Emerging Markets; Wh the When th Going G i G Gets t T Tough h‌ Manuel Balmaseda CEMEX Chief Economist
GIC Conference Madrid, May 2015
2012: Growth everywhere, but Europe GDP growth in 2012
Lat: 3.3
Decline Stagnation Stag at o Slight growth
Note: CF was used in those countries where CX has no presence. Source: CX and CF
Strong growth
2013: Winds of change begin to blow GDP growth in 2013
Isr: 2.5
Decline Stagnation Stag at o Slight growth
Note: CF was used in those countries where CX has no presence. Source: CX and CF
Strong growth
2014: EM growth no longer the driver GDP growth in 2014
Decline Stagnation Stag at o Slight growth
Note: CF was used in those countries where CX has no presence. Source: CX and CF
Strong growth
2015: the changing of the guard GDP growth in 2015
Decline Stagnation Stag at o Slight growth
Note: CF was used in those countries where CX has no presence. Source: CX and CF
Strong growth
EM growth under scrutiny
6
A tough environment for emerging markets
Global growth/ liquidity reversall
Oil price adjustment
EMs
Stability/Structural reforms
Decreasing contribution of China
7
Global economy slowly adjusts to new environment IMF GDP Forecast
Still weak k gl global b l environment i t with low inflation Outlook for advanced economies has improved while for EMs it has deteriorated Reduced policy space in emerging markets, in general, than in 2008
Impact of Fed Fed’ss exit strategy
Difference from January IMF Report
2015
2016
2015
2016
US
3.1
3.1
‐0.5
‐0.2
UK
2.7
2.3
0.0
‐0.1
GER
1.6
1.7
0.3
0.2
FRA
1.2
1.5
0.3
0.2
SP
25 2.5
20 2.0
05 0.5
02 0.2
ITA
0.5
1.1
0.1
0.3
EURO ZONE
1.5
1.6
0.3
0.2
JAP
1.0
1.2
0.4
0.4
CHINA
6.8
6.3
0.0
0.0
INDIA
75 7.5
75 7.5
12 1.2
10 1.0
RUS
‐3.8
‐1.1
‐0.8
‐0.1
BR
‐1.0
1.0
‐1.3
‐0.5
MX
3.0
3.3
‐0.2
‐0.2
Source: IMF
8
Collateral effects of Fed exit Emerging markets experienced outflow of capital Official tapering announcement
200
150
100
50
0
‐50
Junn‐15
Decc‐14
Junn‐14
Decc‐13
Junn‐13
Decc‐12
Junn‐12
Decc‐11
Junn‐11
Decc‐10
Junn‐10
Decc‐09
Junn‐09
Decc‐08
Junn‐08
Decc‐07
Junn‐07
‐100
Cumulative capital flows TO EM . USD Bill. Source: IIF
9
Uncertainty regarding oil prices
Moderate increase in oil price towards 70$/b is expected by consensus
• Supply factors are behind oil price moderation (a permanent change). What about b t demand? d d?
120 110 100 90
• Oil exporters should adapt to “estructurally lower oil prices”
Median of Bloomberg
80 70 60
Forwards
50 40 30
Source: $/b. Bloomberg
Jun‐16
Mar‐16
Dec‐15
Sep‐15
Jun‐15
Mar‐15
Dec‐14
Sep‐14
Jun‐14
20
• The positive effect on oil importing countries (US, China)) is being g lower than expected?
Other commodity prices suggests that demand issues also play a role Other commodity prices moderated before 160
140
Oil 120
100
80
Food
Metals 60
40
Commodity prices (CRB Metals, CRB foodstuff and Brent Oil). Jan-1-2011 =100 Source: Datastream
May‐15
Jan‐15
Sep‐14
May‐14
Jan‐14
Sep‐13
May‐13
Jan‐13
Sep‐12
May‐12
Jan‐12
Sep‐11
May‐11
Jan‐11
Sep‐10
May‐10
Jan‐10
Sep‐09
May‐09
Jan‐09
Sep‐08
May‐08
Jan‐08
Sep‐07
Jan‐07
May‐07
20
China: slowdown, but how low? Electricity consumption data suggest rapid economic deceleration
• Disequilibria has clearly built in recent years: excess debt, local government financing, non-productive non productive investment,…
50 40 30
• Easing measures to underpin the economy y
20 10
• The PBOC is looking for ways to channel financing to preferred destinations while containing overall financing
0
1/1 /2015
7/1 /2014
10/1 /2014
4/1 /2014
1/1 /2014
10/1 /2013
7/1 /2013
4/1 /2013
1/1 /2013
10/1 /2012
7/1 /2012
4/1 /2012
1/1 /2012
10/1 /2011
7/1 /2011
4/1 /2011
1/1 /2011
10/1 /2010
7/1 /2010
4/1 /2010
‐20
1/1 /2010
‐10
• Risk of portfolio outflows
Electricity consumtpion. Year on year growth Source: National Energy Agency of China
Challenging scenario, in the best of cases
Combined impact of China’s slowdown and drop in commodity prices Cross-exposure to China and commodities
Exports to China. ((% total exp ports)
25
CL
20
Median
BR 15 PH
TH
ID
10 AR IN
5 HU CZ
0 0
Source: IMF,and UNCTAD
MY
TR
CO
MX PO
20 40 60 80 Export of commodities (% total exports)
100
Combined impact of China’s slowdown and drop in commodity prices China affects LatAm countries not only by the direct trade channel but also by their impact on commodity prices 30%
Exports to o China. (% ttotal exportts)
Median
CHILE
25%
20%
URU BRA PER
15% VEN
10% 0% ARG PAN
5%
COL
CR
BOL
HON RD
MEX
0% 0%
10%
ECU
20%
30%
40%
50%
60%
PAR
JAM
GUA
70%
80%
90%
100%
Export of commodities (% total exports) Source: IMF, UNTACD
14
A tough environment for emerging markets
Global growth/ liquidity reversall
Oil price adjustment
EMs
Stability/Structural reforms
Decreasing contribution of China
15
Long-term growth requires in depth reform, both economic … Vulnerability chart External vulnerability Current account
Reserve coverage
External debt
Domestic vulnerability Debt in FX
Poland Czech Rep Czech Rep. Hungary Russia Argentina Brazil Chile Colombia Mexico Peru China India Indonesia Malaysia Philippines Thailand Turkey Red means higher vulnerability, yellow is medium and green low vulnerability Source: CX Economics with IIF, IMF and BIS data
Credit growth
Fiscal position
Private debt growth
Long-term growth requires in depth reform, both economic … Macroeconomic policy credibility Exchange rate Exchange rate flexibility Poland Czech Rep. Hungary Russia Argentina Brazil Chile Colombia Mexico Peru China India Indonesia Malaysia Philippines Thailand Turkey
Source: CX Economics with IIF, IMF and BIS data
Monetary policy Monetary policy Inflation under Inflation under Structural public Structural public independence control balance
Total
Long-term growth requires in depth reform, both economic and institutional World Bank Doing Business Index 2010
Long-term growth requires in depth reform, both economic and institutional World Bank Doing Business Index 2014
LatAm countries: our medium term assessment reaffirmed Venezuela
“Alternative “Alternati e routes” ro tes”
Worse MR Outlook
Argentina Brazil
The giant with feet of clay
Colombia
Growing up with criteria Peru Mexico Chile
The US anchor Well known quality
Better MR Outlook
20
The case of Mexico: the US anchor, ‌ and more
Labor Education Telecom Fiscal Electoral-Politic Financial-Banking Energy
Higher flexibility in hiring and firing conditions Monitoring and teachers evaluation Wider access,, lower costs and improved p competitiveness p Increase public revenues and reduce dependency on oil Changes in the electoral law and political regime Higher flexibility and more incentives to SMEs loans Access to better quality inputs at lower cost
Should have a significant impact on growth potential
Thank you Manuel Balmaseda CEMEX