POLICY SPACE IN EMERGING MARKET ECONOMIES Pedro del Río Head International Economics Division
GLOBAL INTERDEPENDENCE CENTER: CENTRAL BANKING SERIES SESSION II: FROM THE EYES OF THE CENTRAL BANKS Fundación Rafael del Pino Madrid 3 October 2019
DG ECONOMÍA Y ESTADÍSTICA
GLOBAL ECONOMIC ACTIVITY General economic slowdown in the main advanced and emerging market economies GDP GROWTH. ADVANCED ECONOMIES 3.0
% year on year
GDP GROWTH. EMERGING MARKET ECONOMIES 5.5
% year on year
5.0 2.5
4.5 4.0
2.0
3.5 3.0
1.5
2.5 2.0
1.0
1.5 1.0
0.5
0.5 0.0
0.0
-0.5 OTHER ADV. ECON UNITED KINGDOM UNITED STATES
JAPAN EURO AREA ADV. GDP GROWTH
OTHER EM. ECON. LATINAMERICA CHINA
EMERGING EUROPE EMER. ASIA (EXCL. CHINA) EM. GDP GROWTH
Source: National Statistics. DG ECONOMÍA Y ESTADÍSTICA
2
EVOLUTION OF GLOBAL TRADE Sharp deterioration in global trade as a consequence of the trade conflict PMI: NEW EXPORT ORDERS
EVOLUTION OF GLOBAL TRADE
3% quarter on quarter, 3 month moving
62
average
2.5
Index
60
2 58
1.5 1
56
0.5
54
0 -0.5
52
-1
50
-1.5
48
CHINA AFRICA EMERGING EUROPE JAPAN EMER ASIA (EXCL. CHINA)
OTHERS LATINAMERICA EURO AREA USA WORLD
46 44 Ja n1 Ap 6 r-1 Ju 6 lO 16 ct -1 Ja 6 n1 Ap 7 r-1 Ju 7 lO 17 ct -1 Ja 7 n1 Ap 8 r-1 Ju 8 lO 18 ct -1 Ja 8 n1 Ap 9 r-1 Ju 9 l-1 9
1/ 1 11 5/ /1 20 5 0 9/ /2 0 15 00 7/ /2 3 15 00 5/ /2 7 15 01 3/ /2 1 1 0 12 5/ 15 /3 20 12 0/ 19 /3 18 12 0/ 99 /3 18 12 0/ 99 /3 18 12 0/ 99 /3 18 12 0/ 99 /3 18 12 0/ 99 /3 18 12 0/ 99 /3 18 12 0/ 99 /3 18 12 0/ 99 /3 18 12 0/ 99 /3 18 0/ 99 18 99
-2
SPAIN WORLD
USA
EURO AREA
JAPAN
CHINA
Source: CPB, IHS Markit.
DG ECONOMÍA Y ESTADÍSTICA
3
IMPACT OF TRADE TENSIONS Impact of trade tensions: through direct (tariffs) and indirect (uncertainty) effects 5.00Index
TRADE UNCERTAINTY INDEX
4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50
TRADE CONFLICT ESCALATION: GDP IMPACT (4Q 2021) % of deviation relative to the baseline scenario
1/ 1/ 7/ 199 1/ 6 1/ 199 1/ 7 7/ 199 1/ 9 1/ 200 1/ 0 7/ 200 1/ 2 1/ 200 1/ 3 7/ 200 1/ 5 1/ 200 1/ 6 7/ 200 1/ 8 1/ 200 1/ 9 7/ 201 1/ 1 1/ 201 1/ 2 7/ 201 1/ 4 1/ 201 1/ 5 7/ 201 1/ 7 20 18
0.00
USA
CHINA
EURO AREA
REST OF THE WORLD
WORLD
IMPOSED/DECLARED TARIFFS UNTIL THE END OF 2019
CERO
Source: Ahir, Bloom y Furceri (2018), Banco de España. DG ECONOMÍA Y ESTADÍSTICA
4
GDP FORECASTS Continued downward revisions of growth projections for 2019 in most economies ADVANCED ECONOMIES (GDP 2019) 3.0
% year on year
EMERGING MARKET ECONOMIES (GDP 2019) 7.0
% year on year
6.0
2.5
5.0
2.0
4.0 1.5 3.0 1.0
2.0
0.5
1.0
0.0
0.0 UNITED STATES JAPAN
EURO AREA
UNITED KINGDOM
CHINA EME. ASIA (EXCL. CHINA)
LATINAMERICA EASTERN EUROPE
Source: Consensus Economic Forecasts. DG ECONOMÍA Y ESTADÍSTICA
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INFLATION RATES Absence of inflationary pressures both in advanced and emerging market economies ADVANCED ECONOMIES: INFLATION 3.5
% year on year
EMERGING ECONOMIES: INFLATION 8.0
3.0
% year on year
7.0 6.0
2.5
5.0 2.0
4.0
1.5
3.0 2.0
1.0
1.0 0.5
1/ 1 11 5/2 /1 00 5 9/ /20 7 15 0 7/ /20 7 15 0 5/ /20 8 15 0 3/ /20 9 15 1 1/ /20 0 1 11 5/2 11 /1 01 5 9/ /20 2 15 1 7/ /20 2 15 1 5/ /20 3 15 1 3/ /20 4 15 1 1/ /20 5 1 11 5/2 16 /1 01 5 9/ /20 7 15 1 7/ /20 7 15 1 /2 8 01 9
0.0 EURO AREA
UNITED STATES
JAPAN
UNITED KINGDOM
1/ 15 1/ /20 15 0 1/ /2 7 15 00 1/ /20 8 15 0 1/ /2 9 15 01 1/ /20 0 15 1 1/ /20 1 15 1 1/ /20 2 15 1 1/ /20 3 15 1 1/ /2 4 15 01 1/ /20 5 15 1 1/ /20 6 15 1 1/ /20 7 15 1 /2 8 01 9
0.0 CHINA
TOTAL (EXCL. CHINA)
LATINAMERICA
EMERGING ASIA(EXCL.CHINA)
EASTERN EUROPE
Source: National statistics and IMF.
DG ECONOMÍA Y ESTADÍSTICA
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MONETARY POLICIES Central banks all over the world have eased the stance of monetary policies EMERGING MARKETS: INTEREST RATES
ADVANCED ECONOMIES: INTEREST RATES 3
%
18
%
%
30
2.5
16
27
2
14
24
1.5
12
21 18
10
1
15 8
0.5
12
6
0 -0.5
9
4
6
2
3
0
0
-1 USA EURO FUTURO EEUU FUTURO EURO
UNITED KINGDOM JAPAN FUTURO REINO UNIDO FUTURES:24 SEPTEMBER
Fuente: Datastream.
MEXICO TURKEY (RH SCALE)
INDIA
BRAZIL
RUSSIA
Source: Thomson Reuters, Bloomberg.
DG ECONOMÍA Y ESTADÍSTICA
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FINANCIAL CONDITIONS Loosening of financial conditions except in some specific countries under financial stress
DG ECONOMÍA Y ESTADÍSTICA
8
CAPITAL FLOWS TO EMERGING MARKETS Sensibility of capital flows to exchange rate movements in emerging market economies
DG ECONOMÍA Y ESTADÍSTICA
9
VULNERABILITY TO FX MISMATCHES Exposure to exchange rate depreciation through foreign currency debt or foreign ownership of EME local currency sovereign bonds (“original sin” redux)
Source: BIS 2019 Annual Economic Report, chapter II.
DG ECONOMÍA Y ESTADÍSTICA
10
FISCAL SPACE IN EMERGING MARKETS Worsening public finances limit fiscal space in most emerging market economies
DG ECONOMÍA Y ESTADÍSTICA
11
POLICY SPACE IN CHINA Constraints: Weaker public finances and the need to advance on the deleveraging process CHINA: FISCAL DEFICIT AND PUBLIC % DEBT GDP % GDP
CHINA: TOTAL DEBT BY SECTORS
120
12
100
8
80
4
% of GDP
300
250
200 0
40
-4
20
-8
0
-12
BUDGET BALANCE (OFFICIAL) (RH SCALE) BUDGET BALANCE (IMF) (RH SCALE) PUBLIC DEBT (OFICIAL) PUBLIC DEBT (IMF)
150
100
50
0 31 .0 3 31 .2 .0 00 3 6 31 .2 .0 00 3 7 31 .2 .0 00 3 8 31 .2 .0 00 3 9 31 .2 .0 01 3 0 31 .2 .0 01 3 1 31 .2 .0 01 3 2 31 .2 .0 01 3 3 31 .2 .0 01 3 4 31 .2 .0 01 3 5 31 .2 .0 01 3 6 31 .2 .0 01 3 7 31 .2 .0 01 3. 8 20 19
60
PUBLIC SECTOR
HOUSEHOLDS
FIRMS
TOTAL
Source: IMF, CEIC. DG ECONOMÍA Y ESTADÍSTICA
12
EXTERNAL IMBALANCES IN EMERGING MARKETS Large external imbalances limit policy space in emerging market economies
DG ECONOMÍA Y ESTADÍSTICA
13
NEED TO BUILD UP BUFFERS Accumulation of foreign reserves and proliferation of macroprudential policies
Source: BIS 2019 Annual Economic Report, chapter II. Cumulative sum of the average number of measures per country (right).
DG ECONOMÍA Y ESTADÍSTICA
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THANK YOU FOR YOUR ATTENTION
DG ECONOMÍA Y ESTADÍSTICA