Transcript

April 16, 2013
Washington DC

Panelists:
Olivier Blanchard, Economic Counsellor and Chief Economist, IMF Research Department
Jorg Decressin, Deputy Director, IMF Research Department
Thomas Helbing, Division Chief, World Economic Studies, IMF Research Department
Abdul de Guia Abiad, Deputy Division Chief, Research Department
Gita Bhatt, Communications Department

Ms. Bhatt - Good morning. Good day to those of you watching online from different time zones. Thank you for joining this press conference of the release of the April 2013 World Economic Outlook, one of the IMF's flagship publications.

On the panel with us is Mr. Blanchard, who is the IMF's Economic Counselor and Director of the Research Department. Others on the panel are Mr. Decressin, Deputy Director of the Research Department, Mr. Helbing, Division Chief of the World Economic Studies Division, and Mr. Abiad, also of the World Economic Studies Division of the Research Department.

Aa bit of housekeeping. We have interpretation here. Channel 1 is English. Channel 2 Spanish. Channel 3 French. And channel 4 Arabic. Without much ado, I will turn ownership the floor to Mr. Blanchard, for his opening remarks and then we'll open the floor for questions.

Mr. Blanchard - Good morning. The main theme of this WEO is one that you now have heard for a few days. Namely, that we have moved from a two-speed recovery to a three-speed recovery. Emerging market and developing economies are still going strong, but in advanced economies there appears to be a growing bifurcation between the United States on the one hand and the euro area on the other. This is reflected in our forecast, so let me give you some numbers.

Growth in emerging market and developing economies is forecast to reach 5.3 percent in 2013, and 5.7 percent in 2014. Growth in the United States is forecast to be 1.9 percent in 2013, and 3 percent in 2014. In contrast, growth in the euro area is forecast to be minus .3 percent in 2013, and only 1.1 percent in 2014.

Let me briefly go around the world and give you a bit more information about each part.

The growth figure for the United States for 2013 may not seem that high. Indeed, it is insufficient to make a large dent in a still very high unemployment rate, but it comes in the face of very strong, indeed an overly strong, fiscal consolidation of about 1.8 percent of GDP. The underlying private demand is in fact quite strong. It's spurred by anticipation of low policy rates under the Fed's forward guidance, improving banking conditions, and what we call pent-up demand, accumulated demand, if you want, for housing and durables.

Turning to the euro.

The forecast for negative growth in the euro area reflects not only weaknesses in the periphery, but also some weaknesses in the core. Germany's growth is strengthening. Overall it is still forecast to be only 0.6 percent in 2013. France's growth is forecast to be slightly negative in 2013, reflecting a combination of fiscal consolidation, poor export performance, and increasingly, so, low confidence.Low growth in the euro core is bad news not only on its own, but is clearly bad news for euro periphery countries which depends very much on the core.

Most euro periphery countries, notably Italy and Spain, are expected to have substantial contractions in 2013. The process of internal devaluation is slowly and painfully taking place, and most of these countries are slowly becoming more competitive. External demand, however, is just too weak to compensate for even weaker internal demand. Adverse feedback loops between weak banks, weak sovereigns, low activity, and again low confidence, are still reinforcing each other in explaining the numbers that I've given you.

Let me turn to Japan.

Japan is forging a path of its own, and it may have been more accurate to call this three-and-a-half-speed recovery than a three-speed recovery. After many years of deflation and little or no growth, the new government has announced a new policy based on aggressive quantitative easing a positive inflation target, fiscal stimulus and structural reforms. We think this policy will boost growth in the short run, and this is reflected in our forecast of 1.6 percent growth for 2013, but given the very high level of public debt, embarking on a fiscal stimulus in the absence of an immediate union run fiscal consolidation plan is risky. It increases the probability that investors require a risk premium on the debt and that in turn leads to debt unsustainability.

Turning to emerging market economies. In view of this mixed picture in advanced economies, emerging market economies are in general doing well. We forecast China to grow at 8 percent in 2013. This forecast was made before the numbers which came out yesterday and we haven't had time to actually think hard about what this implies, but for the moment the forecast is 8 percent. We forecast India to grow at 5.7 percent, we forecast Brazil to grow at 3 percent. In all three cases, this would be higher growth rates than in 2012.

Now, in the past the conditions that prevail today in most of these economies from high commodity prices to low interest rates to large capital inflows would often have led to credit booms and to overheating. So far, and to their credit, policy makers have generally succeeded in keeping aggregate demand in line with potential output. At the same time, potential growth, the rate at which potential output increases through time, has itself declined in a number of emerging countries, and we shall not see again some of the high growth rates of the past.

This was a description of what is happening and our interpretation of it. Now, let me turn to policies.

In the United States, the focus should be on defining the right path of fiscal consolidation. While the sequester has decreased worries about debt sustainability, it is the wrong way to proceed. There should be both less and better fiscal consolidation now and a commitment to more fiscal consolidation in the future.

In the euro area, institutional progress has been made over the past years, in particular on the road map for banking union. The so-called outright monetary transaction program offered by the ECB even if it has not been taken up, has reduced tail risks. Yet, this is not enough. The interest rates facing borrowers in periphery countries are still too high to secure the recovery, and there is a need for further and urgent measures to strengthen banks without weakening the sovereigns.

The weakness of private demand also suggests that countries that have the scope to do so should allow automatic stabilizers to operate and in some countries with fiscal space should go even beyond this, and reconsider the speed of fiscal adjustment.

Turning finally to emerging markets, emerging market countries or economies face different challenges. The main one perhaps being the handling of capital flows. Fundamentally attractive prospects in emerging market countries, together with low interest rates in advanced economies, are likely to lead to continuing capital inflows and exchange rate pressure in many emerging market economies. This is fundamentally a desirable process reflecting the strength of emerging market countries and part of a global rebalancing which must take place if the world economy is to go back to health.

At the same time, as we have seen, capital flows can be volatile, making macroeconomic management more difficult. So the challenge for recipient countries is to accommodate the underlying trend, which are desirable, while reducing the volatility of the flows when they threaten macro or financial stability.

In short, recent good news about the U.S. has come with renewed worries about the euro area. Given the strong interconnections between countries, an uneven recovery is also a dangerous one. In some ways, the world economy is as weak as its weakest link. So while some tail risks have decreased, it is not time for policy makers to relax.

Thank you.

Ms. Bhatt - Thank you, Mr. Blanchard. We will try to get to all questions, but in case your country-specific questions are not answered, we have a series of regional press briefings on Friday, which I hope all of you will attend, as well. Can I take the first question on line, because it follows from Olivier’s opening remarks.

QUESTION:“Why is a three-speed recovery bad or risky for the world economy?”

The second question he has is, how much would the U.S. grow without fiscal consolidation, close to 4 percent?

Mr. Blanchard - Let me take both questions. I think the message of this press conference is that there is both good news: The U.S. has a fairly strong recovery, which will get stronger over time. And bad news, which is Europe is struggling.

On net, is it good news or bad news? The worry that we have is that if one region is going to continue to do badly, that the world is so interconnected that it would end up, I think, being bad news for all, despite the U.S. recovery.

On the U.S., one doesn't want to do arithmetic exercises, but it is the case that arithmetically, if there was no fiscal consolidation---which would be wrong, there has to be some---, then growth would probably be between 1.5 and 2 percent higher than it is this year.

QUESTION: Good morning. I want to ask about the Arab Spring and Egypt. I didn't hear anything about it now.

Mr. Helbing - On Egypt and the oil importing economies in the Middle East more generally, 2012 has been a difficult year. Countries are in transition to have new governments. There has been social unrest, so economic activity has been down, confidence has been hurt. We expect the situation to be stabilizing as the new governments take hold, as new economic policies are put in place, but that is a gradual process. So, we only see a relatively moderate improvement in 2013.

QUESTION: I was wondering, could you elaborate on the urgent measures that you are calling for the periphery of the eurozone? And, you don't give any growth forecast for Cyprus. How do you see the country recovering from the current situation?

Mr. Decressin - The periphery of the eurozone needs to continue with the fiscal adjustment plans. Some countries have already gone very far, such as Italy. Others have made good progress, such as Spain, but for 2014 still need to specify measures. These countries also need to further progress with the structural reforms so as to rebuild competitiveness. Broadly speaking we are seeing lower fiscal deficits and we are seeing improved current accounts, but the structural reforms are important to obtain stronger growth. This will take some time. And, aside from fiscal and structural reforms, there is also still a need to repair banking systems, in some countries, and in other countries there is a need to provision for a rising amount of bad loans in response to the weakening economy.

As to Cyprus, we do not have a forecast in this document. Weare still, in process of putting together and agreeing on a program together with the Cyprus and its European partners. You can also raise these questions at the time of the MD's briefing on Thursday.

QUESTION: I have two questions. First is, are we out of the danger zone like we were six months ago? And second, what about southeast Europe, the growth forecast?

Mr. Blanchard - I will answer the first one, and Mr. Decressin will answer the second.

I think that maybe not six months but a year ago, there were two very short-term tail risks. The first one was in the U.S., about fiscal policy, the fiscal cliff and the debt ceiling. But, the other was the notion that the euro might not stay together. There were a number of measures taken by the euro authorities, by the ECB, by the European Union which made this risk disappear.

So, we're in a better place. We don't have these short-term tail risks or high risks, but as I said, we're not out of the woods. Now, the question is how to get the recovery going in Europe. That is a different type of risk.

Mr. Decressin - Your question on southeastern Europe, growth there slowed appreciably in 2012 in response to weakening demand from the euro area. But also in some cases in response to policy tightening, and the example that comes to mind is Turkey, where credit had been growing very fast and where there were signs of overheating. As we move into 2013 we see a stabilization in most of the region and then some pickup in growth in response to the better external situation. Many of the countries in southeastern Europe still need to work on dealing with the legacy of the big crisis of 2009, the real estate crisis. That means further cleaning up the banking system. Also, improving the environment for the production of tradable goods to improve, because many of these countries had large current account deficits before, and now need to grow with much less capital inflows than they had beforehand.

QUESTION: Mr. Blanchard, you said that some countries in the eurozone should reconsider the speed of the adjustment. Could you elaborate on that? Particularly, which countries? And is that an admission that the adjustment so far has been going too far or too fast?

Mr. Blanchard - My statement was not specifically about the eurozone. It was about advanced economies in general. It goes beyond the eurozone. There are a number of countries where we basically have suggested -- and many of these countries have gone in that direction -- to move from nominal targets to automatic stabilizers, letting automatic stabilizers work. There are a few countries where we think there is enough fiscal space to go further. One example is the U.K., where we think that in the face of very weak private demand it may be time to consider an adjustment to the initial fiscal consolidation plans which were chosen a few years back.

QUESTION: I wonder if you could give us a little more detailed assessment of what is happening in France, and specifically whether you think the authorities there appreciate the need for the depth of structural reform that the IMF seems to feel is necessary there?

Mr. Decressin - We think that they appreciate the depth of the challenges that they face. France has a current account deficit that is fairly elevated by historical standards of France, and there is a need to rebuild competitiveness. An important part of this is the reform of the labor market which the government has undertaken. What difference this reform will make will ultimately depend on how it is implemented and what kind of climate evolves between the trade unions on the one hand and the employers on the other hand.

At the macro level, the fiscal policy that France is running strikes us as broadly appropriate. They will not meet the 3 percent Maastricht target this year, but this is entirely appropriate given the weak macroeconomic situation. And then additional adjustment will have to be undertaken next year.

But, for this year, the pace of adjustment that is planned is entirely appropriate.

QUESTION: I have two questions. First, the WEO says that complaints about competitive exchange rates, a depreciation appear overblown, but how would you assess the implications of the recent BOJ monetary easing policies, and especially the spillovers to other emerging markets?

And the second question is, given that China's recent GDP data is much weaker than expected, do you think the tail risk of China's hard landing will resurface sometime in the future?

Mr. Blanchard - The principle that we have used to assess whether policies are right or wrong from a multilateral point of view is whether countries are doing what they need to do from a domestic point of view. In the case of Japan, as you know, it is a complex set of policies which has a fiscal component, a monetary component and a structural reforms component. In the case of monetary policy, we think that indeed there was a need for a dramatic change in monetary policy so as to generate positive inflation, decrease real interest rates and something major was needed. Japan is doing this. We hope it will succeed.

At the same time, when you use monetary policy, you are likely to have an effect on the exchange rate. And, in the case of Japan, we have seen the effect on the exchange rate. We think that it is a logical consequence of appropriate monetary policy. We also think that this is an unusual case in which the hope is not that the decrease in the nominal exchange rate leads to a decrease in the real exchange rate, but instead generates inflation so that in the end the nominal depreciation is offset by more inflation, which will not change the real exchange rate.

So, although the yen has depreciated by a large amount over the recent past, we think the monetary policy followed by the BOJ is appropriate.

Mr. Decressin - On your China question, our forecast for China in 2013 is 8 percent growth which is slightly lower than what we had in January. The data that came out yesterday is weaker than what we had assumed for the first quarter growth. We're still trying to understand the data because some of the high-frequency indicators with respect to investment and consumption suggested more strength than what has appeared in the GDP data. At this stage we still stick to our 8 percent forecast.

QUESTION: Mr. Blanchard, with all the monetary easing that is going on are there risks of financial bubbles, and do you see any commodities particularly gold as being a current financial bubble?

Mr. Blanchard - So again, there are two questions in your question. The first one is, are monetary policies appropriate? We think that they are for the most part appropriate, that this is the major lever we have to push demand, get out of the slump, have a recovery going.

Do they come with risks, excessive risk taking, bubbles, so on? They could. We all know of anecdotes, in some cases of facts, where some investors seem to be taking risks which they should not be taking, in order to get a positive rate of return.

For the moment we do not think that this is a major issue on a macro scale, and we think that in most cases it can be handled by supervision and by the appropriate macroprudential tools. For the moment, we do not see this as a major issue, but something we clearly have to watch.

On gold, I think only a fool would try to predict it, only a fool would try to explain it. And, I think it is of no macroeconomic import, anyway.

QUESTION: Two questions, a general one and a U.K. specific one.

In the last two years the IMF has been predicting that there will be a stronger performance in the second half of the year than the first half of the year. In light of the weaker U.S. jobs figure, the slower than expected growth in China and the flair up in the eurozone, is there a chance that again we're going to be disappointed on that in 2013?

You singled out the U.K. for a country which needs to reconsider its fiscal stance. How much does the U.K. need to do? You downgraded your forecast quite substantially this year and next. What sort of pace are you thinking of for fiscal adjustment that would be appropriate in those circumstances?

Mr. Blanchard - Let me answer both of your questions.

Is there a chance that we end up disappointed by the growth performance of the U.S. in 2013? I would say there is a 50 percent chance. There is also a 50 percent chance that we are happy with the outcome. Forecasts are forecasts and they can be too high or too low. We maintain our numbers. We have no reason to think we're too optimistic in our forecast.

On the second, which is how the U.K. or any other country should adjust the speed of fiscal consolidation, this is clearly a complicated issue. We're going to have discussions with the U.K. authorities in the coming months and we'll see what can be done or could be done.

Mr. Decressin - Just on the U.S. question that you raised, in our forecast we have growth in the first quarter of 2.4 percent and then we have it weakening to 1.6 percent in the second quarter. So, what we are seeing is actually consistent with our second quarter forecast. Of course, in that forecast it assumes that payrolls will on average be higher than the latest figure of around 80-some thousand. But overall if you look at all the indicators, they are on track with respect to our forecast.

QUESTION: I want to ask you, Mr. Decressin, if you could be a little bit more specific about Spain. You said Spain made good progress. You said that there is more transparency needed about the plans for the government for 2013, if I understood you correctly. So, what do you think the Spanish government needs to do?

For Mr. Blanchard, if you could comment on the risk that political polarization in the U.S. poses to the economy?

Mr. Decressin - So, let me start on Spain. The deficit in Spain was around 10 percent of GDP in 2012, if you include everything, meaning also what they have done for the financial sector, and based on the plans, this will go down to roughly 6.5 percent in 2013. But, for 2014 if you look at our forecasts, there is no further reduction inherent in the plans of the government. So for 2014 there will have to be new measures specified in order to carry forward the fiscal adjustment. Then, of course, that could also mean that for 2014 the growth forecast we have could be too high because once the new measures are in place, growth will actually be a little lower. However, there will have to be new measures because not adjusting is not an option.

So, the priorities for the government are to specify how to fiscally adjust going forward, so as to do it in a manner that doesn't hurt growth too much. The second is, to pursue the structural reforms. The labor market reforms are very important and good steps forward. There are other areas that can be reformed, such as liberalizing parts of the service sector, professional services, for example. And finally, it is about pursuing with the financial sector reforms. Again, there, good progress has been made. However, it is now critical to ensure that the asset management company operates effectively, and helps banks to offload their bad loans and then progress with the restructuring.

Mr. Blanchard - On Spain, let me add one thing. There is clearly uncertainty in the minds of many about the true state of the Spanish banks. And, that is where I think the banking union project and the transfer of supervision to the ECB is essential, that the ECB can actually supervise and give its opinion and require the right measures in case something is needed, is something which has to happen. At this stage, unfortunately, despite a good intended beginning, it is happening too slowly.

On polarization, I think you are right that polarization is an issue, not only in the U.S. but maybe even more so in many advanced countries, many European countries. And I think the longer the slump lasts, the slower the recovery, the higher the dangers. No question.

For the U.S., there is something mildly ironic about the effect of polarization, which is it gave us something that neither party wanted, which was the sequester. The sequester, as I said, is the wrong way of doing things, but it does something. Namely, it reduces the deficit and has made the worries about debt sustainability in the U.S. decrease. So, in a way, polarization helped. This being said, it would be much better, obviously, to agree to a plan which has the same implications as the sequester in terms of deficit reduction, but is much more coherent.

QUESTION: Two questions, please, on my country. First of all, in the outlook you said that there are political risks now. Would you please elaborate?

Secondly, Italy seems to have done the fiscal adjustment, the structural reforms, the so-called homework. But, despite the growth, the recovery seems to be a dream, is still a dream. According to the new data, even this year the GDP will decrease 1.5 percent, which is a lot. Don't you think that there is something wrong in the recipe, that too much austerity can be dangerous in the end?

Mr. Decressin - On political risks, the issue is that while there is an old government in place, there is no agreement on a new government. And, that has inherent some risks as to the path forward for the country. In the meantime, however, it is important to emphasize that fiscal measures are being taken this year, and we expect that these will be implemented, and they will entail that there is another reduction in the fiscal deficit in cyclically adjusted terms of around 1 percent of GDP. And this follows a reduction of the deficit in cyclically adjusted terms of around 2 to 2.5 percent of GDP in 2012. If you would like to understand why has growth been relatively weak, it is basically because a lot of fiscal adjustment has been done in 2012, and an appreciable amount will again be done in 2013. But, it will be less than in 2012, and that is what will help Italy to a somewhat better growth performance this year than last year.

The good news is that by the end of this year, if the planned adjustment is fully implemented, then a large part of the fiscal job is done and the prospects for growth in 2014 will be appreciably better. You mentioned structural reforms, indeed good progress has been made on a variety of fronts with respect to structural reforms, but we still believe more can be done, including for example with respect to privatization, improving also the legal system. So there are various areas where more reform is needed in order to boost Italy's potential growth rate which was already pretty low before going into the crisis.

The third challenge will be for the authorities to continue to help banks strengthen their balance sheets, to provision adequately for the increasing level of bad loans in response to the recession.

But, to wrap it up, we believe Italy is on the right track, that a good part of the fiscal job will be done by the end of this year, and that growth prospects should then improve again.

Ms. Bhatt - I have a question online:

How is the situation of Brazil affecting the economy of South America, and which are the channels of spillover to Paraguay, Argentina, and Uruguay?

Mr. Helbing - Brazil is the largest economy in South America, so the sharp slowdown in growth into 2012, and then turning negative, has affected the region and it affects the region, particularly through trade linkages.

Brazil is a financially integrated economy, whereas some of its neighbors, in particular if we talk about Paraguay or Argentina, are less integrated into the global financial system. So, trade spillovers are the main channel.

QUESTION: The question is for Mr. Blanchard, a twofold question. Are you worried about the impact of the crisis in Cyprus on the eurozone and particularly Greece, regarding the macroeconomic scenario and the debt sustainability scenario?

My question is, do you think that the eurozone is dealing decisively enough with the Greek debt issue? Your latest estimate is 180 percent, close to 180 percent of GDP, and if not, when in your opinion is the right time to do so?

Mr. Decressin - Cyprus in terms of its impact on the outlook for the euro area preoccupies us insofar as we wonder what will it do to financial fragmentation in the euro area. At this stage, you had basically some pressures on deposits in the periphery economies, with people preferring to put their money into banks of the core economies. And these pressures had essentially been dealt with, at least by the beginning of this year. Imbalances in within the euro area, the financial imbalances had begun to narrow, which was good progress. But, then, with Cyprus there is now again an open question on how this will impact financial fragmentation going forward.

As to the issues with respect to Greece, I can only comment to those that refer to the outlook. And, there, we have only relatively modestly revised downward our growth prospects for Greece. As you know, this program is a difficult program, but we're making some good progress on various fronts. Current account imbalances have come down, fiscal deficits have been reduced by very large amounts. The challenge is to do something about growth, and this is what we will keep talking about with our Greek and European partners.

QUESTION: What is the economic situation of South Sudan as the newest members of the IMF?

Mr. Abiad - South Sudan has had a pretty rough year, in 2012. In particular, it was severely affected by the shutdown in oil production that commenced in January of 2012 which actually reduced GDP by almost half. Oil production will hopefully resume shortly if agreement between south Sudan and Sudan can be reached, and that will boost growth in both countries, and relieve both domestic and external pressures.

QUESTION: The picture you paint about the core weakening is pretty dark. Does it mean in terms of, you have a pretty clear message for the ECB, but could you explain it further? Like, you have some mention of the OMT. I remember in October you said it would perhaps be good if it was tried, so I want to ask if it is becoming more urgent to try the OMT.

My second question is about Slovenia, where yields have been rising. Do you see it as a new point of weakness for the eurozone?

Mr. Blanchard - Yes, indeed, one of the messages is that this slump in Europe is worrisome. I think one place to start from is the large spreads that firms and households have to pay if they want to borrow, and ask what can be done to reduce those spreads. I think there is a number of things which can be done, none of them will do magic, but together they might do something.

Just as in other countries, for example, the U.K., to some extent the U.S., it looks as if small and medium enterprises have a relatively hard time borrowing. One reason is that the loans that are given to them are hard to use as collateral, and therefore cannot be used by banks to actually get funds. So, there something could be done, maybe in the form of some securitization of loans to make it easier for banks to have the funds to lend. That is one thing that can be done.

The second thing is something you have mentioned already, which is that, right or wrong, and I think sometimes right, sometimes wrong, there is great uncertainty about the state of some banks. And, so, anything which can be done to increase transparency and make their status clearer, and in some cases where something needs to be done, something is being done, would also make it much easier for banks to borrow. This would reduce the spread. In some cases, recapitalization of some of the banks could help. Part of the spreads that people pay reflect the sovereign spreads that countries themselves have to pay, so anything which can be done to make it more credible, that there is no risk of default and that countries will repay and the sovereign spread should be small, is also something which has to be looked at.

I think what the general message is, we have to think of everything which can be done to improve, to increase private demand, and then at the other margin, what can be done to adjust the pace of fiscal consolidation so that it remains credible, but it doesn't have too much of an adverse effect on current demand, on current growth.

Mr. Decressin - On Slovenia, we have also taken down our growth forecast. Six months ago we pencilled in a contraction by half a percent of GDP, and now we see a contraction by 2 percent in 2013. It is important, though, to keep the problems of Slovenia in perspective. First its deficit, general government deficit is -- I don't know the exact number, but between 3 to 3.5 percent of GDP, which is not too large. Second, its public debt is around 55 percent of GDP or less, while many other euro area economies have debt-to-GDP ratios on the order of 80 to 90 percent. The problems that Slovenia is experiencing in the banking system can be addressed through support from the government for recapitalization and restructuring, and then the country can move forward. What is important is that this is done expeditiously, that the authorities remains ahead of the curve, and that it is done appropriately, with the asset management companies taking care of problems, as has been done in other countries. The challenge, in our view, is one that can be dealt with, without major problems for the sovereign, given the relatively low public debt ratio.

QUESTION: (No English interpretation provided).

Mr. Helbing - If you look at Latin America as a whole and if you look in particular at South America, growth slowed considerably last year and we expect it to pick up. Now, the situation across South America, Latin America is different. The slowdown last year, it particularly reflected a slowdown in growth in the largest economies in South America, Brazil and Argentina. In contrast, some of the smaller open economies in Latin America have continued to do well. I see Peru, also Chile, where growth is relatively close to potential, around 5 to 6 percent.

In both cases, the macro policy stance is supportive, in the sense that there is a broadly accommodative monetary policy. External financing conditions have remained favorable, which have flowed into the banking system and have supported domestic demand as well, and commodity prices have remained at high levels. Investment in the mining and commodity sectors more broadly have continued, which also have supported demand.

If we look at the pickup in the region this year, it arises from two sources. One, improving global economy, very broadly; and secondly, we expect growth in Brazil to improve to about 3 percent this year from less than 1 percent last year, and this will also help the region more generally through trade spillovers.

Ms. Bhatt - Thank you so much for coming, and thank you to Mr. Blanchard and his team.