monetary and fiscal policies during the next...
TRANSCRIPT
OXYGEN EVENTS CONFERENCE
GALA PERFORMANCE 2017
MONETARY AND FISCAL POLICIES DURING THE NEXT RECESSION
- THE CASE OF ROMANIA -
BUCHAREST
17th NOVEMBER 2017
Ph.D. Andrei RĂDULESCU
Senior Economist, Banca Transilvania
Researcher, Institute for World Economy, Romanian Academy
MOTTO(S)
“There have been three great inventions since the beginning of time: fire, the wheel, and
central banking.”
Will Rogers
“Victorians heard with grave attention that the Bank Rate had been raised. They did not
know what it meant. But they knew that it was an act of extreme wisdom.”
John Kenneth Galbraith
"3.0 percent means 3.0 percent and not 3.2 percent.“
Theo Waigel
"The four most dangerous words in finance are 'this time is different'.”
Martin Wolf
CONTENT
I. INTRODUCTION
II. GLOBAL AND EUROPEAN MACROECONOMIC CLIMATE
III. ROMANIAN ECONOMY IN THE POST-CRISIS CYCLE
IV. POLICY-MIX IN ROMANIA
V. BT MACROECONOMIC SCENARIO FOR ROMANIA
VI. CONCLUSIONS
INTRODUCTION
END-OF-CYCLE POLICY-MIX CHALLENGES
The accumulation of maturity signs for the global post-crisis cycle
Romanian economy highly integrated with the EU economic cycle
Strong divergence between the overheating consumption and sluggish investments
The acceleration of the economy accompanied by the return of twin deficits
An expansionary and pro-cyclical, but unsustainable policy-mix
At present there lacks maneuver room in case of shocks
A rebalance of the policy-mix starting 2018 very likely
Several challenges in terms of real economic convergence and development
GLOBAL AND EUROPEAN MACROECONOMIC CLIMATE
STRONG GLOBAL MACRO-FINANCIAL CLIMATE
200
250
300
350
400
450
500
550
48
49
50
51
52
53
54
55
56A
pr-
13
Ju
n-1
3
Au
g-1
3
Oct
-13
Dec
-13
Feb
-14
Ap
r-14
Ju
n-1
4
Au
g-1
4
Oct
-14
Dec
-14
Feb
-15
Ap
r-15
Ju
n-1
5
Au
g-1
5
Oct
-15
Dec
-15
Feb
-16
Ap
r-16
Ju
n-1
6
Au
g-1
6
Oct
-16
Dec
-16
Feb
-17
Ap
r-17
Ju
n-1
7
Au
g-1
7
Real economy vs. financial economy
PMI Composite MSCI Global (rhs)
Source: Bloomberg
US ECONOMY – THE MATURITY OF THE CYCLE
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
195
3
195
5
195
7
195
9
196
1
196
3
196
5
196
7
196
9
197
1
197
3
197
5
197
7
197
9
198
1
198
3
198
5
198
7
198
9
199
1
199
3
199
5
199
7
199
9
20
01
20
03
20
05
20
07
20
09
20
11
20
13
20
15
20
17
Labor productivity and employment in US
Labor productivity (%, YoY) Employment (%, YoY)
Source: BT based on US Bureau of Labor Statistics (BLS)
EU ECONOMY – AT THE PEAK OF THE CYCLE
-20
-15
-10
-5
0
5
10
15
20
25
30
35
Ma
y-1
3
Sep
-13
Ja
n-1
4
Ma
y-1
4
Sep
-14
Ja
n-1
5
Ma
y-1
5
Sep
-15
Ja
n-1
6
Ma
y-1
6
Sep
-16
Ja
n-1
7
Ma
y-1
7
Sep
-17
Investor confidence in Euro Zone
Source: Sentix
THE END OF DELEVERAGING IN EUROPE
0
20
40
60
80
100
120
199
6
199
7
199
8
199
9
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Domestic credit to private sector / GDP (%)
Euro Zone Romania
Source: Eurostat, NBR, BT
INCREASING CONVERGENCE IN EUROLAND
0
0.5
1
1.5
2
2.5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
199
6
199
7
199
8
199
9
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Standard deviation for GDP/capita in Euroland
Cyclical component Structural component (rhs)
Source: own estimates based on the methodology, using Eurostat, AMECO databases
UNSUSTAINABLE MONETARY DIVERGENCE
-4
-3
-2
-1
0
1
2
3J
an
-01
Au
g-0
1
Ma
r-0
2
Oct
-02
Ma
y-0
3
Dec
-03
Ju
l-0
4
Feb
-05
Sep
-05
Ap
r-0
6
No
v-0
6
Ju
n-0
7
Ja
n-0
8
Au
g-0
8
Ma
r-0
9
Oct
-09
Ma
y-1
0
Dec
-10
Ju
l-11
Feb
-12
Sep
-12
Ap
r-13
No
v-1
3
Ju
n-1
4
Ja
n-1
5
Au
g-1
5
Ma
r-16
Oct
-16
Ma
y-1
7
Dec
-17
Monetary policy rate differential (FED vs. ECB)
Source: Federal Reserve, European Central Bank, BT forecasts
ROMANIAN ECONOMY IN THE POST-CRISIS CYCLE
ROMANIA – THE CHAMPION OF GROWTH IN EU
-8
-6
-4
-2
0
2
4
6
8
10
199
6
199
7
199
8
199
9
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
GDP (%, YoY)
Euro Zone Romania
Source: Eurostat, BT forecasts
Romanian GDP accelerated to 5.9% YoY in 1H2017 (and 7% YoY during 9M2017),
the highest paces since 2008, evolution supported by the expansionary policy-mix
Household consumption up by 7.6% YoY, due to the increase of the real
disposable income, the dynamics of the credit markets and the wealth effect
However, the fixed investments contracted by 0.3% YoY in 1H2017, given the
increase of the labor costs, the decline of the public investments and the policy-
mix related uncertainties and distortions
Negative contribution of the net foreign demand
The intensification of the twin deficits
Unemployment at record low levels
The inflexion of the YoY CPI dynamics
NBR ready to start a new monetary cycle
THE PEAK OF THE CYCLE
STRONG CONSUMPTION vs. LOW INVESTMENTS
-60
-40
-20
0
20
40
60
-15
-10
-5
0
5
10
15
20
2Q
05
4Q
05
2Q
06
4Q
06
2Q
07
4Q
07
2Q
08
4Q
08
2Q
09
4Q
09
2Q
10
4Q
10
2Q
11
4Q
11
2Q
12
4Q
12
2Q
13
4Q
13
2Q
14
4Q
14
2Q
15
4Q
15
2Q
16
4Q
16
2Q
17
Private consumption vs. fixed investments (%, YoY)
Investițiile productive (%, an/an) Consumul privat (%, an/an)
Source: Eurostat, AMECO, INS
IT&C – THE STAR OF THE ECONOMY
-30
-20
-10
0
10
20
30
40
1Q0
0
4Q
00
3Q
01
2Q
02
1Q0
3
4Q
03
3Q
04
2Q
05
1Q0
6
4Q
06
3Q
07
2Q
08
1Q0
9
4Q
09
3Q
10
2Q
11
1Q12
4Q
12
3Q
13
2Q
14
1Q15
4Q
15
3Q
16
2Q
17
Value added by sector (%, YoY, MA4)
Industry Trade, transport, HORECA IT&C
Source: National Institute of Statistics (NIS)
RETURN OF TWIN DEFICITS
-16
-14
-12
-10
-8
-6
-4
-2
0
-8
-6
-4
-2
0
2
4
6
8
10
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
GDP, public finance and current account
GDP (%, YoY) Budget deficit (% GDP) Current account deficit (% GDP)
Source: AMECO, IMF, Banca Transilvania forecasts
LABOR MARKETS (OVER)HEATING
5.0
5.5
6.0
6.5
7.0
7.5
-10
-5
0
5
10
15
20J
an
-07
Ap
r-0
7J
ul-
07
Oct
-07
Ja
n-0
8A
pr-
08
Ju
l-0
8O
ct-0
8J
an
-09
Ap
r-0
9J
ul-
09
Oct
-09
Ja
n-1
0A
pr-
10J
ul-
10O
ct-1
0J
an
-11
Ap
r-11
Ju
l-11
Oct
-11
Ja
n-1
2A
pr-
12J
ul-
12O
ct-1
2J
an
-13
Ap
r-13
Ju
l-13
Oct
-13
Ja
n-1
4A
pr-
14J
ul-
14O
ct-1
4J
an
-15
Ap
r-15
Ju
l-15
Oct
-15
Ja
n-1
6A
pr-
16J
ul-
16O
ct-1
6J
an
-17
Ap
r-17
Labor markets climate
The real wage (MA12, %, YoY) Unemployment rate (%, MA12)
Source: Romanian Statistics Office (INS), Banca Transilvania estimates
POLICY-MIX IN ROMANIA
CONVERGENCE GOES ON … WITH LOWER PACE
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
199
6
199
7
199
8
199
9
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
The dynamics of the structural component of GDP/capita (YoY)
Romania Euro Area
Source: the results of the methodology applied by using data from Eurostat and AMECO
STRONG PRO-CYCLICAL FISCAL POLICY
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Output gap vs. structural budget deficit
Output gap (pp) Structural budget deficit (% GDP) (rhs)
Source: the results of the methodology applied by using data from Eurostat and AMECO
AN EXPANSIONARY MONETARY POLICY
Source: the results of the methodology applied by using data from Eurostat , NBR, Bloomberg
0
2
4
6
8
10
12
14
16
2006 2008 2010 2012 2014 2016
TAYLORRATE NBRRATE
NBR rate vs. Taylor rule rate
MACROECONOMIC EQUILIBRIA AT RISK AGAIN
0
2
4
6
8
10
12
14
16
198
019
81
198
219
83
198
419
85
198
619
87
198
819
89
199
019
91
199
219
93
199
419
95
199
619
97
199
819
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
102
011
20
122
013
20
142
015
20
162
017
Investments – Savings differential (% GDP)
Sursa: IMF, October 2017
BT MACROECONOMIC SCENARIO FOR ROMANIA
A LANDING IN SIGHT
CONCLUSIONS
MANEUVER ROOM NEEDED FOR NEXT CRISIS
A policy-mix rebalancing needed in order to build maneuver room for the end of cycle
The financing costs would be higher than forecasted in the mid-run if the rebalancing
is postponed
The degree of freedom in terms of monetary policy is relatively low, due to the strong
macro-financial integration of Romania with the Euroland and the high speed of
capital flows, in a context of unprecedented expansionary ECB policy
Without a rethink of the fiscal policy there increases the risks for Excessive Deficit
Procedure, with negative consequences for the sovereign rating
A stronger coordination of monetary and fiscal policies important to avoid boom/bust
Structural reforms needed for sustainable development and for a successful
integration in OECD and Euro Area in the future
