihood
-103.0
-88.1
Model Chi-Squared p Value
0.000
0.000
Source: IMF staff calculations.
Note: Exponentiated coefficients shown are time ratios, which indicate whether the variable tends to shorten (less than 1) or lengthen
(greater than 1) the expected time-in-episode. Z statistics are given in brackets underneath the coefficient estimates. A negative z statistic
indicates that the associated variable tends to shorten an episode; if the z statistic is positive, it tends to lengthen an episode. *, **, and ***
denote significance at the 10 percent, 5 percent, and 1 percent levels, respectively.
1VXO = Chicago Board of Exchange S&P 100 volatility index.
Across regions and groups, some differences in
drivers of improved resilience, but overall similar.
Contribution of Shocks, Policies, and Structure to the Length of Expansions
Emerging and Developing Asia
50
Latin America
40
40
30
30
20
20
10
10
0
0
Total
Policies
Domestic
shocks
External
shocks
Total
Structural
characteristics
Source: IMF staff calculations.
Structural
characteristics
-20
Policies
-20
Domestic
shocks
-10
External
shocks
-10
Percent
Percent
50
23
Across regions and groups, some differences in
drivers of improved resilience, but overall similar.
Contribution of Shocks, Policies, and Structure to the Length of Expansions
Sub-Saharan Africa
Heavily Indebted Poor Countries
50
40
40
30
30
20
20
10
10
0
0
Total
Policies
Domestic
shocks
External
shocks
Total
Structural
characteristics
Source: IMF staff calculations.
Structural
characteristics
-20
Policies
-20
Domestic
shocks
-10
External
shocks
-10
Percent
Percent
50
24
And it’s not just commodities…
Contribution of Shocks, Policies, and Structure to the Length of Expansions
Commodity Exporters
50
Noncommodity Exporters
40
40
30
30
20
20
10
10
0
0
Total
Policies
Domestic
shocks
External
shocks
Total
Structural
characteristics
Source: IMF staff calculations.
Structural
characteristics
-20
Policies
-20
Domestic
shocks
-10
External
shocks
-10
Percent
Percent
50
25