latin america: facing the risks in the external scenario...apr.16 5 lately, the lower world growth...
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LatinAmerica:Facingtherisksintheexternalscenario
CentralBankofChile,May 2016
RodrigoVergaraGovernor
However,inthepastfewdecadestheregionhasmadeprogressinimprovingitspolicyframeworks.Thisputsitonabetterstandtodealwiththechallengesahead,comparedwith
earlierepisodes.
Introduction
Globaldemandhasweakened,commoditypriceshavefallenandinternationalfinancialconditionsarenolongerasfavorableastheywereinrecentyears.
LatinAmericaisfacingamorechallengingexternalenvironment.
Inmanycases,thiscoupleswithcomplexsituationsathome.
Worldgrowthisgoingthroughasteeper- andlonger-than-expectedslowdowncycle.
(*) Projections included in the IMF’s WEO.Source: World Economic Outlook, IMF.
Actualandprojectedworld growth (*)(annual change,percent)
3
2
3
4
5
6
2
3
4
5
6
2010 2012 2014 2016 2018
Apr.11
WorldGDPatPPP
Apr.13
Apr.14
Apr.15
Apr.16
Apr.12
Therefore,accumulatedworldgrowthdifferssignificantlyfrominitialprojections.
(*) Projections included in the IMF’s WEO of respective months.Source: World Economic Outlook, IMF.
Projections for the level ofworld GDPatPPP(*)(index,2011=100)
4
100
105
110
115
120
125
130
100
105
110
115
120
125
130
11 12 13 14 15 16
Apr.11
WorldGDPatPPP
Apr.13
Apr.16
5
Lately,thelowerworldgrowthandespeciallyChina’sslowdownhaveresultedinsubstantialdropsincommodityprices.
Commodityprices(*)(index,2000-2016=100)
20
60
100
140
180
220
260
20
60
100
140
180
220
260
00 02 04 06 08 10 12 14 16
Energy
Metals
Grains
(*)GoldmanSachsaggregate index.Source:Bloomberg.
Commoditiesaccountforalargeshareoftheregion’sexports.
(*) Considers emerging economies in each region.Source: United Nations Conference on Trade andDevelopment
Exportsstructure(*)(percentageoftotal)
6
53.4
46.6
21.1
78.9
Commodities Other
Latin America Asia
Accordingly,the region’s termsoftrade have fallensignificantly…
Source: World Economic Outlook, IMF.
TermsoftradeinLatinAmerica(annualchange,percent)
7
-10-8-6-4-20246810
-10-8-6-4-202468
10
10 11 12 13 14 15 16
…andtradeflowshavedecelerated.
(*) Volume imports and exports of goods and services.Source: World Economic Outlook, IMF.
ForeigntradeinLatinAmerica(*)(annualchange,percent)
8
Imports
Exports
-5
0
5
10
15
20
25
-5
0
5
10
15
20
25
10 11 12 13 14 15 16
Financialconditionshaveworsened.Volatilityhasincreasedduetoperceivedhigherrisksassociatedto,amongotherfactors,theChineseeconomyandtheFed’sdecisions,butalsodueto
idiosyncraticissueswithintheregion.
9
Sovereignriskpremiums(*)(basispoints)
Stockexchangesindollars(basispoints)
(*) Risk premiumsmeasured using 5-yr CDS.Source: Bloomberg.
0
100
200
300
400
500
600
0
100
200
300
400
500
600
11 12 13 14 15 1620
40
60
80
100
120
140
20
40
60
80
100
120
140
11 12 13 14 15 16
EmergingAsia Emerging Europe DevelopedmarketsLatin America
Thissituationhastranslatedintoimportantmovementsintheregion’scapitalinflows
(*) Movingmonth for stocks and bonds. The Total considers the accumulated moving year.Source: Emerging Portfolio Fund Research.
10
CapitalinflowstoLatinAmerica(*)(billionsofdollars)
-40
-30
-20
-10
0
10
20
30
40
-10
-8
-6
-4
-2
0
2
4
6
8
10 11 12 13 14 15 16
Stocks
Bonds
Total(right axis)
Meanwhile,theregion’scurrencieshavedepreciatedsignificantly.
(1) Includes: Brazil, Chile, Colombia and Peru. (2) Korean Rep., Indonesia, Malaysia and Thailand. (3) Czech Rep.,Hungary, Poland and Rusia. Sources: Bloomberg and IMF’s WEO,October 2015.
Nominalexchange rate(accumulated change since trough ofMay 2013)
11
Asia(2)0
20
40
60
80
100
120
140
0
20
40
60
80
100
120
140
May.13 Nov.13 May.14 Nov.14 May.15 Nov.15
Latin America(1)
Europe(3)
Thedropincommodityprices,thedeteriorationoffinancialconditionsandthereducedexternaldemand,pluslocalfactors,havedrivendown
theregion’sinvestmentrates.
Source: World Economic Outlook, IMF.
Investment inLatinAmerica(percent ofGDP)
12
14
16
18
20
22
24
14
16
18
20
22
24
00 02 04 06 08 10 12 14 16
GrowthforecastsforLatinAmericahavealsobeenreviseddownwardaccordingly.
(*) Projections included in WEO.Source: World Economic Outlook, IMF.
GrowthinLatinAmericaandtheCaribbean,andevolutionofprojections(*)
(annualchange,percent)
13
-1
0
1
2
3
4
5
6
7
-1
0
1
2
3
4
5
6
7
2010 2012 2014 2016 2018 2020
GDP
Apr.12 Apr.13Apr.14
Apr.15
Apr.16
This hasdistancedour economies’performancefromAsia,which haskepthigher growth rates.
(*) Projections included in WEO.Asean-5: Indonesia, Malaysia, Philippines, Singaporeand ThailandSource: World Economic Outlook, IMF.
Growth inLatinAmerica andAsia(annual change,percent)
14
ASEAN-5
LATAM
-2
0
2
4
6
8
-2
0
2
4
6
8
02 04 06 08 10 12 14 16
Insidetheregion,however,theoutlookisveryheterogeneous.
(*) Historic average is defined as 2000-2013growth.Source: Regional Economic Outlook, IMF.
Growthforecastfor2016(*)
15
Negativegrowth in2016
Positivegrowth in2016;belowhistorical average
Positivegrowth in2016;abovehistorical average
Inthisadversescenariofacingseveralofourcountries,therearestillsomeadjustmentspending.
Source: World Economic Outlook, IMF.
Regionalcurrentaccount(percent ofGDP)
16
-4
-3
-2
-1
0
1
2
-4
-3
-2
-1
0
1
2
00 02 04 06 08 10 12 14 16
Thefallincommoditypricesandtheeconomicslowdownhaveerodedfiscalpositions,limitingthespaceforstimuluspoliciesonthefiscalside.
(*) General Government GrossDebt.Source: IMF.
Public debt (*)(percent ofGDP)
17
Fiscalbalance(percent ofGDP)
30
35
40
45
50
55
60
30
35
40
45
50
55
60
10 11 12 13 14 15 16
-8
-6
-4
-2
0
-8
-6
-4
-2
0
10 11 12 13 14 15 16
Inthe region asawhole,inflationhasshownamild increase,but insomecountries the currencydepreciationhashad importanteffects on headline
andexpected inflation.This also limits the space for looser monetarypolicies.For 2016,inflation is expected todecline.
Source: World Economic Outlook, IMF. 18
Inflation(percent)
0
1
2
3
4
5
6
7
0
1
2
3
4
5
6
7
10 11 12 13 14 15 16
Infact,monetaryauthoritieshaveraisedthepolicyratesintheregion.
Sources: Bloomberg and World Economic Outlook, IMF. 19
Monetarypolicyinterestrates(percent)
EmergingEurope
LatinAmerica
ChinaEmergingAsiaexcludingChina
LatinAmericaexcludingBrazil 2
4
6
8
10
12
14
2
4
6
8
10
12
14
07 08 09 10 11 12 13 14 15 16
Overall,for afew decades the region hasbeenmakingsignificantprogresson anumberofareas:poverty hasdeclinedalongwith aincrease inper
capita income.
(*) The poor include the extreme poverty.Sources: ECLAC and IMF.
20
Poverty (*)(percent)
Extremepoverty
0
10
20
30
40
50
60
80 90 99 02 08 11 12 13 14
Poor
0
10
20
30
40
50
60
Thecentralbanks’credibilityhasstrengthened,astheyhavebeenabletoachieveimportantadvancesincontrollinginflation.
Source: World Economic Outlook, IMF. 21
Inflation(average annual change,percent)
132.4
151.2
6.4 5.00
40
80
120
160
80-89 90-99 00-07 10-160
40
80
120
160
Theregionmanagedtobenefitfromtheyearsofbonanzatobringdownitslevelsofexternaldebtandhoardinternationalreserves.
(*) Considers Argentina, Brasil, Chile, Peru and Colombia.Source: World Economic Outlook, IMF.
22
Externaldebt(percentofGDP)
Internationalreserves(*)(percent ofGDP)
0
5
10
15
20
0
5
10
15
20
97 00 03 06 09 12 15
42.6
35.0 34.9
26.8
0
15
30
45
80-89 90-99 00-07 10-160
15
30
45
Regardingour financial systems,capitaladequacy ratiosaregood,whilenonperforming loanshave diminished.
(*) Shows the region’s simple average.Source: Global Financial Stability Report, IMF.
23
RegulatoryCapital(*)(percentage ofrisk weighted assets)
NPL(*)(percentage oftotalloans)
12
13
14
15
16
17
10 11 12 13 14 1512
13
14
15
16
17
0
1
2
3
4
10 11 12 13 14 150
1
2
3
4
Inrecent years,we have made important advances invarious fields,especially regardingmacroeconomic stability.The current scenario stresses the importance ofmaking further
advances instrengthening our economic policies.
Takingstepstostrengtheninstitutionsisessential
Considering the importance ofcommodities for our economies,reducing the dependence ofour fiscalrevenues on them is key.
Financialopennesshasbroughtbenefitstoourregion,butitalsoleavesusmoreexposedtothevolatilityoftheinternationalscenario.Thisrequiresmakingadvancesinstrengtheningthe
regulationandsupervisionofourfinancialsystems.
Safeguarding the credibility ofour centralbanks hashelped us ensure that,despite the sharpdepreciation ofour currencies,inflation is still contained.
Increasing productivity is akey challenge.
LatinAmerica:Facingtherisksintheexternalscenario
CentralBankofChile,May 2016
RodrigoVergaraGovernor
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