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					Regional Economic Outlook
Middle East and Central Asia Department

International Monetary Fund
October 2009

1

Caucasus and Central Asia
Energy exporters Energy importers

Southwestern Asia

INTERNATIONAL MONETARY FUND

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October 2009

Outline
 World Economic Outlook  CCA Economic Outlook

INTERNATIONAL MONETARY FUND

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October 2009

World Economic Outlook: Key Messages
 The global economy is beginning to grow again, but recovery is likely to be sluggish. The slow recovery calls for sustained policy support until the expansion is firmly entrenched.  Financial market conditions continue to improve but remain tight, with the global financial system remaining far from normal.  Expansionary monetary and fiscal policy will continue to underpin the global recovery, but to safeguard price and financial stability and the soundness of public finances, credible exit strategies will be needed.  Two key factors for the medium-term: private demand replacing public demand; and demand in external surplus economies rising to make up for shrinking demand in external deficit economies.
INTERNATIONAL MONETARY FUND

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October 2009

Exports and manufacturing helped by a turn in the inventory cycle
Merchandise Exports
(Percent change; 3mma; annualized)
60

Industrial Production
(Percent change; 3mma; annualized)
20

40

10

20
0

0
-10

-20

Advanced
-40

Advanced Emerging World

-20

World Emerging

-60

-30

-80 Jan-07

Jan-08

Jan-09

Jul-09

Jan-07

Jan-08

Jan-09

-40 Jul-09

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October 2009

Consumer confidence slowly recovering, but unemployment still rising
Consumer Confidence
(January 2005=100)
200 180

Unemployment
(Percent; weighted by labor force)
8.5

8.0
160 140 120 100 80 60 40 20 0 05 06 07 08 09 U.S. (Conf. Board) Japan (Econ. Soc. Res. Inst.) U.K. (Building Society) Germany (Eur. Comm.)

Advanced World Emerging

7.5

7.0

6.5

6.0

5.5

5.0

Aug. 09

05

06

07

08

09

Jul. 09

INTERNATIONAL MONETARY FUND

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October 2009

Policy has taken risk of another Great Depression off the table, but financial conditions remain tight
Corporate Spreads Interbank Spreads Equity Markets

(Basis points)
500 U.S. dollar 400 Yen Euro

(Basis points; averages of Europe and United States)
1800
BB AAA

(March 2000 = 100; national currency)
130
DJ Euro Stoxx

1600

Wilshire 5000 Topix

120 110 100

1400

300

1200

90
1000
200

80
800

70
100

600

60
400
0

50 40 30
2000 02 04 06 08 Sep. 09

200

-100 2000

02

04

06

08

Sep. 09

2000

02

04

06

08

0 Sep. 09

INTERNATIONAL MONETARY FUND

7

October 2009

Expansionary monetary policy has been key, but will not forestall a credit crunch
Credit Growth in Private Nonfinancial Sectors
(q/q changes; billions of local currency)
250 2500
100
United States (LHS) Euro Area (LHS) Japan (inverted; RHS)

Bank Lending Conditions
-15

80

-10

200

2000
60 -5

150

1500
40 0

100

1000
20 5

50

500

0

10

0 United States (RHS) Euro area (LHS) -50
2000 02 04 06 08 09: Q2

0

-20

15

-500

-40
2000 02 04 06 08 09: Q3

20

INTERNATIONAL MONETARY FUND

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October 2009

Fiscal policy too has played a major role, but fiscal support will diminish
Fiscal Balance
(Percent of GDP)
2

Public Debt
(Percent of GDP)
120

Advanced Emerging and developing
0

Advanced Emerging and developing World
100

World

-2

80

-4

60

-6

40

-8

20

-10
1970 80 90 2000 10 14 1970 80 90 2000 10 14

0

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October 2009

Rebalancing will be a drawn-out process, implying slow global growth
Global Imbalances1
(Percent of world GDP)
U.S. Oil exporters DEU+JPN OCADC CHN+EMA ROW
3 2 1 0 -1
Discrepancy

-2 -3
1996
1 OCADC:

98

2000

02

04

06

08

10

12

14

Bulgaria, Croatia, Czech Republic, Estonia, Greece, Hungary, Ireland, Latvia, Lithuania, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Turkey, and United Kingdom. INTERNATIONAL MONETARY FUND

10

October 2009

Global growth is expected to pick up in 2010, but the recovery will be sluggish
Real GDP Growth1
(Percent change from a year earlier)
12 10 8 6
2 4

Prospects for World GDP Growth
(Percent change)
6

4 2
0

0 -2 -4 -6
2000
1 Quarterly

World Advanced Emerging and developing
02 04 06 08 10 12 14

-2 90% Confidence interval 70% Confidence interval 50% Confidence interval -4
2006 07 08 09 10

data through 2010 and annual data afterwards.

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October 2009

Key risks, mainly on the downside
• Premature withdrawal of public support, because recovery seemingly self-sustaining—public’s appetite for fiscal support seems low. • New financial disaster, geopolitical issues/oil price surge, swine flue: economy’s capacity to absorb new shocks is very low. • Fiscal credibility loss or questions about continued independence of central banks.

• Upside: we may underestimate effects of reduced uncertainty/greater confidence.
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October 2009

CCA Economic Outlook
• Global crisis has severely affected CCA energy importers and Kazakhstan:
• Energy importers hit by sharp drop in remittances • Kazakhstan held back by lingering banking crisis • Other energy exporters still growing

• Modest recovery in prospect for 2010; stronger for energy exporters than for importers. • Effective countercyclical policies have limited the downturn; concessional donor support has been important for energy importers.

• Financial sectors remain under stress, with NPLs expected to rise further.
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October 2009

CCA in the grip of the global crisis
Global crisis hit the region in 2009; only a modest recovery is projected for 2010
Real GDP Growth
(Annual change; in percent)
15 10 5 0 -5 -10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 proj. proj.
Commonwealth of Independent States CCA energy exporters CCA energy importers World Russia

Per capita incomes are declining in the energy importing countries
Gross National Disposable Income Per Capita 1/
(In U.S. dollars)
4500

3000
Armenia Georgia Kyrgyz Republic Tajikistan

1500

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
1/ GNDI is defined as GDP + non-factor income + transfers.

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October 2009

Remittances down sharply
Many migrants worked in the Russian construction sector Remittances Outflow from Russia to the CCA 1/
(Percent change; year-on-year)
100 80 60 40 20 0 -20 -40
08 09 8 8 8 9 ar -0 Se p0 ar -0 -0 nnec Ju Ju M D M
CCA Russian construction

A collapse in remittances affects household incomes Remittances Inflows
(Percent change; year-on-year)
100
ARM

80 60 40 20 0 -20 -40 -60 -80

GEO KGZ TJK

8

8

08

8

9

-0

-0

n-

-0

-0

ar

Se p

D ec

Ju

ar

M

1/ Includes compensation of employees and migrants capital transfer.

INTERNATIONAL MONETARY FUND

15

M

Ju
October 2009

n-

09

Exports contracted sharply in 2009, but imports also falling
Exports of Goods in U.S. Dollars
(In percent; year-on-year)
150
Energy exporters Energy importers

Imports of Goods in U.S. Dollars
(In percent; year-on-year)
160
Energy exporters Energy importers

100

120 80

50 40 0 0 -40

-50

nFe 08 bM 08 ar Ap 08 r M -08 ay Ju 08 n0 Ju 8 l-0 Au 8 gSe 08 pO 08 ct N 08 ov D -08 ec Ja 08 nFe 09 bM 09 ar Ap 09 r-0 9

INTERNATIONAL MONETARY FUND

16

nFe 08 bM 08 ar Ap 08 r M -08 ay Ju 08 n0 Ju 8 lAu 08 gSe 08 pO 08 ct N 08 ov D -08 ec Ja 08 nFe 09 bM 09 ar Ap 09 r-0 9
October 2009

Ja

Ja

Net external demand holding back growth in 2009, but contributes to 2010 recovery
Net External Demand
(Annual change; in percent)

120 100 80 60 40 20 0 -20 -40 -60 -80 AZE
INTERNATIONAL MONETARY FUND

2009 2010

KAZ

TKM

UZB
17

ARM GEO KGZ

TJK
October 2009

Macroeconomic policies have been accommodative in 2009

Country Armenia Azerbaijan Georgia Kazakhstan Kyrgyz Republic Tajikistan Turkmenistan Uzbekistan

Fiscal stimulus       

Exchange rate depreciation      

Monetary easing      

Liquidity support      

Increased provisioning

Capital injections

Deposit guarantees Enhanced

  

  



Enhanced Enhanced





INTERNATIONAL MONETARY FUND

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October 2009

Fiscal policy expansionary in 2009, but some countries face limited fiscal space in 2010
Change in the Non-oil Primary Fiscal Deficit, 2009
(In percent of non-oil GDP)
10 8 6 4 2 0 -2
0
Fiscal stimulus Automatic stabilizer Change in primary deficit

Fiscal Space Indicators
(In percent, 2009)

160
Less fiscal space

Total Public Debt/GDP

120

80
Kyrgyz Republic

40

Tajikistan Armenia Azerbaijan

Georgia

-4 AZE KAZ TKM UZB ARM GEO KGZ TJK

-10

0

10

20

30

40

Real Lending Rates
Source: IMF staff estimates; lending rates are from the International Financial Statistics.

Note: methodology based on IMF (2009), and is briefly described in the Amex.

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October 2009

Where debt levels were already high, donor support has helped finance the fiscal stance
Some governments are constrained by already high debt levels
Public Debt
(In percent of GDP)
60 50 40 30 3 20 10 0 AZE KAZ TKM UZB ARM GEO KGZ TJK 2 1 0 ARM GEO KGZ TJK
2008 2009 proj. 2010 proj.

2009 increase in donor support expected to reverse in 2010
Grants to Energy Importers
7 6 5 4

(In percent of GDP)
2008 2009 proj. 2010 proj.

INTERNATIONAL MONETARY FUND

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October 2009

Inflation down sharply, but pressures may return in 2010
Inflation down sharply from historical highs…
Consumer Price Index
(Annual change; in percent)
40 30 20 10 50 0 -10 0
Aluminum Cotton Crude oil Gold
ARM GEO KGZ TKM AZE KAZ TJK UZB

… but commodity prices on the rise again
Commodity Prices
(Index 2008 = 100)
150

100

Ja n Fe -08 b M -08 ar Ap -08 M r-08 ay Ju -08 nJu 08 Au l-08 g Se -08 p O -08 ct N -08 ov D -08 ec Ja -08 n Fe -09 b M -09 ar Ap -09 M r-09 ay Ju -09 n09

INTERNATIONAL MONETARY FUND

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Ja n Fe -08 b M -08 ar Ap -08 M r-0 ay 8 Ju -08 nJu 08 Au l-08 g Se -08 p O -08 c N t-08 ov D -08 ec Ja -08 n Fe -09 b M -09 ar Ap -09 M r-0 ay 9 Ju -09 nJu 09 Au l-09 g09
October 2009

Currencies have depreciated ...
…. against dollar, and energy Importers’ currencies have caught up with weakening ruble … Local Currencies Against the U.S. Dollar and Russian Ruble
(Aug 31, 2008 – Aug 31, 2009, increase indicates appreciation)
30 20 10 0 -10 -20 -30 -40
Against the U.S. dollar Against the Russian ruble

… helping reverse competitiveness losses suffered in 2008 Real Effective Exchange Rate
(Index Jan 2005 = 100; increase indicates appreciation)
180 160 140 120 100 80 60
ARM AZE GEO KAZ KGZ TJK UZB

AZE

KAZ

TKM

UZB

ARM GEO

KGZ

TJK

Ja

n-0

5

Ju

l-0

5

n Ja

-06

Ju

l-0

6 Ja

n-0

7

Ju

l-0

7 Ja

n-0

8

Ju

l-0

8

n Ja

-09

Ju

l-0

9

INTERNATIONAL MONETARY FUND

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October 2009

Financial sectors are under stress, with NPLs set to rise further
Nonperforming Loans
(In percent of total loans)

20

16

2007 2008 2009, latest

12

8

4

0 AZE
INTERNATIONAL MONETARY FUND

KAZ

TKM

UZB
23

ARM GEO

KGZ

TJK
October 2009

In response, credit growth has slowed
Credit boom has come to an abrupt halt Credit to the Private Sector
(Percent change; year-on-year)
120
ARM

Real lending rates on the rise as inflation declines Real Lending Rate
(In percent)
25
AZE GEO KAZ KGZ 2007 2008 2009, latest 1/

100 80 60 40

20 15 10 5

20 0 -20 0 -5 -10 AZE KAZ TKM UZB ARM GEO KGZ TJK
1/ Lending rate for Georgia is on loan flows for all maturities.

Ja n Fe -08 b M -08 ar Ap -08 M r-08 ay Ju -08 nJu 08 Au l-08 g Se -08 p O -08 c N t-08 ov D -08 ec Ja -08 n Fe -09 b M -09 ar Ap -09 M r-09 ay Ju -09 nJu 09 l-0 9
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October 2009

Social Impact of the Crisis
• With per capita income and social spending rising in the oil exporters, poverty is expected to fall • In the oil importers, despite some increase in social spending, poverty is expected to pick up via the following channels:
– Disposable income is projected to drop by 5 percent on account of lower remittances alone – Softening of labor markets will likely see unemployment edging up – Depreciated exchange rates have led to some increases in import prices for consumers – Simulations for several countries suggest the poverty rate could increase as much as 5 percentage points
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October 2009

Policy Priorities
• Fiscal stimulus needs to be sustained in most countries in 2010 – more concessional donor financing would support growth and social protection and limit debt increase in energy importers • Flexible exchange rate regimes will help preserve competitiveness • Further steps to stabilize financial sectors important in some countries • Not too early to start thinking about exit strategy, to reverse debt increase and take best advantage of global recovery: – – – – Medium term fiscal consolidation Further reforms to improve business environment Enhanced regional cooperation Financial sector development
26 October 2009

INTERNATIONAL MONETARY FUND

Please visit the IMF’s website
Full report and copy of the presentation: http://www.imf.org/external/pubs/ ft/reo/2009/MCD/eng/mreo1009.htm What do you think? Make your point on the related blog: http://blog-imfdirect.imf.org

INTERNATIONAL MONETARY FUND

27

October 2009


				
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