Transcript Volatility and Growth in Latin America: An Episodic Approach

XXIV Meeting of the Latin America Network of
Central Banks and Finance Ministries
Comments on
The Effect of Oil Prices:
Case of Importers
Discussant: Ratna Sahay
International Monetary Fund
October 19, 2006
Overview
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Presentation nicely contrasts previous shocks with
current shock
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Presentation is consistent with IMF view
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Comments will focus on additional and somewhat
different interpretation of the presentation
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Role of good luck and good policies
Good luck: Robust global growth:
alternative interpretation
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Not only demand factors (US, China), which would result in
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Rather, reflects strength of positive supply-side factors
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Sharp wage increases: not happened, unlike 1970s spiral
Higher interest rates: not occurred; savings high, especially China
High TFP growth
Increased supply of factors of production, particularly cheap labor in newly
emerging markets (China, India)
Therefore, increased prices of complementary factors of production:
commodity prices and oil →
“Strong growth despite high oil prices” or “High oil prices because
of strong growth”? Answer: Common shock (positive supply shock
and unanticipated higher growth) raised both.
Good luck: Positive growth surprise...
WEO growth projections revised upwards
8
7
6
%
%
April 2006
September 2006
April 2006
September 2006
8
7
6
5
5
4
4
3
3
2
2
1
1
0
World
Advanced Economies
Source: WEO, September 2006
Emerging Market &
Developing Countries
World
Advanced Economies
Emerging Market &
Developing Countries
0
...translates to higher oil demand and prices
Figure 6. China: GDP and Oil Consumption
(quarterly; year-on-year percent change)
25
20
15
10
5
0
-5
GDP
-10
1996Q1
China Demand
Projected GDP
Projection
1998Q1
2000Q1
2002Q1
2004Q1
2006Q1
Sources: International Energy Agency, World Economic Outlook and IMF Staff
Source: Hossein Samiei (2006) “Global Economy and the Oil Market”, mimeo, IMF
Good policies: Higher oil price pass through
(Developing countries)
Vanuatu
To nga
To go
Tanzania
So lo mo n Is lands
Samo a
Kiribati
Burundi
Bhutan
Uzbekis tan
Ghana
Les o tho
Tajikis tan
Myanmar
Maldives
Lao P DR
Eritrea
Mo ngo lia
Kyrgyz Republic
Mo ldo va
Mo zambique
Haiti
Geo rgia
Gambia , The
Guyana
Ethio pia
Banglades h
Nicaragua
Sri Lanka
Mauritania
Benin
St. Vincent and the Grenadines
Sierra Leo ne
Do minica
Grenada
P akis tan
St. Lucia
Ho nduras
Cambo dia
Armenia
Malawi
Senegal
São To mé and P ríncipe
Nepal
India
Guinea
Niger
Mali
Kenya
Burkina Fas o
Rwanda
Albania
Zambia
Uganda
Co mo ro s
Guinea -Bis s au
Cô te d'Ivo ire
Djibo uti
.Central African Rep
Cape Verde
Madagas car
Zimbabwe
2002
2005
Retail fuel price
in the U.S.
Crude oil price on
world market
("Brent," Europe)
200
150
100
50
0
Source: Hossein Samiei (2006)
50
100
150
200
Vanuatu
To nga
To go
Tanzania
So lo mo n Is lands
Samo a
Kiribati
Burundi
Bhutan
Uzbekis tan
Ghana
Les o tho
Tajikis tan
Myanmar
Maldives
Lao P DR
Eritrea
Mo ngo lia
Kyrgyz Republic
Mo ldo va
Mo zambique
Haiti
Geo rgia
Gambia, The
Guyana
Ethio pia
Banglades h
Nicaragua
Sri Lanka
Mauritania
Benin
St. Vincent and the Grenadines
Sierra Leo ne
Do minica
Grenada
P akis tan
St. Lucia
Ho nduras
Cambo dia
Armenia
Malawi
Senegal
São To mé and P ríncipe
Nepal
India
Guinea
Niger
Mali
Kenya
Burkina Fas o
Rwanda
Albania
Zambia
Uganda
Co mo ro s
Guinea-Bis s au
Cô te d'Ivo ire
Djibo uti
Central African Rep.
Cape Verde
Madagas car
Zimbabwe
250
Good policies: Better LAC fiscal
performance
Good policies: Better LAC monetary
framework leading to low inflation
Inflation
(A nnual % change, p.a.)
40
35
30
25
20
15
La t in
A m e ric a
10
5
0
95
97
Sour c e: WEO.
99
01
03
05
07
Looking ahead
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Global
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Output gaps are closing →
Inflation is picking up →
Risks to growth are weighted to the down side →
Oil prices increasingly reflect future supply concerns
Regional
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Latin America
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Slowing global growth, higher US interest rates could hurt →
Key challenge: raise long-term growth, with fiscal discipline (IMF REO,
Mexico, November 2006) →
Caribbean
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Post Cricket World Cup