recent developments in the region and macedonia
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Recent Developments in the Region and Macedonia. Opening of the NBRM-WB PIC Alexander Tieman 16 December, 2010. Overview. Regional outlook Central, Eastern, and Southeastern Europe Implications for Macedonia Precautionary Credit Line. The backdrop: a global and regional recovery. - PowerPoint PPT PresentationTRANSCRIPT
Recent Developments in the Region and Macedonia
Opening of the NBRM-WB PIC
Alexander Tieman16 December, 2010
Overview
• Regional outlook– Central, Eastern, and Southeastern Europe
• Implications for Macedonia• Precautionary Credit Line
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The backdrop: a global and regional recovery.
2006 2007 2008 2009 2010 2011-6
-4
-2
0
2
4
6
8
-6
-4
-2
0
2
4
6
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Euro Area and World: Real GDP Growth Outlook(Annual percentage change)
World, April 2010 WEO
World, October 2010 WEO
Euro Area,April 2010 WEO
Euro Area,October 2010 WEO
Source: IMF, World Economic Outlook database.
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Emerging Europe: After a 6 percent contraction in 2009, an expansion of 3.9 percent in 2010…
-8
-6
-4
-2
0
2
4
6
8
-8
-6
-4
-2
0
2
4
6
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2006 2007 2008 2009 2010 2011
Emerging Europe: Growth Outlook(annual percent change)
April 2010 WEO October 2010 WEO
…led by exports…
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Emerging Europe. Real Exports, 2008:Q3 - 2010:Q2
Sources: Eurostat; Haver Analytics; and IMF staff calculations.
50
60
70
80
90
100
110
120
50
60
70
80
90
100
110
120
2008:Q3 2009:Q2 2010:Q1
Estonia
Lithuania
Latvia
Baltics50
60
70
80
90
100
110
120
50
60
70
80
90
100
110
120
2008:Q3 2009:Q2 2010:Q1
Hungary
Poland
Central Europe
50
60
70
80
90
100
110
120
50
60
70
80
90
100
110
120
2008:Q3 2009:Q2 2010:Q1
Romania
Croatia
Bulgaria
Southeastern Europe50
60
70
80
90
100
110
120
50
60
70
80
90
100
110
120
2008:Q3 2009:Q2 2010:Q1
Russia
Ukraine
Turkey
European CIS and Turkey
…while domestic demand remains subdued…
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Emerging Europe. Real Domestic Demand, 2008:Q3 - 2010:Q2
Sources: Eurostat; Haver Analytics; and IMF staff calculations
65
70
75
80
85
90
95
100
105
110
65
70
75
80
85
90
95
100
105
110
2008:Q3 2009:Q2 2010:Q1
Estonia
Lithuania
LatviaBaltics65
70
75
80
85
90
95
100
105
110
65
70
75
80
85
90
95
100
105
110
2008:Q3 2009:Q2 2010:Q1
Hungary
Poland
Central Europe
65
70
75
80
85
90
95
100
105
110
65
70
75
80
85
90
95
100
105
110
2008:Q3 2009:Q2 2010:Q1
Romania
Croatia
Bulgaria
Southeastern Europe65
70
75
80
85
90
95
100
105
110
65
70
75
80
85
90
95
100
105
110
2008:Q3 2009:Q2 2010:Q1
Turkey
Russia and Turkey
Russia
…and the recovery is uneven across regions
Strongest growth: European CIS countries and Turkey
Weakest growth: countries that had deep recessions
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Revival of sovereign stress in advanced Europe:
lower exports
lower capital flows
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Some upside risks, but significant downside risks for EE
Why were some countries more affected than others?
Common trigger of the crisis (external) yet different outcomes. Why?
Domestic policies and vulnerabilities do matter !Countries that had the largest imbalances and the
strongest credit booms have seen the deepest recessionsCountries that managed to avoid the excesses have seen
much shallower recessions or avoided them altogether
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What does this mean for Macedonia?
• The economy in 2011• Risks and Uncertainties• Policies• PCL
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The Macedonian Economy in 2011
• 2011 is looking better than 2010– 2011 GDP growth: 3 - 3½ percent– 2011 inflation: around 2½ percent
• Supported by – Growth in trading partners– Lower interest rates– Growing bank deposits– Ample liquidity
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Macroeconomic Overview
• Current Account deficit– 2010: -3½ to -4 percent
• Rapid adjustment• Supports stabilization of reserves
– 2011: -4½ to -5 percent• Growth in exports (metal prices, capacity utilization)• Some growth in imports as well (inputs, consumption)
– Beyond 2011• Stabilization at levels that can largely be financed through
FDI
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Macroeconomic Overview
• Reserves have increased further– To around € 1.65 billion– And are projected to continue a moderate increase in
2011
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Risks and Uncertainties
• Growth in trading partners– Lower European growth could spill over to Macedonia– And would put renewed pressure on the balance of
payments– Given the peg, the c/a deficit needs external financing
• Conditions in international financial markets– Higher uncertainty on financial markets might be here to
stay for the foreseeable future– Market pressures (Ireland, Greece).– Such conditions could limit market access for Macedonia
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Risks and Uncertainties
• On the positive side– European growth could gain momentum, giving a strong
boost to exports– Progress towards EU accession would improve prospects
for growth and FDI
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Policies
• Fiscal stance– 2010 (-2.5 percent) and 2011 (-2.5 percent)
appropriate in light of below-potential growth in both years
– Possible as sound past policies have created room– Over the medium term, it will remain important to
reduce the deficit somewhat further
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Policies
• Fiscal Challenges, 2011 and beyond– Financing the deficit, near term
• Current reliance on private external borrowing• Prudent to access the market early in the year
– Financing the deficit, medium term• Develop local public debt market• Including at longer maturities
Which comes at a costBut reduces exposure to volatility of external financing
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Policies
• Fiscal Challenges, 2011 and beyond– Decrease in social contributions 2012-13
• Beneficial reduction in labor tax wedge• But burdens the budget
– Important to continue to contain spending• While protecting investment spending, that raises long-
term growth potential
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Policies
• Monetary policy– Rates lowered from 9 to 4%– Appropriate response
• Easing of external finance pressure• Weak growth• Subdued inflation
– Main guidance remains protection of the exchange rate peg
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Precautionary Credit Line
• Insurance against external vulnerabilities and risks• For countries with a solid macroeconomic track record• Precautionary, i.e., in the baseline case, no money is
actually drawn from this credit line• Still, valuable to have insurance against risks
– Will likely lower the spread on Eurobond issuance– Positive signal for potential investors
• Request received, board date 2nd half January
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Thank you
Website: www.imf.org/skopje
Thank you
Website: www.imf.org/skopje