April 24 th , 2009
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April 24 th , 2009 The Global Crisis and its Impact on Latin America
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The Global Crisis and its Impact on Latin America. April 24 th , 2009. International Economic Outlook. - PowerPoint PPT Presentation
Transcript of April 24 th , 2009
April 24th, 2009
The Global Crisis and its Impact on
Latin America
2
The economic crisis has developed gradually from a mortgage and credit problem in industrial countries into a systemic financial crisis and a generalized collapse of confidence which has affected the world economy.
International Economic Outlook
• The international crisis is the deepest in the post-war period and is characterized by the following:
• A global recession and financial crisis.
• A process of deleveraging in the international financial system.
• A run in favor of more liquid and less risky financial instruments leading to a generalized contagion of emerging markets.
• A generalized lack of confidence.
• An adjustment in households’ balance sheets, with an increase in savings and lower consumption.
• The most important economies of the world are in a recession, and a slow recovery is expected given the weakness in the balance sheets of households and financial intermediaries.
3
Lehman’s Bankruptcy
Lehman’s Bankruptcy
The latest expectations for the United States are of a fall of 2.6% and 9.0% in GDP and industrial production in 2009, with a recession in other industrial countries and a marked deceleration in Emerging Markets.
Perspectives for 2009
Growth Expectations of Industrial Economies for 2009
(%)
Growth Expectations of Emerging Economies for 2009
(%)
International Trade Volume of Goods and Services
(annual change, %)
-4
-2
0
2
4
6
8
10
12
14
16
Fe
b-0
8M
ar-
08
Ab
r-0
8M
ay
-08
Ju
n-0
8J
ul-
08
Ag
o-0
8S
ep
-08
Oc
t-0
8N
ov
-08
Dic
-08
En
e-0
9F
eb
-09
Ma
r-0
9A
br-
09
BrazilChinaMexicoChileIndiaCzech Rep.
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
Fe
b-0
8M
ar-
08
Ap
r-0
8M
ay
-08
Ju
n-0
8J
ul-
08
Au
g-0
8S
ep
-08
Oc
t-0
8N
ov
-08
De
c-0
8J
an
-09
Fe
b-0
9M
ar-
09
Ap
r-0
9
UKEurozoneCanadaJapanUS
-12-10
-8-6-4-202468
101214
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
e
4
The deterioration in global growth perspectives has also led to lower commodity prices, even though these seem to have stabilized.
Perspectives for 2009
950
1,050
1,150
1,250
1,350
1,450
1,550
1,650
1,750
Jan
-08
Feb
-08
Mar
-08
Ap
r-08
May
-08
Jun
-08
Jul-
08A
ug
-08
Sep
-08
Oct
-08
No
v-08
Dec
-08
Jan
-09
Feb
-09
Mar
-09
Ap
r-09
UBS-Bloomberg Commodity Price Index(Index)
World Growth(annual change, %)
-2
-1
0
1
2
3
4
5
6
7
8
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
5
All emerging markets, including Latin America, have been affected through the following channels:
Economic Evolution
Effects of the International
Crisis
Real
Financial
Confidence
External Demand
Remittances
International Financing and Markets
Higher Risk Perception: Markets and Domestic
Intermediaries
Commodity Prices
Tourism
FDI
Exports
Consumption
National Income & Public Revenues
Services
Investment
Investment
Consumption & Investment
Consumption & Investment
6
Even though the importance of each channel may differ, all
countries in the region have been affected.
Economic Evolution
FinancingIndustrial
ProductionExports
Terms of Trade
EMBI+Consumer
Confidence
(latest data available, %)
(latest data available, %)
(2008-2009, %)
(jul-08 - latest data available,
bp)
(jul-08 - latest data available,
%)
Mexico -13.2 3_/ -26.9 3_/ -6.3 169 -12.5
Argentina -14.0 3_/ -24.0 3_/ -7.2 1226 -3.7
Brasil -17.0 3_/ -20.1 3_/ -5.4 173 -2.6
Chile -11.5 3_/ -44.5 4_/ -19.1 n.a 0.3
Colombia -10.7 2_/ -13.2 2_/ -21.4 212 -107.4
Peru -2.7 2_/ -30.8 1_/ -5.2 174 n.a
Venezuela -25.4 1_/ - -46.5 708 n.a1_/ December 20082_/ January 20093_/ February 20094_/ March 2009
External Demand
7
Overall, all countries in the region will experience a sharp slowdown in growth and a deterioration of the external accounts.
Difference in GDP Growth 2007-2009
(%)
Difference in Current Account Deficit 2007-2009(% of GDP)
Effect on Latin America
-12
-10
-8
-6
-4
-2
0
Me
xic
o
Arg
en
tin
a
Bra
zil
Ch
ile
Co
lom
bia
Pe
ru
Uru
gu
ay
Ve
ne
zue
la
-2
0
2
4
6
8
10
Me
xic
o
Arg
en
tin
a
Bra
zil
Ch
ile
Co
lom
bia
Pe
ru
Uru
gu
ay
Ve
ne
zue
la
8
In the case of Mexico, the collapse in international confidence and demand at the end of 2008 led to a sharp contraction in exports and production. However, activity has started to stabilize.
Non-Oil Exports(billion dollars)
Mexico’s Economic Evolution
14
15
16
17
18
19
20
21
22
Se
p-0
7O
ct-
07
No
v-0
7D
ec
-07
Ja
n-0
8F
eb
-08
Ma
r-0
8A
pr-
08
Ma
y-0
8J
un
-08
Ju
l-0
8A
ug
-08
Se
p-0
8O
ct-
08
No
v-0
8D
ec
-08
Ja
n-0
9F
eb
-09
Industrial Production(Index, Jan-08=100)
80
85
90
95
100
105
Ja
n-0
8
Fe
b-0
8
Ma
r-0
8
Ap
r-0
8
Ma
y-0
8
Ju
n-0
8
Ju
l-0
8
Au
g-0
8
Se
p-0
8
Oc
t-0
8
No
v-0
8
De
c-0
8
Ja
n-0
9
Fe
b-0
9
Industrial
Construction
Manufacturing
9
Domestic sales have started to increase and the
monthly job loss has moderated significantly.
ANTAD and Wal-Mart Total Sales(Index)
Employment(monthly change, thousand persons)
Mexico’s Economic Evolution
-140
-120
-100
-80
-60
-40
-20
0
20
40
60
80
Se
p-0
7
No
v-0
7
En
e-0
8
Ma
r-0
8
Ma
y-0
8
Ju
l-0
8
Se
p-0
8
No
v-0
8
En
e-0
9
Ma
r-0
9
98
99
100
101
102
103
104
105
106
107
Se
p-0
7
No
v-0
7
Ja
n-0
8
Ma
r-0
8
Ma
y-0
8
Ju
l-0
8
Se
p-0
8
No
v-0
8
Ja
n-0
9
Ma
r-0
9
ANTAD Wal-Mart
10
The trend in inflation has reverted due to non-core and services
inflation. Given that the last one is more rigid, its reduction is very
positive in the convergence to the medium-term inflation target.
Mexico’s Economic Evolution
Inflation(annual change, %)
1
3
5
7
9
11
13
Jan
-08
Feb
-08
Mar
-08
Ap
r-08
May
-08
Jun
-08
Jul-
08A
ug
-08
Sep
-08
Oct
-08
No
v-08
Dec
-08
Jan
-09
Feb
-09
Mar
-09
Non CorePrimary SectorAdministered Prices
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
Ja
n-0
8F
eb
-08
Ma
r-0
8A
pr-
08
Ma
y-0
8J
un
-08
Ju
l-0
8A
ug
-08
Se
p-0
8O
ct-
08
No
v-0
8D
ec
-08
Ja
n-0
9F
eb
-09
Ma
r-0
9
CPIMerchandises
Services
11
Monetary Policy
The exchange rate has stabilized and long term domestic rates are at the levels observed before Lehman’s bankruptcy.
5.5
6.5
7.5
8.5
9.5
10.5
11.5
Fe
b-0
8
Ap
r-0
8
Ju
n-0
8
Au
g-0
8
Oc
t-0
8
De
c-0
8
Fe
b-0
9
Ap
r-0
9
1Year5 Years20 Years30 Years
Exchange Rate(pesos per dollar)
9
10
11
12
13
14
15
16
Ju
n-0
8
Ju
l-0
8
Au
g-0
8
Se
p-0
8
Oc
t-0
8
No
v-0
8
De
c-0
8
Ja
n-0
9
Fe
b-0
9
Ma
r-0
9
Ap
r-0
9Lehman’s Bankruptcy
Announcement of daily auction
Announcement of FCL request
Government Bonds(%)
12
The effect of the global recession has been partially
mitigated by the implementation of fiscal, financial
and structural measures.
Mexico’s Economic Evolution
Counter-cyclical measures to sustain aggregate demand
Measures to promote financing and orderly conditions in
financial markets
Structural Reforms
1
2
3
1 Real
Financial
Confidence
13
A conservative estimation implies an effect on aggregate demand of
the countercyclical measures of 1.8% of GDP (229 bn pesos), with a
direct effect on domestic aggregate demand of 1.4% of GDP (171
billion pesos).
Perspectives for 2009
Impact of Countercyclical Measures(billion pesos)
171
-41
-17
46
1530
1048
80
0
50
100
150
200
250
PIC
E
Pri
ce
s a
nd
tari
ffs
Na
t. S
up
p. o
fP
EM
EX
, Em
p.
an
d H
ea
lth
Inv
est
me
nt
by
PE
ME
X a
nd
Sta
tes
Un
em
plo
ym
en
tB
en
efi
ts
Eff
ec
t o
fD
ev
elo
pm
en
tB
an
k C
red
it
Sa
vin
gs
Imp
ort
s
To
tal E
ffe
ct
14
The approved budget together with the counter-cyclical measures imply that fostered investment will be the highest in the last 30 years.
Economic Evolution in 2009
Fostered Investment(% of GDP)
2.0
2.5
3.0
3.5
4.0
4.5
5.0
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
Ap
pro
ve
d
15
Programmable Expenditure Paid by Entities
Up to March and consistent with the counter-cyclical strategy, programmable expenditures and investment by the Federal Government were 49.5% and 116.5% higher, in real terms, relative to the same period of 2008.
Programmable Expenditures 2009 vs 2008(billion pesos, accumulated January-March)
Investment Expenditure 2009 vs 2008(billion pesos, accumulated January-March)
Real expansion of 116.5%113.1
169.0
0
20
40
60
80
100
120
140
160
180
2008 2009
9.7
21.0
0
5
10
15
20
25
2008 2009
Real expansion of 49.5%
16
Monetary Policy
Stable inflation expectations in an environment of lower growth have allowed Banco de Mexico to reduce its reference interest rate.
Reference Interest Rate(%)
Inflation(%)
5.5
6.0
6.5
7.0
7.5
8.0
8.5
Ja
n-0
8
Fe
b-0
8M
ar-
08
Ap
r-0
8
Ma
y-0
8
Ju
n-0
8
Ju
l-0
8
Au
g-0
8
Se
p-0
8
Oc
t-0
8
No
v-0
8
De
c-0
8
Ja
n-0
9
Fe
b-0
9M
ar-
09
0
2
4
6
8
10
12
14
Ma
r-0
0
Ma
r-0
1
Ma
r-0
2
Ma
r-0
3
Ma
r-0
4
Ma
r-0
5
Ma
r-0
6
Ma
r-0
7
Ma
r-0
8
Ma
r-0
9
Ma
r-1
0
CPI
Core Inflation
Dic
-09
Dic
-10
17
In contrast to the period before 2003, total commercial bank credit is expected to increase by 6.0% – 8.0% during 2009, sustained in high capital levels.
Economic Evolution in 2009
Credit by Commercial Banks(annual change, %)
-80
-60
-40
-20
0
20
40
60
80
100
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
Housing
Business
Total
Commercial Bank Capitalization Index
(%)
11.6
13.7
15.3
10
11
12
13
14
15
16
1994 2000 2008
18
Economic Evolution in 2009
In addition, commercial bank credit is being complemented by a very ambitious expansion in credit by development banks.
(bp) (%) (bp) (%)Business 98.3 97.9 136.5 146.3 38.1 38.8 48.4 49.4Infrastructure 69.2 68.9 103.0 102.6 33.8 48.8 33.7 49.0Housing 132.1 116.5 231.6 202.2 99.5 75.4 85.8 73.7Rural 67.6 66.9 86.2 88.5 18.6 27.5 21.6 32.2Others 6.2 6.4 8.1 8.4 1.9 30.3 2.0 32.0Total 373.5 356.5 565.4 548.0 191.9 51.4 191.5 53.7
Portfolio of Direct Credit and Induced by Development Banks(billion pesos, feb 09 =100)
Sector Jan-08 Feb-08 Jan-09 Feb-09Change Jan 08/09 Change Feb 08/09
19
Regarding financial markets, actions were implemented in all markets to promote the restoration of orderly conditions. In terms of bond markets:
• Modifications to the program of auctions of government
and IPAB bonds, as well as the buy back of
government and IPAB bonds.
• Auctions of interest rate swaps.
• Changes in pension and mutual funds regulations.
• The establishment of partial guarantees and
refinancing windows in development banks.
Mexico’s Economic Evolution
20
In addition, to further promote normal operating conditions in the exchange rate market and reinforce confidence on the balance of payments, the following actions have been taken:
Use of International Reserves
• A daily auction of 100 million dollars, providing the market with the positive net reserve flows expected for the year.
• Establish the FCL with the IMF by 47 billion dollars to reinforce confidence.
• Use the 30 billion dollar swap line with the Federal Reserve to provide dollar liquidity to corporations. The initial auction of 4 billion was undersubscribed (3.2 bn) and the rate was 0.7%. This confirms that corporates don’t have significant dollar liquidity requirements.
• Resources from the FCL, the swap and current reserves (80bn) imply close to 157 billion dollars in available foreign exchange.
21
In the context of the G-20, some positive steps have been
taken but important challenges remain.
The G-20 Process
• We have focused our efforts in the G-20 to preserve the macroeconomic stability of emerging markets.
• It is necessary to prevent further impacts from the retrenchment of international financial flows, derived from:
i. Indiscriminate increase in risk aversion by investors and
ii. Increasing demand for financial resources in developed economies due to large fiscal stimulus packages.
• This is expected to represent a flow of around 6 trillion US dollars to developed economies and a reduction in 2009 of around 82% in flows to emerging markets with respect to 2007.
• In addition, protectionism in the real and financial sectors must be avoided.
22
IFIs can play a significant role to help countries to face the
current credit crunch and an environment of lower financing in
the medium term by providing the necessary resources and
adequate tools.
The G-20 Process
• In this regard, the recent approval of the Flexible Credit Line by
the IMF is very positive and will help ease this transition.
• We need an increase in Multilateral Development Banks’
resources not only in the short, but also in the medium and long
terms. In addition, credit must be provided in a more expedite
way.
• In particular we need to increase the IADB’s and IFC’s resources
as soon as possible given that they are already facing restrictions
and review the capital needs of the WB.
23
Concluding Remarks
Conclusions
• There is no doubt that the Latin American region will be affected
by the current negative environment.
• The impact will be mitigated by:
Stronger macroeconomic fundamentals.
Sound financial systems.
Countercyclical fiscal and monetary policies.
Support by IFI’s for which important reforms need to be made.
• Structural reforms are of the essence to reinforce confidence.
