imf regional economic outlook for the caucasus and central asia

1

Regional Economic OutlookRegional Economic Outlook

Caucasus and Central Asia (CCA)Caucasus and Central Asia (CCA)

International Monetary FundInternational Monetary FundNovember 2009

2INTERNATIONAL MONETARY FUND

October 2009

OutlineOutline

World Economic Outlook

CCA Economic Outlook


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 well established.

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 credible exit strategies from these expansionary policies will be needed to safeguard price and financial stability and the soundness of public finances.

Two key factors for the medium-term: Private demand needs to replace public demand; Demand in external surplus economies needs to rise to make up for

shrinking demand in external deficit economies.


October 2009

Exports and manufacturing are helped by a turn in the inventory cycle

Industrial Production(Percent change; 3mma; annualized)

-40

-30

-20

-10

0

10

20

Jan-07 Jan-08 Jan-09

Advanced

Emerging

World

Jul-09Jan-07 Jan-08 Jan-09-80

-60

-40

-20

0

20

40

60

Advanced

World

Emerging

Merchandise Exports(Percent change; 3mma; annualized)

Jul-09


October 2009

Consumer confidence is slowly recovering, but unemployment is still rising

Consumer Confidence(January 2005=100)

0

20

40

60

80

100

120

140

160

180

200

05 06 07 08 09

U.S. (Conf. Board)

Japan (Econ. Soc. Res. Inst.)

U.K. (Building Society)

Germany (Eur. Comm.)

Aug. 09 05 06 07 08 095.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

Advanced

World

Emerging

Unemployment(Percent; weighted by labor force)

Jul. 09


October 2009

0

200

400

600

800

1000

1200

1400

1600

1800

BB

AAA

-100

0

100

200

300

400

500

U.S. dollar

Yen

Euro

30

40

50

60

70

80

90

100

110

120

130

DJ Euro Stoxx

Wilshire 5000

Topix

Corporate Spreads(Basis points; averages of Europe and United States)

Interbank Spreads(Basis points)

Good policies have removed the risk of another Great Depression, but financial conditions remain tight

Equity Markets(March 2000 = 100; national currency)

Sep.09

080604022000 Sep.09

080604022000Sep.090806042000 02


October 2009

Expansionary monetary policy has been key,but will not prevent a credit crunch

Credit Growth in Private Nonfinancial Sectors

(q/q changes; billions of local currency)

-500

0

500

1000

1500

2000

2500

-50

0

50

100

150

200

250

United States (RHS)

Euro area (LHS)

042000 09:Q2

0602 08

-40

-20

0

20

40

60

80

100 -15

-10

-5

0

5

10

15

20

United States (LHS)Euro Area (LHS)Japan (inverted; RHS)

Bank Lending Conditions*

2000 02 0409:Q306 08

*Percent of net respondents reporting a tightening in lending standards


October 2009

-10

-8

-6

-4

-2

0

2Advanced

Emerging and developing

World

0

20

40

60

80

100

120

Advanced


World

Fiscal policy, too, has played a major role,but fiscal support will diminish

Fiscal Balance(Percent of GDP)

901970 80 2000 10 901970 80 2000 10

Public Debt(Percent of GDP)

14 14


October 2009

Global growth is expected to pick up in 2010,but the recovery will be slow

-6

-4

-2

0

2

4

6

8

10

12

World

Advanced


Real GDP Growth1

(Percent change from a year earlier)

-4

-2

0

2

4

6

2006 07 08 09 10

90% Confidence interval



Prospects for World GDP Growth(Percent change)

1 Quarterly data through 2010 and annual data afterwards.

1412100806042000 02


October 2009

Key risks, mainly on the downside

• Premature withdrawal of public support, because recovery is seemingly self-sustaining—the 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.

• Loss of fiscal credibility or questions about continued independence of central banks.

• Upside risk: we may underestimate the effects of reduced uncertainty and greater confidence.


October 2009

Southwestern Asia

Energy exportersEnergy importers

Outlook for Caucasus and Central Asia (CCA)Outlook for Caucasus and Central Asia (CCA)


October 2009

CCA Economic OutlookCCA Economic Outlook• Global crisis has severely affected CCA energy importers

and Kazakhstan:

• Energy importers have been hit by sharp drops in remittances• Kazakhstan has been held back by its lingering banking crisis• Other energy exporters are 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.


October 2009

CCA in the grip of the global crisis

Per capita incomes are decliningin the energy importing countries

Global crisis hit the region in 2009; only a modest recovery is projected for 2010

Real GDP Growth(Annual change; percent)

Gross National Disposable IncomePer Capita 1/

(U.S. dollars)

0

1500

3000

4500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Armenia

Georgia

Kyrgyz Republic

Tajikistan

1/ GNDI is defined as GDP + non-factor income + transfers.

-10

-5

0

5

10

15

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009proj.

2010proj.

Commonwealth of Independent StatesCCA energy exportersCCA energy importersWorldRussia


October 2009

Remittances down sharply

Many migrants worked in the Russian construction sector

A collapse in remittances affects household incomes

Remittance Outflows from Russia to the CCA1

(Percent change; year-on-year)

Remittance Inflows(Percent change; year-on-year)

1/ Includes compensation of employees and migrants capital transfer.

-40

-20

0

20

40

60

80

100

Mar

-08

Jun-

08

Sep-0

8

Dec-0

8

Mar

-09

Jun-

09

CCARussian construction

-80

-60

-40

-20

0

20

40

60

80

100

Mar

-08

Jun-

08

Sep-0

8

Dec-0

8

Mar

-09

Jun-

09

ARM

GEO

KGZ

TJK


October 2009

Exports contracted sharply in 2009, but imports also falling

Exports of Goods in U.S. Dollars(Percent; year-on-year)

Imports of Goods in U.S. Dollars(Percent; year-on-year)

-50

0

50

100

150

Jan-

08

Feb-0

8

Mar

-08

Apr-0

8

May

-08

Jun-

08

Jul-0

8

Aug-0

8

Sep-0

8

Oct-08

Nov-0

8

Dec-0

8

Jan-

09

Feb-0

9

Mar

-09

Apr-0

9

Energy exporters

Energy importers

-40

0

40

80

120

160

Jan-

08

Feb-0

8

Mar

-08

Apr-0

8

May

-08

Jun-

08

Jul-0

8

Aug-0

8

Sep-0

8

Oct-08

Nov-0

8

Dec-0

8

Jan-

09

Feb-0

9

Mar

-09

Apr-0

9

Energy exporters

Energy importers


October 2009

Net external demand is holding back growth in 2009,but contributes to 2010 recovery

-80

-60

-40

-20

0

20

40

60

80

100

120

AZE KAZ TKM UZB ARM GEO KGZ TJK

2009

2010

Net External Demand1

(Annual change; in percent)

1 Exports minus imports.


October 2009

Macroeconomic policies have beenaccommodative in 2009

CountryFiscal

stimulusExchange rate depreciation

Monetary easing

Liquidity support

Increased provisioning

Capital injections

Deposit guarantees

Armenia Enhanced

Azerbaijan

Georgia

Kazakhstan Enhanced

Kyrgyz Republic Enhanced

Tajikistan

Turkmenistan

Uzbekistan


October 2009

Fiscal policy has been expansionary in 2009Change in the Non-oil Primary

Fiscal Deficit, 2009(Percent of non-oil GDP)

-4

-2

0

2

4

6

8

10


Fiscal stimulusAutomatic stabilizerChange in primary deficit


October 2009

Where debt levels were already high, donor supporthas helped to finance the fiscal stance

2009 increase in donor supportexpected to reverse in 2010

Some governments are constrainedby already high debt levels

Grants to Energy Importers (Percent of GDP)

Public Debt(Percent of GDP)

0

10

20

30

40

50

60


2008

2009 proj.

2010 proj.

0

1

2

3

4

5

6

7

ARM GEO KGZ TJK

20082009 proj.2010 proj.


October 2009

Inflation is down sharply, but pressures may return in 2010

Inflation is down sharply from historical highs…

… but commodity prices are on the rise again

Consumer Price Index(Annual change; percent)

Commodity Prices(Index 2008 = 100)

-10

0

10

20

30

40

Jan-

08

Feb-0

8

Mar

-08

Apr-0

8

May

-08

Jun-

08

Jul-0

8

Aug-0

8

Sep-0

8

Oct-08

Nov-0

8

Dec-0

8

Jan-

09

Feb-0

9

Mar

-09

Apr-0

9

May

-09

Jun-

09

ARM AZEGEO KAZKGZ TJKTKM UZB

0

50

100

150

Jan-

08

Feb-0

8

Mar

-08

Apr-0

8

May

-08

Jun-

08

Jul-0

8

Aug-0

8

Sep-0

8

Oct-08

Nov-0

8

Dec-0

8

Jan-

09

Feb-0

9

Mar

-09

Apr-0

9

May

-09

Jun-

09

Jul-0

9

Aug-0

9

AluminumCottonCrude oilGold


October 2009

Currencies have depreciated ...

… helping reverse competitivenesslosses suffered in 2008

…. against the dollar, and energyimporters’ currencies have caught up

with the weakening ruble …

Local Currencies Against the U.S. Dollar and Russian Ruble

(Aug 31, 2008 – Aug 31, 2009;increase indicates appreciation)

Real Effective Exchange Rate(Index Jan 2005 = 100;

increase indicates appreciation)

-40

-30

-20

-10

0

10

20

30


Against the U.S. dollarAgainst the Russian ruble

60

80

100

120

140

160

180

Jan-05Jul-0

5Jan-06

Jul-06

Jan-07Jul-0

7Jan-08

Jul-08

Jan-09Jul-0

9

ARMAZEGEOKAZKGZTJKUZB


October 2009

Financial sectors are under stress,with NPLs set to rise further

Nonperforming Loans (NPLs) (Percent of total loans)

0

4

8

12

16

20


2007

2008

2009, latest


October 2009

In response, credit growth has slowed

Credit boom has come to anabrupt halt

Real lending rates are risingas inflation declines

Credit to the Private Sector(Percent change; year-on-year)

Real Lending Rate(Percent)

1/ Lending rate for Georgia is on loan flows for all maturities.

-20

0

20

40

60

80

100

120

Jan-

08

Feb-0

8

Mar

-08

Apr-0

8

May

-08

Jun-

08

Jul-0

8

Aug-0

8

Sep-0

8

Oct-08

Nov-0

8

Dec-0

8

Jan-

09

Feb-0

9

Mar

-09

Apr-0

9

May

-09

Jun-

09

Jul-0

9

ARM

AZE

GEO

KAZ

KGZ

-10

-5

0

5

10

15

20

25


2007

2008

2009, latest 1/


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 lead to higher

unemployment– Depreciated exchange rates have led to some increases in

import prices for consumers– Simulations for several countries suggest the poverty rate

could increase by as much as 5 percentage points


October 2009

Policy PrioritiesPolicy Priorities• Fiscal stimulus needs to be sustained in most countries in 2010• More concessional donor financing would support growth and social

protection, and would limit debt increases in energy importers• Flexible exchange rate regimes will help preserve competitiveness

• Further steps to stabilize financial sectors are important in some countries

• It is not too early to start thinking about an exit strategy, reverse the debt increase, and take the best advantage of the global recovery:

– Medium term fiscal consolidation– Further reforms to improve business environment– Enhanced regional cooperation– Financial sector development


October 2009

Full report and copy of the presentation: Full report and copy of the presentation: http://www.imf.org/yerevan

What do you think? What do you think?Make your point on the related blog:Make your point on the related blog:

http://blog-imfdirect.imf.org

Please visit the IMF’s websitePlease visit the IMF’s website

imf regional economic outlook for the caucasus and central asia

Documents

dollars percent year

fiscal support

unemployment percent

fiscal balance percent

fiscal policy

global recovery

public debt percent

percent of nonoil gdp