Moody's Global Economy Sovereign Conference We Will Begin Shortly
Moody's Global Economy Sovereign Conference We Will Begin Shortly
Moody's Global Economy Sovereign Conference We Will Begin Shortly
Welcome
Panel I
G3: The Highly Indebted Economies
Unquestioned access to finance at low and stable cost means the US government can support higher levels of debt than most other governments.
Beginning of process of deficit reduction August 2 adoption of the Budget Control Act, while by itself not sufficient, resulted in deficit reduction. The goal of reversing the upward debt trajectory is shared by both parties.
Other large Aaa-rated governments have improving debt trajectories over the medium term.
US projections still do not assure an improving trajectory unless further deficit-reduction measures are forthcoming.
Moodys expectation is that the deficit-reduction process will continue, although it is unlikely to be smooth. There is a risk that political differences will prevent it from occurring. --A negative economic scenario could also impede deficit-reduction.
120.0
110.0
100.0
90.0
80.0
70.0
60.0 2010 2011f France 2012f Germany 2013f United Kingdom 2014f United States 2015f 2016f
Source: International Monetary Fund, World Economic Outlook Database, April 2011
November 2011: December 2011: February 2012: November 2012: December 2012: February 2013:
The joint special committee recommendations for deficit reduction, or lack thereof Congressional vote on the committees recommendations Administration presents fiscal year 2013 budget National elections Expiration of the Bush tax cuts New administration presents fiscal year 2014 budget Debt limit reached]
[Early 2013:
Continuing:
Economic data
10
Rating end2010
Jan 11
Feb 11 Mar 11
Apr 11
May 11
Jun 11
Jul 11
Aug 11
Sep 11
Oct 11 RUR-
RUR-
Ba2 Neg
Slovenia
Spain
Aa2 STA
Aa1 RURAa2 Neg RUR-
Aa3 RUR-
11
Assumptions about Eurozone support Concerns about growth, competitiveness Increasing risk of constrained market access
12
13
The current situation is not a stable equilibrium Policymakers will need to make a choice Ultimately, we think that they will choose to preserve the Euro area
Reconciling the policy options that are available and what the market wants will be a challenge
14
more probable
EMU 17
Scenario I: Impact of further Greek default not contained. E scalating tensions and funding costs, and potentially further defaults beyond Greece, result in halting, piecemeal moves towards some further fiscal integration and mutualisation of risk. Scenario II: As above, but with credible steps taken quickly towards much higher level of fiscal integration and mutualisation of risk across euro area. Scenario III: Despite further Greek default, rapid signs of growth and successful implementation of austerity packages in other programme countries reassure investors without material steps towards closer fiscal integration.
Neutral
Negative
Negative
Positive once intent becomes clear, highly negative in the meantime Positive
Negative for defaulters, positive for survivors once intent becomes clear Positive
Positive
Exits
Scenario IV: Greece defaults and exits but impact isolated through immediate meaningful, credible steps towards deeper fiscal integration and mutualisation of risk. Scenario V: Greece exits from the Monetary Union. Contagion causes one or two further exits before authorities take meaningful and credible steps towards deeper fiscal integration.
Broadly neutral once intent becomes clear, negative in the meantime Negative
Positive once intent becomes clear, highly negative in the meantime Negative
Negative
Negative
Negative
Negative
15
Japan
Tom Byrne, Senior Vice President, Regional Credit Office, Asia and Middle East, Sovereign Risk Group
16
17
Bart Oosterveld
Managing Director Sovereign Risk Group
19
Sarah Carlson
Vice President and Senior Analyst Sovereign Risk Group
20
Tom Byrne
Senior Vice President, Regional Credit Office Asia and Middle East Sovereign Risk Group
21
Break
Panel II
Emerging Markets and Persistent Global Imbalances
24
BRAZIL
25
26
27
3)
28
Brazil
The country is about to face another stress test Brazil is well equipped to handle external shocks Current ratings adequately capture existing credit risks We do not anticipate rating actions in the near term
Brazils sovereign credit prospects will be strongly influenced by fiscal issues and the medium-term growth outlook
29
MEXICO
30
R2
Estados Unidos
2011F
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
31
32
Mxico Baa1
Mediana Baa
Mediana A
140.0
130.0
120.0
110.0
100.0
33
100
120
140
160
180
200
60
80
Billion dollars
05-sep-07
05-nov-07 05-ene-08
05-mar-08
05-may-08 05-jul-08 05-sep-08
83.6
05-ene-11
05-mar-11
136.1
208.8
34
10,000
20,000
30,000
40,000
50,000
70,000
80,000
60,000
0
2-Jan-07 2-Mar-07 2-May-07 2-Jul-07 2-Sep-07 2-Nov-07 2-Jan-08 2-Mar-08 2-May-08 2-Jul-08 2-Sep-08 2-Nov-08 2-Jan-09 2-Mar-09 2-May-09 2-Jul-09 2-Sep-09 2-Nov-09 2-Jan-10 2-Mar-10 2-May-10 2-Jul-10 2-Sep-10 2-Nov-10 2-Jan-11 2-Mar-11 2-May-11 2-Jul-11 2-Sep-11 %Total Total Government Securities held by non-residents, US million (LH)
10%
15%
20%
25%
35%
40%
30%
0%
5%
35
Mexico
Only Latam country that experienced a real stress test Fiscal resilience under worst-case conditions Sovereign credit performance better than others Institutional factors at play:
36
Russia
Yves Lemay, Managing Director, EMEA Banking
37
24 16 8 0 -8 -16 -24 01/01/2008 01/04/2008 01/07/2008 01/10/2008 01/01/2009 01/04/2009 01/07/2009 01/10/2009 01/01/2010 01/04/2010 01/07/2010 01/10/2010 01/01/2011 01/04/2011 01/04/2011 01/07/2011
38
Industrial output
Retail sales
Russia: CPI inflation 16 14 12 10 8 6 4 2 01/01/2008 01/04/2008 01/07/2008 01/10/2008 01/01/2009 01/04/2009 01/07/2009 01/10/2009 01/01/2010 01/04/2010 01/07/2010 01/10/2010 01/01/2011 01/07/2011
100 50
0
-50 -100 -150 Q1, 2006 Q2, 2006 Q3, 2006 Q4, 2006 Q1, 2007 Q2, 2007 Q3, 2007 Q4, 2007 Q1, 2008 Q2, 2008 Q3, 2008 Q4, 2008 Q1, 2009 Q2, 2009 Q3, 2009 Q4, 2009 Q1, 2010 Q2, 2010 Q3, 2010 Q4, 2010 Q1, 2011 Q2, 2011 Q3, 2011 BRIC: exchange rates vs USD 160 140 120 100
80
01/01/2008 01/04/2008 01/07/2008 01/10/2008 01/01/2009 01/04/2009 01/07/2009 01/10/2009 01/01/2010 01/04/2010 01/07/2010 01/10/2010 01/01/2011 01/04/2011 01/07/2011
39
BRL/USD
RUB/USD
INR/USD
CNY/USD
01.02.2008
01.05.2008
01.08.2008
01.11.2008
01.02.2009
01.05.2009
01.08.2009
01.11.2009
01.02.2010
01.05.2010
01.08.2010
01.11.2010
01.02.2011
01.05.2011
FX reserves
Reserve Fund
Gold
2008
2009
2010
2011F
2012F
India (Baa3)
Russia (Baa1)
Brazil (Baa2)
01.08.2011
41
Undiversified economy
Oil and gas sector account for about 25% of GDP, 35% of fiscal revenues, 50% of FDI and 60% of exports While there is high level support to modernize the economy, implementation has been slow
4.5 4 3.5
3
2.5 2 1.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Brazil China India Russia
Weak institutions
Weak rule of law, high corruption and unfavorable conditions for doing business impede investment (domestic and foreign) and growth potential
Unfavorable demographics
Russia faces a declining population and rising pension and health care costs This has negative consequences for public finances and growth potential
2015
China
2020
India
2025
2030
Russia
43
UAE
40
Kuwait
Qatar 20 Jan-10
Apr-10
Brent Crude
Jul-10
2010 Average oil price
Oct-10
Jan-11
2011 Forecast oil price
Apr-11
Jul-11
44
CA Balance (% of GDP)
45
Syria
UAE
Bahrain Kuwait
Jordan
Turkey
Lebanon
Morocco
46
Exports to China 176.9 138.5 70.4 16.3 20.8 33.3 20.9 60.0
% Total Exports to China, US, EU 46.1 58.0 50.9 51.8 37.5 42.2 22.1 73.5
% Total Exports to China, US, EU 31.4 20.5 25.9 25.4 29.7 28.8 31.3 10.5
% Total Exports to China, US, EU 22.4 21.5 23.2 22.7 32.8 29.0 46.6 16.0
47
6.00
2009
4.00
2.00
0.00
-2.00
-4.00
-6.00
2005
2006
2007
2008
2009
48
15.0
5.0
0.0
-5.0
-10.0 2005 Source: IMF 2006 2007 2008 2009 2010 2011F 2012F
49
50
Thomas Keller
Managing Director Global Public Public, Project, and Infrastructure Finance Group
51
Mauro Leos
Vice President and Senior Credit Officer Sovereign Risk Group
52
Yves Lemay
Managing Director EMEA Banking
53
Tom Byrne
Senior Vice President, Regional Credit Office Asia and Middle East Sovereign Risk Group
54
Thank You