Contents External context External performance Economic policy - - PowerPoint PPT Presentation

Contents

• External context
• External performance
• Economic policy challenges in 2011
• Growth and growth characteristics
• Outlook for 2012

Global growth slowed sharply in 2011 after the recovery from the crisis

WORLD GDP GROWTH RATES, 2009-2012 (Percentages) e/ Estimate. p/ Projection.

High levels of volatility and uncertainty clouded the global outlook in the second half of the year

EUROPE (SELECTED COUNTRIES): FIVE-YEAR CREDIT DEFAULT SWAP RISK PREMIUMS, 2009-2011 (Basis points)

500 1000 1500 2000 2500 3000 3500 4000 2009 II Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Portugal Ireland Greece 100 200 300 400 500 600 2009 II Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Italy Spain France Germany

International economic fragilities are worsening

• Europe may be on the threshold of a lost

decade.

• The response to the sovereign debt crisis in

several European countries is revolving around fiscal adjustment, with no policies to boost growth.

• There are some positive growth signals in the

United States, but political gridlock has prevented measures to stimulate short-term economic growth and ensure long-term sustainability.

• Global coordination (monetary and fiscal),

which was crucial during the 2008-2009 crisis, is now weaker.

LATIN AMERICA: TERMS OF TRADE, 2005-2011 (Index: 2005=100)

Nevertheless, for much of 2011 the external environment was benign for the region – albeit with differences among groups of countries

90 100 110 120 130 140 150 2005 2006 2007 2008 2009 2010 2011 Latin America MERCOSUR Exporters of mineral products Exporters of hidrocarbons Central America Mexico

Subregional performance has been closely tied to international trade over the past few years

60 70 80 90 100 110 120 130

2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011

South America Central America Mexico The Caribbean 32 000 36% 349 000 52% 19 127 44% 670 000 65% a/ Projections. Note: Absolute figures refer to the values of exports, the percentages to the cumulative increase between 2009 and 2011. EXPORTS BY SUBREGION, 2008 -2011ª (Index: 2008 = 100)

Exports benefited especially from high commodity prices, since volumes grew relatively little

LATIN AMERICA: ESTIMATED VARIATION IN EXPORT VALUES BY VOLUME AND PRICE, 2011 (Percentages) 4.5% 2.1% 1.4% 6.1% 14.9% 4.7% 19.0% 24.2% 17.8% 29.2% 10.2% 12.2%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Latin America MERCOSUR Exporters of mining products Exporters of hydrocarbons Central America Mexico Volume Price

Still-robust domestic demand was reflected in a surge in import volumes

LATIN AMERICA: ESTIMATED VARIATION IN THE VALUE OF IMPORTS BY VOLUME AND PRICE, 2011 (Percentages) 10.3% 11.2% 14.4% 14.2% 11.3% 7.0% 12.9% 15.9% 12.9% 14.5% 12.1% 9.8%

0% 10% 20% 30% 40%

Latin America MERCOSUR Exporters of mining products Exporters of hydrocarbons Central America Mexico

Volume Price

Net FDI swelled significantly as did the portfolio investment (during the first half-year)

LATIN AMERICA (SELECTED COUNTRIES): CURRENT ACCOUNT BALANCE AND COMPONENTS OF THE FINANCIAL ACCOUNT, 2011 (Miillions of dollars)

• 55,000
• 35,000
• 15,000

5,000 25,000 45,000 65,000 85,000

Argentina Brazil Chile Colombia Mexico Peru Venezuela (Bol. Rep.

• f)

Central America, Dominican Rep., Haiti Other South American countries

Current account balance Net foreign direct investment Net prtfolio flows Change in international reserves

Macroeconomic policy challenges shifted over the year and the countries produced differentiated responses

• Rising inflation
• Sharp currency appreciation in the first part of

the year

• Need to rebuild fiscal space
• Need to sustain growth
• Threat of a sharper slowdown as the external

environment deteriorated in the second half of the year

Inflation edged up…

LATIN AMERICA: COMPONENTS OF INFLATION, JANUARY 2007 – NOVEMBER 2011 (12-month inflation rate, simple averages)

• 2%

0% 2% 4% 6% 8% 10% 12% 14%

January March May July September November January March May July September November January March May July September November January March May July September November January March May July September November 2007 2008 2009 2010 2011

Food Core inflation Others

LATIN AMERICA AND THE CARIBBEAN: MONETARY POLICY RATES (Percentages)

In this context, some countries raised monetary policy rates while others held them steady or cut them to stimulate domestic demand

Currency appreciation continued…

LATIN AMERICA AND THE CARIBBEAN: REAL EFFECTIVE EXTRAREGIONAL EXCHANGE RATES, 2008-2011 (Index: average for 1990-2009 = 100)

...to which the countries responded mainly by by intervening in the foreign-exchange markets, which contributed to the build-up of international monetary reserves

LATIN AMERICA AND THE CARIBBEAN: INTERNATIONAL RESERVES (Millions of dollars)

100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011-Oct

Brazil Regional total

The region regained some of the fiscal space ….

LATIN AMERICA (19 COUNTRIES): CENTRAL GOVERNMENT FISCAL INDICATORS, 2000-2011 (Simple averages as percentages of GDP)

• 2.5
• 3.1
• 2.8
• 2.9
• 1.8
• 1.0

0.1 0.3

• 0.4
• 2.9
• 1.9
• 1.5
• 6.0
• 4.0
• 2.0

0.0 2.0 4.0 6.0 8.0 10.0 10 12 14 16 18 20 22 24 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Overall balance (Right axis) Total revenues (left axis) Total expenditure (left axis)

Public debt came down again and its composition continued to shift

LATIN AMERICA (19 COUNTRIES): CENTRAL GOVERNMENT PUBLIC DEBT BALANCE, DOMESTIC AND EXTERNAL (Percentages of GDP)

At the regional level, almost all demand components slackened

LATIN AMERICA: GDP AND DOMESTIC DEMAND COMPONENTS, 2010-2011ª (Dollars at constant 2005 prices, change over year-earlier period)

a/ Estimate.

• 20
• 10

10 20 30

• 20
• 10

10 20 30 Q I Q II Q III Q IV Q I Q II Q III Q IV S I S II 2009 2010 2011 Private consumption General government consumption Investment Exports of goods and services Imports of goods and services GDP

But household consumption remained buoyant partly thanks to a strong labour-market performance

LATIN AMERICA AND THE CARIBBEAN: CHANGE IN RATES OF EMPLOYMENT AND OPEN UNEMPLOYMENT

As a result, poverty rates should fall in 2011 but indigence rates probably will not, owing to food price inflation

LATIN AMERICA: POVERTY AND INDIGENCE RATES, 1980-2011a (Percentages and millions of persons)

a Estimate for 18 countries of the region plus Haiti. The figures in the upper part of the bars represent the percentage and total number of poor

(indigent plus non-indigent poor). The figures for 2011 are projections.

Household consumption was also boosted by strong credit growth

LATIN AMERICA (12 COUNTRIES): CHANGE IN CREDIT PORTFOLIO, FIRST QUARTER 2008 – THIRD QUARTER 2011 (Median percentage variation in real terms)

• 2

2 4 6 8 10 12 14 16

I-2008 II-2008 III-2008 IV-2008 I-2009 II-2009 III-2009 IV-2009 I-2010 II-2010 III-2010 IV-2010 I-2011 II-2011 III-2011

The investment ratio reached its highest figure since

• 1990. But this was still insufficient to sustain high rates
• f growth in the region.

LATIN AMERICA: GROSS FIXED CAPITAL FORMATION (Dollars at constant 2005 prices as a percentage of GDP)

In the third quarter, the slowdown in growth began to steepen

LATIN AMERICA: QUARTER-ON-QUARTER GROWTH IN GDP, SEASONALLY ADJUSTED SERIES (Percentages)

Accordingly, growth in the Latin American and Caribbean region slowed from 5.9% in 2010 to 4.3% in 2011…

LATIN AMERICA AND THE CARIBBEAN: GDP GROWTH RATES, 2011 (Percentages)

0.7 1.4 2.5 2.9 3.2 3.3 3.8 4.0 4.0 4.1 4.2 4.3 4.5 4.5 4.5 4.6 5.1 5.5 5.5 6.3 7.0 8.0 9.0 10.5

2 4 6 8 10 12 Caribbean El Salvador Cuba Brazil Honduras Guatemala Costa Rica Mexico Paraguay Central America (9 countries) Venezuela(Bol. Rep. of) Latin America and the Caribbean Haiti Nicaragua Dominican Republic South America (10 countries) Bolivia(Plur. State of) Uruguay Colombia Chile Peru Ecuador Argentina Panama

Scenario for 2012

• Our baseline scenario assumes that global

economic growth will continue to slacken, albeit more gradually (from 2.8% in 2010 to 2.6% in 2012).

• This would have a limited impact on the region

transmitted mainly through the real economy.

• Some of the engines of growth are slowing, but

they have not shut down.

VOLUME OF WORLD EXPORTS BY REGION, 2007-2011 (Annual growth rates, three-month moving average)

Growth in export volumes is slowing

International prices for the main exports are falling…

GLOBAL COMMODITY PRICE INDEXES, 2002-2001 (Index: annual average price for 2002=100)

…and the terms of trade are projected to deteriorate slightly in 2012, differentiated by groups of countries

LATIN AMERICA: TERMS-OF-TRADE VARIATION, 2009-2012ª (Percentages)

a Estimate.

• 25%
• 20%
• 15%
• 10%
• 5%

0% 5% 10% 15% 20% 25% Latin America MERCOSUR Exporters of mining products Exporters of hydrocarbons Central America 2009 2010 2011 2012

VOLUME OF WORLD IMPORTS BY REGION, 2007-2011 (Annual growth rates, three-month moving average)

Domestic demand is losing momentum, as reflected in lower import growth…

LATIN AMERICA (7 COUNTRIES): VAT COLLECTION IN ARGENTINA, BRAZIL, CHILE, COLOMBIA, MEXICO, PERU AND URUGUAY (Growth rates compared with the same quarter of the preceding year, simple average)

• 30%
• 20%
• 10%

0% 10% 20% 30% I II III IV I II III IV I II III IV I II III 2008 2009 2010 2011

… and also in lower fiscal revenue

The current account deficit has widened, owing mainly to falling commodity prices

CURRENT ACCOUNT STRUCTURE (Percentages of GDP)

• 3.0
• 2.0
• 1.0

0.0 1.0 2.0 3.0 4.0 2006 2007 2008 2009 2010 2011 2012

Goods balance Services balance Income balance Current transfers balance Current account balance

LATIN AMERICA AND THE CARIBBEAN: COUNTRY RISK (Monthly EMBIG. Basis points)

From September on, the countries in the region experienced spikes in financial market volatility – although thus far more limited than in 2008-2009

And as 2011 was ending, international bond issues by the Latin American and Caribbean countries began to lose momentum

LATIN AMERICA AND THE CARIBBEAN : INTERNATIONAL BOND ISSUES, JANUARY 2005 – DECEMBER 2011 (Millions of dollars)

5,000 10,000 15,000 20,000 25,000 30,000

Jan-05 Apr-05 Jul-05 Oct-05 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

Private (left scale) Banks (left scale) Sovereign (left scale) Quasi-sovereign (left scale)

Thus, growth is projected to slow again in 2012, but moderately: to 3.7%

LATIN AMERICA AND THE CARIBBEAN: GDP GROWTH, 2012 (Percentages)

In short…

• The 2011 performance was relatively satisfactory given

the increasingly complex external situation.

• Expectations are for even more turbulent and

uncertain external conditions, with a prolonged period

• f low growth in the developed countries.
• The baseline scenario for 2012 indicates a moderate

slowdown for the region, partly thanks to having addressed its past vulnerabilities...

• … but it is very possible that external conditions will

become much more difficult, which would impact the region through various channels (trade then finance).

• The external situation urgently requires greater

international coordination to reduce global imbalances.

If the external situation worsens in 2012

• The impact on the countries would vary depending on their trade

and financial linkages, their fiscal and external position and the extent of their reliance on remittances and tourism.

• If capital flight takes a toll on the financial account, the

international reserve position is strong enough to finance a current account deficit and soften the impact on the exchange rate.

• Sounder public accounts and (except in the Caribbean) low

levels of public debt afford space for countercyclical policy action.

• The prospect of a dip in inflation will allow governments to deploy

expansionary monetary policy.

• Administrations must safeguard employment and social

protection instruments.

• Investment and intraregional integration must been strengthened.

How does the region stand today?

• Alert to the possibility of global crisis.
• Somewhat more resolved to find ways to coordinate

monetary and development financing issues in order to carry forward regional integration.

• Aware that structural social and production gaps must be

narrowed in order to dismantle these two channels of inequality.

• Looking towards strengthening intraregional and

subregional cooperation by linking regional capabilities and value chains.

• Socially more progressive, with equality at the heart of the

agenda.