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América Latina Latin America and the Caribbean: Lower Growth, Rising Challenges Alejandro Werner | 2014 A AMÉRICA LATINA E AS NOVAS CONDIÇÕES ECONÔMICAS MUNDIAIS seminário

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  1. 1. Amrica Latina Latin America and the Caribbean: Lower Growth, Rising Challenges Alejandro Werner | 2014 A AMRICA LATINA E AS NOVAS CONDIES ECONMICAS MUNDIAIS seminrio
  2. 2. Latin America and the Caribbean: Lower Growth, Rising Challenges Alejandro Werner Director, Western Hemisphere Department September 19, 2014
  3. 3. The global recovery remains relatively subdued Selected Projections for Real GDP Growth (Percent) 2012 2013 2014 2015 World 3.5 3.2 3.4 4.0 Advanced Economies 1.4 1.3 1.8 2.4 Euro Area -0.5 -0.4 1.1 1.6 United States 2.8 1.9 1.7 3.0 Japan 1.4 1.5 1.6 1.1 Emerging Market and Developing Economies 5.1 4.7 4.6 5.2 Asia 6.7 6.6 6.4 6.7 Europe 1.4 2.8 2.8 2.9 Latin America and the Caribbean 2.9 2.6 2.0 2.6 Source: IMF, World Economic Outlook July 2014 Update.
  4. 4. U.S. growth is expected to remain solid, after a temporary setback in Q1 2014Q2 rebound after temporary setback in Q1 Signs of firming recovery continue to accumulate U.S. economy projected to grow at 3+ percent in 2014H2 -4 -3 -2 -1 0 1 2 3 4 5 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 Government consumption and investment Personal consumption expenditure Net exports Change in private inventories Non-residential investment Residential investment Real GDP growth USA: Contributions to GDP Growth (Percent change from previous quarter)
  5. 5. Investment and housing are key drivers of the economic rebound in the United States 800 900 1.000 1.100 1.200 4.500 4.700 4.900 5.100 5.300 5.500 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Housing Starts (RHS) Total Existing Home Sales (LHS) Housing Activity (SAAR, thousand units) -30 -20 -10 0 10 20 30 -20 -15 -10 -5 0 5 10 15 2000 2003 2006 2009 2012 2015 Business Investment (LHS) Duke CFO Survey: Expected Capital Spending (12 mo. ahead, LHS) Philly Fed Survey: Expected Capital Spending (6 mo. ahead, RHS) Leading Indicators of Capital Spending (Percent change, year ago)
  6. 6. Labor market slack has declined, but remains sizeable, keeping wage pressures in check 0 2 4 6 8 10 12 14 16 18 1994 1998 2002 2006 2010 2014 Part-time for economic reasons Marginally attached Long-term unemployed Short-term unemployed Labor Market Slack: Components of U-6 Unemployment Rate (Percent of labor force) 0 1 2 3 4 5 2008 2009 2010 2011 2012 2013 2014 Employment Cost Index Average hourly earnings Compensation per hour (6-quarter moving average) Nominal Wages (Percent, year-on-year)
  7. 7. Recent euro area activity data have disappointed, while inflation has continued to grind lower 0,0 0,5 1,0 1,5 2,0 2,5 3,0 jan/12 abr/12 jul/12 out/12 jan/13 abr/13 jul/13 out/13 jan/14 abr/14 jul/14 Inflation 2-year expectations 5-year expectations Inflation and Inflation Expectations (Percent) Sources: Haver Analytics; and IMF staff calculations. 42 44 46 48 50 52 54 56 -120 -100 -80 -60 -40 -20 0 20 40 60 80 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Economic Surprise Index Manufacturing PMI (right scale) Economic Surprise Index and PMI (Index) Source: Bloomberg.
  8. 8. as financial fragmentation and geopolitical tensions weigh on the recovery Source: ECB SAFE Survey. Gas Energy Imports Exports Inward FDI Outward FDI Bank Claims FIN AUT GRC LUX ITA DEU NLD BEL CYP CHE IRL SWE FRA Dimensions of Exposure to Russia 0 1 2 3 4 5 6 7 8 jan/05 set/05 mai/06 jan/07 set/07 mai/08 jan/09 set/09 mai/10 jan/11 set/11 mai/12 jan/13 set/13 mai/14 Core Stressed Countries ECB Policy Rate Euro Area Corporate Lending Rates (Loans less than 1 million euro, Percent) Sources: Haver Analytics; and IMF staff calculations.
  9. 9. In China, growth appears to have stabilized but the massive post-2008 credit boom casts a shadow GDP growth recovered in Q2 and is likely to achieve the full-year target... 0 2 4 6 8 10 12 14 16 18 20 22 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q4 Year-on-year Staff estimates, Q/Q SAAR Official, Q/Q SAAR Real GDP Growth (Percent) Sources: CEIC; and IMF staff calculations. but financial sector risks related to past credit growth are significant. Stock of Total Social Financing (Percent of GDP) 109 146 15 55 5 10 129 212 0 50 100 150 200 250 2003 2006 2009 2012 Non-fin enterprise equity and other Entrustred loans, trust loans, bank acceptance, net corporate bond financing Bank loans 2008Q4 2014Q2 2014Q2 Sources: CEIC; and IMF staff calculations. 1 In percent of 4Q rolling sum of quarterly GDP.
  10. 10. while weakness in the real estate sector remains a key risk The slowdown in real estate has been a drag on activity. 0 10 20 30 40 50 60 60 80 100 120 140 160 180 200 220 240 dez/06 mar/08 jun/09 set/10 dez/11 mar/13 jun/14 Investment growth (%, year-on-year; RHS) Price Floor space sold Residential Housing (Dec. 2006 = 100, SA, 3mma) Sources: CEIC; and IMF staff calculations. Property prices are overvalued. -50 -30 -10 10 30 50 70 2005 2006 2007 2008 2009 2010 2011 2012 2013 14Q1 Beijing Shanghai Tianjin Guangzhou Shenzhen Residential Property Price:1 Deviation from Benchmark (Percent) Sources: CEIC; WIND Info; Ahuja et al. (2010); and IMF staff calculations. 1 Secondhand residential housing price. 2 2014:Q1 price for Tianjin based on January-February average.
  11. 11. Selected Projections for Real GDP Growth (Percent) 0 10 20 30 40 50 60 70 80 90 100 2004 2006 2008 2010 2012 2014 Global Financial Crisis Current Slowdown EM Slowdown (Share of EM countries with real GDP growth below the 2003-07 average, percent) Sources: IMF, World Economic Outlook; and staff calculations. The growth momentum in most emerging economies has weakened 2010 2011 2012 2013 2014 2015 Brazil 7.5 2.7 1.0 2.5 1.3 2.0 China 10.4 9.3 7.7 7.7 7.4 7.1 India 10.3 6.6 4.7 5.0 5.4 6.4 Russia 4.5 4.3 3.4 1.3 0.2 1.0 South Africa 3.1 3.6 2.5 1.9 1.7 2.7 Source: IMF, World Economic Outlook July 2014 Update.
  12. 12. Latin America and the Caribbean, in particular, is facing a subdued outlook for growth Latin America and the Caribbean: Real GDP Growth (Percent) Sources: IMF, World Economic Outlook July 2014 Update; and IMF staff calculations. -4 -2 0 2 4 6 8 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 Avg. 1980-89=2.1 Avg. 1990-2002=2.6 Avg. 2003-12=4.1 Avg. 2013-19=2.9
  13. 13. partly reflecting reduced momentum in global commodity markets, amid Chinas slowdown 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0 Commodity Exporters Non-commodity Exporters 1990-2002 2003-2013 Sources: IMF, World Economic Outlook July 2014 Update; and IMF staff calculations. PPP-weighted average of all Latin American countries. Latin America: Real GDP Growth (Percent, year-on-year) -7 -2 3 8 13 18 1990 1995 2000 2005 2010 Commodity Exporters China Real GDP Growth (Percent, year-on-year) Sources: IMF, World Economic Outlook July 2014 Update; and IMF staff calculations. PPP-weighted average of Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, and Venezuela.
  14. 14. following a period of extraordinary income windfalls for the regions commodity exporters Latin Americas income windfall in the last decade was several times larger than historical precedents, and comparable only to the MENA oil exporters Emerging Latin America and Selected Regions: Income Windfall during Terms-of-trade booms, 1970-2012 1 (Share of annual GDP) 1975 PER ECU 1980 2000 NOR AUS CAN EM Latin America 2000 RUS UKR BEL 2000 IDN 0,0 0,1 0,2 0,3 0,4 2000 SAU KUW 0,0 0,4 0,8 1,2 1,6 2,0 2,4 2,8 3,2 1970 1985 1990 1995 2000 VEN BOL CHL ARG PER PAR COL ECU BRA PAR Sources: IMF, International Financial Statistics; and Adler & Magud (2013). Cumulative percentage change in terms of trade (of goods and services) from start to peak of each identified episode (that meet the criteria of at least 15 percent cumulative and 3 percent average increase). Episodes are grouped in 5-year window s according to the date of their first year. Dotted lines indicate group averages. EM Europe AE MENA Oil exporters EM Asia Bars: cumulative income windfall Dots: Annual average (right scale)
  15. 15. LA Commodity Exporters: Real GDP Growth by Sector, 2003-13 (Percent) Sources: Haver Analytics; and IMF staff calculations. Simple average of Argentina, Brazil, Chile, Colombia, Peru, Uruguay, and Venezuela. which supported activity throughout the whole economy, pushing up real wages... Sources: Haver Analytics; and IMF staff calculations. 1 Brazil: real salaries in manufacturing; Chile: real hourly compensation; Colombia: real wage; Mexico: real hourly earnings in manufacturing; Uruguay: real salaries. 2 Measured as output per employed person. Real Wage and Productivity Growth, 2008-13 (Year-on-year percent change, simple average) -0,5 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 Brazil Chile Colombia Mexico Uruguay Real wage Productivity 0 25 50 75 100 125 Mining and Oil Agriculture and Livestock Manufacturing Electricity, gas, and water Services Construction
  16. 16. Sources: IMF, World Economic Outlook July 2014 Update; and IMF staff calculations. Ratio of Primary Government Expenditure to Potential GDP, 2003-13 Private Sector Credit (Percent of GDP) -5 0 5 10 15 20 25 30 35 40 45 Ecuador Argentina Venezuela Bolivia Uruguay Nicaragua Paraguay Mexico Brazil CostaRica Panama ElSalvador Colombia Peru Chile Honduras Guatemala LatinAmerica Ratio in 2003 Change in ratio through 2013 Sources: IMF, World Economic Outlook July 2014 Update; IMF, International Financial Statistics; and IMF staff calculations. 0 20 40 60 80 100 Chile Brazil Paraguay Colombia Peru Venezuela Ecuador Uruguay Argentina 2003 2013 and boosting consumption amid a sharp increase in private sector credit and government expenditures
  17. 17. The terms-of-trade boom supported a robust export growth 80 100 120 140 160 180 200 220 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 volume value2/ Sources: WEO and IMF staff calculations. Simple average of Latin American countries. Total exports in US dollars deflated by the US producer price index . Latin America: Total Exports (Index, 2003=100, simple average1)
  18. 18. while also benefitted investment LA Commodity Exporters: Investment and Terms of Trade Sources: IMF, World Economic Outlook July 2014 Update; and IMF staff calculations. PPP-weighted average of Argentina, Brazil, Chile, Colombia, Peru, Uruguay, and Venezuela. 14 15 16 17 18 19 20 21 100 110 120 130 140 150 160 170 2003 2005 2007 2009 2011 2013 Investment (percent of GDP, right scale) Terms of trade (index: 2003=100) Selected LA: Investment (Percent of GDP) Sources: IMF, World Economic Outlook July 2014 Update; and IMF staff calculations. Simple average. 0 5 10 15 20 25 30 Peru Colombia Chile Mexico Uruguay Brazil Venezuela Argentina Avg. 2002-04 Avg. 2010-12
  19. 19. Growth expectations have been revised downward, notably for investment and exports Sources: IMF, World Economic Outlook July 2014 Update; and staff calculations. Ratio of GDP levels between the July 2014 Update and September 2011 WEO projections. A value of 100 indicates no difference between the two projections; values below 100 indicate downward revisions. Numbers refer to Latin America only, due to data availability constraints for several Caribbean economies. LAC: July 2014 WEO Path for GDP and Components Relative to Sep. 2011 WEO Projections (Percent) 80 85 90 95 100 105 2010 2011 2012 2013 2014 2015 2016 GDP Fixed investment Private consumption Public consumption Exports LA6: Real Investment Growth (Percent) 0 2 4 6 8 10 12 14 2004-08 2010 2011 2012 2013 2014 Sources: IMF, World Economic Outlook July 2014 Update; and IMF staff calculations. Simple average of Brazil, Chile, Colombia, Mexico, Peru, and Uruguay.
  20. 20. yet economic slack remains fairly limited, judging from labor market data, inflation Sources: Haver Analytics; and IMF staff calculations. 1 Brazil latest data refer to April 2014. 2 Includes unemployed workers that sought employment within the last 12 months. LA6: Unemployment Rate (Percent, seasonally adjusted) LA6: Headline Less Inflation Target (12-month percent change) Sources: Haver Analytics; Bloomberg; national authorities; and IMF staff calculations. 0 2 4 6 8 10 12 14 16 18 20 Brazil Chile Colombia Mexico Peru Uruguay Range since 2003 Jul. 2014 -2 -1 0 1 2 3 4 5 6 Brazil Mexico Uruguay Avg: CHL, COL, PER 2010 2011 20132012 Aug-14
  21. 21. LAC: External Current Account and Terms of Trade Sources: IMF, World Economic Outlook July 2014 Update; and IMF staff calculations. 80 90 100 110 120 130 -5 -4 -3 -2 -1 0 1 2 3 1997 2000 2003 2006 2009 2012 2015 Current account balance (Percent of GDP) Terms of trade (Index, 2000=100, right hand side) and persistent current account deficits, despite still-favorable terms of trade
  22. 22. LAC: Fiscal Indicators, 2003-15 Source: IMF, World Economic Outlook July 2014 Update. -1,0 -0,5 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 20 22 24 26 28 30 32 34 36 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Primary Balance (RHS) Annual Revenue Primary Expenditure all of which argue against large fiscal stimulus today, especially where buffers have eroded in recent years
  23. 23. By contrast, there is an urgent need for structural reforms to address supply bottlenecks 0 20 40 60 80 100 Chile Mexico Uruguay Brazil Colombia Peru Chile Mexico Uruguay Peru Brazil Colombia Chile Peru Colombia Mexico Uruguay Brazil Learning outcomes (PISA) Infrastructure quality (WEF) Ease of doing business (WB) Sources: OECD, PISA (2012) ; World Bank, Ease of Doing Business database (2013); World Economic Forum, Global Competitiveness Report (201314); and IMF staff calculations. The scale reflects the percentile distribution in all countries for each respective survey; higher scores reflect higher performance; PISA: Program for International Student Assessment; WB: World Bank; WEF: World Economic Forum. LA6: Structural Indicators (Percentile ranks)
  24. 24. A snapshot of country-specific projections Latin America and the Caribbean: Real GDP Growth (Percent) Sources: IMF, World Economic Outlook July 2014 Update; and IMF staff calculations and projections. 1 Regional aggregates are purchasing-power-parity GDP-weighted averages unless otherwise noted. Current account aggregates are U.S. dollar nominal GDP weighted averages. CPI forecasts exclude Argentina. 2 Simple average for Brazil, Chile, Colombia, Mexico, Peru, and Uruguay. 3 Simple average for Argentina, Bolivia, Ecuador, Paraguay, and Venezuela. 4 Simple average. Includes Dominican Republic. 5 Simple average of The Bahamas, Barbados, Jamaica, and ECCU member states. 6 Simple average of Belize, Guyana, Suriname, and Trinidad and Tobago. 2012 2013 2014 2015 Latin America and the Caribbean (LAC) 2.9 2.6 2.0 2.6 Financially-integrated LAC2 4.1 3.5 3.3 3.8 Brazil 1.0 2.5 1.3 2.0 Chile 5.5 4.2 3.2 4.1 Colombia 4.0 4.3 4.5 4.5 Mexico 4.0 1.1 2.4 3.5 Peru 6.3 5.0 5.5 5.8 Uruguay 3.9 4.2 2.8 3.0 Other commodity exporters3 3.1 5.6 2.6 2.4 Argentina 0.9 3.0 -0.5 0.0 Venezuela 5.6 1.0 -0.5 -1.0 Central America4 3.8 3.2 3.4 3.4 Caribbean Tourism dependent5 0.1 0.7 1.4 1.9 Commodity exporters6 3.7 3.2 3.2 3.2
  25. 25. Downside risks continue to dominate A more pronounced slowdown in China would further dampen demand for commodities Faster-than-expected normalization of U.S. monetary policy could prompt a sharp correction in financial markets, after an extended period of low volatility Risk of a shift toward more populist economic policies in response to the regional slowdown, jeopardizing hard-won macroeconomic stability