42
World Economic Outlook October 2013 Jörg Decressin Deputy Director Research Department, IMF 1
World Economic Outlook
October 2013 Jörg DecressinDeputy Director
Research Department, IMF
1
Global Growth Dynamics Are Changing
Two new developments over the past 6 months:
• Markets anticipated a change in U.S. monetary policy—conditions tightened partly because activity is firming in the U.S., euro area
• Lower growth in emerging economies, notably China
2
Outline
• Prospects for Advanced Economies
• Recent Developments and Implications for Emerging Economies
• Medium‐term prospects for EM
• Risks
• Rebalancing within the euro area
• Policy implications
3
Prospects for Advanced Economies
• Tighter monetary conditions
• Much easier fiscal policy
• Higher growth in 2014
4
0
1
2
3
4
5
6
7
2007 08 09 10 11 12
GermanyJapanUnited States
U.S. average 30‐year fixed rate mortgage
U.S. monetary conditions have tightened and this spilt over into the euro area and, to a lesser extent, Japan.
Key Interest Rates 2/(percent)
Oct.13
Policy Rate Expectations 1/(percent; months on x‐axis; dashed lines are from the April 2013 WEO)
Source: Bloomberg, L.P. 1/ Expectations are based on the federal funds rate for the United States, the sterling overnight interbank average rate for the United Kingdom, and the euro interbank offered forward rate for Europe; updated October 24, 2013.2/ Interest rates are 10‐year government bond yields.
5
0,0
0,1
0,2
0,3
0,4
0,5
t t+12 t+24 t+36
United States
Europe
Headline Inflation(year‐over‐year percent change; dashed lines are the six‐to‐ten‐year inflation expectations)
Inflation pressures are very low and there is still ample slack. Monetary policy is assumed to stay very accommodative.
‐3
‐2
‐1
0
1
2
3
4
5
6
2002 04 06 08 10 12
Euro areaJapanUnited States
Sources: Consensus Forecast; and IMF staff estimates. 6
14:Q4
44
45
46
47
48
49
50
4
5
6
7
8
9
10
2006 07 08 09 10 11 12 13
Unemployment rate(left scale)
Employment aspercent of population
U.S. Unemployment Rate(percent)
7
AE fiscal policy will be less tight in 2014 (except in Japan).
Source: IMF staff estimates.
‐0,5
0
0,5
1
1,5
2
2,5
2010 11 12 13 14
Euro area United States
Fiscal Impulse(Change in structural balance as percent of GDP)
7
GDP growth forecasts for advanced economies are little changed: growth is moving up in U.S. and euro area.
Sources: IMF staff estimates.
1. United States(annualized quarterly percent change)
‐12
‐9
‐6
‐3
0
3
6
9
12
2010 2011 2012 2013 2014
United States
2. Euro Area(annualized quarterly percent change)
‐8
‐6
‐4
‐2
0
2
4
6
8
2010 2011 2012 2013 2014
Euro area
8
Recent Developments and Implications for Emerging Economies
• Tighter external funding conditions
• Lower potential growth
• More demand from advanced economies
• A modest cyclical uptick in 2014
9
Tighter U.S. monetary conditions interacted with EM domestic weaknesses and led to tighter EM funding conditions.
Source: Bloomberg, L.P.; EPFR Global/Haver Analytics; and IMF staff calculations.Note: ECB = European Central Bank; LTROs = longer‐term refinancing operations.
Net Capital Flows to Emerging Markets Breakdown(billions of U.S. dollars; monthly flows)
‐30
‐25
‐20
‐15
‐10
‐5
0
5
10
15
20
2010:H1 10:H2 11:H1 11:H2 12:H1 12:H2
Equity
Bond
Interest Rate Spreads(basis points)
0
250
500
750
1000
1250
1500
1750
2002 04 06 08 10 12
Sovereign 2/
United States BB
Corporate 3/
Oct. 13
May 22, 2013
VXY 1/
Greek crisis
Irishcrisis
1st ECB LTROs
June 29, 2012
May 22, 2013
1/ JPMorgan emerging market volatility index.2/ JPMorgan EMBI Global Index spread.3/ JPMorgan CEMBI Broad Index spread.
10
Oct. 13
‐3,5
‐3,0
‐2,5
‐2,0
‐1,5
‐1,0
‐0,5
0,0
0,5
1,0
Brazil South Africa China Russia India
Potential
Cyclical
Change in real growth
Long‐term Expectations: Up and Down 2/(medium‐term growth forecast; change from April 2004 WEO)
Decomposing the 2011‐13 Slowdown 1/(percentage points)
EM growth has declined for cyclical and structural reasons.
‐2
‐1
0
1
2
3
04 05 06 07 08 09 10 11 12 13
BrazilIndiaChinaSouth AfricaRussia
Source: IMF, World Economic Outlook.1/ Cyclical component of growth calculated as the difference between real and potential growth. Potential growth estimated using multivariate filter (see Box 1.2 of the October 2013 WEO for details). 2/ 5‐year ahead growth forecasts used as a proxy for longer term growth expectations. India’s figures for the July 2013 update are in fiscal year terms.
11
12
EM fiscal policies are staying broadly neutral;for some this is fine; others need fiscal adjustment.
Source: IMF staff estimates.
‐0,4
‐0,2
0
0,2
0,4
0,6
0,8
1
2010 11 12 13 14
Emerging market and developing economies
Fiscal Impulse(Change in structural balance as percent of GDP)
12
Key EMs are under pressure but exchange rates have acted as a buffer and reduced or reversed previous overvaluations.
Sources: Haver Analytics; IMF, World Economic Outlook, April 2013 and IMF staff calculations.Note: Aln. = aligned emerging market economies, including India, Mexico, Poland, Russia, Saudi Arabia; Def. = deficit emerging market economies, including Brazil, Indonesia, South Africa, Turkey; Sur. = surplus emerging market economies, including China, Malaysia, Thailand.
13
‐10
‐8
‐6
‐4
‐2
0
2
4
Sur. Def. Aln.
Real Effective Exchange Rates(percent change from April 2013 to September2013)
Exchange rate depreciation, however, will not forestall lower growth—extent of slowing depends on policy room.
‐2,5
‐2,0
‐1,5
‐1,0
‐0,5
0,0
TUR IDN BRA CHN IND RUS MEX ZAF‐15
‐10
‐5
0
5
TUR IDN BRA CHN IND RUS MEX ZAFSource: IMF staff estimates.Note: BRA = Brazil; CHN = China; IDN = Indonesia; IND = India; MEX = Mexico; RUS = Russia; TUR = Turkey; ZAF = South Africa.
‐15
‐10
‐5
0
5
10
TUR IDN BRA CHN IND RUS MEX ZAF
Equity Prices(percent deviation)
Market Interest Rates(percentage point deviation)
Bilateral Exchange Rate(against the U.S. dollar; percent deviation; positive = appreciation)
Real GDP(percent deviation)
0,0
0,5
1,0
1,5
2,0
2,5
TUR IDN BRA CHN IND RUS MEX ZAF
14
EM growth forecasts have been marked down. But growth is still expected to move up modestly in 2014.
Sources: IMF staff estimates.
3. Developing Asia(half‐over‐half annualized percent change; bars are differences between the current WEO and
July 2013 WEO)
‐3
‐2
‐1
0
1
2
3
‐14
‐12
‐10
‐8
‐6
‐4
‐2
0
2
4
6
8
10
12
14
2010:H1 11:H1 12:H1 13:H1 14:H1
Developing Asia (RHS)China (RHS)India (RHS)Developing AsiaChinaIndia
4. Latin America and the Caribbean(half‐over‐half annualized percent change; bars are differences between the current
WEO and July 2013 WEO)
‐3
‐2
‐1
0
1
2
3
‐9
‐6
‐3
0
3
6
9
2010:H1 11:H1 12:H1 13:H1 14:H1
Latin America (RHS)Brazil (RHS)Mexico (RHS)Latin AmericaBrazilMexico
15
World U.S. Euro Area Japan Brazil China India South Africa
2013(Oct. 2013) 2.9 1.6 ‐0.4 2.0 2.5 7.6 3.8 2.0
2013(Jul. 2013) 3.1 1.7 ‐0.6 2.0 2.5 7.8 5.6 2.0
2014(Oct. 2013) 3.6 2.6 1.0 1.2 2.5 7.3 5.1 2.9
2014(Jul. 2013) 3.8 2.7 0.9 1.2 3.2 7.7 6.3 2.9
WEO Real GDP Growth Projections (percent change from a year earlier)
Source: IMF, World Economic Outlook.
Overall, the WEO forecast has been revised down because of lower growth in emerging economies. In South Africa, activity has
been in line with earlier projections: no revision.
16
EconomyAverage Growth(1998 – 2013)
Average Growth(2004 – 2008)
Five‐Year‐AheadForecast Growth
Brazil 2.9 4.8 3.5
China 9.6 11.6 7.0
India 6.9 8.0 6.7
Russia 4.4 7.1 3.5
South Africa 3.2 4.9 3.5
Low Income Countries 6.2 8.1 5.7
Five‐Year‐Ahead Forecast Growth and Average Growth from 1998‐2013 in the BRICS (percentage points)
Source: IMF staff calculations.Note: Five‐year‐ahead forecast growth is from the October 2013 WEO (estimate for 2018 growth; for India, shown on a fiscal year basis).
Five‐Year‐Ahead EM Forecasts: Less growth than during pre‐crisis period but not far from historical averages, except China, Russia.
17
Euro area investment stalls, notably in periphery, as reform fatigue sets in Japan policy implementation is incompleteEuro area investment stalls, notably in periphery, as reform fatigue sets in Japan policy implementation is incomplete
There are many near‐term risks. Over the medium term, a plausible downside scenario is one of several, limited disappointments and
much lower global growth.
US potential growth disappoints US monetary conditions tighten more than assumed in the WEO forecastFiscal accidents in AEs or failure to lift the debt ceiling in the US
US potential growth disappoints US monetary conditions tighten more than assumed in the WEO forecastFiscal accidents in AEs or failure to lift the debt ceiling in the US
Tighter external funding conditions for EMLess potential growth in EM, notably ChinaLower commodities prices
Tighter external funding conditions for EMLess potential growth in EM, notably ChinaLower commodities prices
1818
Risks from higher interest rates in advanced economies for emerging economies
Depends on reason for interest rate hikes:
Higher‐than‐expected growth – good for the world
Tighter policy stance – not good for the world
Higher‐than‐expected inflation – bad for the world
Worse fiscal positions – ugly for the world
Other – depends
19
AE monetary policy: U.S. tapers gradually, keeps rates on hold until 2016Euro area and Japan stay very accommodative
AE monetary policy: U.S. tapers gradually, keeps rates on hold until 2016Euro area and Japan stay very accommodative
The WEO forecast assumptions are for benign monetary conditions and thus subject to downside risks.
EM: tightening of external conditions is largely a one offEM: tightening of external conditions is largely a one off
2020
Gross capital Inflows to emerging markets have been high but not extraordinarily high.
Source: IMF staff calculations.Note: 2013 Q2 is based on only a subset of the countries due to non‐availability of data.
21
0
1
2
3
4
5
6
7
8
9
10
1993 1994 1995 1998 1999 2000 2003 2004 2005 2012 2013Q1
2013Q2
Gross Capital Inflows to Emerging Markets(percent of GDP)
U.S. Term Premium on 10‐year Zero Coupon Bond
But the U.S. 10‐year term premium is very low and could surprise on the upside.
‐2
‐1
0
1
2
3
4
90 92 94 96 98 00 02 04 06 08 10 12
Sources: Kim and Wright (2005); and IMF staff calculations. 22
Oct.13
EM growth and capital flows do not necessarily fall muchwhen U.S. policy rates rise because of stronger U.S. growth.
‐18‐15‐12‐9‐6‐30369
‐6 ‐5 ‐4 ‐3 ‐2 ‐1 0 1 2 3 4 5 6
Source: IMF staff estimates.
Latin America and the Caribbean: Gross Capital Inflows (percent of GDP; deviations from t=0)
‐18‐15‐12‐9‐6‐30369
‐6 ‐5 ‐4 ‐3 ‐2 ‐1 0 1 2 3 4 5 6
Emerging Asia: Gross Capital Inflows(percent of GDP; deviations from t=0)
Februrary 1994 June 1999 June 2004
‐8‐6‐4‐202468
1012
–6 –5 –4 –3 –2 –1 0 1 2 3 4 5 6
Latin America and the Caribbean: GDP Growth (year‐over‐year percent change, SA; deviations from t=0)
‐8‐6‐4‐2024681012
–6 –5 –4 –3 –2 –1 0 1 2 3 4 5 6
Emerging Asia: GDP Growth(year‐over‐year percent change, SA; deviations from t=0)
0
100
200
300
400
500
600
700
800
0
10
20
30
40
50
60
70
80
90
1001997 Crisis EMs 2/
Selected large EMs with capital outflows 1/
Short‐term external debt (% of GDP)
Short‐term external debt (% of GDP)
Key EMs Under Pressure Today vs. 1997 Asian Financial Crisis EMs(percent)
EMs are now more resilient than in 1997. Some vulnerabilities have built up.
(initial conditions)
Source: IMF, World Economic Outlook, April 2013.1/ Brazil, Indonesia, India, Turkey, and South Africa. Data shown for 2012.2/ Indonesia, Korea, Thailand, Malaysia, and Philippines. Data shown for 1996.
24
Right Scale
Fixed ER regime (% of total) External debt (% of GDP) Reserves (% of short‐term external debt)
Euro area: banking union; structural reforms; gradual fiscal adjustmentJapan: work on all 3 arrows of AbenomicsUS: address ST fiscal challenges; easy monetary policy; MT fiscal adjustment & entitlement reforms
Euro area: banking union; structural reforms; gradual fiscal adjustmentJapan: work on all 3 arrows of AbenomicsUS: address ST fiscal challenges; easy monetary policy; MT fiscal adjustment & entitlement reforms
Policies
China: advance rebalancing and reform shadow bankingIndia: improve fiscal policy and remove structural bottlenecksBrazil: raise domestic saving and foster private investmentRussia: rebuild fiscal buffers and improve the investment climate
China: advance rebalancing and reform shadow bankingIndia: improve fiscal policy and remove structural bottlenecksBrazil: raise domestic saving and foster private investmentRussia: rebuild fiscal buffers and improve the investment climate
EMDC: (i) exchange rate buffer; (ii) monetary policy to keep inflation well anchored; cut rates if room exists; (iii) fiscal policy to be geared to MT objectives; stimulate only if major slowdown threatens; (iv) preserve financial stability; (v) structural reforms
EMDC: (i) exchange rate buffer; (ii) monetary policy to keep inflation well anchored; cut rates if room exists; (iii) fiscal policy to be geared to MT objectives; stimulate only if major slowdown threatens; (iv) preserve financial stability; (v) structural reforms
2525
Supplementary Slides
26
1,0
1,5
2,0
2,5
3,0
Jan. 2013 Apr. 13 Jul. 13 Oct. 13
GDP growth in 2013
GDP growth in 2014
10‐year government bondyields
Despite still ample slack in U.S. labor markets and downward revisions to real GDP growth, monetary conditions have tightened since May.
Government Bond Yields and GDP Growth From Consensus Forecast (percent
44
45
46
47
48
49
50
4
5
6
7
8
9
10
2006 07 08 09 10 11 12 13
Unemployment rate(left scale)
Employment aspercent of population
Unemployment Rate(percent)
Sources: Bloomberg, L.P., Consensus Forecast; and IMF staff estimates. 27
May 22, 2013De Bock, Reinout
The WEO sees advanced economies making greater contributions to global growth, helped by more gradual fiscal adjustment.
Source: IMF staff estimates.Note: EMDEs = Emerging Market and Developing Economies.
‐1
‐0,5
0
0,5
1
1,5
2
2,5
3
3,5
4
2013 Global Growth 2013 Change in Global Growth 2014 Global Growth 2014 Change in Global Growth
United States
Japan
Euro Area
Other Advanced Economies
Developing Asia
Latin America
Other EMDEs
Global Growth
Contributors to Global Growth and Changes in Global Growth(Percent)
28
0
1
2
3
4
5
6
2010 2011 2012 2013 2014
90 percent confidence interval
90 percent confidence interval (April 2013 WEO)
Baseline
Risks to the WEO forecast remain on the downside.Market risks indicators do not point to a large change in risks.
Prospects for World GDP Growth(percent change)
Downside risks:Emerging economiesUS interest ratesEuro areaUS & Japan MT fiscalMonetary policyGeopolitical
Source: Consensus Forecasts; and IMF staff estimates.29
Key EMs are under pressure but exchange rates have acted as a buffer and reduced or reversed previous overvaluations.
Sources: Haver Analytics; IMF, World Economic Outlook, April 2013 and IMF staff calculations.Note: Aln. = aligned emerging market economies, including India, Mexico, Poland, Russia, Saudi Arabia; Def. = deficit emerging market economies, including Brazil, Indonesia, South Africa, Turkey; Sur. = surplus emerging market economies, including China, Malaysia, Thailand.
30
‐10
‐5
0
5
10
15
20
25
Sur. Def. Aln.
Percent change from April 2013 to Sep. 2013
Real Effective Exchange Rates(percent change from January 2010 to September 2013)
‐0,6
‐0,5
‐0,4
‐0,3
‐0,2
‐0,1
0,0
United States LAC Asia Europe
Econometric Evidence(peak effect of 100 basis point increase in U.S. policy interest rate; percent)
Source: IMF staff calculations.1/ U.S. monetary policy shock defined as a surprise change in monetary policy rates that is not a response to inflation or economic conditions, and is taken from Romer and Romer (2004). See October 2013 WEO Chapter 3 for details.
Spillovers:(effects of a US monetary policy shock) 1/
31
Oil price shocks triggered by geopolitical events would mainlyreduce growth via financial markets and confidence
Source: IMF staff estimates.
‐2
‐1,5
‐1
‐0,5
0
0,5
1
1,5
GDPGrowthrate
GDPGrowthrate
CurrentAccountto GDPratio
GDPGrowthrate
CurrentAccountto GDPratio
GDPGrowthrate
CurrentAccountto GDPratio
GDPGrowthrate
CurrentAccountto GDPratio
GDPGrowthrate
CurrentAccountto GDPratio
GDPGrowthrate
CurrentAccountto GDPratio
World United States Euro Area Japan Emerging Asia Latin America Rest of the World
Large oil price and equity market shocks
Large oil price shock
Small oil price shock
Temporary Oil Price Shock Impact on GDP and Current Accounts(cumulative percentage point difference from WEO baseline in 2013 & 2014)
32
Abenomics: Risks after early success?
33Sources: IMF staff calculations based on data from Bloomberg, L.P. and IMF staff estimates.1/Estimated as a one‐month moving average of implied consumer price index based on inflation swap bid and ask prices.
Real GDP(percent deviation from pre‐Abenomics baseline)
‐3
‐2
‐1
0
1
2
3
4
2012 2014 2016 2018 2020
Complete Abenomics package
Incomplete Abenomics package
WEO baseline
‐1
0
1
1
2
2
Jan.2012 Jul.2012 Jan.2013 Jul.2013
5 year break‐even rate
Swap (8‐10 years)
Swap (3‐5 years)
Inflation Expectations 1/(year‐over‐year percent change)
33
EM are hit particularly hard and global growth averages 3 percent, rather than 4 percent.
4,5
5,0
5,5
6,0
6,5
7,0
2013 2014 2015 2016 2017 2018
Source: IMF staff estimates.
2,5
3,0
3,5
4,0
4,5
2013 2014 2015 2016 2017 2018
2,5
3,0
3,5
4,0
2013 2014 2015 2016 2017 2018
60
80
100
120
2013 2014 2015 2016 2017 2018
Emerging Asia: Real GDP Growth(percent)
Latin America: Real GDP Growth(percentage points)
World: Real GDP Growth(percent)
World: Oil Price(U.S. dollars a barrel)
34
Rebalancing scenario: a safer world but with similar growth rates
1,01,52,02,53,03,54,0
2013 2014 2015 2016 2017 2018
Source: IMF staff estimates.
5,0
5,5
6,0
6,5
7,0
2013 2014 2015 2016 2017 2018
0,8
1,3
1,8
2,3
2013 2014 2015 2016 2017 2018
2,5
3,0
3,5
4,0
4,5
2013 2014 2015 2016 2017 2018
Emerging Asia Latin America
‐0,50,00,51,01,52,02,5
2013 2014 2015 2016 2017 2018
2,5
3,0
3,5
4,0
4,5
2013 2014 2015 2016 2017 2018
World
United States Japan Euro Area
Real GDP Growth(percent)
35
Export performance improved, except in Greece. There still is a long way to go in reducing large NFL positions.
36
Sources: Eurostat; Haver Analytics; IMF, Direction of Trade Statistics; and IMF staff calculations.Note: ROW = rest of the world.
External Adjustment 2/(percent of GDP)
‐6
‐4
‐2
0
2
4
6
8
10
12
Greece Ireland Italy Portugal Spain France Germany
Unexplained PeripheryInitial conditions Other structuralPotential output Cyclical
‐12
‐10
‐8
‐6
‐4
‐2
0
2
4
6
France Germany Italy Spain Portugal Greece
Euro area demandROW demandNEERRelative GDP deflators
Cumulative Contributions to Export Performance 1/ 2008:Q3 – 2012:Q4
361/ IMF staff estimates are based on export regression analysis.2/ Contributions to change in current account, 2007‐12. IMF staff estimates are based on current account regression analysis.
Euro area credit conditions are still tight, while U.S. conditions continue to loosen.
37
Sources: Bank of Italy; Bank of Spain; Haver Analytics.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.2/ Percent of respondents describing lending standards as tightening “considerably” or “somewhat” minus those indicating standards are easing “considerably” or “somewhat” over the previous three months. Survey of changes to credit standards for commercial and industrial and commercial real estate lending for the United States.
Bank Lending Conditions 2/
‐40
‐20
0
20
40
60
80
100
2000 02 04 06 08 10 12
United States
Euro Area
‐10
‐5
0
5
10
15
2006 2007 2008 2009 2010 2011 2012
United StatesEuro areaSpainItaly
Nonfinancial Firm and Household Credit Growth 1/(year‐over‐year percent change)
13:Q3 13:Q3
37
External balances improved in the peripheryand unemployment rose.
38Sources: Eurostat; Haver Analytics; and IMF staff calculations.
Unemployment Rates(percent)
0
5
10
15
20
25
30
2003 2005 2007 2009 2011
Greece
Ireland
Portugal
Spain
‐15
‐10
‐5
0
5
10
1999 2001 2003 2005 2007 2009 2011
GreeceIrelandPortugalSpainGermany
Current Account(percent of GDP)
38
Export performance improved, except in Greece. There still is a long way to go in reducing large NFL positions.
39
Sources: Eurostat; Haver Analytics; IMF, Direction of Trade Statistics; and IMF staff calculations.Note: ROW = rest of the world.
Net Foreign Asset Position 2/(percent of GDP)
‐150
‐100
‐50
0
50
100
1999 2003 2007 2011 2015
France Germany Greece
Ireland Italy Portugal
Spain
‐12
‐10
‐8
‐6
‐4
‐2
0
2
4
6
France Germany Italy Spain Portugal Greece
Euro area demandROW demandNEERRelative GDP deflators
Cumulative Contributions to Export Performance 1/ 2008:Q3 – 2012:Q4
391/ IMF staff estimates are based on export regression analysis.2/ Net foreign asset position in percent of GDP implied by WEO projections, assuming no future valuation effects.
As less productive workers were fired, unit labor costs declined.Wages fell modestly in Ireland and Greece.
‐50
‐40
‐30
‐20
‐10
0
2008Q4 2009Q2 2009Q4 2010Q2 2010Q4 2011Q2 2011Q4
Sources: Eurostat; Haver Analytics; and IMF staff calculations.Note: Tradables sector include manufacturing (industry, excluding construction for Greece). Peaks are 2009:Q4 for Greece, 2008:Q4 for Ireland, 2009:Q1 for Portugal, and 2009:Q2 for Spain (based on ULCs). Latest is 2013:Q1. For real output, negative sign indicates increase in real output.
‐20‐15‐10‐505
10
2009Q2 2010Q1 2010Q4 2011Q3 2012Q2 2013Q1
‐25‐20‐15‐10‐5051015
2009Q1 2009Q4 2010Q3 2011Q2 2012Q1 2012Q4
‐50‐40‐30‐20‐1001020
2009Q4 2010Q2 2010Q4 2011Q2 2011Q4 2012Q2 2012Q4
Ireland: Tradables(percent, peak to latest)
Portugal: Tradables(percent, peak to latest)
Spain: Tradables(percent, peak to latest)
Greece: Tradables(percent, peak to latest)
40
12:Q1
Exchange rate pegs may be more vulnerable toU.S. monetary policy tightening.
41
Source: IMF staff calculations.Note: EMDE = emerging market and developing economy. The x‐axis shows the numbers of months away from time t = 0; t = 0 is February 1994, June 1999, June 2004 and May 2013.
EMDE Peggers: Real Effective Exchange Rate(percent change; deviations from t = 0)
‐15
‐10
‐5
0
5
10
‐12 ‐8 ‐4 0 4 8 12
February 1994
June 1999
June 2004
May 2013‐15
‐10
‐5
0
5
10
‐12 ‐08 ‐04 00 04 08 12
February 1994June 1999June 2004May 2013
EMDE Real Effective Exchange Rate(percent change; deviations from t = 0)
41
Euro Area Rebalancing
• Current accounts in the periphery moved from large deficits into surplus, mainly because of low demand
• Exports are growing but tradable sectors are still shrinking. There still is a long way to go to reduce large NFL positions
• ULC in periphery slowed relative to core but mostly because of cutbacks in employment. Tradable sectors are shrinking.
42
