Post on 29-Jun-2020
Overview of the Macro Context
Jonathan D. OstryDeputy Director
Asia and Pacific Department, IMF
IMF/PFTAC Steering Committee Meeting, Port Moresby, Papua New GuineaMarch 27th, 2019
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Today’s Briefing
Recent Developments In Global Economy and Asia
Outlooks, Risks, and Opportunities in the Pacific
IMF’s work in the Pacific
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Global Overview
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Asia is exposed to swirling winds.
Headwinds Global growth deceleration
Crosswinds Trade tensions & talks
Elections
Tailwinds
Pause in monetary policy normalization
Drop in commodity prices
Stimulus measures4
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2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
China India Rest of Asia Japan Euro area United States
GDP Growth(Percent; year-on-year)
Source: IMF, World Economic Outlook.Note: 2018Q4 is an estimate. Rest of Asia = Australia, New Zealand, Hong Kong, Korea, Singapore, Taiwan Province of China, Indonesia,
Growth in 2018 H2 decelerated, especially in Europe...
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…and regional trade plunged in late 2018 amidst ongoing trade tensions...
Source: Haver. IMF Staff Calculations.Note: REO-14 Asian economies included; moving average based on 2 lags and current levels.
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-8
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-4
-2
0
2
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Merchandise Imports: Growth Rate (Jan 2017-Dec 2018)(seasonally adjusted, deflated, 3-month moving average of
month-on-month, weighted by GDP PPP)
Advanced AsiaDeveloping Asia
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-8
-6
-4
-2
0
2
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Merchandise Exports: Growth Rate (Jan 2017-Dec 2018)(seasonally adjusted, deflated, 3-month moving average of
month-on-month, weighted by GDP PPP)
Advanced AsiaDeveloping Asia
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…led by an unexpectedly large dip in China’s January-February trade.
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
Total United States India Japan ASEAN Korea
Figure: China’s 2019 Jan-Feb Exports (Year-on-year, percent change)
Source: CEIC Data. IMF Staff Calculations.
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High frequency, forward-looking indicators suggest that weaker activity will continue into Q1 2019.
Manufacturing PMIs (50+ = expansion, seasonally adjusted)0 Jan-2018 Feb-2018 Mar-2018 Apr-2018 May-2018 Jun-2018 Jul-2018 Aug-2018 Sep-2018 Oct-2018 Nov-2018 Dec-2018 Jan-2019 Feb-2019
Australia 55.4 55.6 54.3 55.5 53.2 55.0 52.4 53.2 54.0 54.5 54.6 54.0 53.9 52.9China 51.5 51.6 51.0 51.1 51.1 51.0 50.8 50.6 50.0 50.1 50.2 49.7 48.3 49.9India 52.4 52.1 51.0 51.6 51.2 53.1 52.3 51.7 52.2 53.1 54.0 53.2 53.9 54.3Indonesia 49.9 51.4 50.7 51.6 51.7 50.3 50.5 51.9 50.7 50.5 50.4 51.2 49.9 50.1Japan 54.8 54.1 53.1 53.8 52.8 53.0 52.3 52.5 52.5 52.9 52.2 52.6 50.3 48.9Korea 50.7 50.3 49.1 48.4 48.9 49.8 48.3 49.9 51.3 51.0 48.6 49.8 48.3 47.2Malaysia 50.5 49.9 49.5 48.6 47.6 49.5 49.7 51.2 51.5 49.2 48.2 46.8 47.9 47.6New Zealand 55.8 53.4 53.0 59.1 54.3 52.7 51.3 52.2 52.0 53.6 53.5 54.8 53.1 #N/APhilippines 51.7 50.8 51.5 52.7 53.7 52.9 50.9 51.9 52.0 54.0 54.2 53.2 52.3 51.9Taiwan Province of China 56.9 56.0 55.3 54.8 53.4 54.5 53.1 53.0 50.8 48.7 48.4 47.7 47.5 46.3Thailand 50.6 50.9 49.1 49.5 51.1 50.2 50.1 49.9 50.0 48.9 49.8 50.3 50.2 49.9Vietnam 53.4 53.5 51.6 52.7 53.9 55.7 54.9 53.7 51.5 53.9 56.5 53.8 51.9 51.2
8Source: Haver Analytics
Prospects of a trade deal have improved but are still uncertain.+?
Political uncertainty looms ahead.
MarchMicronesia
ThailandTuvalu
AprilIndonesiaMaldivesSolomon Islands
MayIndia
PhilippinesAustralia
JulyJapanNauru
NovemberHong KongMarshall Islands
DecemberKiribati
Upcoming Elections in 2019
+?
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In response to these developments, AE central banks and regional authorities have eased policies.
Expected Fed Fund Rate vs. FOMC Dots(end-of-period, percent)
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0.5
0.6
China India Korea
Figure: 2019 Growth Impact from Fiscal Stimulus (% of GDP)
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2.00
2.25
2.50
2.75
3.00
3.25
29/12/2018 31/12/2019 31/12/2020
FOMC median dots (as of Dec. 2018)FOMC median dots (as of March 2019)Federal funds rate futures (as of March, 2019)
Source: Bloomberg Source: IMF staff estimates.
The drop in commodity prices in late 2018 helped soften inflation in most economies and may bolster growth.
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Selected Asia: Headline CPI Inflation(percent change, year-on-year)
Cambodia China Hong Kong SARIndia Indonesia KoreaMalaysia Philippines SingaporeTaiwan POC Thailand Vietnam
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150
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40
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85
Mar-1
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Apr-1
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May-1
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Jun-
18
Jul-1
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Aug-
18
Sep-
18
Oct-1
8
Nov-1
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Dec-1
8
Jan-
19
Feb-
19
Mar-1
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Source: Bloomberg. IMF Staff Calculations.
Commodity Prices(Index; average)
WTI & Brent AverageCommodity Metals Price Index (RHS)UN FAO World Food Price Index (RHS)
Source: Haver Analytics; and CEIC Ltd.
Asian EM financial conditions improved.
-60-40-20
020406080
100120140
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2016 2017 2018 2019
Emerging Asia Excluding China Non Resident Portfolio Inflows(In billion US dollars)
Source: IIF.
-80-60-40-20
02040
Austr
alia
Lao P
DRVi
etnam Ind
iaTa
iwan
Pro
vince
of C
hina
Kore
aMa
laysia
Hong
Kon
g SAR
China
Sing
apor
eNe
w Ze
aland
Japa
nTh
ailan
dInd
ones
iaPh
ilippin
esMo
ngoli
a
Braz
ilTu
rkey
Arge
ntina
Contribution from change in reservesContribution from change in exchange rateEMPI (since Sep 2018)EMPI (from Mar 2018 to Sep 2018)
Exchange Market Pressure Index (EMPI)(Percent change in U.S. dollar/local currency exchange rate plus percent change in reserves; since Sep 2018)
Source: IMF staff calculations.Note: As of Feb 2019.
Trade Tensions & Talks
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US-China Deal: Every silver lining has a touch of grey, especially if the multilateral approach to trade was put at risk.
Benefits Uncertainties Downsides
Electronics
Aircraft
Machinery
Machinery
Furniture
Oil Seeds
Toys
Vehicles
Other
Other
0 100 200 300 400 500 600
US Imports from China
US Exports to China
US-China Trade of Goods Structure(Billions of USD)
~130B
~530B
Total Deficit: ~400B
Source: Comtrade. IMF Staff Calculations. Based on 2017 data.
Closing the US-China bilateral deficit via managed trade will be a challenge.
How might the trade deal impact other economies?
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-60 -40 -20 0 20 40 60 80 100
Electronics
Machinery
Vehicles
Oil seeds
Aircraft
Optical
Mineral fuels/oils
Plastics
Wood pulp
China's Import Structure for Top Products Imported from the United States
KOR JPN MYS
60 40 20
JPN DEU KOR
DEU JPN GBR
BRA CAN ARG
FRA DEU BRA
JPN KOR DEU
RUS SAU AGO
KOR JPN SAU
CAN IDN CHL
U.S. Top-10 Exporters Excluding U.S.(2017; Share of China's total imports of each product)
Despite the possible deal, trade policy uncertainty will likely remain above historical averages.
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40
60
80
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120
2015
m120
15m3
2015
m520
15m7
2015
m920
15m1
120
16m1
2016
m320
16m5
2016
m720
16m9
2016
m11
2017
m120
17m3
2017
m520
17m7
2017
m920
17m1
120
18m1
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m320
18m5
2018
m720
18m9
2018
m11
2019
m1
Figure: US Trade Protectionism & Agreement Policy Uncertainty
(0-100)
Protectionism Agreement
Source: Hlatshwayo (2018) and IMF Staff Calculations.18
In sum, US-China deal should be positive, with many issues remaining.
Trade deal• Lower tariffs, reduced uncertainty, and structural
reform in China would be helpful for global growth• But trade diversion would likely affect some
countries• China’s market opening should be accessible to all,
not undermining multilateralism
Pacific Island Countries
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What does this mean for the Pacific Islands: there are global headwinds but also idiosyncratic factors.
Global growth decelerationLow commodity prices (for commodity exporters)
Tourism[Fishing]Low commodity prices (for commodity importers)
Tailw
inds
Headwinds
CrosswindsCrosswinds Spillovers from trade tensions
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Tourism is an important driver of growth in the region.
0%
20%
40%
60%
80%
100%
Sam
oa
Tong
a Fiji
Vanu
atu
PNG
Solo
mon
Isla
nds
Tim
or-L
este
Mar
shal
l Is
land
s
Pala
u
Australia New ZealandChina JapanPacific Island Markets Other Markets
Share of Visitor Arrivals, by Source Markets(In percent of Total Arrivals)
Source: South Pacific Tourism Organisation (SPTO).
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2012 2013 2014 2015 2016 2017
Arrivals Y-o-y percent change (rhs)
Visitor Arrivals in Selected Pacific Island Countries(In thousands of persons)
Note: Includes Fiji, Samoa, Palau, PNG, Solomon Islands, Tonga and Vanuatu.Sources: South Pacific Tourism Organisation (SPTO).
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And fishing revenues have been buoyant.
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2011 2012 2013 2014 2015 2016 2017 2018proj.
Kiribati Tuvalu Nauru Micronesia Marshall Islands
Outlook on Fishing Revenue in the Pacific(Fishing revenue in percent of GDP)
Sources: Countries authorities, and IMF staff projections.23
Debt has been rising amid weakening fiscal balances, although…
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The pattern of debt differs across countries
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Short term risks are on the downside…
…And long-term trends pose challenges
• Climate change
• Non-communicable diseases
• Demographic changes due to migration
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• Natural disasters
• Weaker than expected global growth
• Loss of correspondent banking relationships
• Infrastructure delays (Authorities’ view)
Raising long-term growth is a key developmental challenge.
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400
1990
1992
1994
1996
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2012
2014
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EMDE inter-quartile range
EMDE index
EMDE Asia index
PICSs index
Real GDP Growth(Index, 1990 = 100)
Sources: IMF, World Economic Outlook, and staff calculations.27
201020182020
But there are other opportunities: technology could offer new growth opportunities to the PICs.
Submarine Internet Cable
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SamoaTongaVanuatu
Correspondent Banking Relationships/ AML CFT
Tourism Based
Cook IslandsFiji
Fishing License Fees
KiribatiMicronesiaTuvaluNauru
Solomon Islands
And regional approaches could provide opportunities.
Financial Inclusion
Marshall IslandsPapua New Guinea
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Palau
IMF’s work in the Pacific.
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Country Surveillance
• Integration with Capacity Development
• Adjusting for Natural Disasters
• Non-Technical Summary for Cabinet
• Note on Central Bank Digital Currency
• Paper on Correspondent Banking
• Paper on Fintech
Policy Development
• Focus on Building Resilience to Disasters
• Independent Evaluation Office: Review of Small States
• Comprehensive Surveillance Review
• Capacity Development Strategy
Outreach
• IMF Management visits to the Region
• Annual Meetings Event• Non-Technical Summary
for Cabinet
What is the IMF doing?
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Capacity Development
• Scaling up revenue mobilization
• Joint CARTAC/PFTAC workshop
• Recruitment of Macro-Adviser
More Tailored Training
• Macro-training (PNG/Solomon Islands)
• Fiscal Sustainability for Low Income Countries
• Debt Sustainability Analysis• AML/CFT • Roundtable on Correspondent
Banking
What is the IMF doing?
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Thank you for your attention!
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