alejandro werner - monterrey 2016
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Latin America and the Caribbean:
Adjusting to a Harsher Reality
Alejandro Werner Director, Western Hemisphere Department
Main Takeaways
2
• Persistently low commodity prices. Impact differs across countries; further adjustment is needed.
• Domestic fundamentals are key for growth outlook going forward; corporate vulnerabilities may increase downside risks to investment
• Monetary policy is getting increasingly challenging for some countries (weak demand pressures vs rising inflation expectations).
• Policy priorities. Adjustment should be allowed to continue; buffers should be preserved; domestic fundamentals should be put in order.
Global Outlook
3
Selected Projections for Real GDP Growth (Percent)
Source: IMF, World Economic Outlook database.
WorldUnited States
Euro Area Japan China
Emerging market and developing economies
Advanced economies Russia India Brazil
South Africa Mexico
2015 3.1 2.5 1.6 0.6 6.9 4.0 1.9 -3.7 7.3 -3.8 1.3 2.5
2016 3.4 2.6 1.7 1.0 6.3 4.3 2.1 -1.0 7.5 -3.5 0.7 2.6
2017 3.6 2.6 1.8 0.3 6.0 4.7 2.1 1.0 7.5 0.0 1.8 2.9
Global Outlook (Commodities)
4
Selected Projections for Commodities Growth (Revisions in percent)
Source: IMF, World Economic Outlook database.
Petroleum (US$/barrel)
Copper (US$/metric ton)
Iron Ore (US$/metric ton)
Soybeans (US$/metric ton)
Gold (US$/troy ounce)
2015 50.9 5,506.3 54.5 347.4 1,160.3
Revision(October 2015) -1.4 -1.0 -2.2 -1.2 -1.3
2016 42.0 4,587.7 34.9 327.1 1,067.8
Revision(October 2015) -16.7 -10.7 -22.0 -1.9 -7.8
2017 48.2 4,590.8 33.8 334.1 1,081.2
Revision(October 2015) -13.0 -11.3 -21.1 0.2 -7.7
Risks to Global Outlook
5
A sharper-than-expected slow down in China
Tighter global financial conditions as the United States exits from accommodative monetary policy.
A sudden rise in global risk aversion and market volatility
An escalation of ongoing geopolitical tensions
Latin America: An interplay between external shocks and
domestic fundamentals
Regional recession and lower medium-term growth…
7
Source: IMF, World Economic Outlook database. ¹ Purchasing power parity-weighted average for the 32 Latin American countries.
LAC: Estimates of Medium-Term Growth by Forecast Vintage¹
(Percent)
4.5
3.4
4.2
2.8
2.9
2.5
2.9
3.3
3.7
4.1
4.5
4.9
2000
Fal
l 20
01 F
all
2002
Fal
l 20
03 F
all
2004
Fal
l 20
05 F
all
2006
Fal
l 20
07 F
all
2008
Fal
l 20
09 F
all
2010
Fal
l 20
11 F
all
2012
Fal
l 20
13 F
all
2014
Fal
l 20
15 F
all
2016
Jan.
World Economic Outlook Vintage
Source: IMF, World Economic Outlook database. ¹ Reflects projected real GDP growth for the last year (t+5) of the forecast horizon.
LAC: Real GDP Growth (Percent)
-9
-6
-3
0
3
6
9
12
15
18
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
2014
20
15
2016
5th percentile Average¹ 95th percentile
… with wide cross-country variation.
8
Latin America and the Caribbean: Real GDP Growth¹ (Percent)
2014 2015 2016
Latin America and the Caribbean 1.3 -0.3 -0.3
Central America 4.1 3.9 4.2Caribbean 4.7 4.3 3.9
Latin AmericaArgentina 0.5 1.5 -1.0Brazil 0.1 -3.8 -3.5Chile 1.9 2.1 2.1Colombia 4.6 3.0 2.7Mexico 2.3 2.5 2.6Peru 2.4 2.7 3.3Venezuela -4.0 -10.0 -8.0
Source: IMF, World Economic Outlook database. ¹ Regional aggregates are weighted by PPP-adjusted GDP.
… even at sub-regional level.
9
Latin America and the Caribbean: Real GDP Growth, 2016¹ (Percent)
Source: IMF, World Economic Outlook database. ¹ Regional groupings are based on WEO definition. ² Includes Argentina, Brazil, Ecuador, and Venezuela.
-4
-3
-2
-1
0
1
2
3
4
5
Central America and Mexico
Caribbean South America: Contracting economies²
South America: Others
Why different growth outcomes?
Part I: External Conditions
10
Export prices declined substantially, but net impact differs across the region
11
-50
-45
-40
-35
-30
-25
-20
-15
-10
-5
0
Arge
ntin
a
Braz
il
Chile
Colo
mbi
a
Mex
ico
Peru
Vene
zuel
a Chan
ge in
com
mod
ity te
rms
of tr
ade
sinc
e 20
11-2
015
peak
(%)
Gross Commodity Exports Net Commodity Exports
Change in Export Prices (From peak year to 2015)
Source: Gruss (2014).
0
20
40
60
80
100
120
140
160
Arge
ntin
a
Braz
il
Chile
Colo
mbi
a
Mex
ico
Peru
Vene
zuel
a
2013 2015
Primary Product Exports (Billions of U.S. dollars)
Sources: National authorities; Haver Analytics; and IMF staff estimates and calculations
Current account adjustments are at different stages…
12
-10
-8
-6
-4
-2
0
2
4
Mar
-11
Sep-
11
Mar
-12
Sep-
12
Mar
-13
Sep-
13
Mar
-14
Sep-
14
Mar
-15
Sep-
15
Chile Peru
-10
-8
-6
-4
-2
0
2
4
Mar
-11
Sep-
11
Mar
-12
Sep-
12
Mar
-13
Sep-
13
Mar
-14
Sep-
14
Mar
-15
Sep-
15
Colombia Ecuador Mexico Venezuela
Current Account (Percent of GDP)
-10
-8
-6
-4
-2
0
2
4
Mar
-11
Sep-
11
Mar
-12
Sep-
12
Mar
-13
Sep-
13
Mar
-14
Sep-
14
Mar
-15
Sep-
15
Argentina Brazil Uruguay
Sources: Haver Analytics; Bloomberg, L.P.; and IMF staff calculations.
Metals Exporters Energy Goods Exporters Food/Diverse Exporters
But the region’s current account still needs to adjust
13
-6
-5
-4
-3
-2
-1
0
1
2
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Latin America and the Caribbean: Current Account Balance (Percent of GDP)
Source: IMF, World Economic Outlook database.
Why different growth outcomes?
Part II: Domestic Fundamentals Matter
14
Private demand, particularly investment, has deteriorated, particularly in countries with higher degree of macroeconomic
imbalances and microeconomic distortions
15
Change in Private Investment from 2011 to 2015
(Percentage points of GDP)
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Vene
zuel
a
Braz
il
Ecua
dor
Arge
ntin
a
Chile
Peru
Colo
mbi
a
Mex
ico
Sources: IMF, World Economic Outlook database; and IMF staff calculations.
-12
-7
-2
3
8
13
18
Mar
-08
Jun-
08
Sep-
08
Dec
-08
Mar
-09
Jun-
09
Sep-
09
Dec
-09
Mar
-10
Jun-
10
Sep-
10
Dec
-10
Mar
-11
Jun-
11
Sep-
11
Dec
-11
Mar
-12
Jun-
12
Sep-
12
Dec
-12
Mar
-13
Jun-
13
Sep-
13
Dec
-13
Mar
-14
Jun-
14
Sep-
14
Dec
-14
Mar
-15
Jun-
15
Private consumption Gross fixed capital formation
LA5: Private Consumption and Gross Fixed Capital Formation (Year-over-year percent change)
Sources: Haver Analytics; IMF, World Economic Outlook database; and IMF staff calculations. Note: LA5 includes Brazil, Chile, Colombia, Mexico, and Peru.
16
Corporate leverage has been increasing, particularly in some countries and in certain sectors,…
LA5: Leverage – Nonfinancial Corporates: Bond Debt
2010 2015
US$ billion Share US$ billion Share
Total 291.3 100.0 504.9 100.0
Foreign currency 170.2 58.4 383.3 75.9
Local currency 121.1 41.6 121.7 24.1
…of which
Energy … … 168.7 33.4
Materials … … 103.7 20.5
Consumer … … 76.7 15.2
Utilities … … 42.8 8.5
Industrials … … 41.1 8.1
Other non-financial … … 71.9 14.2
Selected quasi-sovereigns
Petrobras (BRA) … … 52.8 10.5
Eletrobras (BRA) … … 2.8 0.5
PEMEX (MEX) … … 70.3 13.9
Comision Fed Elec (MEX) … … 10.6 2.1
ECOPETROL (COL) … … 9.9 2.0
CODELCO (CHL) … … 11.3 2.2
2010 2015 US$ billion Share US$ billion Share
Brazil Total 152.7 100.0 228.7 100.0
Foreign currency 70.4 46.1 159.4 69.7 Local currency 82.4 53.9 69.3 30.3
Chile Total 17.5 100.0 41.7 100.0
Foreign currency 16.6 94.5 40.2 96.5 Local currency 1.0 5.5 1.4 3.5
Colombia Total 9.3 100.0 23.4 100.0
Foreign currency 5.0 54.0 17.7 75.5 Local currency 4.3 46.0 5.7 24.5
Mexico Total 106.3 100.0 195.9 100.0
Foreign currency 74.6 70.2 153.2 78.2 Local currency 31.7 29.8 42.7 21.8
Peru Total 5.4 100.0 15.3 100.0
Foreign currency 3.6 66.7 12.8 83.9 Local currency 1.8 33.3 2.5 16.1
Sources: Dealogic; and IMF staff calculations.
Sources: Dealogic; Bloomberg, L.P.; and IMF staff calculations. Note: Sectoral shares and company-specific data from Bloomberg, L.P.
17
…pushing up risk perceptions and downside risks to investment.
0
200
400
600
800
1000
1200
1400
0
50
100
150
200
250
300
350
400
450
Jan-
13
Jul-1
3
Jan-
14
Jul-1
4
Jan-
15
Jul-1
5
Jan-
16
ENDESA (CHL) CODELCO (CHL) Comision Federal Elec (MEX) PEMEX (MEX) PETROBRAS (BRA)
CDS Spreads: Selected LAC Companies (Basis points; PETROBRAS in right scale)
0
10
20
30
40
50
60
70
80
90
2005
q3
2006
q3
2007
q3
2008
q3
2009
q3
2010
q3
2011
q3
2012
q3
2013
q3
2014
q3
2015
q3
Brazil Chile Colombia Mexico Peru
LA5: Leverage – Nonfinancial Corporates
(Debt to equity; percent; median)
Sources: Markit; and IMF staff calculations. Sources: Bloomberg; and IMF staff calculations. Note: LA5=Brazil, Chile, Colombia, Mexico, and Peru.
0
50
100
150
200
250
Cons
umer
D
iscr
etio
nary
Co
nsum
er
Stap
les
Ener
gy
Indu
stria
ls
Mat
eria
ls
Util
ities
Median Top Quartile
LA5: Leverage - Sectoral Distribution, 2015Q3
(Debt to equity; percent)
Sources: Bloomberg; and IMF staff calculations. Note: LA5=Brazil, Chile, Colombia, Mexico, and Peru.
Domestic Demand Policy Space?
18
Fiscal space has shrunk significantly in most countries
19
LA6: Primary Balance (Percent of GDP)
Sources: IMF, World Economic Outlook database; and IMF staff calculations and projections.
LA6: Government Gross Debt (Percent of GDP)
Sources: IMF, World Economic Outlook database; and IMF staff calculations and projections.
-4
-3
-2
-1
0
1
2
3
4
5
Brazil Chile Colombia Mexico Peru Uruguay
2008 2016 0
10
20
30
40
50
60
70
80
Brazil Chile Colombia Mexico Peru Uruguay
2008 2016
And monetary policy is getting more challenging with weak demand pressures and increasing inflation expectations
20
LA6: Monetary Policy Rates (Percent)
0
20
40
60
80
100
120
0
1
2
3
4
5
6
7
8
9
Brazil Chile Colombia Mexico Peru Uruguay
(–) (+50 bps) (+100 bps) (+25 bps) (+50 bps) (–)
Inflation target range Depreciation of exchange rate (right scale) Change in expected inflation for 2016 (since September 2015)
Sources: Bloomberg, L.P.; Consensus Forecast; and national authorities. Note: Numbers in parentheses refer to the change in policy rate between September 2015 and January 2016. ¹ National currency per U.S. dollar. Percentage change of the average of January 2013 to the average of January 2016.
Country Cases
21
Brazil: Recession with high inflation
22
Brazil: Growth and Job Creation (Quarterly percent change, a.r., and thousands)
Source: Central Bank of Brazil.
Brazil: Inflation and Market Expectations (Year-on-year percent change and expectations per survey vintage)
Source: Central Bank of Brazil.
2
3
4
5
6
7
8
9
10
11
Jan-
12
Apr-
12
Jul-1
2
Oct
-12
Jan-
13
Apr-
13
Jul-1
3
Oct
-13
Jan-
14
Apr-
14
Jul-1
4
Oct
-14
Jan-
15
Apr-
15
Jul-1
5
Oct
-15
Jan-
16
Y-o-y inflation End-2016 End-2017 End-2018
Tolerance band
Target mid-point
New economic team has reanchored mid-term expectations
-650
-450
-250
-50
150
350
550
750
-45
-35
-25
-15
-5
5
15
25
35
45
Mar
-08
Mar
-09
Mar
-10
Mar
-11
Mar
-12
Mar
-13
Mar
-14
Mar
-15
Real GDP Private consumption Total investment Net job creation (right)
Brazil: Fiscal woes and market punishment
23
-3
-2
-1
0
1
2
3
4
2009 2010 2011 2012 2013 2014 2015 2016 2017
Budget Law Binding Targets
Economic team non-binding target
Brazil: Primary Balance (Percent of GDP)
Source: National authorities.
60
65
70
75
80
0
100
200
300
400
500
600
Jan-
13
Apr-
13
Jul-1
3
Oct
-13
Jan-
14
Apr-
14
Jul-1
4
Oct
-14
Jan-
15
Apr-
15
Jul-1
5
Oct
-15
Jan-
16
CDS Gross debt-to-GDP (right scale)
Brazil: 5Y CDS and Gross Public Debt (Basis points and percent of GDP)
Sources: Bloomberg, L.P.; Haver Analytics; and national authorities.
Argentina: Important transition is taking place, improving prospects in the long-term, despite mild recession in the
short-term
24 Sources: Ministerio de Economía y Finanzas Públicas; Banco Central de la República Argentina; and IMF staff calculations and projections.
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2009 2011 2013 Proj. 2015
Overall balance net of transfers from central bank and social security Overall balance
Federal Balance (Percent of GDP)
0
10
20
30
40
50
60
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
Gross reserves
Gross reserves net of China swap, repos, and trade credits
International Reserves (Billions of U.S. dollars)
Central Bank Assistance to the Treasury
(Percent of GDP)
0
10
20
30
40
50
0
1
2
3
4
5
6
7
2009 2011 2013 Proj. 2015
FX loans (use of reserves) Advances Transfer of profits Monetary base growth (y/y %change, right)
Ecuador: Sharp decline in oil prices+ Macroeconomic rigidities Sharp deceleration in
economic activity
25
-6
-4
-2
0
2
4
6
8
10
12
2000
2002
2004
2006
2008
2010
2012
2014
2016
Real GDP growth (percent) Current account (percent of GDP)
Real GDP Growth and Current Account Balance
Source: IMF, World Economic Outlook database.
85
90
95
100
105
110
115
120
125
130
2007
Q1
2008
Q2
2009
Q3
2010
Q4
2012
Q1
2013
Q2
2014
Q3
2015
Q4
Real effective exchange rate Commodity terms of trade
REER and Terms of Trade (Index: 2007Q1=100)
Sources: IMF, Information Notice System database; and Gruss (2014).
0
50
100
150
200
250
300
350
400
450
500
2000
2002
2004
2006
2008
2010
2012
2014
Brazil Chile Colombia Mexico Peru Ecuador
Minimum Wage (U.S. dollars)
Sources: Haver Analytics; IMF, World Economic Outlook database; and IMF staff calculations.
Venezuela: Falling oil prices , longstanding policy distortions, and fiscal imbalances
26
Exports and Imports (Billions of U.S. dollars)
Fiscal Balance and Monetary Financing
(Percent of GDP)
0
20
40
60
80
100
120
0
20
40
60
80
100
2010 2012 2014 2016
Net-oil exports Non-oil imports Oil price (US$ per barrel, right scale)¹
Sources: National authorities; and IMF staff estimates and projections. ¹ Venezuela basket.
0
2
4
6
8
10
0
5
10
15
20
25
30
2010 2012 2014 2016
CPS deficit Monetary financing Oil revenue (PDVSA surplus, right scale)
Sources: National authorities; and IMF staff estimates and projections.
0
100
200
300
400
500
600
700
800
-12
-10
-8
-6
-4
-2
0
2
4
6
8
2010 2012 2014 2016
Real GDP growth (percent) Inflation (right scale)
Source: IMF, World Economic Outlook database.
Real GDP Growth and Inflation (Percent)
Latin America and the Caribbean:
Adjusting to a Harsher Reality
Alejandro Werner Director, Western Hemisphere Department