Regional Economic Outlook Middle East and Central Asia Department

1

Regional Economic OutlookRegional Economic Outlook

Middle East and Central Asia DepartmentMiddle East and Central Asia Department

International Monetary FundInternational Monetary FundOctober 2009

2INTERNATIONAL MONETARY FUND

October 2009

Southwestern Asia

Energy exportersEnergy importers

Caucasus and Central AsiaCaucasus and Central Asia


October 2009

OutlineOutline

World Economic Outlook

CCA Economic Outlook


October 2009

World Economic Outlook: Key Messages The global economy is beginning to grow again, but recovery is likely

to be sluggish. The slow recovery calls for sustained policy support until the expansion is firmly entrenched.

Financial market conditions continue to improve but remain tight, with the global financial system remaining far from normal.

Expansionary monetary and fiscal policy will continue to underpin the global recovery, but to safeguard price and financial stability and the soundness of public finances, credible exit strategies will be needed.

Two key factors for the medium-term: private demand replacing public demand; and demand in external surplus economies rising to make up for shrinking demand in external deficit economies.


October 2009

Exports and manufacturing helped by a turn in the inventory cycle

Industrial Production(Percent change; 3mma; annualized)

-40

-30

-20

-10

0

10

20

Jan-07 Jan-08 Jan-09

AdvancedEmergingWorld

Jul-09Jan-07 Jan-08 Jan-09-80

-60

-40

-20

0

20

40

60

AdvancedWorld

Emerging

Merchandise Exports(Percent change; 3mma; annualized)

Jul-09


October 2009

Consumer confidence slowly recovering, but unemployment still rising

Consumer Confidence(January 2005=100)

0

20

40

60

80

100

120

140

160

180

200

05 06 07 08 09

U.S. (Conf. Board)

Japan (Econ. Soc. Res. Inst.)

U.K. (Building Society)

Germany (Eur. Comm.)

Aug. 09 05 06 07 08 095.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

AdvancedWorldEmerging

Unemployment(Percent; weighted by labor force)

Jul. 09


October 2009

0

200

400

600

800

1000

1200

1400

1600

1800

BB

AAA

-100

0

100

200

300

400

500

U.S. dollarYen

Euro

30

40

50

60

70

80

90

100

110

120

130

DJ Euro StoxxWilshire 5000Topix

Corporate Spreads(Basis points; averages of Europe and United States)

Interbank Spreads(Basis points)

Policy has taken risk of another Great Depression offthe table, but financial conditions remain tight

Equity Markets(March 2000 = 100; national currency)

Sep.09

080604022000 Sep.09

080604022000Sep.090806042000 02


October 2009

Expansionary monetary policy has been key,but will not forestall a credit crunch

Credit Growth in Private Nonfinancial Sectors

(q/q changes; billions of local currency)

-500

0

500

1000

1500

2000

2500

-50

0

50

100

150

200

250

United States (RHS)Euro area (LHS)

042000 09:Q2

0602 08

-40

-20

0

20

40

60

80

100 -15

-10

-5

0

5

10

15

20

United States (LHS)Euro Area (LHS)Japan (inverted; RHS)

Bank Lending Conditions

2000 02 0409:Q306 08


October 2009

-10

-8

-6

-4

-2

0

2Advanced

Emerging and developing

World

0

20

40

60

80

100

120Advanced


World

Fiscal policy too has played a major role,but fiscal support will diminish

Fiscal Balance(Percent of GDP)

901970 80 2000 10 901970 80 2000 10

Public Debt(Percent of GDP)

14 14


October 2009

Rebalancing will be a drawn-out process,implying slow global growth

Global Imbalances1

(Percent of world GDP)

1 OCADC: Bulgaria, Croatia, Czech Republic, Estonia, Greece, Hungary, Ireland, Latvia, Lithuania, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Turkey, and United Kingdom.

Discrepancy

1412100806040220001996 98

-3

-2

-1

0

1

2

3

U.S. Oil exporters DEU+JPN OCADC CHN+EMA ROW


October 2009

Global growth is expected to pick up in 2010,but the recovery will be sluggish

-6

-4

-2

0

2

4

6

8

10

12

World

Advanced


Real GDP Growth1

(Percent change from a year earlier)

-4

-2

0

2

4

6

2006 07 08 09 10

90% Confidence interval70% Confidence interval50% Confidence interval

Prospects for World GDP Growth(Percent change)

1 Quarterly data through 2010 and annual data afterwards.

1412100806042000 02


October 2009

Key risks, mainly on the downside• Premature withdrawal of public support, because

recovery seemingly self-sustaining—public’s appetite for fiscal support seems low.

• New financial disaster, geopolitical issues/oil price surge, swine flue: economy’s capacity to absorb new shocks is very low.

• Fiscal credibility loss or questions about continued independence of central banks.

• Upside: we may underestimate effects of reduced uncertainty/greater confidence.


October 2009

CCA Economic OutlookCCA Economic Outlook• Global crisis has severely affected CCA energy importers

and Kazakhstan:• Energy importers hit by sharp drop in remittances• Kazakhstan held back by lingering banking crisis• Other energy exporters still growing

• Modest recovery in prospect for 2010; stronger for energy exporters than for importers.

• Effective countercyclical policies have limited the downturn; concessional donor support has been important for energy importers.

• Financial sectors remain under stress, with NPLs expected to rise further.


October 2009

CCA in the grip of the global crisis

Per capita incomes are decliningin the energy importing countries

Global crisis hit the region in 2009; only a modest recovery is projected for 2010

Real GDP Growth(Annual change; in percent)

Gross National Disposable IncomePer Capita 1/

(In U.S. dollars)

0

1500

3000

4500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

ArmeniaGeorgiaKyrgyz RepublicTajikistan

1/ GNDI is defined as GDP + non-factor income + transfers.

-10

-5

0

5

10

15

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009proj.

2010proj.

Commonwealth of Independent StatesCCA energy exportersCCA energy importersWorldRussia


October 2009

Remittances down sharplyMany migrants worked in the Russian construction sector

A collapse in remittances affects household incomes

Remittances Outflow from Russia to the CCA 1/

(Percent change; year-on-year)

Remittances Inflows(Percent change; year-on-year)

1/ Includes compensation of employees and migrants capital transfer.

-40

-20

0

20

40

60

80

100

Mar-08

Jun-0

8

Sep-08

Dec-08

Mar-09

Jun-0

9

CCARussian construction

-80

-60

-40

-20

0

20

40

60

80

100

Mar-08

Jun-0

8

Sep-08

Dec-08

Mar-09

Jun-0

9

ARMGEOKGZTJK


October 2009

Exports contracted sharply in 2009, but imports also falling

Exports of Goods in U.S. Dollars(In percent; year-on-year)

Imports of Goods in U.S. Dollars(In percent; year-on-year)

-50

0

50

100

150

Jan-0

8

Feb-08

Mar-08

Apr-08

May-08

Jun-0

8Ju

l-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-0

9

Feb-09

Mar-09

Apr-09

Energy exporters

Energy importers

-40

0

40

80

120

160

Jan-0

8

Feb-08

Mar-08

Apr-08

May-08

Jun-0

8Ju

l-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-0

9

Feb-09

Mar-09

Apr-09

Energy exporters

Energy importers


October 2009

Net external demand holding back growth in 2009,but contributes to 2010 recovery

Net External Demand(Annual change; in percent)

-80

-60

-40

-20

0

20

40

60

80

100

120

AZE KAZ TKM UZB ARM GEO KGZ TJK

2009

2010


October 2009

Macroeconomic policies have beenaccommodative in 2009

Country

Fiscal

stimulus

Exchange rate depreciation

Monetary easing

Liquidity support

Increased provisioning

Capital injections

Deposit guarantees

Armenia Enhanced

Azerbaijan

Georgia

Kazakhstan Enhanced

Kyrgyz Republic Enhanced

Tajikistan

Turkmenistan

Uzbekistan


October 2009

Fiscal policy expansionary in 2009, but some countries face limited fiscal space in 2010

Change in the Non-oil Primary Fiscal Deficit, 2009(In percent of non-oil GDP)

Fiscal Space Indicators(In percent, 2009)

Note: methodology based on IMF (2009), and is briefly described in the Amex.

-4

-2

0

2

4

6

8

10


Fiscal stimulusAutomatic stabilizerChange in primary deficit

Source: IMF staff estimates; lending rates are from the International Financial Statistics.

0

40

80

120

160

-10 0 10 20 30 40Real Lending Rates

Tota

l Pub

lic D

ebt/G

DP

Azerbaijan

Armenia

TajikistanKyrgyz Republic

Georgia

Less fiscal space


October 2009

Where debt levels were already high, donor supporthas helped finance the fiscal stance

2009 increase in donor supportexpected to reverse in 2010

Some governments are constrainedby already high debt levels

Grants to Energy Importers (In percent of GDP)

Public Debt(In percent of GDP)

0

10

20

30

40

50

60


20082009 proj.2010 proj.

0

1

2

3

4

5

6

7

ARM GEO KGZ TJK

20082009 proj.2010 proj.


October 2009

Inflation down sharply, but pressures may return in 2010

Inflation down sharply from historical highs…

… but commodity prices on the rise again

Consumer Price Index(Annual change; in percent)

Commodity Prices(Index 2008 = 100)

-10

0

10

20

30

40

Jan-0

8

Feb-08

Mar-08

Apr-08

May-0

8

Jun-0

8Ju

l-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-0

9

Feb-09

Mar-09

Apr-09

May-0

9

Jun-0

9

ARM AZEGEO KAZKGZ TJKTKM UZB

0

50

100

150

Jan-0

8

Feb-08

Mar-08

Apr-08

May-08

Jun-0

8Ju

l-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-0

9

Feb-0

9

Mar-09

Apr-09

May-0

9

Jun-0

9Ju

l-09

Aug-09

AluminumCottonCrude oilGold


October 2009

Currencies have depreciated ...

… helping reverse competitivenesslosses suffered in 2008

…. against dollar, and energyImporters’ currencies have caught up

with weakening ruble …

Local Currencies Against the U.S. Dollar and Russian Ruble

(Aug 31, 2008 – Aug 31, 2009, increase indicates appreciation)

Real Effective Exchange Rate(Index Jan 2005 = 100; increase indicates

appreciation)

-40

-30

-20

-10

0

10

20

30


Against the U.S. dollarAgainst the Russian ruble

60

80

100

120

140

160

180

Jan-05Jul-05

Jan-06Jul-06

Jan-07Jul-07

Jan-08Jul-08

Jan-09Jul-09

ARMAZEGEOKAZKGZTJKUZB


October 2009

Financial sectors are under stress,with NPLs set to rise further

Nonperforming Loans (In percent of total loans)

0

4

8

12

16

20


200720082009, latest


October 2009

In response, credit growth has slowed

Credit boom has come to anabrupt halt

Real lending rates on the rise as inflation declines

Credit to the Private Sector(Percent change; year-on-year)

Real Lending Rate(In percent)

1/ Lending rate for Georgia is on loan flows for all maturities.

-20

0

20

40

60

80

100

120

Jan-0

8

Feb-08

Mar-08

Apr-08

May-08

Jun-0

8Ju

l-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-0

9

Feb-0

9

Mar-09

Apr-09

May-09

Jun-0

9Ju

l-09

ARMAZEGEOKAZKGZ

-10

-5

0

5

10

15

20

25


200720082009, latest 1/


October 2009

Social Impact of the Crisis• With per capita income and social spending rising in the

oil exporters, poverty is expected to fall• In the oil importers, despite some increase in social

spending, poverty is expected to pick up via the following channels:– Disposable income is projected to drop by 5 percent on

account of lower remittances alone– Softening of labor markets will likely see unemployment

edging up– Depreciated exchange rates have led to some increases in

import prices for consumers– Simulations for several countries suggest the poverty rate

could increase as much as 5 percentage points


October 2009

Policy PrioritiesPolicy Priorities• Fiscal stimulus needs to be sustained in most countries in 2010

– more concessional donor financing would support growth and social protection and limit debt increase in energy importers

• Flexible exchange rate regimes will help preserve competitiveness

• Further steps to stabilize financial sectors important in some countries

• Not too early to start thinking about exit strategy, to reverse debt increase and take best advantage of global recovery:

– Medium term fiscal consolidation– Further reforms to improve business environment– Enhanced regional cooperation– Financial sector development


October 2009

Full report and copy of the presentation: Full report and copy of the presentation: http://www.imf.org/external/pubs/http://www.imf.org/external/pubs/

ft/reo/2009/MCD/eng/mreo1009.htmft/reo/2009/MCD/eng/mreo1009.htm

What do you think? What do you think?Make your point on the related blog:Make your point on the related blog:

http://blog-imfdirect.imf.orghttp://blog-imfdirect.imf.org

Please visit the IMF’s websitePlease visit the IMF’s website

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Regional Economic Outlook Middle East and Central Asia Department

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