Transcript Global growth has been underpinned by developments in EMEs

Global Economic Review and Outlook:
Implications for South Africa
4th Congress of the Public Sector Economists’
Forum, 28-30 November 2012, Golden Gate
Hotel
Key messages
•The
global economic crisis has not eased.
•Global
growth momentum has moderated: uncertainty and vulnerabilities, particularly with respect
to public finances continues to exert further downside risks to global growth prospects.
•The
negative effects of fiscal consolidation and austerity is further compounded by the
deleveraging process and regulatory reforms globally
•Negative
spillover effects through financial market volatility and the trade channel are expected to
remain at heightened levels.
•Nonetheless,
persistent negative output gaps have helped in softening inflationary advanced
economies, although occasional spikes in international food commodity prices, oil prices and and
volatility in exchange rates for most emerging market economies pose further challenges and
complicate policy formulation.
•Most
central banks (both in advanced and emerging market economies have eased monetary
policy using a combination of conventional and unconventional monetary policy tools.
Risks to global outlook remain tilted to the downside
World GDP growth
7
6
5
4
3
90 percent confidence interval
2
90 percent confidence interval from April 2012 WEO
1
Baseline forecast
0
-1
2009
2010
2011
2012
2013
Risks to global outlook remain tilted to the downside
Risks to global outlook remain tilted to the downside
Revisions to GDP growth projections (percentage points)
0.2
0
-0.2
-0.4
-0.6
2012
-0.8
2013
-1
-1.2
Forecasted growth remains weak, especially in Europe
Evolution of real GDP forecasts for 2012 for the G-7 and euro area
Growth prospects are affected by the fiscal cliff in US and
recession in Europe
Slowing growth in EMEs pose a threat to global growth outlook
Percentage change from quarter to quarter (saar)
Percentage change from quarter to quarter (saar)
9
•
Global growth has been underpinned by
developments in EMEs.
•
Recent slowdown in EMEs has taken its toll
on world growth.
•
The BRICs have been an important driver of
world growth.
•
Current projections are that growth will be
subdued in 2013 with a moderate pickup in
2014.
8
7
6
5
4
3
2
1
0
10Q1 10Q2 10Q3 10Q4 11Q1
Developing Asia
Latin America
Emerging Europe & CIS
Emerging markets
11Q2
11Q3
11Q4
12Q1
12Q2
12Q3
2017*
2016*
2015*
2014*
* Forecasts
2013*
12Q3
12Q2
12Q1
11Q4
11Q3
11Q2
11Q1
10Q3
2017*
2016*
2015*
2014*
2013*
12Q3
12Q2
0
12Q1
0
11Q4
1
11Q3
1
11Q2
2
11Q1
2
10Q4
3
10Q3
3
10Q2
4
10Q2
5
4
10Q1
Advanced countries
Emerging economies (excl. BRICS)
BRICS
Global growth
10Q4
EME
Advanced countries
Global growth
5
Percentage change from quarter to quarter (saar)
6
10Q1
6
US
9
US growth outlook remains subdued
•
US economy grew by 2 per cent in
Q3
•
Leading indicators suggest a
subdued growth performance well
into 2013.
•
US fiscal cliff and removal of debt
ceiling remain the key binding
constraints to US growth
prospects.
Euro Area
11
Key indicators for the Euro area
Growth outlook remains tepid with
PMI below the neutral 50 mark for
the past 15 months.
•
Index
Percentage change over 12 months
10
5
55
-2.8
50
-5
45
-10
Labour market conditions continue
to deteriorate.
•
Economic sentiment indicator has
also declined in most of the EA
countries.
•
120
40
35
-20
-25
30
2006
2007
2008
2009
2010
2011
Industrial production (excluding construction)
Purchasing Managers Index (RHS)
12
110
11
100
10
90
45.4
-15
Economic Sentiment Index
Per cent
11.6
9
80
8
70
7
60
2005
2006
Greece
Portugal
2007
2008
Germany
Spain
2009
2010
Italy
Euro area
2011
65
60
0
Consumer confidence remains
depressed.
•
15
2012
6
2007
2008
2009
Euro area (17) unemployment rate
2010
2011
2012
Japan
13
Japan growth prospects
•
Japanese economy contracted in Q3
with a sharp decline in PCE and
investment.
Percentage points
Index
15
110
10
100
5
91.7
0
80
-3.5
-10
-15
70
-20
60
-25
-30
2007
2008
2010
2009
Private Investment
Exports
Government Consumption
Real GDP growth (saar)
There is a strong possibility that the
economy could enter a recession in the
next quarter.
50
2012
2011
Change in Inventories
Imports
Private Consumption
Composite Leading Indicator (RHS)
Japan Trade Balances with major partners, JPY Billions (6-months normal averages, NSA)
1000
900
800
700
600
500
400
300
200
100
Trade with the US
Intra-regional Trade
Trade with Europe
Jun/2012
Dec/2012
Jun/2011
Dec/2011
Jun/2010
Dec/2010
Jun/2009
Dec/2009
Jun/2008
Dec/2008
Jun/2007
Dec/2007
Jun/2006
Dec/2006
Jun/2005
Dec/2005
Jun/2004
Dec/2004
Jun/2003
Dec/2003
Jun/2002
Dec/2002
Jun/2001
0
Dec/2001
•
Leading indicators point to a continued
slowdown in the forecast horizon.
-5
Jun/2000
•
In addition, slowdown of external
sector poses a major challenge to
growth prospects.
Dec/2000
•
90
BOJ: Measures aimed at overcoming deflation and stimulating growth
BOJ has introduced new measures to
stimulate PCE and hence address the
problems of deflation and low
growth.
•
Negative output gap expected to
persist for next four years and
deflation is likely to continue for
much longer than projected by the
BOJ.
•
Players
Interventions
BOJ- lends unlimited amounts at low interest rate
to financial institutions through the newly
established “Bank Facility Lending” and the Asset
Purchase Program (JGBs, TBs etc.) .
Commercial banks- The full amount acquired
Transmission
4.0
All economic agents (government, BOJ,
financial
institutions, businesses and the households)
Per cent
through the BOJ lending facility is made available
to economic agents at lower lending rates.
2.0

0.0
The low lending rate induces increased
credit appetite by households and
-2.0
Desired results
-4.0
businesses.

More liquidity results in increased
production and consumption provided no
-6.0
hoarding and postponed consumption
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
-8.0
Output gap % of potential GDP
Inflation, average consumer prices
occurs.

Higher consumption revives consumer
prices and the desired CPI inflation of 1% is
attained.
Some issues in EMEs
16
China growth prospects
QB March 2011
•
Economic slowdown a major concern or has the economy bottomed out?
•
Recent high frequency indictors show that economy may have bottomed
out.
•
Estimates indicate that China will return to potential (8.5%) in the second
quarter of 2013.
•
There is mixed assessment about the impact of the political leadership
change on Chinese economic prospects.
China: Slowdown still a concern?
45
per cent
14.0
Percentage change over twelve months
40
13.0
35
12.0
30
11.0
25
10.0
2013/06/01
2012/07/01
2011/08/01
2010/09/01
2009/10/01
2008/11/01
2007/12/01
2007/01/01
2006/02/01
2005/03/01
2004/04/01
2003/05/01
2002/06/01
2001/07/01
2000/08/01
5
1999/09/01
6.0
1998/10/01
10
1997/11/01
7.0
1996/12/01
15
1996/01/01
8.0
1995/02/01
20
1994/03/01
9.0
0
2006
2007
2008
2009
2010
Fixed Asset Investment: Construction and installation (rhs)
Fixed Asset Investment: Purchase of Equipment (rhs)
Fixed Asset Investment: Other (rhs)
percentage change over a year ago
index
70
25
60
20
Percentage change over a year ago
35
30
25
20
50
15
15
10
40
10
5
0
30
2007/01/01
5
2008/01/01
2009/01/01
PMI (output)
2010/01/01
2011/01/01
Industrial Production (rhs)
2012/01/01
Retail Sales
2011
India
•
There has been a deceleration in economic growth since the beginning of 2011.
•
Major policy concerns include the rising current account and fiscal deficits.
•
The projected weak external environment and deceleration in domestic activity will
put further pressure on the current account and fiscal deficit positions?
WEO GDP PROJECTIONS 2012
Percent change
9
Percentage change over a year ago
10.0
Index
9.0
8.0
65.0
8
60.0
7
6
55.0
5
7.0
50.0
4
5.0
45.0
3
4.0
40.0
2
2007/03/31
2007/06/30
2007/09/30
2007/12/31
2008/03/31
2008/06/30
2008/09/30
2008/12/31
2009/03/31
2009/06/30
2009/09/30
2009/12/31
2010/03/31
2010/06/30
2010/09/30
2010/12/31
2011/03/30
2011/06/31
2011/09/30
2011/12/31
2012/03/30
2012/06/31
2012/09/30
2012/12/31
6.0
Real GDP growth (year-on-year)
1
0
2012
2013
JULY
Purcahsing managers index (rhs)
50000
40000
40000
0
30000
30000
-1
20000
20000
-2
10000
10000
-3
0
-4
-10000
-10000
-5
-20000
-20000
-6
-30000
-7
0
2001
2002
2015
2016
2017
OCTOBER
India Fiscal Deficit
US dollar million
50000
-30000
2000
2014
2003
2004
2005
2006
Trade Balance (rhs)
2007
2008
Imports
2009
2010
Exports
2011
2012
Percentage of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Fiscal Deficit
India: Inflationary pressures
•
•
•
12
While inflation has declined
during
2012,
inflationary
pressures remain elevated.
Inflation outcomes are now
expected to be higher than initial
estimates.
Rise in projected inflation
presents a monetary policy
dilemma?
Percent
Percentage contribution
12
Per cent
10
10
8
7.5
6
4
4
2
2
0
0
-2
-2
-4
-4
2009
2011
2010
2012
Other
Fuel and Power
Food
Wholesale Price Index (percentage change over twelve months) (rhs)
Per cent
18
16
14
8
12
10
6
8
6
4
4
2
0
2
-2
-4
0
2012
2013
2014
JULY
2015
OCTOBER
2016
2017
8
6
WEO CPI PROJECTIONS 2012
10
12
2007
2008
2009
2010
2011
Wholesale prices (percentage change over twelve months)
WPI less food
WPI less food and energy
2012
Brazil: Slowing growth a major concern
Has been a significant economic
slowdown in Brazil.
•
14
10
The deceleration in PCE has been
a major factor underpinning the
slowdown.
•
6
2
-2
The deceleration in the credit
impulse been a major constraint to
the pickup in retail sale spending?
•
-6
-10
-14
-18
The reduction in policy rates has
had limited impact?
•
80
Percentage change from quarter to quarter (saar)
2007
Real GDP growth
Per cent
140
70
120
60
100
34.1
50
2010
2009
2008
2011
PCE
Per cent, yoy (3mma)
Per cent, yoy (3mma)
80
60
40
40
30
20
20
7.5
10
0
-20
0
2003
2004
2005
2006
2007
Interest Rates, Discount Rate
2008
2009
2010
2011
2012
-40
2007
2008
2012
2009
2010
2011
Interest Rates, Lending Rate
Credit impulse
Retail sales (rhs)
2012
13
12
11
10
9
8
7
6
5
4
3
World Trade
22
World trade has deteriorated in recent months
•
•
World trade volumes have declined
in the most recent month mainly as
a result of a sharp slowdown in
EMEs trade.
50
Percentage change*
40
30
20
1.3
5.5
10
0
South African export performance
has been very poor by international
standards.
-0.4
-10
-3.2
-20
-30
-40
•
250
Constant market share analysis
shows that South African export
producers are loosing market share
in both advanced countries and
EMEs.
-50
-60
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
* Annualised % change of 3-months moving average over previous 3-month
moving average - seasonally adjusted
World trade volume
World (average from 2000)
Advanced economies (Exports)
Emerging economies (Exports)
Index: 2000=100
Index: 2000=100
275
250
200
225
200
175
150
150
125
100
100
75
50
50
25
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Advanced economies
EME & developing countries
Potential AE
Potential EMEs
2011
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
World exports
Advanced economy exports
Emerging economy exports
South Africa export volumes
Commodity prices
24
Oil prices have declined but remain at elevated levels
160
•
Oil prices have declined in recent
months.
US dollar per barrel
140
120
100
•
While geopolitical risks persist, the
oil market remains well supplied.
80
60
40
20
34
Million barrels per day
3.4
32
30
30
28
28.7
26
24
22
20
2007
2008
2009
Iraq production
OPEC production (excluding Iraq)
OPEC production quotas
2010
2011
2012
Jul 13
UK Brent crude oil price
West Texas Intermediate (WTI)
UK Brent crude futures
West Texas Intermediate futures
Oct 13
Apr 13
Jan 13
Jul 12
Oct 12
Apr 12
Jan 12
Jul 11
Oct 11
Apr 11
Jan 11
Jul 10
Oct 10
Apr 10
Jan 10
Jul 09
Oct 09
Apr 09
Jan 09
Jul 08
Oct 08
Apr 08
Jan 08
0
International food prices
•
The IMF and World bank food price indices
have declined in recent months.
240
Index: 2005=100
214.3
220
•
Global food markets are vulnerable to
supply setbacks because of low buffers.
200
182.0
180
•
•
80
Stock-to-use ratios remain below their longterm historical average levels for some of
major commodities.
140
120
Is a strong lagged correlation between
international food prices and SA food
inflation.
100
FAO Food Price Index
Exchange rate impacts could exert the
major influence on SA food inflation
trends?
Annual percentage change
178.5
160
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
•
IMF Food Price Index
World Bank Food Price Index
Global food stock-to-use ratios (inventories as a per cent of global consumption)
50
Rand terms
22
45
40
60
18
40
14
20
10
25
0
6
20
-20
2
-40
-2
2007–08 average
Estimated 2012 (April WEO)
Estimated 2012 (September)
1981–2011 average
35
30
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
15
Average world food price index
SA Food price index
10
5
0
Corn
Rice
Wheat
Soybeans
Other grains and
oilseeds
Some policy considerations
27
Monetary policy remains accommodative
•
•
•
•
Growth concerns
have prompted a
further loosening of
monetary policy in
some advanced and
EMEs.
However, monetary
policy has had a
limited impact on
PCE in many
countries?
Lingering output
gaps and well
anchored inflation
expectations have
kept inflationary
pressures in check.
Growth
considerations will
be the major
monetary policy
concern for some
time to come.
Net change
since
previous
SARB MPC
Latest CPI
inflation and
direction of
change
1 Jan 08
13 Nov 12
Euro Area
4,00
0,75
0
2,6
Japan*
0,50
0,05
0
-0,3
UK
5,50
0,50
0
2,7
USA**
4,25
0,125
0
2,0
Australia
6,75
3,25
-0,25
2,0
4,25
8,25
11,00
1,00
2,50
5,00
0
0
…
1,2
0,8
5,5
Denmark
Israel
4,25
4,25
0,00
2,00
0
-0,25
2,3
2,1
Norway
Sweden
Switzerland***
5,25
4,00
2,75
1,50
1,25
0,00
0
0
0
1,1
1,0
-0,2
Hong Kong
5,75
0,50
0
3,8
5,00
3,375
2,75
1,875
0
0
2,1
2,4
China
7,47
6,00
0
1,7
India
Indonesia
Malaysia
Thailand
7,75
8,00
3,50
3,25
8,00
5,75
3,00
2,75
0
0
0
0
9,8
4,6
1,3
3,3
Brazil
Chile
Mexico
11,25
6,00
7,50
7,25
5,00
4,50
-0,25
0
0
5,5
2,9
4,6
Czech Republic
Hungary
Poland
Russia
3,50
7,50
5,00
10,00
0,25
6,25
4,50
8,25
-0,45
-0,50
-0,25
+0,25
3,4
6,0
3,8
6,5
Canada
New Zealand
South Africa
South Korea
Taiwan
Turkey
n.a.
5,75
0
7,8
14,50
9,50
0
7,1
8,75
11,00
-2,00
5,3
Lesotho****
13,10
9,40
-0,06
5,3
Namibia
10,50
5,50
0
6,7
Zambia*****
13,20
9,25
+0,25
6,6
Botswana
Kenya


































Latest monetary policy
decision
0
8/11/12
0
30/10/12
0
8/11/12
0
24/10/12
0
6/11/12
0
0
0
23/10/12
25/10/12
20/09/12
-0,25
-0,25
5/07/12
29/10/12
0
0
0
31/10/12
25/10/12
13/09/12
0
25/10/12
0
0
09/11/12
22/03/12
-0,31
07/07/12
0
0
0
-0,25
30/10/12
08/11/12
06/09/12
17/10/12
-0,25
0
0
10/10/12
18/10/12
29/10/12
-0,20
-0,25
-0,25
0
1/11/12
30/10/12
7/11/12
9/11/12
0
18/10/12
0
23/10/12
-2,00
7/11/12
-0,03
31/10/12
0
24/10/12
+0,25
31/10/12
Implications for domestic
economic developments and
growth outlook
Rand weakness, influenced by domestic factors, are negative for
inflation
Exchange rates of the rand
Exchange rate performance against the US dollar
The WGBI and global monetary easing supported
bonds while domestic economic developments
negatively affected shares
Non-resident net purchases of domestic securities and risk aversion
Domestic share prices scaled new highs
Domestic share price indices
International share price indices*
International crude oil prices and the exchange rate impacts the
petrol price and inflation and weakens growth prospects
Price of Brent crude oil
The oil burden and economic growth in South Africa
South African petrol price
International agricultural prices and drought impacted domestic
food prices
Food price inflation
Selected commodity prices
Spillovers affected exports
Business cycle spillover indices
The Bank’s growth forecast have been revised
lower…3rd quarter growth outcome on the low side of
expectations
Real GDP growth forecast
All short-term indicators show an expected moderation
in domestic economic activity
Domestic economic sentiment indicators
Historic range
Most recent
As at MPR:*
Low
High
Low
High
May 2012 Oct 2012
10
91
23
55
52
47
11
93
11
51
47
33
0
94
35
63
61
46
11
89
23
38
34
26
35,3
63,4
48,2
57,9
53,7
46,2
-33
23
-6
15
5
-1
RMB/BER Business Confidence
Index
BER Manufacturing Confidence
Index
Ernst & Young/BER Retail
Confidence Index
FNB Building Confidence
Index
Kagiso/BER Purchasing
Managers Index
FNB/BER Consumer Confidence
Index
* Improved/Worsened since previous MPR
Sources: Kagiso Securities, Rand Merchant Bank (RMB), FNB, Ernst & Young and the Bureau for
Economic Research (BER), Stellenbosch University
Assessment and conclusion
QB March 2011
Global and domestic growth prospects
• The global financial crisis created fiscal and monetary policy challenges
• Consensus among economists is that global growth is still far from
returning to higher sustainable rates
• Latest forecasts across major institutions suggest global
momentum slowing and have prospects revised downwards
growth
• Economic prospects for both advanced countries and EMEs have
deteriorated recently and uncertainty weighs heavily on the outlook for the
global economy.
• The euro area and Japan faced increased probability of entering a
recession.
• Fiscal policy concerns still dominate in the US and euro area.
QB March 2011
Domestic
• Negative spill-over effects both from the financial and exports
channel remain at elevated levels and pose challenges to policy
makers.
• Volatility in capital flows, equity prices, the exchange rate and terms
of trade (commodity prices) are evidence of financial spill-overs.
• Slowdown in exports and the domestic share of global exports is
further evidence of real economic spill-overs.
• Recent sovereign ratings downgrades and the possibility of further
downgrades is evidence that policy makers need to remain vigilant
with respect to the domestic fiscal affairs
QB March 2011
End
Questions
QB March 2011