Global/Regional Economic and Financial Outlook

Odd Per BrekkDirector

IMF Regional Office for Asia and the PacificAPEC SFOM, June 11-12 2015

___________________________________________________________________________

2015/SFOM13/002 Session: 1

Global/Regional Economic and Financial Outlook

Purpose: Information Submitted by: IMF

13th Senior Finance Officials’ Meeting Bagac, Philippines

11-12 June 2015

Complex forces shaping the short-term growth

outlook

Fall in oil prices

Actual and expected changes in monetary policy;

associated exchange rate swings

Less favorable medium-term growth prospects

Advanced countries: crisis legacies; aging; weak

investment

Emerging markets: diminished expectations

Inflation projected to decline in 2015

Main cause: impact of the decline in oil prices

Pass-through of lower oil prices into core inflation is

expected to remain moderate.

2Source: International Monetary Fund, World Economic Outlook, April 2015.

Global Aggregates: Headline Inflation(% yoy)

0

1

2

3

4

5

6

7

8

2010 2011 2012 2013 2014 2015 2016

(% yoy)Real GDP Growth

Emerging Market and Developing EconomiesWorldAdvanced Economies

3

4Source: International Monetary Fund, World Economic Outlook, April 2015.

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Real GDP(descending order by 2015 growth rate projections)

2013 2014 2015 2016

5

Impact of Oil Price Decline on Macro–forecasts

(In percentage points of GDP; growth in percent)Oil Price Windfall: Impact on the Oil Trade Balance in 2015

(In percent of GDP)

Less than 1.5%

Between 1.5-3%

Greater than 3%

Country Oil Price windfall

Australia 0.2

Vietnam 0.4

Malaysia 0.7

New Zealand 0.9

China 0.9

Indonesia 1.1

Japan 1.4

Philippines 1.8

Singapore 1.9

India 2.0

Taiwan Province of China 2.1

Korea 2.7

Hong Kong SAR 2.8

Thailand 5.0

Asia (simple average) 1.7

Asia (weighted average) 1.4

Source: IMF staff estimates.Note: Based on 2014 oil trade balance, assuming unchanged quantities and the April 2015 WEO oil

price projections for 2015.

-4

-3

-2

-1

0

1

2

GDP Growth S-I (public) S-I (private) Current accountbalance

Commodity exporters

Simple average Weighted average

Max

Min

-1

0

1

2

3

GDP Growth S-I (public) S-I (private) Current accountbalance

Net oil importers

Simple average

Weighted averageMax

Min

6

U.S. 5-year Rates

Sources: International Monetary Fund, World Economic Outlook, April 2015, BIS and Bloomberg.

5/29/2015

Advanced Economies REER

Emerging Economies REER

(Jan 1994=100)

(Jan 1994=100)

85

90

95

100

105

110

115

United StatesUnited KingdomJapanEuro area

Policy Interest Rate Expectations

65

70

75

80

85

90

95

100

105

110

115

Indonesia

China

Mexico

Russia1.0

1.5

2.0

2.5

3.0

3.5

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15

5-year 5-year forward inflation swap

5-year government bond yield

(percent; dashed lines are from the October 2014 WEO)

(percent)

7

Sources: Haver Analytics and IMF staff calculations

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

Ja

n-1

0

Apr-

10

Ju

l-1

0

Oct-

10

Ja

n-1

1

Apr-

11

Ju

l-1

1

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-1

2

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-1

3

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-1

4

Oct-

14

Ja

n-1

5

Bond Funds Equity Funds Peak: 2006-07

Mar-15

Note: Includes exchange traded fund flows and mutual fund flows for

emerging Asia, Australia, Hong Kong SAR, Korea, New Zealand, Singapore,

and Taiwan Province of China.

Asia: Equity and Bond Funds—Monthly Net Flows (In billions of U.S. dollars)

60

65

70

75

80

85

90

19

99

20

02

20

04

20

07

20

09

20

12

20

14

Equity Returns Spillover Equity Volatility Spillover

Spillover Plot: Equity Market Returns and Volatility

8

Sources: Haver Analytics; and IMF staff calculations.

CHN

HK IND

IDN

KOR

MYS

PHL

SGP

THL

AUS

NZ

JPN

USA

EUR

-15

-10

-5

0

5

10

15

20

REER appreciation since June vs 2014 external assessment

External position

<-- weaker stronger-->

Ap

pre

cia

tio

n --

>

"moderately" "substantially""moderately"

Sources: IMF Global Data Source; IMF Staff Reports; IMF staff calculations.

Economic policy priorities

Advanced Economies: Demand and Supply

Demand support to the recovery

Boost public infrastructure investment

Structural reform to boost potential output (country-specific)

All Economies: Lower oil prices as an opportunity to reform energy subsidies

and taxes

Emerging and Developing Economies

Address vulnerabilities

Increase potential output and infrastructure investment (country-specific)

Oil exporters:

• Use fiscal space for a gradual adjustment of public spending to lower oil prices

• Allow exchange rate flexibility to cushion the economies

9

Thank you !

APEC SFOMJune 11-12 2015