Latin America and the Caribbean: Adjusting to a Harsher Reality Alejandro Werner Director, Western Hemisphere Department
Main Takeaways • Persistently low commodity prices. Impact differs across
countries; further adjustment is needed.
• Domestic fundamentals are key for growth outlook going forward; corporate vulnerabilities may increase downside risks to investment • Monetary policy is getting increasingly challenging for some countries (weak demand pressures vs rising inflation expectations). • Policy priorities. Adjustment should be allowed to continue; buffers should be preserved; domestic fundamentals should be put in order. 2
Global Outlook Selected Projections for Real GDP Growth (Percent) Emerging market and developing
Advanced
China
economies
economies
Russia
India
Brazil
Africa
Mexico
0.6
6.9
4.0
1.9
-3.7
7.3
-3.8
1.3
2.5
1.7
1.0
6.3
4.3
2.1
-1.0
7.5
-3.5
0.7
2.6
1.8
0.3
6.0
4.7
2.1
1.0
7.5
0.0
1.8
2.9
United
Euro
World
States
Area
Japan
2015
3.1
2.5
1.6
2016
3.4
2.6
2017
3.6
2.6
South
Source: IMF, World Economic Outlook database.
3
Global Outlook (Commodities)
Selected Projections for Commodities Growth (Revisions in percent) Petroleum
Copper
Iron Ore
Soybeans
Gold
(US$/barrel)
(US$/metric ton)
(US$/metric ton)
(US$/metric ton)
(US$/troy ounce)
50.9
5,506.3
54.5
347.4
1,160.3
(October 2015)
-1.4
-1.0
-2.2
-1.2
-1.3
2016
42.0
4,587.7
34.9
327.1
1,067.8
(October 2015)
-16.7
-10.7
-22.0
-1.9
-7.8
2017
48.2
4,590.8
33.8
334.1
1,081.2
-13.0
-11.3
-21.1
0.2
-7.7
2015 Revision
Revision
Revision (October 2015)
Source: IMF, World Economic Outlook database.
4
Risks to Global Outlook A sharper-than-expected slow down in China Tighter global financial conditions as the United States exits from accommodative monetary policy. A sudden rise in global risk aversion and market volatility An escalation of ongoing geopolitical tensions
5
Latin America: An interplay between external shocks and domestic fundamentals
Regional recession and lower medium-term growth… LAC: Estimates of Medium-Term Growth by Forecast Vintage¹ (Percent)
LAC: Real GDP Growth (Percent) 18
5th percentile Average¹ 95th percentile
15
4.9 4.5
12
4.5
4.2
4.1
9 6
3.7
3
3.3
0
3.4 2.9
2.9
2.8
-3
Source: IMF, World Economic Outlook database. ¹ Purchasing power parity-weighted average for the 32 Latin American countries.
2016 Jan.
2015 Fall
2014 Fall
2013 Fall
2012 Fall
2011 Fall
2010 Fall
2009 Fall
2008 Fall
2007 Fall
2006 Fall
2005 Fall
2004 Fall
2003 Fall
2002 Fall
2001 Fall
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-9
2000 Fall
2.5
-6
World Economic Outlook Vintage Source: IMF, World Economic Outlook database. ¹ Reflects projected real GDP growth for the last year (t+5) of the forecast horizon.
7
… with wide cross-country variation. Latin America and the Caribbean: Real GDP Growth¹ (Percent) 2014
2015
2016
Latin America and the Caribbean
1.3
-0.3
-0.3
Central America
4.1
3.9
4.2
Caribbean
4.7
4.3
3.9
Argentina
0.5
1.5
-1.0
Brazil
0.1
-3.8
-3.5
Chile
1.9
2.1
2.1
Colombia
4.6
3.0
2.7
Mexico
2.3
2.5
2.6
Peru
2.4
2.7
3.3
Venezuela
-4.0
-10.0
-8.0
Latin America
Source: IMF, World Economic Outlook database. ¹ Regional aggregates are weighted by PPP-adjusted GDP.
8
… even at sub-regional level. Latin America and the Caribbean: Real GDP Growth, 2016¹ (Percent) 5 4 3 2 1 0 -1 -2 -3 -4 Central America and Mexico
Caribbean
South America: Contracting economies²
South America: Others
Source: IMF, World Economic Outlook database. ¹ Regional groupings are based on WEO definition. ² Includes Argentina, Brazil, Ecuador, and Venezuela. 9
Why different growth outcomes? Part I: External Conditions
10
Export prices declined substantially, but net impact differs across the region Primary Product Exports (Billions of U.S. dollars)
Net Commodity Exports
160 2013
140
-45 -40
120
-35
100
-30
2015
80
-25 -20
60
-15
40
-10
20
-5
Source: Gruss (2014).
Venezuela
Peru
Mexico
Colombia
Chile
Venezuela
Peru
Mexico
Colombia
Chile
Brazil
Argentina
0
0
Brazil
-50
Gross Commodity Exports
Argentina
Change in commodity terms of trade since 2011-2015 peak (%)
Change in Export Prices (From peak year to 2015)
Sources: National authorities; Haver Analytics; and IMF staff estimates and calculations
11
Current account adjustments are at different stages‌ Current Account (Percent of GDP)
Sources: Haver Analytics; Bloomberg, L.P.; and IMF staff calculations.
12
Sep-15
Mar-15
Sep-14
Mar-14
Brazil
Sep-13
2
Sep-15
-10 Mar-15
-10 Sep-14
-10
Mar-14
-8
Sep-13
-8
Mar-13
-8
Sep-12
-6
Mar-12
-6
Sep-11
-6
Mar-11
-4
Sep-15
-4
Mar-15
-4
Sep-14
-2
Mar-14
-2
Sep-13
-2
Mar-13
0
Sep-12
0
Mar-12
0
Sep-11
2
Mar-11
2
Argentina Uruguay
Mar-13
Peru
4
Ecuador Venezuela
Sep-12
Chile
Colombia Mexico
Sep-11
4
4
Food/Diverse Exporters
Mar-12
Energy Goods Exporters
Mar-11
Metals Exporters
But the region’s current account still needs to adjust Latin America and the Caribbean: Current Account Balance (Percent of GDP) 2 1 0 -1 -2 -3 -4 -5 2015
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
-6
Source: IMF, World Economic Outlook database.
13
Why different growth outcomes? Part II: Domestic Fundamentals Matter
14
Private demand, particularly investment, has deteriorated, particularly in countries with higher degree of macroeconomic imbalances and microeconomic distortions LA5: Private Consumption and Gross Fixed Capital Formation (Year-over-year percent change) 18 13
Private consumption Gross fixed capital formation
Change in Private Investment from 2011 to 2015 (Percentage points of GDP) 3.0 2.0 1.0
8
0.0 3
-1.0 -2.0
-2
-3.0
-7
Sources: Haver Analytics; IMF, World Economic Outlook database; and IMF staff calculations. Note: LA5 includes Brazil, Chile, Colombia, Mexico, and Peru.
Mexico
Colombia
Peru
Chile
Argentina
Ecuador
Brazil
Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15
-12
Venezuela
-4.0
Sources: IMF, World Economic Outlook database; and IMF staff calculations.
15
Corporate leverage has been increasing, particularly in some countries and in certain sectors,… LA5: Leverage – Nonfinancial Corporates: Bond Debt 2010 US$ billion
Share
US$ billion
Share
291.3
100.0
504.9
100.0
Foreign currency
170.2
58.4
383.3
75.9
Local currency
121.1
41.6
121.7
24.1
Total
2010 US$ billion Share
2015
…of which Energy
…
…
168.7
33.4
Materials
…
…
103.7
20.5
Consumer
…
…
76.7
15.2
Utilities
…
…
42.8
8.5
Industrials
…
…
41.1
8.1
Other non-financial
…
…
71.9
14.2
Petrobras (BRA)
…
…
52.8
10.5
Eletrobras (BRA)
…
…
2.8
0.5
PEMEX (MEX)
…
…
70.3
13.9
Comision Fed Elec (MEX)
…
…
10.6
2.1
ECOPETROL (COL)
…
…
9.9
2.0
CODELCO (CHL)
…
…
11.3
2.2
Selected quasi-sovereigns
Sources: Dealogic; Bloomberg, L.P.; and IMF staff calculations. Note: Sectoral shares and company-specific data from Bloomberg, L.P.
2015 US$ billion Share
Brazil Total Foreign currency Local currency
152.7 70.4 82.4
100.0 46.1 53.9
228.7 159.4 69.3
100.0 69.7 30.3
Chile Total Foreign currency Local currency
17.5 16.6 1.0
100.0 94.5 5.5
41.7 40.2 1.4
100.0 96.5 3.5
Colombia Total Foreign currency Local currency
9.3 5.0 4.3
100.0 54.0 46.0
23.4 17.7 5.7
100.0 75.5 24.5
Mexico Total Foreign currency Local currency
106.3 74.6 31.7
100.0 70.2 29.8
195.9 153.2 42.7
100.0 78.2 21.8
Peru Total Foreign currency Local currency
5.4 3.6 1.8
100.0 66.7 33.3
15.3 12.8 2.5
100.0 83.9 16.1
Sources: Dealogic; and IMF staff calculations.
16
…pushing up risk perceptions and downside risks to investment. LA5: Leverage – Nonfinancial Corporates (Debt to equity; percent; median) 90 80
Brazil
Chile
Colombia
Mexico
LA5: Leverage - Sectoral Distribution, 2015Q3 (Debt to equity; percent)
450
250 Median
Peru
Top Quartile
60
350
50 100
30
1200 1000
300
150
40
1400
ENDESA (CHL) CODELCO (CHL) Comision Federal Elec (MEX) PEMEX (MEX) PETROBRAS (BRA)
400
200
70
CDS Spreads: Selected LAC Companies (Basis points; PETROBRAS in right scale)
250
800
200
600
150
50
20
400
100 0
Sources: Bloomberg; and IMF staff calculations. Note: LA5=Brazil, Chile, Colombia, Mexico, and Peru.
Sources: Bloomberg; and IMF staff calculations. Note: LA5=Brazil, Chile, Colombia, Mexico, and Peru.
Jan-16
Jul-15
Jan-15
Jul-14
0 Jan-14
0 Jul-13
Utilities
Materials
Industrials
Energy
Consumer Discretionary Consumer Staples
2015q3
2014q3
2013q3
2012q3
2011q3
2010q3
2009q3
2008q3
2007q3
2006q3
2005q3
0
200
50
Jan-13
10
Sources: Markit; and IMF staff calculations.
17
Domestic Demand Policy Space?
18
Fiscal space has shrunk significantly in most countries LA6: Primary Balance (Percent of GDP)
LA6: Government Gross Debt (Percent of GDP)
5
80
4
70
3
2008
2016
60
2
50
1
40
0
30
-1
20
-2
10
-3
2008
-4 Brazil
Chile
Colombia Mexico
Peru
2016 Uruguay
Sources: IMF, World Economic Outlook database; and IMF staff calculations and projections.
0 Brazil
Chile
Colombia Mexico
Peru
Uruguay
Sources: IMF, World Economic Outlook database; and IMF staff calculations and projections.
19
And monetary policy is getting more challenging with weak demand pressures and increasing inflation expectations LA6: Monetary Policy Rates (Percent) 9
120
Inflation target range Depreciation of exchange rate (right scale) Change in expected inflation for 2016 (since September 2015)
8
100
7 6
80
5
60
4 3
40
2
20
1 0
0 Brazil
Chile
Colombia
Mexico
Peru
Uruguay
(–)
(+50 bps)
(+100 bps)
(+25 bps)
(+50 bps)
(–)
Sources: Bloomberg, L.P.; Consensus Forecast; and national authorities. Note: Numbers in parentheses refer to the change in policy rate between September 2015 and January 2016. ¹ National currency per U.S. dollar. Percentage change of the average of January 2013 to the average of January 2016.
20
Country Cases
21
Brazil: Recession with high inflation Brazil: Growth and Job Creation (Quarterly percent change, a.r., and thousands) 45
750
35
550
Brazil: Inflation and Market Expectations (Year-on-year percent change and expectations per survey vintage) 11 10
Y-o-y inflation
End-2016
End-2017
End-2018
9
5
150
7
-5
-50
6
Source: Central Bank of Brazil.
New economic team has reanchored mid-term expectations
Source: Central Bank of Brazil.
22
Jan-16
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
2 Jan-14
Mar-15
Mar-14
Mar-13
Mar-12
Mar-11
Mar-10
Mar-09
-650 Mar-08
-45
3
Target mid-point
Oct-13
-450
4
Jul-13
-35
5
Apr-13
-25
-250
Jan-13
Real GDP Private consumption Total investment Net job creation (right)
Oct-12
-15
Tolerance band
8
Jul-12
15
Apr-12
350
Jan-12
25
Brazil: Fiscal woes and market punishment Brazil: 5Y CDS and Gross Public Debt (Basis points and percent of GDP)
Brazil: Primary Balance (Percent of GDP)
80
600
4
CDS 3
Economic team non-binding target
2 1
Gross debt-to-GDP (right scale)
500
75 400 70
300
0
200 65
-1 100
Source: National authorities.
Jan-16
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
60 Oct-13
2009 2010 2011 2012 2013 2014 2015 2016 2017
0 Jul-13
-3
Apr-13
Budget Law Binding Targets
Jan-13
-2
Sources: Bloomberg, L.P.; Haver Analytics; and national authorities.
23
Argentina: Important transition is taking place, improving prospects in the long-term, despite mild recession in the short-term Central Bank Assistance to the Treasury (Percent of GDP)
-4
4
30
-5
3
20
-6 -7 -8
Overall balance net of transfers from central bank and social security Overall balance 2009
2011
2013
2 10
1 Proj. 2015
0
0 2009
2011
2013
Proj. 2015
30 20 Gross reserves
10
Gross reserves net of China swap, repos, and trade credits
0
Sources: Ministerio de Economía y Finanzas Públicas; Banco Central de la República Argentina; and IMF staff calculations and projections.
24
Dec-15
5
40
Jun-15
-3
40
Dec-14
6
50
Jun-14
-2
50
Dec-13
7
Jun-13
-1
Dec-12
0
60
Jun-12
FX loans (use of reserves) Advances Transfer of profits Monetary base growth (y/y %change, right)
Dec-11
1
International Reserves (Billions of U.S. dollars)
Jun-11
Federal Balance (Percent of GDP)
Ecuador: Sharp decline in oil prices+ Macroeconomic rigidities ďƒ¨ Sharp deceleration in economic activity 500
130 125
Commodity terms of trade
8
120
400
6
115
350
110
300
105
250
100
200
95
150 100
90
-4
50
Source: IMF, World Economic Outlook database.
2015Q4
2014Q3
2013Q2
2012Q1
2010Q4
2009Q3
2008Q2
2016
2014
2012
2010
2008
2006
2004
2002
2000
-6
2007Q1
85
Sources: IMF, Information Notice System database; and Gruss (2014).
0 2014
-2
2012
0
Chile Mexico Ecuador
2010
2
2000
4
Brazil Colombia Peru
450
2008
Current account (percent of GDP)
Real effective exchange rate
2006
Real GDP growth (percent)
10
Minimum Wage (U.S. dollars)
2004
12
REER and Terms of Trade (Index: 2007Q1=100)
2002
Real GDP Growth and Current Account Balance
Sources: Haver Analytics; IMF, World Economic Outlook database; and IMF staff calculations.
25
Venezuela: Falling oil prices , longstanding policy distortions, and fiscal imbalances Exports and Imports (Billions of U.S. dollars) Net-oil exports Non-oil imports Oil price (US$ per barrel, right scale)ยน 120 100 100
80 60 40
0 2010
2012
2014
30
20
60
15
5
0
0
Sources: National authorities; and IMF staff estimates and projections. ยน Venezuela basket.
8
Real GDP growth (percent) Inflation (right scale)
8
800
6
700
4
600
2 6 4
10
20
2016
CPS deficit Monetary financing Oil revenue (PDVSA surplus, right scale) 10
25
80
40
20
Real GDP Growth and Inflation (Percent)
Fiscal Balance and Monetary Financing (Percent of GDP)
0
500
-2
400
-4
300
-6 2 0 2010
2012
2014
2016
Sources: National authorities; and IMF staff estimates and projections.
200
-8 -10
100
-12
0 2010
2012
2014
2016
Source: IMF, World Economic Outlook database.
26
Latin America and the Caribbean: Adjusting to a Harsher Reality Alejandro Werner Director, Western Hemisphere Department