Macedonia and the Euro-zone Debt Crisis (Small and Open – Hostages of Uncertain prospects?) Ana...
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Macedonia and the Euro-zone Debt Crisis (Small and Open – Hostages of Uncertain prospects?) Ana Mitreska National bank of the Republic of Macedonia Athens May, 2012
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Transcript of Macedonia and the Euro-zone Debt Crisis (Small and Open – Hostages of Uncertain prospects?) Ana...
Macedonia and the Euro-zone Debt Crisis
(Small and Open – Hostages of Uncertain prospects?)
Ana Mitreska National bank of the Republic of Macedonia
Athens May, 2012
Small and Open and Highly Exposed (hostages of uncertain prospects?)
The resumption of the European debt crisis brought us to the starting point once again!
The intensity of the spill over effects lower, but the “agony” prolonged
Transmission channels well known
Sound initial conditions prior to the global crisis still in place...
...but strong external and internal impulses needed to built growth model
In the midstream of the crisis
Scrutinizing the impact through main transmission channels
Real channels of transmission – weaker impulses through foreign demand...
-7.00
-6.00
-5.00
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
2009 2010 2011 2012 2013
Foreign effective demand(y-o-y changes)
Croatia
Bulgaria
Serbia
Netherlands
I taly
Spain
Greece
Germany
Belgium
In the midstream of the crisis
Scrutinizing the impact through main transmission channels
...impacting domestic and export demand and bringing to a standstill the growth...
...not allowing the economy to hit the potential ... ...implying sluggish recovery of the labour market
In the midstream of the crisis
-4
-3
-2
-1
0
1
2
2009 2010 2011 2012 2013
Output gap decomposition
foreign demand
residual
lending interest rate
deposit interest rate
world export prices
relative prices
output gap
-4
-2
0
2
4
6
8
2009 2010 2011 2012 2013
Persons employed(y-o-y changes, in %)
-4
-2
0
2
4
6
8
10
12
2009 2010 2011 2012 2013
Real wages(y-o-y changes, in %)
Real wages Inflation
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
2009 2010 2011 2012 2013
GDP components (y-o-y changes, in %)
export import domestic demand
In the midstream of the crisis
Scrutinizing the impact through main transmission channels
The outcome already anticipated, with high exposure of the trade to Euro zone countries
0
500
1000
1500
2000
2500
3000
3500
2006
2007
2008
2009
2010
2011
Export by country groups(EUR million)
Developing countriesWestern Balkans
Other developed countriesOther EU countriesItaly
Greece
Germany
EXPORT total
In the midstream of the crisis
Scrutinizing the impact through main transmission channels
Financial channels of transmission – multidimensional
The banking sector – low financial integration, stable and well capitalised...
...but confidence factor brought the “lacklustre” feature of the credit market
In the midstream of the crisis
-4
-3
-2
-1
0
1
2
3
4
5
2009 2010 2011 2012 2013
Real interest rates(gaps, in %)
deposits loans
0.0
2.5
5.0
7.5
10.0
12.5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Credit to GDP, marginal change, in %
Source: NBRMand SSO.
-80
-60
-40
-20
0
20
40
60
80
Q1.
2008 Q2
Q3
Q4
Q1.
2009 Q2
Q3
Q4
Q1.
2011 Q2
Q3
Q4
Q1.
2011 Q2
Q3
Q4
Q1.
2012
Credit demand - Enterprises
Source: NBRM's Lending Surveys.
(net-percent)
-100.0
-80.0
-60.0
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
Q1.
2008 Q
2
Q3
Q4
Q1.
2009 Q
2
Q3
Q4
Q1.
2011 Q
2
Q3
Q4
Q1.
2011 Q
2
Q3
Q4
Q1.
2012
Credit demand - Households
Source: NBRM's Lending Surveys.
(net-percent)
70.0
75.0
80.0
85.0
90.0
95.0
100.0
105.0
2006 2007 2008 2009 2010 2011 2012
Credit to depost ratio, in %
Source: NBRM.
In the midstream of the crisis
The banking sector, assessed to be resilient to shocks arising out of the ongoing crisis...
despite the large share of EU capital within the total banking capital
In the midstream of the crisis
Scrutinizing the impact through main transmission channels
Financial channels of transmission – multidimensional
Capital inflows – “Flight to Quality” and “Home Bias” yielded into a sharp slowdown in capital inflows at the onset of the global crisis
Yet, capital flows resumed, providing impetus to economy ...
...and despite the ongoing debt crisis in the Euro zone, they continued to penetrate into the economy...
...although at a more moderate pace compared to prior to the crisis
0
1
2
3
4
5
6
7
8
9
2005 2006 2007 2008 2009 2010 2011 2012 2013
Foreign direct investment (% of GDP)
In the midstream of the crisis
Scrutinizing the impact through main transmission channels
Financial channels of transmission – multidimensional The Euro crisis shivered financial markets again Macedonia – with low integration on the international capital markets... ...yet, increased risk aversion, lead to higher risk premium and possible
limited future access to external funding of the private and public sector
Policy Setup
Looser Monetary policy, amidst negative output gap contained inflationary pressures no large external disequilibria
Fiscal policy prudent with low deficit and public debt ability to attain external financing at concessional terms in
2011, despite rising turbulences on international market... ...but prospects might be worrisome, as economy recovers
slowly and access to financing becomes more difficult
Policy Setup
4.9
7.07.0
9.0
4.03.75
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2008 2009 2010 2011 2012
Key policy rate - interest rate on CB bills (in %, on annual basis)
Source: NBRM.
-15
-10
-5
0
2005 2006 2007 2008 2009 2010 2011 2012 2013
Current account balance(% of GDP)
4.2
3.7
4.4 4.7
4.6
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0
50
100
150
200
250
300
350
2009 2010 2011 2012 2013
Gross foreign reserves
Change of gross foreign reserves (in EUR million)
Monthly coverage of next year's import of goods and services (right scale)
Policy Setup
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
20 25 30 35 40
2006
2007
2008
2009
2010
2011
Central Government debt (in% ofGDP)
2005
Source: MoF.
-24,000
-19,000
-14,000
-9,000
-4,000
1,000
6,000
11,000
16,000
21,000
2005 2006 2007 2008 2009 2010 2011
Budget balance financing (net-basis, in Denar million)
Privatization Receipts
Domestic Financing, net
External Financing, net
Deposits Change
Source: MoF.
The old Conclusion
• Recent crisis – “testing ground” for the resilience of the economy
• The crisis has been weathered well, as no excessive imbalances existed prior to it
• Macro-policies remained focused during the crisis, providing stable and benign environment
• Main challenges ahead, same as before the crisis
Augmenting stability with structural reforms
Diversifying the export structure
Attracting new foreign investments
Moving towards sustainable external position
New insights and Conclusion
• The protracted Euro crisis labeled us as a “hostage’ of its uncertain recovery...
• ...again, it brought to a halt the recovery process and yielded into a very “moderate” scenario for the economy as a whole in the next two years...
• ...posing future policy challenges in the fiscal area .• Yet, there are few sparks, making the initial conditions slightly to
differ compared to the very beginning of the crisis
o the protracted Euro crisis, amidst uneven global recovery, pressed for new trade directions
o the economy started to feel positive spill over effects from FDI newcomers – structural change of the trade structure
o low imbalances preceding the crisis and prudent policy stances helped , capital inflows to resume faster, with non-EU investments announced to enter the economy
New export destinations and more diversified export structure
(in % of total export)
New export destinations and more diversified export structure
New insights and Conclusion
• The Euro zone is our natural anchor...hence, inevitably changes in its economic cycle pose direct and indirect consequences
• Yet the crisis in progress demonstrated the need not “to put all eggs in the same basket “
• It prompted the need to discover alternate export destinations and to make efforts to diversify the FDI country of origin
• It revalidate the need for sound fundamentals and policies, as a prerequisite for stronger resilience to crisis and faster exit out of the gloomy outlook
