1 the global financial crisis: what’s next? bank guarantee fund conference warsaw, may 21, 2010...
TRANSCRIPT
1
The Global Financial Crisis: What’s Next?
Bank Guarantee Fund ConferenceWarsaw, May 21, 2010
Mark AllenSenior IMF Resident Representative
for Central and Eastern Europe
2
Outline of presentation
Forecasts of the recovery Factors that might hold back
recovery Situation of the financial sector Fiscal worries Summary
3
Good News: the world economy is recovering …
-6-4-202468
10
2005
2006
2007
2008
2009
2010
2011
Source: World Economic Outlook, April 2010
Change in GDP(Year on year)
Emerging
Developed World
4
… and the recovery in 2010 is faster than we expected.
-3-2-101234
2009 2010 2011-5-4-3-2-1012
2009 2010 2011
-6
-4
-2
0
2
4
2009 2010 20110
5
10
15
2009 2010 2011
UK
USA
China
Eurozone
Sou
rce:
Worl
d E
con
om
ic O
utl
ook
Apr 2010
Jan 2010
Oct 2009
Jun 2009
Apr 2009
Real GDP growth forecasts
5
Recover is driven by the rebound in world trade ...
-80-60-40-20
020406080
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Source: Directions of Trade, April 2010
Merchandise exports(Three month moving average, year on year)
Emerging
Developed
World
6
…and restocking.
-30-25-20-15-10-505
1015
20253035404550556065
Industrial Production(Annualized percent change of 3mma over previous 3mma)
Global IP
Global Manf. PMI(sa, 50+=Expansion; rhs)
Source: World Economic Outlook, April 2010
7
And financial markets are back from the brink too.
Sovereign and Corporate Bond Spreads(basis points)
Global Stocks(Morgan Stanley MSCI Stock Price Indices in USD, MER Weighted; 2007 = 100)
40
50
60
70
80
90
100
110
120
MSCI Global
0
200
400
600
800
1000
1200
EMBI Global
Advanced economies: corporate1
1 Averages of BB-B US, BB-B Euro, and BBB Japan corporate bond spreads.
Mar-
10
2007
2008
2009
Mar-
10
2007
2008
2009Source: Bloomberg
9
0
1
2
3
4
5
6
7
8
9
1990 1994 1998 2002 2006 2010 2014
Household Saving RatioVAR ProjectionMacroeconomic Advisers ForecastOctober 2009 WEOCurrent WEO
U.S. Household Saving Ratio(in percent of disposable income)
Brakes on Growth: 1. U.S. Saving Rate?
11
Brakes on Growth: 2. Global imbalances?
Current account balances(billion dollars)
-1500
-1000
-500
0
500
1000
1500
2000
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
China GermanyJapan United StatesOther Emerging Economies Other Euro AreaOther Developed Economies World
Source: World Economic Outlook, April 2010
13
Brakes on Growth: (3) High unemployment?
Unemployment(percent)
2
5
8
11
14
17
20 Euro AreaUnited StatesJapan IrelandPortugalSpainUnited Kingdom
Source: World Economic Outlook, April 2010
14
Factors that might hamper growth US savings rates Global imbalances High unemployment Bubbles in emerging markets
15
Brakes on Growth: 4. Brakes on Growth: 4. Overheating in some Overheating in some emerging markets?emerging markets?Real Domestic Credit Growth and Equity Valuation
(Standard deviations from long-term average)
Local equity valuation
Real
cred
it
gro
wth
High Credit GrowthHigh Valuation
Source: Global Financial Stability Report, April 2010
16
Factors that might hamper growth US savings rates Global imbalances High unemployment Bubbles in emerging markets Commodity supplies
17
Brakes on Growth: 5. Commodity prices?
Principal commodities prices(Jan-09 = 100)
80
100
120
140
160
180
200
220
240
Jan-09
Apr-0
9Jul
-09
Oct-09
Jan-10
Apr-1
0
Metals
Food
Raw Materials
Crude Oil (APSP)
Source: Bloomberg; staff estimates
18
Factors that might hamper growth US savings rates Global imbalances High unemployment Bubbles in emerging markets Commodity supplies Availability of credit
19
Brakes on Growth: 6. Brakes on Growth: 6. Credit supply?Credit supply?
-6-30369
1215 United States
United Kingdom
Euro Area
Nonfinancial Private Sector Credit(Annual percent growth)
Source: Global Financial Stability Report, April 2010
20
Stronger growth has helped banks …
0.91.3 1.4
2.2
2.8 2.8
2.3
0
1
2
3
Mar-08 Sep-08 Oct-08 Jan-09 Apr-09 Oct-09 Apr-10
0
1
2
3
4
5
6
Bank writedowns(US$ trillions, left
scale)
Average global growth
2007-2010(percent, right
scale)
Source: Global Financial Stability Report, April 2010
21
… which have written down losses and raised capital.
(billions of US$)
percent
Expected additional writedowns/loss provisions (left scale)Realized writedowns/loss provisions (left scale)
22
But funding maturities have But funding maturities have shortened.shortened.
Mature Market Bank Bond Maturities(Percentage of initial stock)
02468
1012141618
1 2 3 4 5 6 7 8 9 10 11 12 13
6/ 30/ 2007 1/ 1/ 2010
YearsSource: Global Financial Stability Report, April 2010
23
Nonbank credit only partly Nonbank credit only partly offsets weak bank credit.offsets weak bank credit.
Contributions to nonfinancial private sector credit growth(Percent)
-4
-2
0
2
4
6
8
10
Jan-08
Jul-08
Jan-09
Jul-09
Jan-08
Jul-08
Jan-09
Jul-09
Jan-08
Jul-08
Jan-09
Jul-09
Bank Nonbank Total
USA Euro Area
UK
Source: Global Financial Stability Report, April 2010
24
Sovereign risk now threatens to take the crisis to a new stage.
0
50
100
150
200
250
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
USA
Germany
Italy
UK
Japan
Source: Bloomberg
I.Financial crisis
Buildup
II.Systemic outbreak
III.Systemic response
IV.Sovereign
Crisis?
The Four Phases of the Crisis(10-yr sovereign swap spreads, percent)
25
Debt levels in advanced Debt levels in advanced economies are increasing economies are increasing sharply …sharply …
0
20
40
60
80
100
120
1995 2000 2005 2010 2015
Advancedeconomies
Emerging and Developing economies
Public Debt(Percentage of GDP)
Source: World Economic Outlook, April 2010
26
Increase in aging-Related Spending in G20 Advanced Economies(Percentage of GDP over 2010 aging-related spending)
0
2
4
6
8
10
2015
2020
2025
2030
2035
2040
2045
2050
Health care expenditure
Pension expenditure
Source: World Economic Outlook, April 2010
… … and structural deficits are set and structural deficits are set to worsen.to worsen.
27
The increase in debt is due to The increase in debt is due to recession…recession…
G-20 Advanced Economies: Increase in Public Debt, 2008-15(Total increase: 39.1 percentage points of GDP; 2009 PPP weighted GDP)
Fiscal stimulus4.5
Financial sector support
3.2
Lending operations
4.0
Revenue loss 19.2
2010-2015 Interest-growth
dynamics 0.7
2008-2009 Interest-growth
dynamics 7.5
Sou
rce:
Worl
d E
con
om
ic O
utl
ook, A
pri
l 2
01
0;
Sta
ff
est
imate
s
28
… which has undermined revenue expectations.Real GDP(2000=100)
100
110
120
130
140
2000
2004
2008
2012
100
110
120
130
140
2000
2004
2008
2012
100
110
120
130
140
2000
2004
2008
2012
Oct. 2007WEO
CurrentWEO
Oct. 2007WEO
CurrentWEO
Oct. 2007WEO
CurrentWEO
USA Euro area Japan
Source: World Economic Outlook
29
Sovereign borrowing is increasing sharply.
0
2
4
6
8
10
12
14
16
Net Borrowing Needs(percentage of GDP)
2003-08 average 2009 2010 (est) 2011 (est) United States Euro Area
United KingdomSource: Global Financial Stability Report, April 2010
30
Risk premia reflect fiscal challenges and external financing risks …Contributions to Five-Year Sovereign CDS Spreads
(basis points)
-300
306090
120150180210240270300
Germany U.S. France Japan U.K. Italy Spain Ireland Portugal Greece
Foreign bank claimsCurrent accountRequired fiscal adjustmentActual spreads
31
… and sensitivity to fundamentals is growing
General Government Balance (as a percent of GDP)
CD
S S
pre
ad
s (y
ear
ave
rag
e)
Greece
Source: World Economic Outlook April 2010, Bloomberg
= 60% debt to GDP
-3%
33
… … while the sovereign’s while the sovereign’s creditworthiness affects that of creditworthiness affects that of its banksits banks
-50
0
50
100
150
200
0 50 100 150 200 250 300
Norway
Portugal
Greece
Italy
Switzerland
Spain
United Kingdom
France
Denmark
AustriaGermany
BelgiumNetherlands
Sweden
Ireland
Percent change in sovereign CDSOctober 2009 to March 2010
Ave
rag
e p
erc
en
t ch
an
ge i
n
loca
l se
nio
r fi
nan
cial
CD
S
Source: Global Financial Stability Report, April 2010
34
Conclusions
Recovery stronger than expected But could easily be derailed The banking system cannot provide
much credit The crisis has worsened fiscal
positions Fiscal problems may feed back to
banking systems But growth in emerging markets
and trade may continue to surprise