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Global Storms, Latin SpilloversGlobal Storms, Latin Spillovers
Charles CollynsCharles Collyns
Lima, PeruLima, PeruJune 16, 2008June 16, 2008
1
Road MapRoad Map
•• Global downturn Global downturn —— Have risks receded?Have risks receded?
•• Commodities and inflation Commodities and inflation —— 1970s rerun?1970s rerun?
•• Financial winds Financial winds —— Which way will they Which way will they blow on Latin America?blow on Latin America?
2
0
1
2
3
4
5
6
7
8
1970
1975
1980
1985
1990
1995
2000
2005
2010
April 2008 WEO: Two Years of Slower Growth
TrendTrend19701970--20062006
Average Average downturndownturn
growth rategrowth rate19701970--20062006
Emerging & developingEmerging & developingeconomieseconomies
Advanced Advanced economieseconomies
Global GDP Growth(percent change, ppp-GDP weighted average)
3
0
1
2
3
4
Real GDPPotential GDP
Advanced economies are being most Advanced economies are being most affected by financial turbulenceaffected by financial turbulence
20062006 07 08 0907 08 09United StatesUnited States
20062006 07 08 0907 08 09Euro areaEuro area
20062006 07 08 0907 08 09JapanJapan
Real GDP Growth Rates(percent change)
4
0
2
4
6
8
10
Real GDPAverage 1995-2007
Emerging and developing economies Emerging and developing economies slowing, but still above trendslowing, but still above trend
06 07 08 0906 07 08 09AfricaAfrica
06 07 08 0906 07 08 09EmergingEmerging
AsiaAsia
06 07 08 0906 07 08 09Latin AmericaLatin America
06 07 08 0906 07 08 09Middle EastMiddle East
06 07 08 0906 07 08 09EmergingEmerging
Europe & CISEurope & CIS
Real GDP Growth Rates(percent change)
5
45
50
55
60
65
-4
-2
0
2
4
6
8
10
12
Global economy is already cooling
Global Industrial Production and PMI
(In percent, 3m, saar)
-2
0
2
4
6
8
10
GDP(Percent change from a year ago)
042000 02 042002 06 Mar08
06 Q108
Advancedeconomies
Emergingeconomies
LatinAmerica
PMI(RHS)
Industrial Production(LHS)
6
-25
-20
-15
-10
-5
0
5
10
15
0
20
40
60
80
100
120
140
160Euro Area (right scale)United States (left scale)
Leading indicators point to slower growth ahead
Consumer Confidence(United States, 1985 = 100; Euro Area,
percent balance)
40
45
50
55
60
65Euro area
United States
Manufacturing Confidence(Values greater than 50 indicate expansion)
042000 02 Apr.08
042000 06 Apr.08
0206
7
0
100
200
300
400
500
600
700
800
Goldman SachsBear StearnsMerrill LynchLehman BrothersMorgan Stanley
0
50
100
150
200
250CitigroupJP MorganBank of AmericaDeutsche BankCredit SuisseBarclaysUBS
Tail risks in the financial system have been reduced—but fragilities remain
5-Year CDS Spreads of U.S. Banks
(Basis points)
5-Year CDS Spreads of U.S. Investment Banks
(Basis points)
Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420072007
Q1 JunQ1 Jun20082008
Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420072007
Q1 JunQ1 Jun20082008
8
0
50
100
150
200
250
300
350
400
450
500
550
AsiaEuropeUS
Writedowns*Writedowns* Capital RaisedCapital Raised
Financial balance sheets are being repairedFinancial balance sheets are being repaired(Billions of U.S. dollars)(Billions of U.S. dollars)
* Includes writedowns due to asset valuation yet to be passed through income statement.
$ 382 bn
$ 270 bn
$ 430-510 bn
Total Estimated LossesTotal Estimated Losses
9
0.0
0.5
1.0
1.5
2.0
2.5
Liquidity strains and volatility remain high
Interbank Markets(3-month LIBOR minus T-bill rate; in percent)
UnitedStates
Japan
Market Pricing of Volatility(10-years; medians in basis points)
Euroarea
TAFTAFDec 12Dec 12
Q1 Q2 Q3 Q42006
Q1 Q2 Q3 Q42007
May2008
0
25
50
75
100
125
150
175
200
Equities (VIX)Interest rates (MOVE)Currencies (VXY)
2000 01 02 03 04 05 06 07 May2000 01 02 03 04 05 06 07 May0808
10
0
100
200
300
400
500
600
700
U.S. - AU.S. - BBBU.S. - BBEuro - BB
Corporate Spreads(basis points)
0
100
200
300
400
500
600
700
0
4000
8000
12000
16000
20000
24000
28000
32000Conforming
Jumbo
Subprime (right scale)
U.S. Mortgage Spreads(over 1 month LIBOR rates, basis points)
2006
Interest spreads have moderated Interest spreads have moderated –– but still but still widewide
2007 Jun.2008
2006 2007 Jun.2008
11
Issuance of debt has dropped off
0
100
200
300
400
500
600
Leveraged loans
Investment grade debt
High yield debt
20012001 20022002 20032003 20042004 20052005 20062006 20072007 20082008
US Corporate Debt Issuance(billions of U.S. dollars)
12
-5
0
5
10
15
20
25
United States
Euro Area
How much is bank credit being squeezed?
1 Change in the balance of respondents between the “tightened considerably and tightened somewhat” and the “eased somewhat and eased considerably.”
Total Loan Growth(3m percent change of 3m mov average)
-30
-20
-10
0
10
20
30
4050
60
70
80
90
100
110
120U.S.: C&I loan standards
U.S.: Mortgage lending standards
ECB: Standards for lending to largecompaniesECB: Standards for lending tohouseholds for house purchase
Changes in Credit Standards(percent of respondants1)
072005 06 08 Q2 042000 06 Apr.08
02
13
3
4
5
6
7
8
9
10
11
ThousandsMonths of supply
-40
-30
-20
-10
0
10
20
30
40
New home startsNew home sales
0
1
2
3
4
5
6
7
8
Mortgage DelinquenciesForeclosures
Inventories(3 month moving average)
Mortgage Delinquencies & Foreclosures
(percent of total mortgages)
New Home Sales & Starts(y/y pct change of 3m moving average)
U.S. housing correction continues full blastU.S. housing correction continues full blast
0000 0202 0404 0606 Apr.Apr.0808
0000 0202 0404 0606 Q1Q10808
0000 0202 0404 0606 Apr.Apr.0808
-15-10-505
1015202530
OFHEOCase-Shiller
House Prices(y/y percent change)
0000 0202 0404 0606 Q1Q10808
14
-0.14-0.12-0.10-0.08-0.06-0.04-0.020.000.020.040.060.08
Financialconditions
Domesticdemand inthe U.S.
Domesticdemand inEurope and
Japan
Domesticdemand inemergingmarkets
Inflationrisks
Oil markets Globalimbalances
January 2008 update
Spring WEO (April 1, 2008)
Current
Concerns shift from financial risk to inflation riskConcerns shift from financial risk to inflation risk(Percentage points of global GDP growth)(Percentage points of global GDP growth)
Downside risk to global growth
Upside risk to global growth
15
Risks around baseline look more Risks around baseline look more balancedbalanced
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
2004 2005 2006 2007 2008 2009
90% Confidence interval70% Confidence interval50% Confidence interval
April 2008Baseline forecast
Global GDP Growth(percent change, ppp-GDP weighted average)
16
Road MapRoad Map
•• Global downturn Global downturn —— Have risks receded?Have risks receded?
•• Commodities and inflation Commodities and inflation —— 1970s rerun?1970s rerun?
•• Financial winds Financial winds —— Which way will they Which way will they blow on Latin America?blow on Latin America?
17
Historical perspective on the commodities boom
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
0
50
100
150
200
250
Real Oil, Metals and Food Prices(1970 = 100)
1970 75 Q208
Food (LHS)
Metals (LHS)
Oil (RHS)
80 85 90 95 2000 05
18
50
100
150
200
250
300
0
100
200
300
400
500
600
700
How Much Higher Will Commodity Prices Go?
Energy
Agriculturalraw materials
Beverages
Food
2002 04 06 08
Soybean
Corn
Wheat
2006 07 08 09
Futures curvesas of June10, 2008
Metals
Rice
Selected Commodity Prices(January 2002 = 100)
Selected Food Prices(January 2006 = 100)
19
Oil options prices show a wide band of Oil options prices show a wide band of uncertaintyuncertainty
30
50
70
90
110
130
150
170
19090% confidence interval
70% confidence interval
50% confidence interval
Spot/futures price
Crude Oil Prices(Brent; from futures options; as of May 15 2008; Brent; from futures options; as of May 15 2008;
U.S. dollars per barrelU.S. dollars per barrel)
20062006 20072007 20082008 Mar.Mar.20092009
40
50
60
70
80
90
100
110
120
130
140
150
16090% confidence interval
70% confidence interval
50% confidence interval
Spot/futures price
Crude Oil Prices(Brent; from futures options; as of May 24 2007; Brent; from futures options; as of May 24 2007;
U.S. dollars per barrelU.S. dollars per barrel)
20052005 20062006 20072007 Mar.Mar.20082008
20
Oil demand has caught up with capacityOil demand has caught up with capacity
World Oil Demand, Production Capacity and Spare Capacity (million barrels a day)
40
50
60
70
80
90
100
110
120
1970 1982 1994 20060
2
4
6
8
10
12
14
16Others spare capacity(RHS)Saudi Arabia spare capacity(RHS)Capacity (LHS)
Demand (LHS)
21
Global oil consumption is now driven by the Global oil consumption is now driven by the emerging marketsemerging markets
-4
-3
-2
-1
0
1
2
3
4
5
1972 1984 1996 2008
Emerging and Developing Economies
India
China
Other Industrial Countries
US
World Oil Consumption(in percent of world oil consumption)
22
0
50
100
150
200
250
300
Other Factors
Higher Fuel Prices
Due to Ethanol
CornCorn
Estimated Contributions to Food Price Changes of Major Food Crops(January 2006-March 2008; in percent)
WheatWheat SoybeanSoybean RiceRice
Energy Markets Spill Onto Food MarketsEnergy Markets Spill Onto Food Markets
23
Global Food Demand has Outrun SupplyGlobal Food Demand has Outrun Supply
-20
-10
0
10
20
30
40
50
60
70
80
Advancedeconomies
China
19951995--20002000
averageaverage
Corn usedFor U.S.Ethanol
Emerging &developing economies
20012001 0202 0303 0404 0505 0606 0707 0808-50
0
50
100
150
200
250
WheatRiceSoybeanCornTotal Crops
19951995--20002000
averageaverage
20012001 0202 0303 0404 0505 0606 0707 0808
Demand for Major Food Crops(annual change in millions of tonnes)
Production of Major Food Crops(annual change in millions of tonnes)
24
Commodity prices fall during global downturns
Commodity Price Changes By Category(in US dollars; peak to trough change)
-80
-60
-40
-20
0
20
40
60
80Crude oil (IMF APSP)�Metals�Food�BeveragesAgricultural Raw MaterialIndustrial Production
Dec73-Jun75
Feb80-Sep80
Aug81-Sep82
Nov90-Jun93
Sep00-Jan02
25
Booming commodity prices and inflation
Food Price Inflation(12 month percent change)
-2
0
2
4
6
8
10
12
14
16
18
20
Fuel Price Inflation(12 month percent change)
Emerging economies
Advanced economies
Latin America
-2
0
2
4
6
8
10
12
14
16
18
20
20062006 Mar. Mar. 20082008
20062006 2007200720072007 Mar. Mar. 20082008
Emerging economies
Advanced economies
Latin America
26
Inflation is on the rise worldwide
Core Price Inflation(12 month percent change)
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Headline Inflation(12 month percent change)
Emerging &developingeconomies
Advanced economies0
1
2
3
4
5
6
7
8
9
20032003 Apr. Apr. 0808
Emerging &developingeconomies
Advanced economies
Latin America
Latin America
0404 0505 0606 0707 20032003 Apr. Apr. 0808
0404 0505 0606 0707
27
Monetary policy: shift to tightening biasMonetary policy: shift to tightening bias(Policy rates; percent)(Policy rates; percent)
0
1
2
3
4
5
6
7
01 02 03 04 05 06 07 08 090
1
2
3
4
5
6
7
UnitedStates
Euro area
Japan
Futures ratesas of 6/13/08
28
-20
-15
-10
-5
0
5
10
Col
ombi
aIn
dia
Cro
atia
Mal
aysi
aH
unga
ryM
exic
oSl
ovak
iaP
olan
dK
orea
Turk
eyTa
iwan
Sout
h A
fric
aIc
elan
dR
oman
iaP
eru
Bra
zil
Cze
chIn
don
esia
Ch
ina
Thai
land
Ch
ileH
ong
Ko
ngR
uss
iaSi
ngap
ore
Isra
elEg
ypt
Phi
lippi
nes
Bu
lgar
iaLi
thua
nia
Kaz
akh
stan
Latv
iaU
krai
ne
Latest
Change from end-2006
Falling behind the curve?Falling behind the curve?
Real Policy Rates: Latest Levels and Changes from End-2006(in percent)
29
Road MapRoad Map
•• Global downturn Global downturn —— Have risks receded?Have risks receded?
•• Commodities and inflation Commodities and inflation —— 1970s rerun?1970s rerun?
•• Financial winds Financial winds —— Which way will they Which way will they blow on Latin America?blow on Latin America?
30
Emerging markets have been resilient
Emerging Market CorporateBond Spreads
(basis points)
0
50
100
150
200
250
300
350
400
450
500Emerging EuropeLatin AmericaEmerging Asia
Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420062006
Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420072007
Q1 May Q1 May 20082008
Emerging Economy Equity Markets
(2001 = 100; national currency)
0
100
200
300
400
500
600 Emerging AsiaLatin AmericaEastern Europe
Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420062006
Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420072007
Q1 May Q1 May 20082008
31
Emerging Market Inflows Have Dipped(Bond, equity and loan issuance, billions of U.S. dollars)
0
20
40
60
80
100
120
140
160
180
200
Western Hemisphere
Middle East
Europe
Asia
Africa
20022002 Q2 Q2 0808
0303 0404 0505 0606 0707
32
Reduced external vulnerabilities, greater resilience
Emerging and Developing Economy External Indicators
(percent of total GDP)
-4
-2
0
2
4
6
8
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
15
20
25
30
35
40
45
Change inreserves
Externaldebt
Current account
Latin America External Indicators
(percent of regional GDP)
-6
-4
-2
0
2
4
6
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
0
10
20
30
40
50
60
Change inreserves
Externaldebt
Current account
33
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
30Central and Eastern EuropeAfricaEmerging AsiaLatin AmericaC.I.S.Middle East
Large Current Account Deficits May Be A Large Current Account Deficits May Be A Source Of VulnerabilitySource Of Vulnerability(2007 Emerging market country current accounts in percent of GDP(2007 Emerging market country current accounts in percent of GDP))
34
-12
-10
-8
-6
-4
-2
0
0
2
4
6
8
Outlook for Global Imbalances Has Improved(Percent of Global GDP)
U.S. External PositionGlobal Imbalances
(sum of absolute value of global current account balances)
Latestestimates
July 2007estimates
Average1980-2005
latest
latest
July2007
July2007
9797 20002000 0303 0606 0909 1212 9797 20002000 0303 0606 0909 1212
Net foreignliability position
Current accountbalance
35
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
97 99 2001 03 05 07 09 11 13
Where will the savings go?Where will the savings go?
Oil exportersChina and otheremerging Asia
Euro area
United States
Japan
Latin America
Current Account Imbalances by Region(percent of world GDP)
36
•• Global outlook:Global outlook: financial tail risks have financial tail risks have been reduced, but global slowdown will been reduced, but global slowdown will not be not be avoided.avoided.
•• Commodities and inflation:Commodities and inflation: monetary monetary policy discipline is needed to ensure that policy discipline is needed to ensure that relative price shock does not reverse relative price shock does not reverse inflation gains.inflation gains.
•• Financial winds:Financial winds: Latin America should be Latin America should be ready for another surge of capital inflows.ready for another surge of capital inflows.
Key MessagesKey Messages
WEO Can Be Downloaded FromWEO Can Be Downloaded From
http://http://www.imf.org/weowww.imf.org/weo
38
-2
-1
0
1
2
3
4
5
6
7
05 06 07 08
U.S.
Japan
U.K (RPI)Canada (20-yr)
Euro area
Inflation Risks Have Intensified in Several Advanced Economies
-2
-1
0
1
2
3
4
5
6
7
05 06 07 08
U.S.Japan U.K.Canada Euro Area
-2
-1
0
1
2
3
4
5
6
7
05 06 07 08
U.S.Japan U.K.Canada Euro Area
Headline Inflation(12 month percent change)
Core Inflation(12 month percent change)
Inflation Exp.(Percent from 10yr index
linked bonds)
39
More flexible exchange rates in some countries would help control inflation and reduce imbalances
-8 -6 -4 -2 0 2 4 6 8
India
Malaysia
Saudi Arabia
U.S.
Canada
U.K.
Japan
China
Russia
Australia
Euro area
Brazil
U.S. dollar per national currency REER
Exchange Rates 1/(percent changes;
4/4/08 vs. 1/30/08-2/27/08 average)
1/ Positive numbers denote appreciation of local currency.
Current Account Balances(In percent of GDP; estimates for 2008)
-8 -4 0 4 8 12 16 20 24 28 32
India
Malaysia
Saudi Arabia
U.S.
Canada
U.K.
Japan
China
Russia
Australia
Euro area
Brazil
40
Food and Fuel Inflation Heat Map(Contribution of Food and Fuel Inflation to Headline Inflation)(Contribution of Food and Fuel Inflation to Headline Inflation)
Contribution over 5 percentContribution between 1 percent to 2.5 percentContribution between 2.5 percent to 5 percentContribution over 5 percent
No data
41
-9-6-303691215
2003 04 05 06 07 08 09
Domestic demand is also key in emerging Domestic demand is also key in emerging Asia Asia (percent change)(percent change)
Vietnam
Total domestic demandTotal domestic demand Net exportsNet exports Terms of trade gainTerms of trade gain
-9-6-303691215
2003 04 05 06 07 08 09
-9-6-303691215
2003 04 05 06 07 08 09
Indonesia
Singapore
-9-6-303691215
2003 04 05 06 07 08 09
Thailand
Total growthTotal growth
42
0
1
2
3
4
5
6
7
8
9
10
11
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
Advanced economies and emerging economies have diverged…
Emerging Asia
Advancedeconomies
Real GDP Growth Rate(percent change)
43
… but not decoupled
-4
-3
-2
-1
0
1
2
3
4
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Advancedeconomies
Emerging Asia
Real GDP Growth Rates(deviation from trend)
44
Projected food price increases (in 2008) and their impact on trade Balances(year-on-year percent changes)
Large gainers (trade balance improving greater than 1 % of 2005 GDP)Moderate gainers (trade balance improving less than 1 % of 2005 GDP)Moderate losers (trade balance worsening less than 1 % of 2005 GDP)Large losers (trade balance worsening greater than 1 % of 2005 GDP)
No data
45
Emerging economies account for a rising share of global growth
-1
0
1
2
3
4
5
6
7
8 United States Euro Area
Japan Other Advanced
China IndiaOther Developing
-6
-3
0
3
6
9
12
15
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Contributions to Global Growth(percent change)
Contributions to Global Import Volume Growth(percent change)
46
China’s exports are starting to slow, but domestic demand is still strong
0
10
20
30
40
50
60Merchandise exports
Merchandise imports
0
10
20
30
40
50
60Real GDP Growth
Investment in fixed assets
Retail sales
20002000 Mar. Mar. 20082008
20002000 Q1Q120082008
0202 0404 0606 0202 0404 0606
China’s Trade(12 month percent change)
China’s Domestic Activity(12 month percent change)
47
0
1
2
3
4
5
6
7
8
9
World AdvancedEconomies
DevelopingCountries
April 2007 October 2007 March 2008
0
1
2
3
4
5
6
7
8
9
World AdvancedEconomies
DevelopingCountries
April 2007 October 2007 March 2008
2007 Real GDP Growth(percent change)
2007 up, 2008 down2007 up, 2008 down
2008 Real GDP Growth(percent change)
48
-0.12
-0.10
-0.08
-0.06
-0.04
-0.02
0.00
0.02
0.04
Financialstability
Domesticdemand inthe United
states
Domesticdemand inEurope &
Japan
Domesticdemand inemergine
economies
Inflationrisks
Oil markets Globalimbalances
October 2007 WEO
January 2008 WEO update
April 2008 WEO
Most global risk factors are negativeMost global risk factors are negative(Percentage points of global GDP growth over next 12 months)(Percentage points of global GDP growth over next 12 months)
Downside risk to global growth
Upside risk to global growth
49
6.8
7.0
7.2
7.4
7.6
7.8
8.0
8.2
8.4
8.6 85
89
93
97
101
10595
100
105
110
115
120
125
130 62
66
70
74
78
82
86
90
80
84
88
92
96
100 EuroU.S. dollar (2000=100)
U.S. dollar had depreciated, but limited real appreciation U.S. dollar had depreciated, but limited real appreciation in key surplus countries in key surplus countries
1.101.151.201.251.301.351.401.451.501.551.60
110
115
120
125
130
135
20052005 20062006 20072007 Mar.Mar.20082008
20052005 20062006 20072007 Apr.Apr.20082008
REERREER(right scale, 2000=100)(right scale, 2000=100)
dollar/eurodollar/euro(left scale)(left scale)
REERREERNEERNEER
RenminbiYen
20052005 20062006 20072007 Apr.Apr.20082008 20052005 20062006 20072007 Apr.Apr.
20082008
Renminbi/dollarRenminbi/dollar(inverted left scale)(inverted left scale)
yen/dollaryen/dollar(inverted(invertedleft scale)left scale)
REERREER(right scale, 2000=100)(right scale, 2000=100)
REERREER(right scale, 2000=100)(right scale, 2000=100)
50
Some Signs of Stress in Some Emerging Markets(Interbank 1-month rates; percent)
0
2
4
6
8
10
12
14
16
18
20
Argentina
Kazakhstan
Russia
Jan2007
Turkey
Mar May July Sept Nov Jan2008
51
0
10
20
30
40
50
60
70
80
90 Exports to the United States Exports to the European UnionExports to China Exports to emerging Asia
AsiaAsia’’s trade patterns are increasingly diversifieds trade patterns are increasingly diversified
19901990 20072007AsianAsianNIEsNIEs
19901990 20072007ASEANASEAN--55
19901990 20072007South AsiaSouth Asia
19901990 20072007ChinaChina
Exports to Selected Destinations(Percent of merchandise exports of country/region)
52
0
20
40
60
80
100
120
140
U.S. Banks European Banks Asian Banks
Expected Bank Losses Are Sizeable in Relation Expected Bank Losses Are Sizeable in Relation to Capital for Global Banksto Capital for Global Banks(Bank losses, billions of U.S. dollars)(Bank losses, billions of U.S. dollars)
Total expected losses:Total expected losses:Conduits/Conduits/SIVsSIVsLoansLoansABSABSCDOsCDOs
Total reported losses:Total reported losses:AllAll
53
90
110
130
150
170
190
210
230
250
Equity Markets Have Weakened(January 4, 2005 = 100)
2005
S&P 500
DJ Euro Stoxx
Topix
MSCIEmerging Economy
Equity Markets
2006 2007 Apr 172008
54
...including in emerging Asia
Food Price Inflation(12 month percent change)
0
5
10
15
20
25
30
35
Headline Inflation(12 month percent change)
Indonesia
China
Vietnam
0
5
10
15
20
25
30
35
Indonesia China
Vietnam
20062006 Mar. Mar. 20082008
20062006 2007200720072007 Mar. Mar. 20082008
Singapore
Singapore
55
Emerging Market Inflows Are Now Sagging(Bond, equity and loan issuance, billions of U.S. dollars)
0
20
40
60
80
20022002 Jan. Jan. 0808
0303 0404 0505 0606 0707
56
-10 0 10 20 30
Brazil
Australia
Euro area
Russia
Japan
Malaysia
Canada
China
Saudi Arabia
India
United States
United Kingdom
-12 -8 -4 0 4 8 12
Brazil
Australia
Euro Area
Russia
Japan
Malaysia
Canada
China
Saudi Arabia
India
United States
United Kingdom
U.S. dollar / national currency REER
Exchange Rate Adjustments Still Not Reflecting Current Exchange Rate Adjustments Still Not Reflecting Current Account PositionsAccount Positions
Current Account Balances, 2007(percent of GDP)
Exchange Rate 1(percent change 8/22-9/19/07 to 2/29/08)
11 Positive values indicate domestic currency appreciationPositive values indicate domestic currency appreciation
57
Meeting U.S. Financing Needs at RiskMeeting U.S. Financing Needs at Risk(Three(Three--month moving average, billions of U.S. dollars)month moving average, billions of U.S. dollars)
-60
-40
-20
0
20
40
60
80
100
120
140
160Short term
Long term
Net foreign portfolio flows
Dec.Dec.20072007
2006200620052005200420042003200320022002
58
Sources: Moody's Economy.com, Equifax, Case-Shiller and OFHEO.1/ = National Average; size of regional marker reflects relative size of the mortgage market (in outstanding $).2/ Delinquency rate defined in percent of outstanding mortgages (in dollar amounts).
Falling U.S. house prices and rising mortgage delinquencies 1
-2
0
2
4
6
8
-30% -20% -10% 0% 10% 20%
House Price Changes, 06Q2 - 07Q3(in percent)
Cha
nge
in M
ortg
age
Del
inqu
ency
Rat
e, 0
5Q4
- 07Q
4(in
per
cent
poi
nts)
2/
MidwestWest
SouthNortheast
59-1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0
China
India
Korea
Japan
Indonesia
Philippines
Thailand
Malaysia
Hong Kong SAR
Singapore
Taiwan POC
2001 RecessionAugmented VAR 1991-2007
Impact on Asia of a fall in U.S. GrowthImpact on Asia of a fall in U.S. Growth(Percentage point reduction in GDP growth from 1 percentage poin(Percentage point reduction in GDP growth from 1 percentage point t reduction in U.S. growth)reduction in U.S. growth)
Real GDP Growth Rates(Percentage point reduction in GDP growth from one percentage point reduction in U.S. growth)
60
50
100
150
200
250
300
0
100
200
300
400
500
600
How Much Higher Will Commodity Prices Go?How Much Higher Will Commodity Prices Go?
Energy
Agriculturalraw materials
Beverages
Food
20022002 0404 0606 0808
Soybean
Corn
Wheat
20062006 0707 0808 0909
Futures curvesFutures curvesas of Aprilas of April16, 200816, 2008
Metals
Rice
Selected Commodity Prices(January 2002 = 100)
Selected Food Prices(January 2002 = 100)
61
0
200
400
600
800
1000
1200
1400
1600
Some Historical Perspective
United States(corporate bond spreads, basis points)
0
100
200
300
400
500
600
700
800
Euro Area(corporate bond spreads, basis points)
BB
BBB
AA
BB
BBB
AA
19971997 9999 20012001 0303 0505 AprApr0808
19971997 9999 20012001 0303 0505 AprApr0808
62
Three lines of defense
•• ReposRepos for illiquid assets (Federal Reserve/BoE)for illiquid assets (Federal Reserve/BoE)•• Maintaining supply of commercial mortgages Maintaining supply of commercial mortgages
(Freddie & Fannie)(Freddie & Fannie)•• Preventing collapse of systemic institutions Preventing collapse of systemic institutions
(Bear Sterns)(Bear Sterns)•• Facilitating refinancing of underwater Facilitating refinancing of underwater
mortgages (Barney Frank plan)mortgages (Barney Frank plan)•• Holding company for impaired assets (RTC)Holding company for impaired assets (RTC)
2. Fiscal 2. Fiscal StimulusStimulus
1. Ease monetary 1. Ease monetary policypolicy
3. Use of public 3. Use of public balance sheets balance sheets to support to support housing and housing and credit markets credit markets
63
Where the U.S. leads, the Euro zone is Where the U.S. leads, the Euro zone is likely to followlikely to follow
-1.0
0.0
1.0
United States Euro Area
19801980 8282 8484 8686 8888 9090 9292 9494 9696 9898 20002000 0202 0404 0606
PeaksPeaks
TroughsTroughs
64
Housing-Related vulnerabilities are widespread
-10
-5
0
5
10
15
20
25
30
35
Irelan
d
Nether
landsU.K
.Aust
ralia
France
New Z
eala
ndDenm
arkSpai
nSw
eden
Ital
yJa
panU.S
.Fi
nland
Germany
Canada
Source: IMF staff calculations.
House “Price Gaps”(1997-2007; in percent of real house prices)
-50
0
50
100
150
200
Irelan
d
Nether
landsU.K
.Fr
anceSpai
nDenm
arkAust
ralia
Swed
en
New Z
eala
ndIt
aly
U.S.
CanadaFi
nland
Germany
Japan
price/disposable income
price/rent
House Valuation Ratios(1997-2006; percent change)
65
-10
-5
0
5
10
15
20
25
30
35
40United Kingdom GermanyFrance ItalySpain Ireland
European Housing Markets are Turning DownEuropean Housing Markets are Turning Down(Four quarter percent change)(Four quarter percent change)
19951995 19971997 19991999 20012001 20032003 20052005 2007:2007:Q4Q4
66
But industrial production and exports seem little affected… so far
Merchandise Exports(12 month percent change of 3mma)
-6
-4
-2
0
2
4
6
8
10
12
14
16
Industrial Production(12 month percent change of 3mma)
Emerging &developingeconomies
Advancedeconomies
-15
-10
-5
0
5
10
15
20
25
30
35
20002000 Feb. Feb. 20082008
20002000 Feb. Feb. 20082008
0202 0404 0606 0202 0404
Emerging &developingeconomies
Advancedeconomies
0606
67
0
1
2
3
4
5
6
7
8
9
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
Advanced economies and emerging economies have diverged…
Emerging &developingeconomies
Advancedeconomies
Real GDP Growth Rate(percent change)
68
… but not decoupled
-4
-3
-2
-1
0
1
2
3
4
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Advancedeconomies
Emerging &developing economies
Real GDP Growth Rates(deviation from trend)
69
-6
-3
0
3
6
9
12
15
2003 04 05 06 07 08 09
And domestic demand has strong And domestic demand has strong momentum in BRICs momentum in BRICs (percent change)(percent change)
Brazil
Total domestic demandTotal domestic demand Net exportsNet exports Terms of trade gainTerms of trade gain
-6
-3
0
3
6
9
12
2003 04 05 06 07 08 09
-6
-3
0
3
6
9
12
15
2003 04 05 06 07 08 09
Russia
India
-6
-3
0
3
6
9
12
15
2003 04 05 06 07 08 09
China
Total growthTotal growth
70
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
Central and Eastern EuropeAfricaEmerging AsiaLatin AmericaC.I.S.Middle East
And 2007 Looks Worse Than 1996And 2007 Looks Worse Than 1996(Emerging market country current accounts in 1996 and 2007; perc(Emerging market country current accounts in 1996 and 2007; percent of ent of GDP)GDP)
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
Central and Eastern EuropeAfricaEmerging AsiaLatin AmericaC.I.S.Middle East
1996 2007
71
Oil Prices have reached new highs, amid Oil Prices have reached new highs, amid tight market conditionstight market conditions
0
1
2
3
4
5
6
7
8
1996 98 00 02 04 06 08
OPEC Spare Capacity(percent of world oil consumption)
Crude Oil Prices(Brent; from futures options; as of April 16 2008; Brent; from futures options; as of April 16 2008;
U.S. dollars per barrelU.S. dollars per barrel)
1996-2006average
SaudiArabia
Other OPEC
Forecast
40
50
60
70
80
90
100
110
120
130
140
150
16090% confidence interval
70% confidence interval
50% confidence interval
Spot/futures price
20062006 20072007 20082008 Mar.Mar.20092009
72
Winners and losers(Estimated impact of projected oil and food price changes in 200(Estimated impact of projected oil and food price changes in 2008 in percent of GDP)8 in percent of GDP)
1/ indicate countries where the trade balance losses resulting from higher food and fuel prices are more than offset by gains from increases in prices of other commodities (mostly metals).
Large gains (Trade Balance improving by more than 2.5 percent of GDP)Small gains (Trade balance improving by less than 2.5 percent of GDP)Smaller losses (Trade balance worsening by less than 2.5 percent of GDP)Large losses (Trade balance worsening by more than 2.5 percent of GDP)
No data
73
United States
Euro Area
Japan
-2
-1
0
1
2
3
4
5
Headline vs. CoreHeadline vs. Core(12 month percent change)(12 month percent change)
United States
Euro Area
Japan
-2
-1
0
1
2
3
4
5
6Headline inflation Core inflation
Apr.08
20022002 0303 0404 0505 0606 0707 Apr.08
20022002 0303 0404 0505 0606 0707
74
-6
-4
-2
0
2
4
1995 1997 1999 2001 2003 2005 200770
80
90
100
110
120
Rising pressure on manufactured import prices(indices; December 2005 = 100)
United States
Japan
Euro area
Emerging economies output gap
(percent of potential GDP; right scale)
U.S., Euro area and Japan aggregate
75
70
80
90
100
110
120
130
140United StatesEuro AreaJapan China
REER(index, 2001 = 100)
80
100
120
140
160
180
200
Euro
Yen
Renminbi
Nominal Exchange Rates Against U.S. Dollar
(index, 2001 = 100)
U.S. Dollar Has Depreciated, But Limited U.S. Dollar Has Depreciated, But Limited Real Appreciation in Key Surplus Countries Real Appreciation in Key Surplus Countries
2001 2003 Apr.2008
2005 2001 2003 Mar.2008
2005
76
Title
0
50
100
150
200
250
300
350
400
450
Real Oil, Metals and Food Prices(2007 = 100)
1970 75 Q108
Food
Metals
Oil
80 85 90 95 2000 05
77
US Forecast: mild recession, slow recovery
-4
-2
0
2
4
6
8
OtherResidential investmentPrivate consumptionNet ExportsReal GDP growth
Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420072007
Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420082008
Q1 Q2 Q3 Q4Q1 Q2 Q3 Q420092009
Real GDP Growth and its Components(percent change)
78
0
2
4
6
8
10
Real GDPAverage 1995-2007
April 2008 WEO: Two Years of Slower April 2008 WEO: Two Years of Slower GrowthGrowth
06 07 08 09 1006 07 08 09 10Global economyGlobal economy
Real GDP Growth Rates(percent change)
06 07 08 09 1006 07 08 09 10Advanced economiesAdvanced economies
06 07 08 09 1006 07 08 09 10Emerging economiesEmerging economies
79
How Much Higher Will Commodity Prices Go?How Much Higher Will Commodity Prices Go?
50
100
150
200
250
300
350
Jan-06 Jan-07 Jan-08 Jan-09
1/ Food index is composed of barley, corn, soybean, soybean meal, soybean oil, pork, palm oil, sugar and wheat. Base metals index comprises aluminum, copper, lead, nickel, tin and zinc.
Commodity Indices 1/(dotted lines are futures prices)
Selected Grain Prices 2/(January 2006 =100)
Futures
2/ Futures prices are as of 4/24/2008.
Rice (CBOT)
Corn
Soybean
Wheat
50
100
150
200
250
300
350
400
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
Futures
Food
Metal
Oil
80
-1
0
1
2
3
05 06 07 08
United States
Japan
Euro area
Inflation expectations drifting upwards(in percent; from 10-yr index-linked bonds)
81
-600
-500
-400
-300
-200
-100
0
100
200
300
400
500
600
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
Recession
Change in payrolls
U.S. employment is beginning to contract
Change in Employment Payrolls(Average monthly change over the previous 3 months, thousands of people)
82
Have commodities prices reached a peak?Have commodities prices reached a peak?
30
50
70
90
110
130
150
170
19090% confidence interval
70% confidence interval
50% confidence interval
Spot/futures price
0
100
200
300
400
500
600
700
Crude oil prices Crude oil prices (Brent from futures options, US dollars per barrel)(Brent from futures options, US dollars per barrel)
83
Advanced economy monetary policy stances are accommodative
Real Long-Term Interest Rates(deviation from 2000-2007 average)
-4
-3
-2
-1
0
1
2
3
4
Real Short-Term Interest Rates(deviation from 2000-2007 average)
United States
Japan
-4
-3
-2
-1
0
1
2
3
4
20002000 May May 20082008
20002000 May May 20082008
0202 0404 0606 0202 0404 0606
Euro area
United States
Japan
Euro area
84
-2
-1
0
1
2
3
4
5
-4Q Onset 4Q 8Q 12Q
Current U.S. projections
Typical advanced economy pathfollowing housing correction
Past U.S. recessions and recoveries, 1974-2001
Downturns and Recoveries(Real GDP; in percent change from year earlier)
2008Q1
How does the US downturn compare?How does the US downturn compare?
85
Tale of three cycles
Weakeningconsumption
Fallinginvestment
Fallingoutput
Fallingemployment
Business Cycle
Fallingdebt prices
Increasingloan losses
Reducedbank capital
Creditde-leveraging
Forcedassetsales
Tighteningcredit
conditions
Credit Cycle
Falling homeprices
Risinghouseholdnegative
equity
Harder torefinance
Increasingforeclosures
Rising inventoriesOf unsold homes
Housing Cycle