Recent Developments in the World Economy
and Implications for Turkey
Mark LewisIMF Senior Resident Representative to Turkey
Presentation at Atılım UniversityAnkara
May 27, 2013
RECENT DEVELOPMENTS IN THE GLOBAL ECONOMY
The risks have been reduced, but the global economy remains weak
Policies have addressed major risks but other risks remain Global economy in broadly three speeds
Emerging market and developing countries (EMDE): coping well US, other advanced economies (AE): shift from public to private
demand in train Euro area: the handover from public to private demand is still stuck
Priorities AE: achieving a better fiscal/financial/monetary policy mix EMDE: rebuilding policy room for maneuver and structural reforms
Activity is beginning to recover after the slowdown in 2012
2010 2011 2012 2013-10
-5
0
5
10
15
20
25
30
Advanced economies
Emerging market economies
CPB trade volume index
Feb. 2013
Industrial Production and World Trade(annualized percent change of three-month moving average over previous three-month moving average)
Source: Haver Analytics; Netherlands Bureau for Economic Policy Analysis for CPB trade volume index; and IMF staff calculations.
Financial conditions have also improved
Sources: Haver Analytics; EPFR Global; and IMF staff calculations.
00 02 04 06 08 10 120
20
40
60
80
100
120
140
DJ EURO STOXX PRC
S&P 500
Emerging Market
Japan - Topixx
Equity Markets(2007 = 100; national currency)
Apr. 13 2005 2006 2007 2008 2009 2010 2011 2012 2013-20
-10
0
10
20
30
40
Others LAC
Developing Asia
Net Portfolio Capital Flows to Emerging Markets(billions of US dollars; quarterly flows)
2006
2007
2008
2009
2010
2011
2012
-10
-5
0
5
10
15
United StatesEuro areaSpainItaly
However, bank lending conditions still tight, especially in the euro area
Nonfinancial Firm and Household Credit Growth 1\(year-over-year percent change)
12:Q4
2007 2008 2009 2010 2011 2012-20
0
20
40
60
80
100
U.S.
Euro area
12:Q2
Lending Conditions(Net percentage of domestic respondents tightening standards for loans)
Sources: Lending surveys by the Bank of England, European Central Bank, Bank of Japan, and the U.S. Federal Reserve for house holds and corporations; Haver Analytics; and IMF staff estimates. 1\ Flow of funds data are used for the euro area, Spain and the United States. Italian bank loans to Italian residents are corrected for securitizations.
7
Credit growth in Emerging Markets (EMs) has slowed
Sources: Haver Analytics; IMF, World Economic Outlook; and IMF staff calculations.
2010 2011 2012 2013-5
0
5
10
15
20
25
30
35
40BrazilIndiaChinaTurkey
Real Credit Growth(percent change from one year ago)
Jan. 132006
08
10
12:Q4
0
10
20
30
40
50
60
70
80
60
70
80
90
100
110
120
130
140
BrazilIndiaTurkeyChina (Left Scale)
Credit to GDP(percent)
World U.S. Euro Area Japan Brazil Russia India China Turkey
2013(April 2013) 3.3 1.9 -0.3 1.6 3.0 3.4 5.7 8.0 3.4
2013(Jan. 2013) 3.5 2.0 -0.2 1.2 3.5 3.7 5.9 8.2 3.4
2014(April 2013) 4.0 3.0 1.1 1.4 4.0 3.8 6.2 8.2 3.7
2014(Jan. 2013) 4.1 3.0 1.0 0.7 4.0 3.8 6.4 8.5 3.9
WEO Real GDP Growth Projections (percent change from a year earlier)
Source: IMF, World Economic Outlook.
The Outlook is still weak and uncertain. The forecast has been revised down
8
2000 02 04 06 08 10 12 14:Q4
-10
-5
0
5
10
15
Emerging Asia
Latin America
SSA
2000 02 04 06 08 10 12 14:Q4
-10
-5
0
5
10
15
United States
Euro area
Japan
The forecast suggests a three-speed global economyAdvanced Economies(percent change from a year earlier)
Emerging Economies(percent change from a year earlier)
Jan. WEO2013 2014
2.0 3.0
-0.2 1.0
1.2 0.7
April WEO
2013 2014
7.1 7.3
3.4 3.9
5.6 6.1
April WEO2013 2014
1.9 3.0
-0.3 1.1
1.6 1.4
Jan. WEO
2013 2014
7.1 7.53.6 3.9
5.8 5.7
LAC: Latin America and the Caribbean; SSA: Sub-Saharan Africa; data are interpolated from annual frequency valuesSource: IMF Staff Estimates.
Euro area
• Accommodative monetary policy (2014 inflation < < 2% !!) and working on better pass through
• Restructuring weak banks, with help of ESM if needed• Stronger EMU: banking union and capital market integration
• More entitlement reform and more structural reform
What to do? Work on medium-term policies and don’t overburden monetary policy!
U.S and Japan
• Medium-term fiscal plans and entitlement reform• U.S. needs to durably address debt ceiling• Japan needs a strong medium-term growth strategy• Accommodative monetary policy, including BoJ reforms
EMDC
• Rebuild policy space• Watch for legacies of past credit growth or ongoing expansions
• Structural reforms: to reaccelerate potential output, absorb inflowing capital productively, rebalance growth
FINANCIAL STABILITY RISKS REMAIN
In the U.S, corporations are building more debt
10
0
20
40
60
80
100
120
0
5
10
15
20
25
30
35Cov-lite loan issuance (left scale)
Share of institutional leveraged loans (right scale)
(Billions of U.S. dollars ) (Percent)
U.S. high-yield covenant-lite loans
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
11.00
12.00
13.00
14.00
15.00
16.00
17.00
18.00
19.00
20.00
80
90
100
110
120
130
140(100 = start of cycle)
Quarters from start of cycle
U.S. corporate debt-to-earnings
1997:Q1
2000:Q4
2007:Q4
Current cycle (2011:Q4)
’97 ’99 ’01 ’03 ’05 ’07 ’09 ’11 ’12
Emerging Markets are also accumulatingdebt
12
0 20 40 60 80 100 1200
20
40
60
80
100
120
2007
2012
Philip-pines
Thailand
TurkeyChina
Brazil
India
Chile
Malaysia
Poland
Mexico
Indonesia
Peru
Hungary
South AfricaRussia
Korea
ColombiaRomania
Emerging Market nonfinancial corporate leverage (percent, debt-to-equity)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
500
1,000
1,500
2,000
2,500
Equities
Loans
Bonds
Selected emerging market bond, equity and loan issuance (U.S. dollar, bn)
132007 2008 2009 2010 2011 2012 20130
5
10
15
20
25
30
35
40
Nonresident holdings of local currency government debt (share of total; in percent)
Yield External Factors Domestic Factors
-500
-450
-400
-350
-300
-250
-200
-150
-100
-50
0
-465
-323
-142
Local currency yield tightening (Dec 08-Dec 12) (in basis points)
Hungary
Poland
Indonesia
Mexico Turkey
Korea
Brazil
Malaysia
South Africa
Very sensitive to external factors
15
Euro Area
U.S. & Japan
• Safer global financial systemGlobal
• Avoid financial excesses
• Smooth exitU.S.
• Avoid bad releveraging
• Keep the guard up
Emerging Markets
Remaining Old Risks New Challenges
• Stronger integration
• Make banks, corporates and sovereigns safer
• Keep sovereigns safe
For financial stability, dealing with old risks and new challenges
16
TURKEY ACHIEVED A “SOFT LANDING”
17
Turkey: a welcome slowing of growth and domestic demand
Mar-08
May-08
Jul-08
Sep-0
8
Nov-08
Jan-09
Mar-09
May-09
Jul-09Se
p-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-1
0
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-1
1
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-1
2
Nov-12
-30
-20
-10
0
10
20
30
Net Exports Domestic Demand Real GDP growth
Contributions to Growth(Percent, contribution to real GDP)
18
Lower imports reduce the current account deficit; although financing still is short term
Jan-08Apr-
08Jul
-08Oct-
08Jan
-09Apr-
09Jul
-09Oct-
09Jan
-10Apr-
10Jul
-10Oct-
10Jan
-11Apr-
11Jul
-11Oct-
11Jan
-12Apr-
12Jul
-12Oct-
12Jan
-13-100
-80
-60
-40
-20
0
20
40
Total Non-fuel
Current Account(Billion of U.S. dollar)
Jan-08Apr-
08Jul
-08Oct-
08Jan
-09Apr-
09Jul
-09Oct-
09Jan
-10Apr-
10Jul-1
0Oct-
10Jan
-11Apr-
11Jul
-11Oct-
11Jan
-12Apr-
12Jul-1
2Oct-
12Jan-1
3-30
-10
10
30
50
70
90
ST Debt MLT debt Non-debt flows CAD
Current Account Financing (12-m rolling, billions of U.S. dollar)
Inflation is not high
Jan-100.0
2.0
4.0
6.0
8.0
10.0
12.0
Headline CORE,I Services
Inflation (Percent)
20
Unemployment has increased, but not much
3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 46
8
10
12
14
16
6
8
10
12
14
16Unemployment Rate
(Percent)201020112012
Short-term model suggests momentum in Q1
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Actual growth
Estimated growth
Actual and Estimated GDP Growth(q/q sa, non-annualized)
22
Reflecting, among other things, faster credit growth
23
A soft landing is a new achievement
24
THE GLOBAL ECONOMY AND TURKEY
Domestic savings are low, which means:
Pakista
nTu
rkey
S. Afri
ca
Poland
Brazil
Colombia
Hungary
Argentina
Chile
Mexico
Russia
Thaila
nd
Malaysi
aIndia
Indonesia
China0
10
20
30
40
50
60
Savings, 2012(% of GDP)
There is a high current account deficit
Turke
y
S. Afri
caIndia
Poland
Chile
ColombiaBraz
il
Indonesia
Pakista
n
Mexico
Thaila
nd
Argentina
China
Hungary
Russia
Malaysi
a-8
-6
-4
-2
0
2
4
6
8
Current Account Balance, 2012(% of GDP)
27
Making Turkey dependent on foreign capital inflows
Brazil India Poland Turkey0
5
10
15
20
25
30
0
5
10
15
20
25
30
35
External Financing Requirement(2011, percent of GDP)
There has been trade diversification, but the EU still important
0
10
20
30
40
50
60
Turkey Total Trade (excl. Gold, 3MMA, %)
CIS EU MENA Developing ASIASource: IMF DTS and Turk-stat
A challenge is to preserve and expand market share
Dec-00
Apr-01
Aug-01
Dec-01
Apr-02
Aug-02
Dec-02
Apr-03
Aug-03
Dec-03
Apr-04
Aug-04
Dec-04
Apr-05
Aug-05
Dec-05
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
0
50
100
150
200
250
300
350
Market Share Developments(Turkey's exports in % of region's Imports, 2000=100, 6MMA)
CIS EU MENA Developing AsiaSource: IMF
30
Turkey will benefit from more Foreign Direct Investment
Pakista
n
S. Afri
ca
Argentina
India
Mexico
Turke
y
Indonesia
Thaila
ndRussi
aBraz
ilChina
Colombia
Malaysi
a
Hungary
Chile0
1
2
3
4
5
6
7
8
FDI, 2011 (Net Inflows, % of GDP)
Source: World Bank
Thank You!
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IMF Website: www.imf.orgIMF Turkey Website: www.imf.org/Ankara