Transcript Slide 0

World Economic Outlook
October 22, 2009
Jörg Decressin
Chief, World Economic Studies Division
During 2007-09, emerging economies
account for all global growth.
Contributions to Global Growth
6
(percent, three-year moving averages)
Other Developing
India
China
Advanced economies
5
4
3
2
1
0
1970
1975
1980
1985
1990
1995
2000
2005
2009
1
This reflects strong potential growth; the cyclical
component is correlated with that in advanced economies.
Potential GDP
Output Gap
(percent change)
(percent of potential)
4
8
Emerging
economies
7
Advanced
economies
6
3
2
1
5
0
4
-1
Emerging
economies
3
Advanced
economies
2
1
0
1980
-2
-3
-4
85
90
95
2000
05
10
-5
1980 1985 1990 1995 2000 2005 2010
2
Following a deep plunge, a cyclical recovery is in the
works.
World Trade
(annualized percent change of
3mma over previous 3mma) 65
PMI Index
Stock Prices
(index)
(MSCI, 2000 = 100)
300
30
Emerging
economies
60
20
10
450
250
55
200
0
CPB trade
volume index
-10
500
400
Emerging
economies
(RHS)
350
300
50
150
-20
250
45
200
-30
40
-40
-50
Trade value
100
Advanced
economies
150
Advanced
economies
(LHS)
50
35
-60
-70
2000 02
04
06
Aug.
09
30
0
2000 02
04
06
Sep.
09
100
50
0
2000 02
04
06
Sep.
09
3
Commodity prices have recovered some of the earlier
losses, helping many emerging economies.
Real Oil, Metals and Food Prices
(1970 = 100)
250
1400
Food (LHS)
1200
200
Oil (RHS)
1000
150
800
600
100
400
50
Metals (LHS)
0
1970
200
0
75
80
85
90
95
2000
05
09:
Q2
4
Financial conditions for emerging markets have stabilized.
In general, lower grade borrowers will struggle.
JPMorgan Corporate EMBI
Spread (in basis points)
Bond, equity and loan
issuance (billions of U.S. dollars)
200
2000
Latam
1800
1600
Latin America
Europe
180
Middle East
Asia
160
Emerging Europe
Asia
1400
140
Africa
1200
120
100
1000
800
80
600
60
400
40
200
20
0
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
2002
04
06
08
09:
Q2
0
5
What are the key factors shaping the
recovery and medium-run perspectives?

Rebalancing along 2 dimensions:
Private demand needs to replace public demand—in
advanced economies, private demand will be held
back by high unemployment
 Demand in external surplus economies needs to
make up for slack left by slowing demand in external
deficit countries.


Banking crises are typically associated with
permanent output level losses.
6
Fiscal policy has played a major role in stabilizing demand
(together with monetary and financial policy) but fiscal
support will diminish.
Fiscal Balance
Public Debt
(percent of GDP)
(percent of GDP)
2
120
0
100
World
Advanced
economies
-2
-4
60
World
Emerging and
Developing
economies
-6
-8
-10
80
40
Emerging and
Developing
economies
Advanced
economies
1970
80
90
2000
10
14
1970
80
90
2000
20
10
14
0
7
Rebalancing will be a drawn-out process, implying
sluggish growth.
Global Imbalances1
(percent of world GDP)
4
U.S.
Oil exporters
OCADC
CHN+EMA
ROW
3
2
1
0
-1
Discrepancy
-2
1996
1 OCADC:
98
2000
02
04
06
08
10
12
14
Bulgaria, Croatia, Czech Republic, Estonia, Greece, Hungary, Ireland, Latvia, Lithuania, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Turkey, and United Kingdom.
-3
8
Banking crises are typically associated with large,
permanent output losses.
Output after
Banking Crises
Output Decomposition
(years on x-axis)
15
4
10
2
5
0
0
-2
-5
-4
-10
-6
-15
Capital-labor ratio
-20
90 percent confidence interval
for the estimated mean
mean path
-8
Employment rate
Total factor productivity
-10
-25
Interquartile range for the
entire distribution
-30
-12
-1
0
1
2
3
4
5
6
7
-1
0
1
2
3
4
5
6
7
9
While we expect global growth to pick up in 2010, the
recovery will be sluggish by past standards and risks are to
the downside.
Real GDP Growth1
Prospects for World GDP Growth
(percent change from a year earlier)
(percent change)
12
10
6
Emerging and
Developing economies
4
8
6
World
2
4
2
0
0
-2
-4
-6
2000
1 Quarterly
02
04
-2
90% Confidence interval
Advanced
economies
70% Confidence interval
50% Confidence interval
-4
06
08
data through 2010 and annual data afterwards.
10
12
14
2006
07
08
09
10
10
Advanced economies are emerging from recession; many
emerging and developing economies are forecast to again
post relatively solid growth in 2010.
Real GDP Growth Rates
(percent change)
10
8
6
4
2
0
-2
-4
Growth
July 2009 WEO
Average 1998-2007
-6
-8
2008 09 10
Advanced
Economies
2008 09 10
Africa
2008 09 10
Asia
2008 09 10
Latin America
2008 09 10
Middle East
2008 09 10
CEE & CIS
11
Key risks, mainly on the downside:

Premature withdrawal of public support, because recovery
seemingly self-sustaining—public’s appetite for fiscal support
seems low.

New financial disaster, geopolitical issues/oil price surge, swine
flue: economy’s capacity to absorb new shock is very low.

Fiscal credibility loss or questions about continued
independence of central banks.

Upside: we may underestimate effects of reduced
uncertainty/greater confidence.
12
Policies need to reconcile short- and
medium-run requirements.





Maintain fiscal and monetary accommodation.
Prepare for unwinding central bank balance sheets.
Cut future fiscal deficits: entitlement reform; medium-term
adjustment plans, supported by strong fiscal frameworks (rules,
enforcement).
Identify weak assets with stress tests and recapitalize/resolve
financial institutions.
Foster production/productivity of non-tradables in exportoriented economies. Foster consumption, notably in Asia,
through measures that lower corporate & private saving.
13
WEO Can Be Downloaded From
http://www.imf.org/weo
Domestic demand has strong momentum
in BRICs
(percent change)
Total growth
Total domestic demand
China
15
Terms of trade gain
Russia
12
9
6
3
0
2003 04
05
06
07
08
09
10
India
2003 04
-3
15
05
06
07
08
09
10
2003 04
05
06
07
08
09
10
Brazil
15
12
9
6
3
0
-3
-6
-9
-12
-15
15
12
12
9
9
6
6
3
3
0
0
-3
2003 04
05
06
07
08
09
10
-3
15
Expansionary monetary policy has been key but
will not forestall a credit crunch.
Policy Rate Expectations
(percent; months on x-axis)
4
Credit Growth in Private
Nonfinancial Sectors
(q/q changes; in billions of
local currency)
250
3
United States (LHS)
Euro Area (LHS)
Japan (inverted; RHS)
-15
80
-10
60
-5
40
0
20
5
2000
Europe (10/14/09)
150
UK (10/14/09)
100
2500
200
US (10/14/09)
Bank Lending
Conditions
1500
2
100
1000
50
500
1
0
0
-50
t
t+3
t+6
t+9
t + 12
0
0
10
-20
15
United States (RHS)
Euro area (LHS)
2000
02
04
06
-500
08 09:
Q2
-40
2000
02
04
06
20
08 09:
Q3 16
Public support to ease financial stress has been critical, but
at a cost.
Evolution of Central
Bank Balance Sheets
(index, June 2007 = 100)
Support for Financial
and Other Sectors and
Up-Front Financing Need
(as of June 2009, in percent of
2008 GDP)
400
Sovereign CDS
Spread
(basis points)
200
30
350
Up-front government financing
Jun. 2008
Oct. 2008
Latest
300
Liquidity provision and other support
by central banks
150
Guarantees
Purchase of assets and lending by
governments
250
25
20
Capital injection by governments
and other institutions
100
15
200
10
150
50
5
ARG
BRA
CHN
HUN
IND
IDN
POL
RUS
SAU
TUR
50
AUS
CAN
EUR
JPN
KOR
NOR
SWE
CHE
GBR
USA
100
Advanced
economies
G20 emerging
economies
0
2007
08
Aug.
09
0
17
Relative to the July WEO Update, growth forecasts
have generally been revised up.
Real GDP Growth Rates
(percent change)
WEO July 09 Update
Current WEO
6
4
2
0
-2
-4
-6
2009
2010
United States
2009
2010
Euro Area
2009
2010
Japan
2009
2010
Emerging and
Developing Economies
-8
18
Inflation will remain subdued and risks for deflation, while
lower than in the spring, higher than usual.
Deflation Vulnerability Indicator:
Key Economies
Headline Inflation
(Twelve-month change in the CPI)
(index)
10
High risk
World
Advanced economies
Emerging economies
8
0.5
Projections
Moderate risk
Vulnerability including
house prices
0.4
6
0.3
Low risk
4
0.2
2
0.1
0
-2
Vulnerability indicator
2002
04
06
08
Aug.
09
1994
98
2002
06
0.0
09:
Q4 19
Policy frameworks need to be rethought,
notably with a view to enhancing selfstabilizing properties of economic systems.

Reforming financial system: regulation, market discipline;
counter-cyclicality; intl. collaboration.

Strengthening automatic stabilizers--fiscal, labor market--because
asset busts difficult to foresee.

Broaden objectives of monetary policy and develop new tools to
help maintain financial stability. Enhanced
coordination/collaboration between monetary and financial
policymakers.
20