Transcript Latin America and the Caribbean

International Economic Outlook
Dr. Abdul Quader Shaikh
U.S. Department of Commerce
(January 29, 2010)
&
Dr. Javier Reyes
University of Arkansas
Department of Economics
Sam M. Walton College of Business
(February 5, 2010)
Outline
 Introduction
 Economic Outlook: An overall picture
 Regional Outlook: The specifics
 What the future holds?
Introduction
 The recovery has started, and the challenge is to
sustain it.
 Global Recession Is ending, but a subdued recovery
lies ahead.
 Although financial conditions have improved
markedly, it will still take some time for
employment to improve significantly.
Economic Forecast
 In the advanced economies, unprecedented
public intervention has stabilized activity and
fostered a return to modest growth in several
economies.
 Emerging and developing economies are
currently further ahead on the road to recovery.
 Rebalancing the Global Economy will take time.
Beyond 2010
 Achieving sustained healthy growth over the medium term
will depend critically on addressing the supply disruptions
generated by the crisis and rebalancing the global pattern of
demand.
 Consumption in advanced economy is growing slower than in
Asia countries.
Economic Outlook Survey
 80 percent of respondents expect the world economy to grow over the
next 12 months, compared with a net 69 percent in November.
 The Global recession Is Ending.
 Slow Job Growth Ahead but Improving, but still difficult Financial
Conditions ahead.
 A Subdued Recovery and Vulnerability to Mild Deflation.
 Beyond 2010 Global Economy may Rebalance.
 Policy Challenges: Reconciling Short- and Medium-Term Objectives.
Growth Forecast
 Global GDP to grow 3.9% in 2010.
 Emerging markets (as a whole) are expected to take the lead. Growth
rates expected between 6.0 to 6.3%.
 Developed economies are expected to recover from recession and grow
at an average of 2.1 to 2.7%.
 The forecast of GDP growth spells good news for equities.
 Emerging market equities are expected to outperform their
counterparts in developed economies. Stocks with exposure to
China, India, Malaysia, Indonesia and Korea are expected to offer
attractive returns in 2010.
2010 Consensus GDP Growth (YoY%) Estimates
World 3.9%
India 7.7%
2.7%
10.0
1.7
3.6
4.0
Positive growth is expected in 2010, but the recovery will be a
slow one.
Source: World Economic Outlook, IMF, January 26, 2010.
Dotted lines not in the original figure
Developed Countries growth is expected to be
minimal over the next two years
2005
2006
2007
2008
2009
2010
2011
WORLD
4.5
5.1
5.1
3.0
-1.1
2.8
3.9
4.3
3.4
G-20
4.2
4.8
4.9
2.7
-1.2
2.7
3.3
INDUSTRIAL COUNTRIES
2.4
2.7
-3.5
0.8
2.1
1.1
2.4
1.3
2.4
1.7
3.6
1.0
2.2
2.4
0.4
UNITED STATES
3.1
2.7
2.1
0.4
-2.4
CANADA
2.9
3.1
2.5
0.4
-2.6
JAPAN
1.9
2.0
2.3
-0.7
-6.2
1.8
2.7
0.7
2.6
1.3
1.7
THE EU-27
2.2
3.4
3.0
1.0
-4.2
-0.2
1.1
EU- 15
1.9
3.0
2.6
0.6
-4.3
-0.3
0.9
UNITED KINGDOM
2.1
2.8
2.6
0.7
-4.6
-0.5
1.3
0.9
2.7
EURO AREA
1.8
3.0
2.7
0.7
-4.2
-0.3
0.9
GERMANY
0.8
3.0
2.5
1.3
-5.1
-0.5
1.5
FRANCE
1.9
2.4
2.3
0.3
-2.3
ITALY
0.7
2.0
1.5
-1.0
-5.0
0.7
1.4
-0.3
1.0
0.3
1.9
1.2
1.7
1.3
0.9
NEW EU MEMBERS
4.8
6.6
6.3
4.2
-3.4
0.8
3.1
AUSTRALIA
2.8
2.8
4.0
2.3
-0.2
0.8
1.9
The rapid growth of the mid-2000’s in the Emerging
Market and Transition Economies is not expected to return
2005
2006
2007
2008
2009
2010
2011
EMERGING MARKETS
7.0
7.7
8.1
5.7
2.4
5.1
5.8
AFRICA
5.9
6.1
6.2
5.4
1.7
4.4
5.3
SOUTH AFRICA
5.0
5.3
5.1
3.1
-2.2
3.1
3.7
ASIA
8.3
9.1
9.8
6.4
4.7
CHINA
10.4
11.6
13.0
9.0
8.1
INDIA
9.2
9.8
9.1
6.1
5.5
6.4
8.4
10
8.5
7.7
6.3
7.0
8.4
9.7
8.2
7.8
7.9
ASEAN
5.9
6.2
6.5
4.4
-0.2
4.7
3.9
5.3
4.6
INDONESIA
5.7
5.5
6.3
6.1
4.1
4.4
4.5
MIDDLE EAST
6.1
6.0
5.7
5.1
0.2
3.4
4.1
LATIN AMERICA
4.7
5.7
5.7
4.2
-2.7
2.2
3.3
BRAZIL
3.2
4.0
5.6
5.1
-1.0
MEXICO
3.2
5.1
3.3
1.4
-7.1
3.3
4.7
4.0
2.8
4.1
3.7
4.7
2.3
TRANSITION ECONOMIES
5.9
7.7
7.7
5.0
-5.3
1.8
3.6
East & Central Europe
5.1
6.2
6.9
4.5
-3.5
2.0
0.6
3.7
3.2
POLAND
3.6
6.2
6.8
4.9
0.7
1.5
3.0
CIS - TOTAL
6.7
8.4
8.6
5.5
-6.7
2.4
4.0
RUSSIA
6.4
7.7
8.1
5.6
-7.0
3.6
2.5
3.4
4.1
UKRAINE
2.7
7.3
7.9
2.1
-17.0
1.0
3.6
5.9
3.4
-0.8
3.2
4.0
TOP U.S. Export Markets 1/
4.6
5.6
Regional Economic Forecast
 Latin America and the Caribbean
 Asia and Pacific countries
 Africa
 Middle East &Central Asia
 EURO
Latin America and the Caribbean
-LAC will recover in tandem with the World Economy, in contrast to previous crises
where it lagged the world cycle. But given that the world recovery will be slow, then LAC
recovery will take time as well.
-Dependent on consumption and employment levels domestically and in developed
economies (consumption, travel, remittances, etc.).
-But investment seems to be picking up.
Source: IMF World Economic Outlook
Latin America and the Caribbean
 Latin America has exhibited continuing problems of
macroeconomic instability and a much weaker degree of
integration into the global economy.
 Performance of the Brazilian economy, the largest in South
America is a success story.
 For a number of years it has been clear that Brazil, despite
substantial natural resource endowments and a talented and
entrepreneurial population, has failed to match the growth
performance of other emerging market economies, notably those
of East and South East Asia.
Asia and Pacific
World Trade and Asia’s Industrial Production
Change in Real Effective Exchange Rate
(% between 08/2008 and 09/2009)
 What is driving the growth? The recovery of international trade flows
 Given the dramatic drop in trade flows in 2008-2009, and the expected recovery of trade in
the coming years, it is possible to argue that the growth in export oriented Asia will continue.
 The challenges lie in controlling the inflows that could lead to credit cycles, financial
instability (vulnerability), negative terms of trade effects, and possibly (but remotely as of
today) overheating of these economies.
Source: IMF World Economic Outlook
China
 China is leading the global recovery, helped by its limited direct exposure to the
financial crisis and by a massive stimulus package.
 GDP growth 8% in 2009 and 10% in 2010, before easing slightly in 2011 as
the impact of the fiscal stimulus ends.
 The strong increase in domestic demand stemming from the stimulus
has drawn in imports, while exports have been weak and may not
“fully” recover to pre-crisis rates.
 There has been much hype about China’s rapid ascent in the world
economy.
 A number of, medium-, and longer-term potential “growth-
decelerators”—i.e., economic overheating, widening regional and rural–urban
economic divides, banking sector fragility, environmental degradation, rampant
corruption, an ageing population etc.—that could possibly brake China’s rapid
ascent in the world economy.
Middle East and Central Asia Region
 MENAP (oil exporters)
 Sufficient reserves for governments to respond to the crisis.
 They will rebuild the reserves with oil revenue as the demand for oil
recovers.
 But their financial systems have been exposed and regulation needs to
change.
 MENAP (oil importers):
 Softened the blow through the policies of MENA oil exporters and
because of their low integration into the world economy.
 But this will translate in low (relative) growth rates in the near future.
 CCA countries hit hard,
 Exporters are doing fine but the rest are suffering and will continue to
suffer as remittances drop from Russia.
Sub- Saharan Africa
Challenges:
-Debt sustainability.
-Strength of Institutions
-Dependence on exports of natural resources
(could have positive effects for many but it is
a curse in disguise for others)
Source: IMF World Economic Outlook
EURO Area
-Banks and firms continue the deleveraging of balance sheets
and this could slowdown the recovery even further.
-Scarcity of credits, high rates of unemployment and labor
market rigidities, investment drop, and the lack of global
demand, point towards a fragile and slow recovery.
-Output gaps and inflation dynamics suggest threats from
overheating are not near by.
Employment over the Business Cycle
Source: IMF World Economic Outlook
Japan
 Growth is projected to pick up gradually to around 2% in
2011, due in part to the new government’s plan to increase
public spending.
 Unemployment rate is likely to stay around 5½ per cent
through 2011 and deflation will persist.
United States?
 Wait five more minutes.
Inflation/Deflation in the World??
Source: IMF World Economic Outlook
Rebalancing Global Demand
 Achieving sustained healthy growth over the medium term also depends
critically on rebalancing the pattern of global demand.
 Many current account surplus economies that have followed export-led
growth strategies will need to rely more on domestic demand.
 Many external deficit countries will need to rely less on domestic
demand and more on external demand.
 This will require significant structural reforms, many of which are also
necessary to boost potential output.
 Improve corporate governance and financial intermediation, support
public investment, and improve social safety nets.
Conclusions
- The World Economy will grow
- Asia will lead, other emerging economies will follow, while
developed economies will take a bit more time.
- Unemployment will remain high worldwide
- Inflation dynamics remain… interesting to say the least
- And now lets take a closer look at the US