recent trends in the global economy and the near term outlook
TRANSCRIPT
Commodity and oil prices have declined since mid-2014
Source: IMF’s World Economic Outlook, April 2015
Oil Spot and Futures Prices(IMF APSP, U.S. dollars per barrel)
Lower oil prices are mainly caused by supplygrowth
5
40
60
80
100
120
2011M1 2012M1 2013M1 2014M1 2015Q1 2016Q1
Global Oil Supply and Demand(Million barrels per day)
Sources: IMF, GAS Live database; International Energy Agency (IEA).
-1
0
1
2
3
89
90
91
92
93
94
95
2012 2013 2014
Supply
Actual
-1
0
1
2
3
88
89
90
91
92
93
94
2012 2013 2014
Demand
IEA Fcst Dec 2013
Difference actual minus forecast (RHS)
Source: IMF’s World Economic Outlook, April 2015
Sovereign bond spreads in the euro area have come down, but differences in lending conditions to SMEs are still substantial
Asia’s growth is forecasted to hold steady in 2015, with a dropdue to decrease in trade and investment
Source: IMF’s World Economic Outlook, April 2015
Inflation in the euro area is still significantly below 2%
Source: IMF’s World Economic Outlook, April 2015
16
Central Bank balance sheet paths to diverge goingforward
• The U.S. Fed announced the endof Quantitative Easing in October2014
• The ECB announced the start ofQuantitative Easing in January2015 and started its extendedAsset Purchase Program in March2015
• Bank of Japan is continuingagressive monetary easing
Source: IMF’s World Economic Outlook, April 2015
17
U.S. Fed expected to start raising rates in 2015
Source: IMF’s World Economic Outlook, April 2015
Risk: Further strengthening of the U.S. dollarImpact of Exchange Rate Shifts since August 2014
(Percent difference, unless noted otherwise)
Key near term risks going forward
• Geopolitical risks
• Risks from a financial market correction
• Protracted period of low inflation in the euro area
• Risk of stagnation and lower potential growth in a number ofadvanced economies
• Considerably slower growth in China
Policy recommendations
• Both continued support to demand and supply side policies needed
• Increased public investment in most current account surplus countries(other than China)
• (Continued) structural reforms in the (former) current account deficitcountries
• Macroprudential tools (such as loan-to-value, debt-service-to-incomeratios) to limit credit booms in a number of smaller advanced economies
Policy recommendations: Euro area
• Reestablish confidence in banks and improve financial intermediation inthe euro area
• Cost-effective active labor market policies, measures to lower the opportunity cost of employment, and better-targeted training programs
• Complete the single market in services, including a single digital market
• Make progress with free trade agreements
• More closely integrate energy platforms and policies
The fall in oil prices is expected to help the public finances of importers and hurt those of exporters
Fiscal trends in emerging market and middle-incomeeconomies are largely driven by losses of oil exporters
Fiscal policy can play a supportive role
Triple solution
• Monetary stimulus
• Structural reforms
• Supported by fiscal policy– Use fiscal policy flexibly to support growth
– Seize the opportunity created by falling oil prices
– Strengthen institutional frameworks for managingfiscal policy
Triple threat
• Low growth
• Low inflation
• High debt
Fiscal stabilization policies are asymmetric through the cycle
A tendency to spend revenue windfalls during good times and to allow budget balances to reflect revenue shortfalls during bad times leads to an upward drift in the ratio of debt-to-GDP over time
More than 30% (or €2.4 trillion) in short- and long-term euro area government bonds have negative yields*
* As of March 2015