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The Global Economy Macro trends in the global

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The Global Economy Macro trends in the global Powered By Docstoc
					                ILO Conference
      Business of Representing Employers
                                     5-6,
                                Sept 5 6 2011



                      Mitali Das
               Research Department, IMF


Views expressed here are my own and do not necessarily represent those of the IMF.
 To Achieve “Strong, Sustained, and Balanced
          Growth”, Four Conditions:
                  ,

                  • Financial regulation, new
   Reforms          policy tools
                                                Slow



   Repairs        • Fiscal, banks, housing       Slow


                  • From fiscal stimulus to
Rebalancing I       private demand in AEs
                                                 Half


                  • From CA surplus countries
Rebalancing II      to CA deficit countries
                                                Stalled




                                                          1
1. Reforms are Slow, and Repairs are Tough.


                • Mainly financial.
                • Capital ratios: progress.
                                  progress
 Reforms
                • Liquidity and systemic risk.   Hard.
                             processes:
                • Resolution p                   Hard.


                • Budgets. Fiscal consolidation.
                  Not too slow, not too fast.    Hard.
  Repairs       • Banks (GFSR). Recapitalization.
                              ,
                  Not too slow, not too fast.    Hard.
                • Housing. Resolution process.   Hard.
                                                         2
                     Bank Lending Conditions Remain Tight
       Bank Lending Conditions
    (net percentage of respondents tightening loan standards)
100                      All firms                    80                                          SMEs
                                                                70       United States           Euro area           United Kingdom
 80                   Tighter                                                                    Tighter
                                             United States      60
                      lending                                                                    lending
                     conditions                                                                 conditions
 60                                                             50

                                                                40
 40
                                                                30
                                                  Euro area
                                                                20
 20
                                                                10
  0                                                               0

                                                                -10
-20                                        United Kingdom
                                                                -20
                                                     11Q3                          11Q2                      11Q2                11Q2
-40                                                             -30
       04    05      06     07     08     09     10     11           09       10       11 09         10       11 09           10     11
      Sources: Lending surveys by the Bank of England, European Central Bank, Bank of Japan, and the U.S. Federal Reserve for households
      and corporates; and IMF staff estimates.                                                                                           3
                                The Dismal U.S. Housing Market
     U.S. Housing Inventories and Foreclosures                               U.S. House Prices
     (millions of units)                                                     (percent change; year over year)
18                                                                     20          FHFA 1/      NAR 2/      Case-Shiller Composite 10
           Actual Inventories             Single-family homes
                                           with mortgages in
16         Foreclosures in Progress        negative equity 1/          15
                                                                                                                        Highest
           90 + Day Delinquencies                                                                                       forecast
14                                                                     10
           60-89 Day Delinquencies
           Modified mortgage redefaults                                                                            Average
12                                                                      5
           Underwater mortgages                                                                                    Forecast 3/
                                                                11Q2
10                                                                      0

8                                                                       -5
                                                                                                                          Lowest
6                                                                                                                        forecast
                                                                       -10

4                                                                      -15

2                                                                      -20

0                                                                      -25
     06        07         08        09          10              11           06 07 08 09 10 11 12 13 14                             15
     Sources: Haver Analytics; and IMF staff estimates.                      1/ FHFA refers to Federal Housing Finance Agency.
     1/ Data from Zillow.com.                                                2/ NAR refers to National Association of Realtors.
                                                                             3/ Macro Markets Home Price Expectations Survey.            4
2. Internal Rebalancing. From Fiscal Stimulus to
                Private Demand.



           Fiscal consolidation taking place.



But private demand not taking the relay.
        • Mechanical brakes?
        • Confidence and limited policy room?
Both.
                                                   5
                                                          Fiscal Adjustment:
                                                      Generally, On (Linear) Track
                                                                      (percent of fiscal year potential GDP)                                                              6
                   6

                                                                        Singapore                                                             Singapore
                   4                                                                                                                                                      4


                   2                                                                                                                                          Italy       2
                                                                               Italy
                                                                                                                           Belgium                Iceland
                                                      Belgium          Iceland                                             Germany                                        0




                                                                                                                                                                               Required balance
                   0
            ance




                                                     Germany           Israel
                                                                                                                     Austria         Israel
Required bala




                                                                Austria                                                        France
                   -2                                       France                                                              Netherlands                               -2
                                                                                                            United                                Greece
                                                            Netherlands                                     States       Canada
                                                                                                    Japan
                                  United          Canada                                                                                           Portugal
                   -4                                                     Greece                                                                                          -4
                             Japan States                                                                                  Spain
                                             Spain                                                              United
                                                           Portugal                                            Kingdom
                   -6                    United                                                                                                                           -6
                                        Kingdom

                   -8                                                                                                                                                     -8
                        -8         -6       -4      -2       0             2           4   6   -8     -6       -4        -2       0        2              4           6
                                              Latest projection                                                          Latest projection
                    Cyclically Adjusted Primary Balance, 2011                                   Cyclically Adjusted Primary Balance, 2012
                   Source: IMF, World Economic Outlook; and IMF staff calculations.
                                                                                                                                                                                                  6
                  U.S. Confidence and Saving Track Wealth
       Household Wealth and Confidence                                     Household Wealth and Saving
       (change; year over year)                                            (ratio to disposable income)
                  Consumer confidence (CB)                                             Wealth (inverted)
                  Wealth (ratio to disposable income; RHS)                             Saving rate (percent; SAAR; RHS)
40                                                            1.0    4.2                                                         8

30
                                                                                                                                 7
                                                                     4.6
20                                                            0.5
                                                                                                                                 6
10                                                                   5.0
                                                                                                                                 5
 0                                                            0.0
                                                                     5.4
-10                                                                                                                              4

-20                                                           -0.5   5.8                                                         3
-30
                                                                     6.2                                                         2
-40                                                           -1.0
                                                                                                                                 1
-50                                                                  6.6
                                                                     66
                                                       11Q2                                                               11Q2
-60                                                           -1.5                                                               0
      95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11                   95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
       Source: Haver Analytics.                                                                                                      7
         Income Expectations are Surprisingly Pessimistic
    Expected Change in Family Income 1/
    (percent; median; 3-month moving average)
5



4



3



2



1
                                                                                                    Jul-11


0
    95    96      97     98      99     00     01      02   03   04   05   06   07   08   09   10     11

    Source: University of Michigan, Survey of Consumers.
    1/ Shaded bars indicate recessions.
                                                                                                             8
                 The Increasing Share of Profits in the U.S.
       Nonfarm Business Sector Wage-Productivity Gap                       Corporate and Labor Share of the Increase in
       (index; 1950Q1=100)                                                 National Income during Recoveries 1/
                                                                           (percent)
400                                                                 100
              Real output per hour         Real compensation                                  Labor compensation                                                Corporate profit
                                                                     90
350
                                                                     80
300                                                                  70

                                                                     60
250
                                                                     50
200
                                                                     40

150                                                                  30

                                                                     20
100
                                                                     10
50                                                                     0
                                                                                   Q4

                                                                                               Q2

                                                                                                           Q1

                                                                                                                       Q1

                                                                                                                                   Q4

                                                                                                                                               Q1

                                                                                                                                                           Q2

                                                                                                                                                                         Q4

                                                                                                                                                                                     Q1

                                                                                                                                                                                                 Q4

                                                                                                                                                                                                             Q1
                                                                            50Q1-51Q

                                                                                        54Q3-56Q

                                                                                                    58Q3-60Q

                                                                                                                61Q2-63Q

                                                                                                                            71Q1-72Q

                                                                                                                                        75Q2-77Q

                                                                                                                                                    80Q4-81Q

                                                                                                                                                                  83Q1-84Q

                                                                                                                                                                              91Q2-93Q

                                                                                                                                                                                          01Q1-02Q

                                                                                                                                                                                                      09Q2-11Q
                                                          11Q2
  0
      50 54 58 62 66 70 74 78 82 86 90 94 98 02 06 10
       Source: Haver Analytics.
       1/ Recoveries are 8 quarters after the trough except where there were not 8 quarters of recovery.                                                                                                          9
3. External Rebalancing. Mostly Stalled.


           Volatile capital flows.




M l “Bad R b l      i ” d i 2009 2010
Mostly “B d Rebalancing” during 2009-2010.



 Little expected progress from 2011 to 2016.


                                               10
                                                                  External Rebalancing: Stalled
                                                                                        (percent of domestic GDP)
                                         2011-2007                                                          2016-2011
                                   4                                                                                                                                       4
                                                                                                                       United                               Hong Kong
                                             United
                                                                                                                      Kingdom                                 SAR
                                             States
                                   2                                                                                        Italy                                          2
                                                                                                                                                        China
                                                                              Netherlands
                                                    United                                                                              0 0114 0 5269
                                                                                                                            France y = -0.0114x + 0.5269
                                                   Kingdom
                   count balance




                                                                                                                                                                                                   count balance
                                   0                                                                                                                                       0
                                                                    Korea                                        United
                                                                                                                 States              Korea Japan
                                                  Italy
                                                     France                                                                                            Germany
                                    2
                                   -2                                               Germany                                                                                 2
                                                                                                                                                                           -2
Chang in current acc




                                                                                                                                                                                Chang in current acc
                                                                                                                                               Netherlands
                                                                            Japan

                                   -4                              y = -0.3469x - 0.6333                                                                                   -4
                                                                                       China
    ge




                                                                                                                                                                                    ge
                                   -6                                                           Hong Kong                                                                  -6
                                                                                                  SAR


                                   -8                                                                                                                                      -8
                                        -8   -6    -4      -2   0     2   4     6    8         10   12   14 -8   -6   -4   -2      0    2     4   6     8 10     12   14
                                                        2007 Current account balance                                            2007 Current account balance

                                        Sources: IMF, World Economic Outlook, and IMF staff calculations.
                                                                                                                                                                                                      11
           4. Baseline and Risks.



                           g
           Baseline: Lower growth.



• Risks: Adverse feedback loops, at liquidity trap.
• Growth and fiscal.
• Growth and banks.
• Growth, fiscal, and banks.
• AEs and EMs. Decoupling?
                                                      12
          5. Policies.

Reforms   • Must be continued




          • Fiscal consolidation.
              Case for fiscal transfers?
            • C    f fi l t        f ?
          • Banks. Raising capital buffers.
Repairs
                               injections,
            • Case for capital injections à la
              TARP?
          • Housing. A new push is needed.



                                                 13
          Policies (continued).

               • Low interest rates.
  Internal     • Reinvigorate animal spirits?
rebalancing
               • Deal with long-term unemployment.




               • Mostly responsibility of EMs.
  External             overheating
               • Avoid overheating.
rebalancing    • Rebalance towards domestic
                 demand. But will take time.


                                                     14

				
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