MACEDONIAN ECONOMY IN THE CONTEXT OF THE GLOBAL OUTLOOK - MAIN CHALLENGES AND RISKS- Ms. Anita...
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Transcript of MACEDONIAN ECONOMY IN THE CONTEXT OF THE GLOBAL OUTLOOK - MAIN CHALLENGES AND RISKS- Ms. Anita...
MACEDONIAN ECONOMY IN THE CONTEXT OF THE GLOBAL
OUTLOOK
-MAIN CHALLENGES AND RISKS-
Ms. Anita Angelovska-Bezoska, MScVice-governor
National Bank of the Republic of Macedonia
Skopje, December 2011
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Global recovery that started in 2010 came under pressure in 2011
The sovereign debt crisis in euro-area high global uncertainty;deceleration of financial flows and rise in cost of financing;uncertainty and lower financial flows negatively affect economic activity;weaker economic activity complicates consolidation of public finances and debt levels.
0
20
40
60
80
100
120
140
160
180
200
2007 2008 2009 2010 2011 2012 2013
Government debt (% of GDP)
euro-zone 17 Germany
Ireland Greece
Spain Italy
Portugal
Source: Eurostat until 2010; European Commission Autumn 2011 forecast for 2011-2013
0
5
10
15
20
25
30
Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11
10 year government bond yield, in %
Greece Ireland
Portugal Italy
Spain Germany
Source: Bloomberg.
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
September IMF WEO revised global growth downwards, including the growth of European Union (our key export partner)
EC revised EU growth downwards to 1.6% in 2011 and 0.6% in 2012
However, some recent data point to a recession in Europe (forward-looking indicators-PMI (47), German ZEW survey, and high-frequency data)
Further downward revisions of global and euro-zone growth in prospect - e.g:
Roubini expects Euro-area recession (GDP growth of -0.8% in 2012, previously 0.8%)Capital Economics expects a deeper Euro-area recession in 2012 (-1%, previously -0.5%)
There are ongoing downward growth revisions
GDP growth, y-o-y 2007 2008 2009 2010 2013Sept June Sept June Sept
World 5.4 2.8 -0.7 5.1 4.0 4.3 4.0 4.5 4.5
Advanced economies 2.8 0.1 -3.7 3.1 1.6 2.2 1.9 2.6 2.4United States 1.9 -0.3 -3.5 3.0 1.5 2.5 1.8 2.7 2.5European Union 3.3 0.7 -4.2 1.8 1.7 2.0 1.4 2.1 1.9Euro area 3.0 0.4 -4.3 1.8 1.6 2.0 1.1 1.7 1.5Japan 2.4 -1.2 -6.3 4.0 -0.5 -0.7 2.3 2.9 2.0
Emerging and developing economies 8.9 6.0 2.8 7.3 6.4 6.6 6.1 6.4 6.5Central and eastern Europe 5.5 3.1 -3.6 4.5 4.3 5.3 2.7 3.2 3.5
*Source: IMF WEO Update June 2011 and IMF WEO September 2011
2011 2012
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Main challenges for the global economy are...
Dealing with the euro zone sovereign crisis, i.e. making the October EU package and the December EU-summit agreements work.
US situation: anemic growth (weakening housing market, higher household saving rates and lower consumer confidence) and difficulties over the fiscal consolidation;
Slowdown in emerging economies;
Less space for policy interventions;
Continued and widening external imbalances.
How can the Macedonian economy be affected?
Evidence from the global recession of 2009
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
What were the implications back then?
Economic contraction and falling inflation
Narrowing trade deficit against the backdrop of vigorous drop of import and declining oil prices
Slackening capital inflows
Banking system was not directly hit
Decelerating money and credit growth
Divergent “phases” in macro-trends throughout the year
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Economic activity contracted, though mildly
Sharp fall in exports due to fall in foreign effective demand. Also, decrease of domestic demand (consumption) Positive contribution of net-exports due to more intensive fall of
imports than exports.
4.45.1
6.15.0
-0.9
-6
-4
-2
0
2
4
6
8
10
12
2005 2006 2007 2008 2009
Contributions of Domestic demand and Net-exports to annual GDP growth
(in percentage points)
Domestic demand
Net-exports
GDP
-0.9
-4.2-16.2
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
2002 2003 2004 2005 2006 2007 2008 2009
GDP and Foreign effective demand(real annual rates, in %)
Gross domestic product
Foreign effective demand
Exports (right axis)
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Falling inflation...
due to contracted domestic demand and diminishing supply side effects. driven by the sharp fall of global commodity prices.
-2
0
2
4
6
8
10
2002 2003 2004 2005 2006 2007 2008 2009
Domestic inflation
Foreign effective inflation
Domestic and foreign effective inflation(annual rate of change, %)
-2
0
2
4
6
8
10
2002 2003 2004 2005 2006 2007 2008 2009
Core inflation
Food prices
Energy prices
Inflation
Contribution of food and energy prices to annual rate of inflation(in percentage points)
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Balance of payments effects were phased
1. First quarter of 2009 –the deepest impact:
Widening of the trade deficit by 19.4%, as a result of:
Significant impact on the exports (annual decrease of 34.5%), owing to a considerable decline in the world prices and contraction of the foreign effective demand;
Lagging downward adjustment of the imports.
Private transfers registered a negative annual growth rate of 29.6%;
Major reduction in net capital flows was recorded (annual fall of 58.4%) –lower FDI and private sector borrowing.
2. The rest of 2009 (Q2-Q4) –change in trends:
Monetary policy reaction
Expectations stabilized Positive growth rates in private transfers.
An intensified fall of imports due to declined consumption and investment ...
... resulting in a current account deficit reduction.
Foreign reserves increased, because of government net-borrowing from abroad (Eurobond issuance) and the allocation of the SDR from the IMF quota.
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Deteriorating external developments called for policy reaction
-0.2
0.2
1.6
-2.4
-3.4
-1.3
1.2 1.3
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
Q1 Q2 Q3 Q4 2008 Q1 Q2 Q3 Q4 2009
NBRM interventions on the forex market, as % of GDP
Source: NBRM.
0.00
5.00
10.00
15.00
20.00
25.00
30.00
0
200
400
600
800
1000
1200
1400
1600
1800
I.20
06 III V
VII IX XI
I.20
07 III V
VII IX XI
I.20
08 III V
VII IX XI
I.20
09 III V
VII IX XI
Gross international reserves
Foreign reserves - stock in EUR million (left scale)
Foreign reserves - stock as % oF GDP (right scale)Source: NBRM.
NBRM intervened on the forex market (4.7% of GDP in 2009)
The unfavorable movements combined with the negative outlook for the external sector by the end of the year urged for monetary policy tightening
increase of the policy interest rate and increase of the reserve requirement.
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Banking system remained sound and stable
Reasons:
Absence of any risky structured products in their balance sheet;
Low reliance on external financing; Reliance on deposit base as main source of financing credit
activity (credit to deposit ratio below 100); Relatively high capital adequacy ratio.
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Causes: A slowdown in the deposit growth, mainly driven by the contracted economic
activity, worsened expectations and decreased capital inflows More difficult and more expensive access to other sources of banks financing Banks perceptions for growing risks in the economy Credit supply mostly oriented towards prime-rated borrowers Increased uncertainty related to the future income generating capacity of the private
sector and lower credit demand
Considerable decline in the monetary and credit growth in 2009
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
What were the transmission channels in 2009?
What is currently the state of the Macedonian economy and how well is it placed to cope
with new challenges?
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Trend of accelerating economic activity
Economic recovery started with slow pace (1.8% in 2010) to significantly accelerate over the first half of 2011 (5.2% on average). GDP growth rebounds, close to pre-crisis growth rates
Export demand was the main driver of domestic economic recovery, supported by high growth of investments and, as well as private consumption.
-30
-20
-10
0
10
20
30
40
50
-6
-4
-2
0
2
4
6
8
10
2005
q120
05q2
2005
q320
05q4
2006
q120
06q2
2006
q320
06q4
2007
q120
07q2
2007
q320
07q4
2008
q120
08q2
2008
q320
08q4
2009
q120
09q2
2009
q320
09q4
2010
q120
10q2
2010
q320
10q4
2011
q120
11q2
Real GDPForeign effective demandReal exports (right axis)
Real GDP, Exports and Foreign effective demand (y-o-y growth rates, in %)
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
During the first half of 2011, inflation reached the level of 4.4% influenced by rise of global commodity prices.
In 3rd quarter of prices have stabilized and are stagnating over the following two months
stabilization of import prices (food and oil prices). Inflation rate below pre-crisis
Up till May inflation accelerated, and afterwards stabilized
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Balance of payments: lower external imbalances During 2010, the current account deficit narrowed further, due to
smaller trade deficit and higher private transfers; Since 2011, it started increasing moderately (1H 2011: 3.5% of GDP),
mainly driven by the trade rebound; CAD below pre-crisis; Trade deficit below pre-crisis level; More diversified trade structure.
-800
-600
-400
-200
0
200
400
600
Q1 2008
Q2 Q3 Q4 Q1 2009
Q2 Q3 Q4 Q1 2010
Q2 Q3 Q4 Q1 2011
Q2 Q3
Current account balance by components(EUR million)
Trade balance Services, netIncome, net Current transfers, netCurrent account balance
Source: NBRM.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Q1 2
008
Q2
Q3
Q4
Q1 2
009
Q2
Q3
Q4
Q1 2
010
Q2
Q3
Q4
Q1 2
011
Q2
Q3
Trade balance(as % of GDP)
Export ImportSource: NBRM.
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Balance of payments, cont’d
Capital flows recover modestly, still haven’t reached pre-crisis level; Exceptional financing by the government, IMF’s PCL arrangement of 220 EUR million in Q1
2011.
Foreign reserves are maintaining adequate level of monthly coverage of the following year’s imports of good and services.
-200
-100
0
100
200
300
400
500
600
Q1 2008
Q2 Q3 Q4 Q1 2009
Q2 Q3 Q4 Q1 2010
Q2 Q3 Q4 Q1 2011
Q2 Q3
Structure of the net-inflows in the capital and financial account
(EUR million)
Direct investment, net Portfolio investment, netLong-term loans, net Other, net
Source: NBRM.
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Price competitiveness was not lost
84.0
86.0
88.0
90.0
92.0
94.0
96.0
98.0
100.0
102.0
Q1
2005 Q3
Q1
2006 Q3
Q1
2007 Q3
Q1
2008 Q3
Q1
2009 Q3
Q1
2010 Q3
Q1
2011 Q3
Relative prices(2006=100)
Relative prices (domestic/foreign inflation), 2006=100Relative prices (domestic/foreign producer prices), 2006=100
85.0
90.0
95.0
100.0
105.0
110.0
Q1
2005 Q2
Q3
Q4
Q1
2006 Q2
Q3
Q4
Q1
2007 Q2
Q3
Q4
Q1
2008 Q2
Q3
Q4
Q1
2009 Q2
Q3
Q4
Q1
2010 Q2
Q3
Q4
Q1
2011 Q2
Q3
REER and NEER(NEER, CPI and PPI based REERs, 2006=100)
NEER REER - CPI REER - PPI
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Money and credit growth have picked-up, but remain below pre-crisis period
Uncertain global and domestic developments as well as banks’ conservative risk-pricing policy determine lending pace
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Capital-adequacy ratio is above the pre-crisis level: Liquidity is above the pre-crisis level; Credit to deposit ratio is now lower (about 88); Reliance on external sources of financing has remained low (10%). Stabilization of NPLs, though risks still remain; High coverage of NPLs (above 100% on average-among the highest in Europe)
Banking sector is sound and able to cope with risks
2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3
Capital adequacyRegulatory capital/risk weighted assets 15.9 15.6 15.0 16.2 16.5 16.4 16.5 16.4 16.8 16.5 16.4 16.1 16.8 16.5 16.7
Asset composition NPLs 1/
NPLs / gross loans 7.2 6.8 6.5 6.7 7.5 8.5 9.3 8.9 9.7 9.9 10.4 9.0 9.1 8.9 9.5 Provisions to Non-Performing Loans 113.4 114.8 115.6 118.1 107.0 99.1 97.5 101.4 97.7 97.6 93.0 100.7 103.3 104.5 103.6
Earning and profitabilityROAA 2/ 1.7 2.2 1.9 1.4 0.2 0.5 0.7 0.6 0.1 0.4 0.5 0.8 -0.1 0.2 0.1ROAE 2/ 14.7 19.1 16.5 12.5 1.8 4.3 6.0 5.6 1.1 3.2 4.0 7.3 -1.0 2.1 1.0
Liquidity
Highly liquid assets/total assets 5/ 18.1 18.2 17.6 16.9 15.9 15.8 17.8 20.6 22.0 23.7 24.0 25.3 24.2 24.7 23.3Highly liquid assets/total short-term liabilities 6/ 24.6 24.7 22.1 24.0 22.9 22.8 25.8 30.1 32.8 35.6 36.0 38.5 37.4 38.4 36.3
4/ Noninterest expenses include fees and commissions expenses, operating expenses and other expenses excluding extraordinary expenses.
5/ Highly liquid assets are defined as cash and balance with the NBRM, treasury bills, NBRM bills, and correspondent accounts with foreign banks. Assets in domestic banks are excluded from total assets. 6/ Short-term liabilities are defined as deposits and other liabilities with a maturity of one year or less (without deposits and borrowings from domestic banks).
1/ Includes loans to financial and nonfinancial sector.
2/ Adjusted for unallocated provisions for potential loan losses. Since 31.03.2009 these items have been adjusted for unrecognized impairment.
3/ Interest margin is interest income less interest expense. Gross income includes net interest income, fees and commissions income (gross, not net) and other gross income excluding extraordinary income.
Financial Soundness Indicators of the Macedonian Banking System
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Monetary policy
Policy rate kept steady at 4% after a series of cuts during 2010
September 2011:
Changes in the Reserve requirements setup – 0% reserve requirement rate on long-term-households’ deposits
Amendments in the Decision on Managing Banks’ Liquidity Risk – simplified conditions for managing liquidity
Encourage long-term savingsEnhanced liquidity management
by banksIn support of credit activity
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Monetary policy: adequate level of reserves
4.5 4.55.0
4.4
3.3
3.1
4.0 4.23.5 3.7 3.7 3.8 3.9 3.7 3.8
0.0
1.0
2.0
3.0
4.0
5.0
6.0
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Q1 2008
Q2 Q3 Q4 Q1 2009
Q2 Q3 Q4 Q1 2010
Q2 Q3 Q4 Q1 2011
Q2 Q3
Gross international reserves
Foreign reserves - stock in EUR million Monthly coverage of next years' imports of goods and services (right scale)
Source: NBRM.
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Fiscal policy: room for counter-cyclicality
Higher levels of budget deficits as compared to historical average...
...and subsequent mild increase in Central Government’s debt
Prudent fiscal policy as compared to benchmarks.
.....room for counter-cyclical fiscal policy
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Macro-projections for 2011 (as of October 2011)
Projected real GDP growth of 3.5%
Average inflation rate of around 3.9%
Projected CAB deficit of 4.8% of GDP
Adequate level of foreign exchange reserves
Expected money and credit growth of 9% and 9.2%, respectively
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Macro-outlook for 2012
Slight deceleration in real GDP growth to 3%
Inflation is expected to further decelerate to its historical average of 2%
Current account deficit close to the level of 2011
Adequate level of foreign exchange reserves sustained
Continued monetary and credit growth by 9.8% and 8% respectively
Main risks to projection: unfavorable external developments
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
Instead of conclusion
Where do we stand now:
GDP growth rates close to pre-crisis level
Inflation back to historically low level, without demand side pressures
Exports and imports close to pre-crisis level, however with more diversified structure as a buffer for adjustment in episodes of potential external shocks
Sound banking system (higher capital-adequacy and liquidity ratios)
Still room for counter-cyclical fiscal policy
Foreign reserves at an adequate level
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
NBRM remains committed to de-facto fixed exchange rate.
Given the high global uncertainty, NBRM continuously monitors the developments and is ready to undertake all measures to preserve macroeconomic stability.
NBRMNBRMNBRMNational Bank of the Republic of MacedoniaNBRMNBRMNBRM
THANK YOU FOR YOUR ATTENTION!
http://www.nbrm.mk