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World Bank Global Economic Prospects
Some comments
National Bank of Poland,
Warsaw, January 11, 2016
Bas B. Bakker
Senior Regional Resident Representative
for Central and Eastern Europe
Three topics
1. Slowdown in EMEs
2. Resilience of non-CIS CESEE
3. CESEE regional differences
Slowdown in Emerging Markets
Growth in emerging market has slowed down
Is this temporary?
Or is it more structural?
-4
-2
0
2
4
6
8
10
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Emerging economies
World
Advanced economies
projections
Real GDP growth (percent y/y)
Report attributes slowdown to “shocks”
Shocks have no doubt have played a role.
Commodity price shocks
Tightening of global financial conditions
But there is also question whether growth model
itself was sustainable.
Would rapid growth have continued without
shocks?
It is not just actual output that has been
revised!
120
130
140
150
160
170
180
190
2007 2010 2013 2016
150
160
170
180
190
200
210
220
2007 2010 2013 2016
Brazil Russia
Potential and headline real GDP level
(index, potential GDP in 2000=100)
Headline
(WEO Oct 2013)
Headline
(latest)
Potential
(latest)
Potential
(WEO Oct 2013)
Growth in the large EMEs has been
fueled by a credit boom
0
10
20
30
40
50
60
70
80
90
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Brazil
Russia
Turkey
Credit to private non-financial sector
(percent of GDP)
In China credit boom has been particularly
dramatic
100
120
140
160
180
200
220
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Credit to private non-financial sector in China
(percent of GDP)
+80 percent of GDP
Even stronger than Latvia pre-crisis!
0
20
40
60
80
100
120
2003 2004 2005 2006 2007 2008 2009 2010 2011
+57 percent of GDP
Credit to private non-financial sector in Latvia
(percent of GDP)
Debt service has increased as well
10
12
14
16
18
20
22
2004 2006 2008 2010 2012 2014
Debt service ratio of non-financial private sector
(percent)
China
USA
Big question: What happens if credit
boom ends?
What happens with domestic demand growth?
NPLs?
Will financial sector remain healthy?
In 2007, we though that credit booms in
US and UK would end well.
100
110
120
130
140
150
160
170
180
190
200
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
UK
USA
Credit to private non-financial sector
(percent of GDP)
2. Resilience of CESEE
CESEE has been much less affected by global
financial turmoil
0
50
100
150
200
250
300
350
400
450
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
5-year CDS spreads
(basis points)
Developing Asia
CESEE
Latin America
CESEE—excl Turkey and Russia—has not
had a credit boom post 2008! Latv
ia
Slo
ven
ia
Hu
ng
ary
Est
on
ia
Lit
hu
an
ia
Bela
rus
Bu
lgari
a
Ro
man
ia
Cro
ati
a
Serb
ia
Ukra
ine
Ko
sovo
Mo
ldo
va
Alb
an
ia
Bo
snia
Slo
vakia
Cze
ch R
ep
.
Po
lan
d
Ru
ssia
-50
-40
-30
-20
-10
0
10
20
30
Change in claims on non-financial private sector, 2010-2014
(percent of GDP)
Post 2009, capital inflows have been low
14
-5
0
5
10
15
20
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Capital flows to CESEE*
(percent of GDP)
Other investments
Portfolio
Total
*excluding Russia and Turkey
Direct
3. Regional Differences
May be better not to look at CESEE as one
region
Large regional differences in growth
CIS in recession
Non-CIS is seeing moderate to fairly strong
growth
And inflation
Elevated in CIS
Low in non-CIS
15
0
2
4
6
8
10
12
14
16
18
20
2000 2003 2006 2009 2012 2015
-6
-4
-2
0
2
4
6
8
10
2000 2003 2006 2009 2012 2015
Growth and Inflation: Regional
Differences
3-year rolling average real GDP growth
(percent)
3-year rolling average CPI inflation
(percent)
CEE EU
CEE non-EU
CIS
CIS
CEE non-EU
CEE EU
Regional growth projections
GDP growth projections
(percent) 2015 2016
-10.0 - -5.0
-5.0 - 0.0
0.0 - 1.0
1.0 - 2.0
2.0 - 3.0
3.0 - 4.0
Note: Striped fill denotes CESEE country under IMF programs.
Almost all countries have recovered from
crisis
Greece Ukraine Croatia Cyprus Italy Portugal Slovenia Spain Serbia Latvia
Russia Hungary Bulgaria Romania
Austria Lithuania
France Bosnia and Herz.
Czech Rep. Montenegro
Estonia Germany
United Kingdom Ireland
Slovakia Belarus
Macedonia Albania
Moldova Poland
-30 -20 -10 0 10 20 30
GDP, 2015
(percent change since 2008)
Particularly in per capita terms
19 Greece Ukraine Croatia Cyprus Italy Portugal Slovenia Spain Serbia Latvia
Russia Hungary Bulgaria Romania
Austria Lithuania
France Bosnia and Herz.
Czech Rep. Montenegro
Estonia Germany
United Kingdom Ireland
Slovakia Belarus
Macedonia Albania
Moldova Poland
-30 -20 -10 0 10 20 30
GDP and GDP per capita, 2015
(percent change since 2008)
GDP per capita
Two main crisis legacies: high NPLs
20 20
0 5 10 15 20 25
Kosovo
Macedonia
Slovenia
Slovenia
Romania
Bosnia and Herz.
Bulgaria
Croatia
Montenegro
Serbia
Albania
NPLs 2008 change max
Non-performing loans
(latest available data, percent of total loans)
0.0 - 5.0
5.0 - 10.0
10.0 - 15.0
15.0 - 20.0
20.0 - 25.0
25.0 - 100.0
Below 5 percent
5-10 percent
10-15 percent
15-20 percent
20-25 percent
Above 25 percent
High public debt
21
Public debt
(percent of GDP)
21.4
51.1
10.8
75.3
28.6
20.4
40.6
37.1
73.3
44.8
40.4
38.8
53.3
45.5
40.9
37.8
69.9
76.7
89.3
81.8
94.4
-20 0 20 40 60 80 100
Kosovo Poland Estonia
Hungary Bulgaria
Russia Czech Rep. Macedonia
Albania Moldova
Belarus Lithuania Slovakia
Bosnia Romania
Latvia Montenegro
Serbia Croatia
Slovenia Ukraine
Change in public debt, 2007-15
(percent of GDP)
Public debt in 2015
(percent of GDP)
However, adjustment fatigue seems to
have set in.
22
0
1
2
3
4
5
6
7
8
Fall 2015 WEO
Fall 2014 WEO
Estimates of 2016 Fiscal Deficit by WEO vintage
(percent of GDP)
Estimates of 2016 deficit as in:
Thank you