Overview of the Macro Context Jonathan D. Ostry Deputy Director - - PowerPoint PPT Presentation

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Overview of the Macro Context Jonathan D. Ostry Deputy Director - - PowerPoint PPT Presentation

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Overview of the Macro Context Jonathan D. Ostry Deputy Director Asia and Pacific Department, IMF IMF/PFTAC Steering Committee Meeting, Port Moresby, Papua New Guinea March 27 th , 2019 1 Recent Developments In Global Economy and Asia

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Overview of the Macro Context Jonathan D. Ostry Deputy Director Asia and Pacific Department, IMF IMF/PFTAC Steering Committee Meeting, Port Moresby, Papua New Guinea March 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 g growth dec ecel eleration

Crosswinds

Trade t e tensio ions & & talks Elections ns

Tailwinds

Pause i in m mon

  • netary p

poli

  • licy nor
  • rmali

lization Drop

  • p in c

com

  • mmodit

ity p pric ices Stimul ulus us m measur ures

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  • 1

1 2 3 4

1 2 3 4 5 6 7 8 9 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4

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.

  • 10
  • 8
  • 6
  • 4
  • 2

2 4

Merchandise Imports: Growth Rate (Jan 2017-Dec 2018) (seasonally adjusted, deflated, 3-month moving average of month-on-month, weighted by GDP PPP)

Advanced Asia Developing Asia

  • 10
  • 8
  • 6
  • 4
  • 2

2 4

Merchandise Exports: Growth Rate (Jan 2017-Dec 2018) (seasonally adjusted, deflated, 3-month moving average of month-on-month, weighted by GDP PPP)

Advanced Asia Developing 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. 7

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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 52.9 China 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 49.9 India 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 54.3 Indonesia 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 50.1 Japan 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 48.9 Korea 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 47.2 Malaysia 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 47.6 New 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/A Philippines 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 51.9 Taiwan 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 46.3 Thailand 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 49.9 Vietnam 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

8 Source: Haver Analytics

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Prospects of a trade deal have improved but are still uncertain.

+?

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Political uncertainty looms ahead.

March Micronesia Thailand Tuvalu April Indonesia Maldives Solomon Islands May India Philippines Australia July Japan Nauru November Hong Kong Marshall Islands December Kiribati

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)

0.1 0.2 0.3 0.4 0.5 0.6

China India Korea

Figure: 2019 Growth Impact from Fiscal Stimulus (%

  • f GDP)

11 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.

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The drop in commodity prices in late 2018 helped soften inflation in most economies and may bolster growth.

  • 1

1 2 3 4 5 6 7

Selected Asia: Headline CPI Inflation (percent change, year-on-year)

Cambodia China Hong Kong SAR India Indonesia Korea Malaysia Philippines Singapore Taiwan POC Thailand Vietnam

12 150 160 170 180 190 200 210 220 230 40 45 50 55 60 65 70 75 80 85 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Source: Bloomberg. IMF Staff Calculations.

Commodity Prices (Index; average)

WTI & Brent Average Commodity Metals Price Index (RHS) UN FAO World Food Price Index (RHS)

Source: Haver Analytics; and CEIC Ltd.

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Asian EM financial conditions improved.

  • 60
  • 40
  • 20

20 40 60 80 100 120 140 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

20 40

Australia Lao PDR Vietnam India Taiwan Province of China Korea Malaysia Hong Kong SAR China Singapore New Zealand Japan Thailand Indonesia Philippines Mongolia Brazil Turkey Argentina Contribution from change in reserves Contribution from change in exchange rate EMPI (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.

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Trade T Tensi ensions s & Ta 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

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Electronics Aircraft Machinery Machinery Furniture Oil Seeds Toys Vehicles Other Other 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.

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How might the trade deal impact other economies?

5 11 19 33 55 13 3 10 8 24 23 27 47 22 18 11 16 16 11 14 21 7 16 17 9 14 14

8 11 9 6 2 11 8 6 10

  • 60
  • 40
  • 20

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)

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Despite the possible deal, trade policy uncertainty will likely remain above historical averages.

20 40 60 80 100 120 2015m1 2015m3 2015m5 2015m7 2015m9 2015m11 2016m1 2016m3 2016m5 2016m7 2016m9 2016m11 2017m1 2017m3 2017m5 2017m7 2017m9 2017m11 2018m1 2018m3 2018m5 2018m7 2018m9 2018m11 2019m1

Figure: US Trade Protectionism & Agreement Policy Uncertainty (0-100)

Protectionism Agreement

Source: Hlatshwayo (2018) and IMF Staff Calculations.

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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

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Paci cifi fic Island Countr tries

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What d does this m mean for r the Pacific Islands: t there are global headwinds but also i idiosyncratic factors.

Global growth deceleration Low commodity prices (for commodity exporters) Tourism [Fishing] Low commodity prices (for commodity importers) Tailwinds Headwinds Crosswinds

Crosswinds

Spillovers from trade tensions

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Tourism is an important driver of growth in the region.

0% 20% 40% 60% 80% 100% Samoa Tonga Fiji Vanuatu PNG Solomon Islands Timor-Leste Marshall Islands Palau Australia New Zealand China Japan Pacific 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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  • 2

2 4 6 8 10 12 14 200 400 600 800 1,000 1,200 1,400 1,600 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). 22

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And fishing revenues have been buoyant.

10 20 30 40 50 60 70 80 90 100 2011 2012 2013 2014 2015 2016 2017 2018 proj. 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.

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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
  • n-communicable d

e disea eases es

  • Dem

emogr graphic c changes d due to to m migr grati tion

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  • Natural d

l dis isas asters

  • Weaker than e

expected gl global gr growth th

  • Loss o
  • f corres

esponden ent b t banking g relationships

  • Infrastructure

e delays ( (Authorities es’ v view) w)

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Raising long-term growth is a key developmental challenge.

100 150 200 250 300 350 400 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 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.

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2010 2018 2020

But there are other opportunities: technology could offer new growth opportunities to the PICs.

Submarine Internet Cable

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Samoa Tonga Vanuatu

Correspondent Banking Relationships/ AML CFT Tourism Based

Cook Islands Fiji

Fishing License Fees

Kiribati Micronesia Tuvalu Nauru Solomon Islands

And regional approaches could provide

  • pportunities.

Financial Inclusion

Marshall Islands Papua New Guinea

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Palau

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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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