Daniel Titelman Chief Economic Development Division ECLAC ...

Daniel TitelmanChief Economic Development DivisionECLACOctober 2017

External context

1. Global economy exhibits greater dynamism

2. Upturn in commodity prices with respect to 2016 (12% higher on average)

3. Stronger growth in global trade, albeit starting from very low levels

4. Financial volatility has remained low and stable thus far in 2017

1. Economic policy of the United States Fiscal and trade policy: uncertainty

about potential reforms Debate on rising debt ceiling may cause

greater volatility in financial markets in 2017

Deregulation (financial and environmental): this is progressing with eventual negative impacts

2. Withdrawal of monetary stimulus in developed economies and normalization of interest rates

3. GDP growth in China and potential asset price bubble

Opportunities Risks

Growth of the global economy improves with a

rate of 2.7% in 2017 and 2.9% in 2018

SELECTED COUNTRIES AND REGIONS: GDP GROWTH, 2015-2018a

(Percentages)

Source: ECLAC, on the basis of United Nations, World Economic Situation and Prospects (WESP) 2017, and data from GEP (WB), EIU, OCDE, WEO

(IMF), Bloomberg and Capital Economics.a Projections for 2017 and 2018.

2.4

1.7 1.6

1.0

1.81.7

3.6

6.77.1

2.7

2.0 2.1

1.21.7

1.8

4.2

6.5

7.3

2.9

1.9

2.2

0.91.3

1.7

4.8

6.4

7.7

0

1

2

3

4

5

6

7

8

9

World Developed economies

United States Japan United Kingdom

Eurozone Emerging market and developing economies

China India

2016 2017 2018

-20

-15

-10

-5

0

5

10

15

20

20

03

Jan

Jul

20

04

Jan

Jul

20

05

Jan

Jul

20

06

Jan

Jul

20

07

Jan

Jul

20

08

Jan

Jul

20

09

Jan

Jul

20

10

Jan

Jul

20

11

Jan

Jul

20

12

Jan

Jul

20

13

Jan

Jul

20

14

Jan

Jul

20

15

Jan

Jul

20

16

Jan

Jul

20

17

Jan

Jul

January 2003 - June20078%

July 2011 - December 20152%

20161.4%

Forecast 2017 2.4%

World trade growth increases moderately,

although it remains at historically low levels

YEAR-ON-YEAR VARIATION IN GLOBAL TRADE VOLUMES, JANUARY 2003 – MARCH 2017

(Percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Netherlands Bureau of Economic Policy Analysis (CPB) and

World Trade Organization (WTO) forecasts for 2017.

º

0

10

20

30

40

50

60

70

0

50

100

150

200

250

300

350

20

00

Jan

Jul

20

01

Jan

Jul

20

02

Jan

Jul

20

03

Jan

Jul

20

04

Jan

Jul

20

05

Jan

Jul

20

06

Jan

Jul

20

07

Jan

Jul

20

08

Jan

Jul

20

09

Jan

Jul

20

10

Jan

Jul

20

11

Jan

Jul

20

12

Jan

Jul

20

13

Jan

Jul

20

14

Jan

Jul

20

15

Jan

Jul

20

16

Jan

Jul

20

17

Jan

GEPU Index (right axis)

VIX Index

Global uncertainty reflects greater perception

of risks and setbacks in trade openness

Source: ECLAC, on the basis of data from http://www.policyuncertainty.com/ and Bloomberg.

GLOBAL ECONOMIC POLICY UNCERTAINTY INDEX (GEPU) AND VIX INDEX OF

FINANCIAL VOLATILITY, JANUARY 2000 TO JUNE 2017

http://www.policyuncertainty.com/

-3

-2

-1

0

1

2

3

I II III IV I II III IV I

2015 2016 2017

Latin America South America excl Brazil Central America excl Mexico Brazil Mexico

Economic performance in the region began to

improve beginning in the third quarter of 2016

LATIN AMERICA: VARIATION IN QUARTERLY GDP

(Percentages)

Fourth quarter 2016 and first quarter of 2017 registered positive growth

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

• Exports of goods and services accounted for 1.4 percentage points of growth in the first quarter of 2017, while investment contributed only 0.12 percentage points.

• Private consumption is another factor that has driven growth and explains 1.0 percentage point.

The economic improvement reflected greater export

dynamism but a low contribution of investment


LATIN AMERICA: CONTRIBUTION OF EXPENDITURE COMPONENTS TO GROWTH, FIRST QUARTER

OF 2013 TO FIRST QUARTER OF 2017

(Percentages)

-6

-4

-2

0

2

4

6

8

I II III IV I II III IV I II III IV I II III IV I

2013 2014 2015 2016 2017

General government consumption Private consumption

Investment Exports of goods and services

Imports of goods and services

A significant part of the improvement in exports

in the region is explained by price effects

LATIN AMERICA (SELECTED COUNTRY GROUPINGS): PROJECTED VARIATION IN

EXPORTS AND IMPORTS OF GOODS BY VOLUME AND PRICE, 2017

(Percentages)

Source: ECLAC, on the basis of official figures.a Chile and Peru. b Argentina, Paraguay and Uruguay. C Bolivia (Plurinational State of), Colombia, Ecuador, Trinidad and Tobago and Venezuela (Bolivarian Republic

of).

6.1

7.5

8.6

1.9

4.0

1.2

15.1

1.8

2.0

0.8

3.9

3.0

2.6

-2.2

-4 -2 0 2 4 6 8 10 12 14 16

Latin America

Brazil

Exporters of minerals and metalsᵃ

Exporters of agro-industrial productsᵇ

Mexico

Central America, Haiti and Dominican Rep.

Exporters of hydrocarbonsᶜ

Prices Volume

3.4

2.9

5.3

4.0

3.0

3.8

3.0

2.8

4.0

0.8

3.8

3.0

2.5

1.0

-4 -2 0 2 4 6 8 10 12 14 16

Prices Volume

Exports Imports

This reflects improvements in the prices of

raw materials compared to 2016

INTERNATIONAL COMMODITY PRICES, 2016 AND 2017a

(Variation in percentages)

Source: ECLAC, on the basis of data from World Bank, International Monetary Fund (IMF), Economist Intelligence Unit and

Bloomberg.a Forecasts.

2016 2017a

Agricultural products 4 3

Foods, tropical beverages and oilseeds 5 2

Foods 9 4

Tropical beverages 1 2

Oils and oilseeds 1 0

Forestry and agricultural raw materials 0 5

Minerals and metals -2 16

Energy products -13 19

All commodities -4 12

All commodities excluding energy products 1 9

Implying that the terms of trade will increase by

around 3% on average, with differences by subregion

LATIN AMERICA AND THE CARIBBEAN (SELECTED COUNTRIES AND GROUPINGS):

VARIATION IN THE TERMS OF TRADE, 2015-2017a

(Percentages)

Source: ECLAC, on the basis of official figures.a Figures for 2017 are projections. b Chile and Peru. c Argentina, Paraguay and Uruguay. d Bolivia (Plurinational State of), Colombia, Ecuador, Trinidad and

Tobago and Venezuela (Bolivarian Republic of). e Excluding Trinidad and Tobago.

2.7

4.53.1

-2.0

1.0

-2.5

11.8

-1.9

-15

-10

-5

0

5

10

15

Latin America Brazil Exporters of minerals and

metalsᵇ

Exporters of agro-industrial

productsᶜ

Mexico Central America, Haiti and

Dominican Rep.

Exporters of hydrocarbonsᵈ

The Caribbeanᵉ

2015 2016 2017

-30.8%

The effect of the terms of trade on GDP

depends on the productive structure

Source: ECLAC, on the basis of official figures and World Bank.

LATIN AMERICA: VARIATION IN AVERAGE GROWTH RATES OF THE TERMS OF TRADE

AND GDP BY EXPORT STRUCTURE, 2003-2008 TO 2012-2016

-4

-3

-2

-1

0

-25 -20 -15 -10 -5 0 5 10 15

Var

iati

on

in G

DP

gro

wth

rat

es

Variation of terms of trade growth rates

Exporters of hydrocarbons (Bolivia, Colombia, Ecuador and Venezuela)

Exporters of minerals and metals (Chile and Peru)

Exporters of manufactured goods (Central America and

Exporters of agro-industrial products (Paraguay and Uruguay)

0

5

10

15

20

25

30

35

40

45

Brazil Chile Colombia Mexico Emerging economies

2011

2012

2013

2014

2015

2016

Household indebtedness expands in part because

of the increase in private consumption

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Bank for International Settlements (BIS), Global

Liquidity Indicators [online] http://www.bis.org/statistics/gli.htm.

LATIN AMERICA (SELECTED COUNTRIES): HOUSEHOLD DEBT, 2011-2016

(Percentages of GDP)

72

5449

4743 43 42 41

38 37 37 37 36

30 2825 23 22 21 20

0

10

20

30

40

50

60

70

80

90

BR

A

AR

G

HO

N

UR

Y

SLV

CR

I

CO

L

VEN

MEX

AL-

19

HT

I

PAN

RD

O

BO

L

NIC

ECU

GTM CH

L

PR

Y

PER

2016 2017 (1st qtr)

-2.8 -2.9 -3.1 -3.1

-1.0 -0.9 -1.0 -0.9

-6

-4

-2

0

2

4

6

8

10

12

10

12

14

16

18

20

22

24

2014 2015 2016 2017 (e)

Overall balance (right axis)

Revenues (left axis)

Expenditures (left axis)

Primary balance (right axis)

The fiscal impulse to domestic demand is constrained

by the persistence of public deficits and the trajectory

of public debt in some countries

LATIN AMERICA (17 COUNTRIES):

CENTRAL GOVERNMENT OVERALL

AND PRIMARY BALANCE, 2014-2017 a


LATIN AMERICA: CENTRAL GOVERNMENT GROSS

PUBLIC DEBT, 2016 AND FIRST QUARTER OF 2017


a Simple averages. The figures for 2017 are projections taken from budgets.


121

10585

79 7772 73 72 67 62 61

50 47 45

0

20

40

60

80

100

120

140

160

JAM

BR

B

BEL

SLC

BH

S

SVG

CA

R-1

3

GR

D

AYB

TY

T

DO

M

SUR

SKN

GU

Y

2016 2017 (1st qtr)

-2.8 -2.5 -2.1 -2.3

0.6 0.8 1.2 1.1

-6

-4

-2

0

2

4

6

8

10

12

10

15

20

25

30

35

2014 2015 2016 2017 (e)

Overall balance (right axis)

Revenues (left axis)

Expenditures (left axis)

Primary balance (right axis)

In the Caribbean, fiscal space remains very

limited due to high public debt

THE CARIBBEAN (12 COUNTRIES):

CENTRAL GOVERNMENT OVERALL

AND PRIMARY BALANCE, 2014-2017 a


THE CARIBBEAN: CENTRAL GOVERNMENT GROSS

PUBLIC DEBT, 2016 AND FIRST QUARTER OF 2017




15.3 15.5 15.4

22.4 22.4 22.2

2.0 2.1 2.2

3.3 3.3 3.4

3.7 3.7 3.6

4.8 3.8 4.3

21.1 21.3 21.2

30.4 29.5 30.0

0

5

10

15

20

25

30

35

2015 2016 2017 2015 2016 2017

Latin America(17 countries)

The Caribbean(12 countries)

Primary current expenditure Interest Capital expenditure

15.6 15.7 15.5

22.2 21.8 21.9

2.6 2.6 2.6

5.8 5.6 5.8

18.2 18.3 18.1

27.9 27.4 27.7

0

5

10

15

20

25

30

2015 2016 2017 2015 2016 2017

Latin America

(17 countries)

The Caribbean

(12 countries)

Tax revenues Other revenues

Sluggish public revenues will also affect public

spending in Latin America

LATIN AMERICA AND THE CARIBBEAN:

COMPOSITION OF CENTRAL GOVERNMENT

REVENUE, 2015-2017 a


LATIN AMERICA AND THE CARIBBEAN:

COMPOSITION OF CENTRAL GOVERNMENT

SPENDING, 2015-2017 a




The current account deficit of the balance of

payments is expected to remain stable in 2017

LATIN AMERICA: BALANCE-OF-PAYMENTS CURRENT ACCOUNT BY COMPONENT, 2005-2017a


Source: ECLAC, on the basis of official figures.a The figures for 2017 are projections.

0.4

-1.0

-2.8

1.4

1.2 1.5

0.2

-0.9 -0.8

-2.0 -2.0-2.3

-2.8-3.1

-3.3

-1.9 -1.9

-6

-4

-2

0

2

4

6

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Current transfers balance

Income balance

Services balance

Goods balance

Current account balance

-100

-50

0

50

100

150

200

250

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

FDI Portfolio Other

-100

-50

0

50

100

150

200

250

300

350

400

20

00

20

01

2002

20

03

20

04

20

05

20

06

20

07

2008

2009

20

10

20

11

20

12

20

13

20

14

2015

20

16

FDI Portfolio Other

Source: ECLAC, CEPALSTAT database, and World Bank, “World Bank Open Data” 2017 [online] http://data.worldbank.org/.

Net flows Gross flows

LATIN AMERICA AND THE CARIBBEAN: NET AND GROSS FINANCIAL INFLOWS, 2000-2016

(Billions of dollars)

Capital inflows are expected to cover the

current account deficit

• Despite the fall in flows in 2015-2016, they remain higher than those recorded in the

1990s.

0

2

4

6

8

10

12

14

16

18

20

0

100

200

300

400

500

600

700

800

900

1,000

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

ᵃ

Gross international reserves (left axis) In percentages of GDP (right axis)

This has allowed international reserves to

increase slightly in the first five months of 2017

LATIN AMERICA AND THE CARIBBEAN: INTERNATIONAL RESERVES, 2000-2017a

(Billions of dollars and percentages of GDP)

Source: ECLAC, on the basis of official figures.a Data to May.

Bil

lon

s o

f d

oll

ars

Pe

rce

nta

ge

of

GD

P

The evolution of external financial flows reflects the

continuing development of financial globalization

Source: ECLAC, on the basis of Bank for International Settlements (BIS), 2017.

VARIATION IN BANK LENDING AND DEBT ISSUANCE IN SELECTED PERIODS, 2000-2016

(Percentages)

13.8

-7.2

3.45

0.5

10.5

6.7 7.3

10.2

8.3

-10

-5

0

5

10

15

2000 - 2008 2009 2010 - 2014 2015 2016

Bank lending Debt

Despite slumping growth of cross-border bank lending, the bond market has become a

major source of financing for developing economies and Latin American and Caribbean.

The growing importance of the bond market has

increased the financing capacity of the non-

financial corporate sector

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Bloomberg, 2017.

LATIN AMERICA (SELECTED COUNTRIES): LEVERAGE, RETURNS AND INVESTMENT GROWTH

RATES IN THE NON-FINANCIAL CORPORATE SECTOR, 2009 AND 2015

62.4

10.1 9.5

78.0

-4.8

2.5

-10

0

10

20

30

40

50

60

70

80

90

Leverage Rate of change of investment

Profitability

2009

2015

However, this has not translated into higher spending on fixed assets and long-term

capital. In fact the increase in debt has gone hand in hand with lower investment

spending.

LATIN AMERICA AND THE CARIBBEAN:CONSUMER PRICE INDEX (CPI), WEIGHTED

AVERAGE 12-MONTH RATES OF VARIATION, JANUARY 2014 TO MAY 2017

(Percentages)


Trends in growth have been accompanied by a

fall in inflation

0

2

4

6

8

10

12

14

Jan

Mar

May Ju

l

Sept

No

v

Jan

Mar

May Ju

l

Sept

No

v

Jan

Mar

May Ju

l

Sept

No

v

Jan

Mar

May

2014 2015 2016 2017

Latin America and the Caribbean excl Venezuela (Bol. Rep. of)

South America excl Venezuela (Bol. Rep. of)

Central America and Mexico

The Caribbean

Annual inflation rate

(end of period)

2015 2016 2017ᵃ

Latin America and the Caribbean

excl Venezuela (Bol. Rep. of)7.9 7.3 5.7

South America excl Venezuela

(Bol. Rep. of)10.6 9.1 5.7

Central America and Mexico 2.7 5.7 5.7

The Caribbean 3.3 5.4 5.1ᵇ

ᵃ Data to May.

ᵇ Data to Apri l .

40

60

80

100

120

140

160

180

200

20

14

Jan Ap

r

Jul

Oct

20

15

Jan Ap

r

Jul

Oct

20

16

Jan Ap

r

Jul

Oct

20

17

Jan Ap

rBrazil

Chile

Colombia

Uruguay

Source: ECLAC, on the basis of official figures.

LATIN AMERICA (SELECTED COUNTRIES):

INDEX OF NOMINAL EXCHANGE RATE AGAINST THE DOLLAR, JANUARY 2014 - APRIL 2017

(Index: 2005 = 100)

The appreciation of the region’s currencies

starting in 2016 has contributed to the decline in

inflation

80

100

120

140

160

180

200

2014

Jan

Apr Ju

l

Oct

2015

Jan

Apr Ju

l

Oct

2016

Jan

Apr Ju

l

Oct

2017

Jan

Apr

Costa Rica

Guatemala

Honduras

Mexico

Inflation trends have increased the space to

pursue more expansionary monetary policies

LATIN AMERICA (SELECTED COUNTRIES): MONETARY POLICY RATES IN COUNTRIES WHERE

THEY ARE USED AS THE MAIN POLICY INSTRUMENT, JANUARY 2013 TO JUNE 2017

(Percentages)


Countries holding or cutting rates Countries increasing rates

0.0

2.5

5.0

7.5

10.0

12.5

15.0

Jan

Mar

May Ju

lSe

pN

ov

Jan

Mar

May Ju

lSe

pN

ov

Jan

Mar

May Ju

lSe

pN

ov

Jan

Mar

May Ju

lSe

pN

ov

Jan

Mar

May

2013 2014 2015 2016 2017

Brazil Chile Colombia Peru

Guatemala Honduras Paraguay

0.0

2.5

5.0

7.5

Jan

Mar

May Ju

lSe

pN

ov

Jan

Mar

May Ju

lSe

pN

ov

Jan

Mar

May Ju

lSe

pN

ov

Jan

Mar

May Ju

lSe

pN

ov

Jan

Mar

May

2013 2014 2015 2016 2017

Costa Rica Mexico Dominican Republic

16 15.917.2

21.222.9

7.1 6.9

7.3

8.9

9.4

0

5

10

15

20

25

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

2013 2014 2015 2016 2017 a/

Urb

an

un

em

plo

ye

d (i

n m

illi

on

s)

Urb

an

op

en

un

em

plo

ym

en

t ra

te

Urban unemployed Urban open unemployment rate

The recovery in growth has been insufficient to

reverse the rise in unemployment• The urban unemployment rate has trended upwards since 2014. It is estimated

that it will reach 9.4% in 2017, implying that about 23 million people are

unemployed.

LATIN AMERICA AND THE CARIBBEAN: URBAN OPEN UNEMPLOYMENT RATE

AND NUMBER OF URBAN UNEMPLOYED

(Percentages and millions of people)


-7.2-0.2-0.2

0.30.40.60.71.01.11.11.11.21.41.41.51.62.02.12.22.22.52.52.52.73.03.13.23.43.53.63.73.84.04.04.1

4.75.05.35.6

-8 -6 -4 -2 0 2 4 6 8

Venezuela (Bol. Rep. of)Suriname

Santa LuciaTrinidad and Tobago

BrazilSOUTH AMERICA

EcuadorCubaHaiti

LATIN AMERICALATIN AMERICA AND THE CARIBBEAN

THE CARRIBBEANChile

BahamasBarbados

JamaicaArgentinaColombia

St. Vincent and the GrenadinesMexico

PeruEl Salvador

CENTRAL AMERICA AND MEXICOGrenadaUruguay

DominicaBelize

GuatemalaSt. Kitts and Nevis

CENTRAL AMERICAHonduras

GuyanaParaguay

Bolivia (Plur. State of)Costa RicaNicaragua

Antigua and BarbudaDominican Rep.

Panama

LATIN AMERICA AND THE CARIBBEAN: GDP GROWTH RATES, 2017a

(Percentages, on the basis of dollars at constant 2010 prices)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.a Projections.

Note: Central America, including the Spanish-speaking Caribbean countries.

Projected GDP growth rates, 2017

The characteristics of the current economic cycle pose

challenges to boost and sustain growth in the short

and medium term

• The performance of growth during the 2009-2016 cycle was mainly

explained by consumption and to a lesser extent by exports.

– The evolution of private consumption has been closely linked to

indebtedness, which can generate financial vulnerabilities.

– Export performance has been closely linked to commodity price effects.

• Investment in recent years has played a marginal role in driving

economic growth.

– Lower investment is linked to the fall in imports

• Weak investment does not allow for the accumulation of capital,

nor for the building of capacities in infrastructure and productivity

nor to generate innovation which limits the possibilities of

sustained growth over time.

Returning to a high and sustainable growth path

requires boosting investment

In the area of fiscal policies, a countercyclical framework is needed that

favors public investment

• Counter-cyclical policies must concern themselves not only with stability

(level) but also with the composition of expenditure.

• Avoid using public investment as an adjustment variable during cyclical

fluctuations.

• Not only the level of investment matters but also its sectoral composition.

Boost private investment through Public-Private Partnerships based on

productive strategies with clear and long-term rules in sectors with high

multiplier impact

• Sustainable cities as triggers of technological innovation

• Environmental “big push”: renewable energy, modern digital and

transport infrastructure

The evidence for Latin America shows that the

impulse of public investment to medium-term

economic growth is relevant

The cumulative multiplier ofinvestment spending issignificantly higher than thatof consumption.

A one unit increase ininvestment spending has animmediate impact ofapproximately 1.0, while themultiplier of currentexpenditure is close to 0.7

In the medium term, thecumulative multiplier ofinvestment spending is closeto 2 and higher than that ofcurrent spending.

LATIN AMERICA: CUMULATIVE MULTIPLIERS, BY TYPE

OF SPENDING, 1990-2014

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0 1 2 3 4 5

Years

Capital expenditure Current expenditure


Fiscal policy should achieve an appropriate

balance between current spending and

investment, borrowing and public balance

Separating the treatment given to investment spending from that

given to current spending eliminates the bias against investment

when public spending is adjusted

In order to protect or stimulate public investment, macrofiscal rules

are needed that smooth out as much as possible the damaging

boom and bust cycles of public spending in general, and of capital

spending in particular.

In addition to refining fiscal rules, the ability to raise public

revenues must be strengthened.

• Continue with changes in the tax structure: more direct taxes.

• Strengthen tax administrations.

• Reduce tax evasion and avoidance.

Short- and long-term growth also depends

on credit and financial stability

The financial system tends to amplify fluctuations in aggregatedemand and real activity

Macroprudential policies should be a countercyclical instrument formanaging not only the level of aggregate demand (indebtednesslimits for example) but also its composition (between consumptionand investment and to differentiate between types of expenditureand sectors)

Highlighting the role of macroprudential regulation as aninstrument of countercyclical policy implies giving greater weight tofinancial stability.

• In this context, the movements of the interest rate must reflect considerationsof price and financial stability.

• Strengthen the transmission mechanism of monetary policy to the financialsystem.

Daniel Titelman Chief Economic Development Division ECLAC ...

Documents

Transcript of Daniel Titelman Chief Economic Development Division ECLAC ...