March 2014 Global Economic Chartbook
The March edition of the IIF Global Economic Chartbook summarizes our current views on the global economy, including a section on downside risks. It also focuses on our latest assessment of capital flows to emerging economies as well as the structural challenges for many EMs. The underlying data for the charts presented are available for download in PowerPoint format—you are encouraged to use the charts and data in your own work.
Weekly Insight: Living With EM Uncertainty
- More risk appetite, but strains in a number of EM countries still evident
- Manufacturing PMIs—up in mature economies, down in EMs
- ECB on hold—improving growth amidst subdued inflation
- Ukraine—sharp escalation of the standoff with Russia has further intensified the already acute financing pressures
- China—keep up the growth
- India—off to the polls as Modi meets markets
Kenya: Poised For Stronger Growth
Kenya looks set to enter a phase of higher growth and smaller deficits, but many challenges and risks remain. Reforms under the recently completed IMF program have put the economy on a firmer financial footing, and investment in infrastructure and the discovery of oil and coal have enhanced prospects further out. The large current account and fiscal deficits remain a challenge, however. The move to a devolved fiscal structure will add to costs initially and will need careful management, but revenue enhancing reforms should help consolidate public finances going forward. The upcoming maiden Eurobond issue will fund a significant portion of this year’s large borrowing requirement.
Brazil: Stuck in a Growth Rut
Brazil is entering its fourth consecutive year of below-trend economic growth. Tightening global financing conditions find the country with a strong external balance sheet, but also a complicated policy position. Above-target inflation has limited its capacity to rely on real depreciation as a shock absorber and prompted forceful monetary tightening. Elections in October are likely to delay a highly needed confidence-boosting policy realignment and/or initiation of major structural reforms, preconditions for lifting trend growth. Without these, growth will remain subpar, thereby increasing the risk of social tensions.
IIF Teleconference: China/Japan Update
March 4, 2014 — Charles Collyns, Managing Director and Chief Economist, and Sonja Gibbs, Director of Capital Markets and Emerging Markets Policy Department, share their insights following recent meetings with officials and the private sector in Beijing and Tokyo.
Weekly Insight: A Better Week to be in Bonds
- Strains in a number of emerging markets prompt a move to safe havens
- Domestic political factors drive greater divergence in EM performance
- Weaker U.S. data – temporary, but not all weather-related
- Bank lending continues to decline in the Euro Area
- Chinese central bank to markets: currency appreciation is not a one-way bet
IIF Teleconference on Greece: Another Try at Completing the Program Review
February 27, 2014 — Jeffrey Anderson, IIF Senior Director for European Affairs, discusses his impressions following recent meetings in Athens, Frankfurt, Berlin and Brussels regarding outstanding issues between Greece and the troika and their implications for financing going forward.
Ukraine: A Step Back From the Brink?
The dramatic events that led to the formation of a new reformist majority in parliament have provided a second chance for Ukraine’s battered economy. However, this would require the prompt formation of a new government able to undertake the reforms needed to alleviate the acute macroeconomic imbalances, put the economy on sound footing and safeguard an external financial support. With the Russian bailout likely to be put on hold, this assistance should amount to at least $20 billion this year alone. Given the massive adjustment needed and the social and economic pain it would entail, this government would need to be inclusive, credible and enjoying broad-based popular support. Risks of prolonged political uncertainty still remain substantial, however, raising odds of delays in implementing reforms with potentially disastrous consequences for financial stability and growth.
IIF Teleconference on Ukraine: Out of Control
February 24, 2014 — Following the rapid developments in Ukraine, Lubomir Mitov, IIF Chief Economist for Emerging Europe, and Ondrej Schneider, IIF Senior Economist of the European Department, provide a briefing on their insights into the situation, and discuss the impacts of the political disorder and what options are left to limit the economic fallout. Mr. Alexander Valchyshen, Head of Research at Investment Capital Ukraine LLC, joins to provide a perspective from Kiev.
Weekly Insight: U.S. Dollar Strengthens; G20 Pushes for Growth
- Relative strength of U.S. data, G20 messages buoy the dollar
- Highlights from the IIF G20 conference in Sydney
- Flash PMIs—weaker China, softer Euro Area, better U.S.
- BoJ moves again after soft GDP numbers
- Ukraine—out of control
- Emerging market corporate bonds: risks ahead?
Venezuela: Social Unrest Shakes Political Stability
University students-led protests have escalated challenging the administration of President Nicolás Maduro. Social unrest is being fueled by rampant crime, acute hard-currency shortages, rising inflation, weakening economic activity and growing scarcity of basic goods. Increased social turmoil is making stagflation almost a certainty in 2014 and undermining governability, thereby raising the risk of a full-fledged political crisis.
2014 February Japan Economic Forecast
After a disappointingly soft out-turn in 2013Q4, GDP growth is set to pick-up in 2014Q1 as consumption increases in anticipation of the April consumption tax hike. However, the outlook for the second quarter and beyond is challenging amidst fiscal contraction, slow progress on the structural reform agenda, and weak wage growth. We expect that these factors will lead the BoJ to step up its asset purchases in 2014.
Ukraine: Out of Control
The escalation of the political tensions into a full-blown violent conflict has caused the near-term outlook to deteriorate sharply. Policy inaction has led to escalation of financing pressures, prompting the central bank to impose capital controls, albeit with little effect thus far. Unless a negotiated solution to the political crisis is found soon and extensive official financial support is made available in exchange for major reforms, odds for a full-blown financial collapse will remain high and rising.
2014 February U.S. Economic Forecast
The latest data out of the U.S. have disappointed a bit, after strong headline GDP growth in 2013H2. A somewhat weaker data flow, a temporary drag from net exports and a normalization of inventory building are likely to result in slower headline growth in 2014H1. Despite these bumps on the road, we expect underlying growth to continue on a solid trajectory in 2014 and beyond.
2014 February Euro Area Economic Forecast
Growth has improved further in 2013Q4, but remains too feeble to boost employment noticeably, and to dispel concerns about low inflation. Meanwhile, bank lending rates to households and businesses remain fragmented, despite a broad-based improvement in bank funding conditions. The ECB stayed on hold this month, facing tensions between better growth and very low inflation.
India: Seeking to Bolster Macro Fundamentals
The Indian economy is on the mend. The central bank is persevering with tight monetary policy, as well as launching an ambitious financial sector program. Gradual fiscal adjustment, the falling current account deficit and steps to attract capital inflows have reduced vulnerabilities. A moderate recovery in real GDP growth is underway, although for a stronger performance it is important that the next government step up the pace of structural reforms after national elections in May. The possibility of a less stable coalition of regional and left-leaning parties coming to power is a key downside risk.
February 2014 Global Economic Monitor
A general sense of confidence in the global outlook at the turn of the year has quickly been replaced by rising nervousness and risk aversion as the data flow has been mixed, financial market conditions have turned volatile, and political developments have raised concerns in some vulnerable countries. While the fundamental drivers for an acceleration in the global economy remain in place, the expansion will continue to be uneven, and prospects for a group of EMs with macroeconomic vulnerabilities have clearly worsened.
Weekly Insight: More optimism, calmer markets
- Better sentiment prompts search for buying opportunities in equities, risk assets
- Market signals suggest some EM currencies still under scrutiny
- Tweaking our forecasts—mainly in emerging markets
- Solid Euro Area growth in 2013Q4
IIF Teleconference on India: Seeking to Improve Macro Fundamentals
February 14, 2014 — Dr. Bejoy Das Gupta, Chief Economist for Asia, discusses policies, near-term prospects and risks for India, where priority is being placed on tackling macro concerns and national elections are due by May 2014.
Euro Area Periphery: Crisis Eased But Not Over
Debt markets in the Euro Area periphery have been buoyant this year thanks to recovery and some reversal of the financial market fragmentation triggered by Europe’s crisis. But downside risks remain, despite improved economic fundamentals and the promise of expanded financial support, especially via the ECB’s OMT facility.
IIF Teleconference: Egypt, Tunisia and the Long Shadow of the “Arab Spring” in the MENA Region
February 11, 2014 — George T. Abed and Garbis Iradian of the IIF Africa/Middle East Department discuss the status of the transition in Egypt and Tunisia and the prospects for political stability and revival of economic growth. The call also addresses oil and energy issues as well as the fallout from the “Arab Spring” uprising since 2011 and the implications for regional stability.
The Pacific Alliance: Showing the Way Forward
The Pacific Alliance initiative, composed of Chile, Colombia, Mexico and Peru, has taken a pivotal role for Latin America’s integration. Alliance countries have all established well-balanced policy frameworks, are making efforts to implement productivity-enhancing structural reforms, and have a high degree of external trade openness, including free trade agreements with the U.S. Commitment to free trade and policy discipline has firmly anchored business confidence in the Alliance’s medium-term viability, underpinning investment and trend economic growth. We believe that the Pacific Alliance is poised to gain prominence within the region as a source of growth and political stability.
Weekly Insight: A Tentative Calm
- Risk appetite returns, but selectively
- Clearer signs of differentiation seen in emerging market currency performance
- IIF EM Lending Survey: more loan demand, better funding conditions—but tighter credit standards
- January Manufacturing PMIs—a mixed bag
- ECB—caught in a conundrum between improving growth outlook and persistently low inflation
Poland: Staying Calm Amid Emerging Market Turbulence
Supported by stronger foreign demand, improving confidence and accommodative policies, output growth is likely to extend the strong momentum from late 2013 into this year and next, while the absence of macroeconomic imbalances has increased Poland’s resilience to shifts in market sentiment. However, more recently the authorities have opted for actions aimed at achieving short-term gains ahead of next year’s parliamentary election at the expense of deteriorating medium-term prospects.
Emerging Markets Bank Lending Conditions Survey - 2013Q4
The IIF EM Bank Lending Conditions index picked up in 2013Q4 but still signaled a tightening in bank lending conditions in emerging economies, though at a lower pace. Contributing to the improvement, the deterioration in domestic and international funding conditions during the summer of 2013 moderated somewhat and nonperforming loans began to stabilize. Moreover, loan demand and demand and supply of trade finance continued to improve. Yet, banks continued to tighten credit standards.
China: Getting Serious About Local Government Debt
The rapid build-up of local government debt has made the authorities more resolute regarding measures to tackle the problem. While there are concerns that tightening of credit conditions and efforts to curb the use of shadow banking by local government financing vehicles could trigger market volatility, the central government is taking a gradual approach to reform and is likely to use its considerable fiscal resources to safeguard market stability.
South Africa: The Bumpy Road To A Post-QE World
South Africa, like other emerging market countries, is experiencing a new set of global headwinds as financial markets adjust to the start of Fed tapering and the movement to a post-QE world. Gyrations in capital flows and labor market unrest have undermined confidence in recent months, and monetary policy has been tightened amid concerns that the sharp rand depreciation will push inflation above its target range for a sustained period. Against this background, growth is likely to be well below potential again this year. Infrastructure investment should alleviate supply bottlenecks further out and boost exports, but the government will have to implement some fundamental structural reforms after the election to tackle problems in the labor market and improve the education system if the NDP growth target of 5.4% a year is to have any chance of being met.
Weekly Insight: A Closer Look at the EM Asset Price Correction
- Broad selling of EM assets eases; more differentiation expected going forward
- Assessing the emerging market policy response
- Ghosts of 1998 – but this time should be different
- Capital Flows to Emerging Market Economies – our flagship report looks for a gradual rebound in flows to emerging markets, but still low relative to 2010-2012
- Strength in U.S. GDP growth in the second half of 2013 likely to soften somewhat in the first half of 2014
January 2014 Capital Flows to Emerging Market Economies
Emerging market conditions have continued to be quite choppy, including a significant market correction in early 2014. We do not anticipate a sustained pull-back from emerging markets, but investors have become increasingly sensitive to country risks, which will test countries that experience heightened political uncertainties or do not take timely and decisive measures to address weaknesses in policy frameworks. As our baseline scenario, we continue to expect a gradual rebound in capital flows in 2014 and 2015, in line with a projected sustained pick-up in world growth and a gradual Fed exit. However, flows will remain at a much lower level relative to GDP than over 2010-2012 and uncertainty around our baseline projection remains high.
IIF Teleconference: Capital Flows to Emerging Market Economies
January 30, 2014 — This call discussed the IIF January 2014 Capital Flows to Emerging Market Economies Report, assessing recent market turbulence as well as updates on capital flows in the second half of 2013, and the IIF’s latest projections for 2014 and 2015. Participating IIF staff included Charles Collyns, Managing Director & Chief Economist; Sonja Gibbs, Director of Capital Markets & Emerging Markets Policy; and Felix Huefner, Deputy Director of Global Macroeconomic Analysis.
Oil: Ample Supplies, Softer Prices in 2014
Ample supplies will trump revived demand in 2014 creating a looser market based on fundamentals. Non-OECD oil demand is expected to drive the total global demand increase of 1.3 mbd. However, additional supplies, notably from the U.S. and Libya, will more than offset this expected increase in 2014, and possibly in 2015. Prices will fluctuate in the $100-110 per barrel range averaging $105 for the year.
Colombia: Peace Negotiations Raise Hopes for Economic Boost
Peace negotiations between the government and the FARC have gained momentum following agreement on rural development and political participation, thereby raising hope for a full–fledged accord. The recent progress on negotiations is bolstering President Santos’ bid for reelection. While the economy has performed relatively well over the last decade reflecting a reduction in violence and prudent policies, lasting peace is vital to increase trend growth and reduce poverty, which is heavily concentrated in rural areas.
Weekly Insight: Second-guessing the equity market rally
- Equities and risks to growth; surge in dollar bond issuance
- Softer growth and credit concerns in China
- Emerging market currencies under pressure
- Turkish central bank moves to defend the lira
- Euro Area flash PMI for January signals continuing improvement
- BoJ on hold (for now)
Lebanon: Improved Security Key to Growth Revival
The worsening of the security situation and spillover from the Syrian crisis depressed growth to 0.9% and widened the fiscal deficit to 11% of GDP in 2013. The extent of economic recovery in 2014 will be contingent on improvement in the domestic security situation and on regional political stability, although even with such improvement the deep-seated structural issues facing the Lebanese economy would weigh on the prospects for high and sustainable growth.
IIF Teleconference: Thailand's Near Term Outlook
January 22, 2014 — Dr. Bejoy Das Gupta, IIF Deputy Director of the Asia/Pacific Department, discusses the outlook for Thailand, where politics have taken a turn for the worse to precipitate a drop in the baht, slippage in the stock market and further slowdown in economic activity.
Weekly Insight: Lively debate on the global outlook, QE, capital flows
- “Show me the profits”- equities focus on earnings growth; credit spreads
- Highlights from IIF Economic Advisory Committee meeting in New York – cautious optimism on global outlook
- ... some skepticism about the effectiveness of forward guidance…
- ... and expectations of a pickup in capital flows to emerging markets this year, despite persistent vulnerabilities
Portugal: Financing Outlook Improves
A successful December bond exchange and renewed issues of five-year bonds last week ease financing pressures. While the government may be tempted to follow Ireland in exiting its program without official support, a more prudent course could be to agree contingent credit lines from the EU and IMF, which should be feasible if bond market access is sustained.
Thailand: Political Crisis Bears Down On Economy
Politics have taken a turn for the worse to precipitate a drop in the baht, slippage in the stock market and further slowdown in economic activity. Adverse impact on economic growth from elevated tensions is likely to persist through the first half. Our base case is for the economy to revive from the second half with a return of some political calm, but downside risks are considerable.
Argentina: Rough Transition Ahead
Increasing fiscal deficit monetization has fueled inflation, eroded international reserves and deteriorated the central bank’s balance sheet. The government remains unwilling to adjust policies to address imbalances, raising the risk of increased macroeconomic instability. While prospects of a pragmatic policy shift after the 2015 presidential election are on the rise, repairing the damage of years of policy mismanagement will take time, requiring sustained discipline and political leadership.
January 2014 Global Economic Chartbook Update
The January edition of the Global Economic Chartbook summarizes our current views on the global economy, including sections on capital flows and challenges for emerging economies. This Chartbook is also available in PowerPoint format—you are encouraged to use the charts and data in your own work.
Japan: Abenomics Faces A Tougher Second Year
Prime Minister Abe’s “three arrows” economic strategy brought quick results, boosting growth and raising inflation. However, year two of Abenomics is likely to be much more challenging as fiscal stimulus goes into reverse and the reform agenda remains to be convincingly laid out. A combination of fiscal drag and reform disappointments could put increasing burden on monetary policy in the fight to end deflation, raising risks of falling short on growth and price goals and potential for financial instability. Japan will soon reach a fork in the road: either Abenomics will be pushed ahead forcefully towards achieving its ambitious goals or the economy will relapse into a low growth and disinflationary pattern in which fiscal stresses will only increase.
Emerging Europe: Diverging Fortunes
Even though the external environment has improved markedly for Emerging Europe, recent performance and the near-term outlook have become increasingly divergent. The EU5 stand to gain the most from the recovery in the Euro Area given their strong trade links, ample foreign exchange reserves and limited dependence on volatile portfolio capital. On the other hand, the outlook for Russia, Turkey, and Ukraine has deteriorated. All three face a challenging 2014, with increasingly limited room for maneuver on the policy front. Key downside risks are an adverse market reaction to the Fed’s exit from quantitative easing and the possibility of prolonged stagnation in the EA. In addition, sharply lower oil prices would be negative for Russia — although a plus for the region’s oil importers.
Weekly Insight: Measured Fed, dovish ECB, market watchful
- Equity rally takes a breather; a good week for sovereign issuance; EM eyes on China
- Fed minutes suggest smooth launch for QE3 wind-down
- Stronger Euro Area growth outlook, but dovish ECB
- Frontier markets: popular, resilient—but still risky
IIF 2014 Publication Calendar
This publication calendar for periodic IIF products includes: the Global Economic Monitor, Capital Markets Monitor, Capital Flows Report, Quarterly Emerging Markets Bank Lending Survey and Chartbook. Additional IIF products, including country-specific reports, will be added to this calendar as publications timeframes become available. The schedule below shows the target week of publication. The exact publication date is subject to macroeconomic and capital markets developments.
Weekly Insight: New Year, Fresh Look
- Still constructive outlook for equities; risks to consensus view on bond yields
- Global manufacturing recovery remains on track, but EMs still lagging
- Strains in Turkey underscore political challenges ahead
- Chinese rising local government debt levels in the spotlight
- The big switch— out of bonds into equities; out of EM into DM