Global Economy Outlook – Commodity, Inflation and Advanced Nations

Abstract

Commodity price is one of the biggest concerns when Fed increases interest rate. Commodity price effects on inflation rate, which can potentially influence over consumption and corporation earnings. Throughout the report, we will address what caused decline in commodity price, and how it has effect on inflation rate.

Inflation on Economic Outlook

Advanced nations have suffered from low inflation. Low inflation could be beneficial for consumers since it provides lower price of goods, not for our economy today. Appropriate level of interest rate stimulates consumption, which boosts net income of firms. It, then, leads to increase in investment and creation of jobs. Inflation is helpful sometimes.

Figure 1 U.S. Inflation rate (red) and personal consumption expenditure (blue). They started declining together after 2014. Source: FED

After the great recession from December 2007 to June 2009, Fed conducted quantitative easing, which purchased $3.5 trillion worth of securities with zero-bound interest rate, to achieve 2% inflation rate. U.S. achieved on June 2014, but it started falling afterward. Inflation rate on September 2015 came out around -0.02%. Fed missed its target (Figure 1).

Quantitative easing restored its economy that U.S. GDP growth rate bounced back to pre-crisis level of 4% in Q3 2015 (Figure 2). But it costed a lot; debt held by Fed increased from 3.0% to 15.2% last 8 years (Figure 2).

It means that U.S. now needs to reduce its debt by increasing its interest rate and cutting government spending. Yet Fed cannot increase interest rate without inflation rate hike since it can contract U.S. economy.

Figure 2 U.S. GDP (blue, left) has been increased to pre-crisis level of 4% in Q3 2015. However, percentage of Federal Debt by GDP increased from 3.21% in Q3 2008 to 15.85% in Q1 2015.

Source: FRED

Cause of Low Inflation

Low commodity price dragged down inflation rate. As commodity price decreases, producer cost declines that firms are unwilling to increase their price. It is resulted in stagnated inflation rate.

Commodity price declined as world economy slowed down. IMF World Economic Outlook (Figure 3), for example, cut that global economic growth rate by 0.1%.

Especially Commodity of Independent States excluding Russia declined its growth rate by 0.4%. As Advanced Economics growth rate slows down, demand of goods from China declines. It leads to decline in commodity exports from developing nations since China is the largest commodity consumer in the world.

Figure 3 IMF Economic Outlook Projection for advanced and emerging nations. Growth rate in advanced nations started to decline in Oct. 2014, and emerging nations declined in Jan. 2015 projection.

Crude oil price stayed around $100 in mid-20014 because market participants expected higher oil demand coming from global growth; there was a bubble in the price. As price was skyrocketing, energy industry expanded its investment to increase supply.

As expectation faded away in October 2014, however, oil price fell down (Figure 4). It hurts global economics that hurts investment and labor market.

Figure 4 GreeHaven Commodity Index is a commodity index that weights 17 different commodities with the same weight. S&P GSCI Commodity Index is a commodity index that has 79% weight of energy sector. GreenHaven declined by 18.53% while S&P GSCI decreased by 39.29% from October 2014 to October 2015. Source: Yahoo Finance

Influence over Investment and Quality of Job

As economy slows down and expected profit declined, firms started to decline investment and wage (Figure 5). It resulted in interest rate hike issue and U.S. economic growth. FOMC released statement on September that they decided to maintain 0~0.25% interest rate due to low commodity price and inflation, and concerns over quality of jobs in labor market.

Despite unemployment rate declined to full-unemployment level of 5.1% in Sep. 2015, quality of job is continuously declined after commodity price decreased. From 2.4% in Q1 2014, average hourly earnings for workers started to decline to 1.9% in Q2 2015 (Figure 5). Along with personal expenditure spending (Figure 1), it gives a concern over consumption that takes around 70% of U.S. GDP.

It is resulted in stagnated corporate investment. Level of investment is stagnated since Q1 2013 (Figure 5). Despite it continuously shows positive growth rate, it is still below pre-crisis level. It is mainly caused by slow in consumption and rise in inventory level that companies are unwilling to expand their plant investment further.

Figure 5 U.S. Fixed capital formation (blue, left) and average hourly earnings (red, right).
Source: FED

Conclusion

Advanced nations stimulated their economy through quantitative easing. It provides high liquidity in the market, boosts inflation, improves labor markets and increases corporative investment spending.

It worked well until Q2 2014 where commodity price started falling down. With slowing global economic growth and low inflation rate caused by commodity price, quality of job declined, spending on investment stagnated, and consumption decreased.

At the same time, U.S., especially, debt on GDP increased by approximately five times. It will give more pressure for advanced nations’ debt, and potentially influence over economic growth.

Corporate Leverage In Emerging Markets: Increased liquidity and corporate leverage

Summary

In October 2015, IMF published “Corporate Leverage In Emerging Markets – A Concern?” to analyze risks in financial markets in EM. High EM corporate leverage can potentially lead to credit crunch and financial crisis in 2008. IMF gave five recommendations to prevent the crisis.

Why did the EM Corporate Leverage Increase?

After the Great Recession in 2008, Fed, BOJ and ECB conducted own quantitative easing that provides copious liquidity in financial markets. Fed purchased assets worth of $3.5 trillion while BOJ and ECB have purchased approximately $8.5 billion and $6.3 billion of government securities.

As the liquidity flew into EM, leverage in nonfinancial corporations rose from $4 trillion in 2004 to $18 trillion in 2014 (Figure 1). At the same time, corporate debt to GDP ratio increased by 26% (Figure 2). This copious capital grew the nonfinancial industries, but sudden spike in leverage might cause bubble in financial markets.

Figure 1 EM corporate debt and market capitalization ($ Billion). Source: IMF

Figure 2  EM corporate debt to GDP ratio. Source: IMF

Quantitative Easing Expanded the Corporate Leverage

Although loans are still the largest component of the debt, the proportion of bond is continuously growing. The share of bond rose from 9% in 20014 to 17% in 2014 (Figure). It showed a significant increment in 2008, when U.S. conducted the QE (Quantitative Easing). With strengthen regulations, banks reduced cross-board lending while financial institutions issued more bonds with favorable conditions for EM corporations.

Figure 3  EM corporate debt compositions and their growth rate. Source: IMF

QE effect on EM on three different ways. First, emerging nations lowered interest rates to defend domestic currencies (Figure 4). After the QE the domestic currencies appreciated, which pressured exports and increased capital inflow. By lowering interest rates, emerging nations could stabilize exports and restrict capital inflow.

Figure 4 Interest Rate of Advanced nations (U.S. and Eurozone) and emerging markets (Indonesia and Mexico).

Source: FRED

Second, global liquidity flew into EM fixed income market. As yields in U.S. declined (Figure 5) after the QE, investors increased the portion of bonds in the EM in their portfolio. Because yields in EM have relatively high yields (Figure 5), it gives portfolio gives portfolio effect that allows to maintain certain level of risk and yields in the investors’ portfolio.

Figure 5 Advanced nations (U.S.) and emerging nations (South Korea and New Zealand) 10 year government yields.

Source: FRED

For last, the corporations were more attractive to have foreign currency-denominated bonds. With appreciated domestic currency, the corporations could issue foreign currency-denominated bonds with cheaper price. It led to issuing more foreign bonds especially in Southeast Asia, EMEA and Latin America (Figure 6).

Figure 6 Issuance By Region. Source: IMF

Problem raised when the corporations cannot bear significant increase of debt. Despite the leverage has been increased, their net profit has been declined (Figure 7). I can lead to credit crunch and another financial crisis when interest rate starts to rise.

Figure 7 Ratio of EM corporation leverage to its profit. Source: IMF

Global Economic Conditions and Fixed Income Markets

High corporate leverage came from increased liquidity, which can be weakened by global economic conditions rather than domestic reasons. Like liquidity, corporate leverage in EM is highly concentrated on construction and energy industries. With recent fall in commodity and real estate markets, net profits in those industries have fallen (Figure 9).

Figure 8 Corporations in EM leverage to total asset. Source:  IMF

Liquidity has been improved after the Great Recession, but their profit has been weakened as global economic sentiments fallen down. It means that corporations could raise capital but their profits have not been significantly improved. Fortunately, foreign exchange risk has not been increased due to increased foreign reserves, exports and use of derivatives. Yet fallen profits and increased leverage are still big concerns for the EM.

IMF Recommendation on the Emerging Market

IMF gave five recommendations to prepare for quantitative tightening.

1. Careful monitoring of vulnerable sectors of the economy and systemically important firms as well as their linkages to the financial sector is vital
   
2. The collection of financial data on the corporate sector, including foreign exchange exposures, needs improvement.
   
   
3. Macroprudential policies can be deployed to limit excessive increases in corporate sector leverage intermediated by banks.
   
   
4. Microprudential measures should also be considered. For instance, regulators can conduct bank stress tests related to foreign currency risks, including derivatives positions.
   
   
5. Emerging markets should be prepared for corporate distress and sporadic failures in the wake of monetary policy normalization in advanced economies, and where needed and feasible, should reform insolvency regimes.

Quantitative Easing and Its Side Effect

Global financial markets have enjoyed high liquidity came from the QE. They have been grown prior to the financial crisis level, but it caused by high liquidity not improved economic conditions. Unless the economic conditions will improve, this artificial growth will cause another financial crisis. Emerging nations should acknowledge risk in the markets, and prepare for the potential crisis. 

신흥국 기업부채의 문제점

Summary

IMF는 “Corporate Leverage In Emerging Markets – A Concern? (2015.10)”라는 리포트를 통해 신흥국 채권 시장의 위험성을 진단 하였습니다. 신흥국의 과도한 기업부채가 2008년 경제 위기와 같은 유동성 문제와 금융 시장의 큰 혼란을 가져올 수 있다는 것을 요지로 한 이 보고서는, 다가올 수 있는 금융위기를 예방하기 위한 5가지 권고안을 제시하였습니다.

이번 리포트를 통해 신흥국 채권시장의 문제를 진단하며 어떻게 대비해야 하는지 적어 보겠습니다.

신흥국 기업부채 증가의 배경

2008년 금융 위기 이후 미국, 일본, 유럽연합이 차례대로 양적 완화를 실시하며 국제 금융 시장에는 유동성이 넘쳐나기 시작 하였습니다. 미국은 2008년 11월 1차 양적 완화로 1.75조 달러의 유동성을 공급 하였으며, 2차와 3차 양적 완화를 통해 각각 6000억, 8500억 달러 규모의 국채 매입을 통해 총 3.5조 달러의 유동성을 금융 시장에 공급 하였습니다. 일본과 유럽연합 역시 매달 각각 약 850억 달러, 규630억 규모의 국채 매입으로 유동성을 공급하고 있습니다.

이 유동성이 신흥국 채권 시장으로 흘러 들어오기 시작하며, 신흥국 비금융 기업부채는 2004년 4조 달러에서 2014년 18조 달러까지 상승 하였습니다 (Figure 1). 또한 이 기간동안 GDP 대비 기업부채는 26% 상승하며 신흥국 기업부채를 증가 시켰습니다(Figure 2). 이는 설비 투자 증가와 기업 성장을 촉진 시키는 등의 긍정적인 면도 있지만, 기업 신용 버블의 우려의 목소리도 나오고 있습니다.

Figure 1 신흥국 부채와 금융 시장 규모 현황. 출처 : IMF

Figure 2 신흥국 GDP 대비 부채 비율. 출처 : IMF

국제 신용 시장의 팽창과 회사채의 영향

기업의 부채 중 대출의 비중은 낮아지며 채권의 비중이 점차 늘고 있습니다. 최근 10년간 채권의 비율은 2004년 9%에서 2014년 17% 증가하였는데 (Figure 3), 특히 2008년 미국 양적 완화 이후 크게 증가한 것을 볼 수 있습니다. 전례 없던 국제 신용 시장의 팽창과 은행권의 규제 강화로 인해 채권은 더 많이 발행되고 대출은 줄어들게 되었습니다.

Figure 3 신흥국 전체 부채 증가율 및 채권, 대출 증가율. 출처 : IMF

신용 시장의 팽창은 크게 세가지로 나타났습니다. 첫째, 신흥국 중앙 은행들이 자국 통화 방어를 위해 금리를 인하 하였습니다. 선진국들이 0%에 가깝게 금리를 인하하자, 자국 통화 가치는 상승하게 되었습니다. 따라서 수출이 둔화되고 국제 투기자본이 신흥국으로 몰려 오는것을 방지하기 위해 신흥국들도금리를 인하 하였습니다 (Figure 4).

Figure 4 선진국 (미국, 유로존)과  신흥국 (인도네시아, 멕시코)의 금리 추이 비교. 출처 : FRED

둘째, 위에서 언급한 양적 완화를 통해 많은 돈이 신흥국 채권 시장으로 흘러 들어 왔습니다. 무엇보다 신흥국 채권 시장의 수익율이 악화되면서, 상대적으로 높은 수익율을 주는 신흥국 채권 시장으로 돈이 몰리는 현상이 발생했습니다 (Figure 5). 투자자들은 저위험과 고위험 채권을 동시에 보유하며 포트폴리오 효과를 보고자 신흥국 채권에 투자하기 시작 하였습니다.

Figure 5 선진국 (미국)과 신흥국 (한국, 뉴질랜드) 10년 국채율 비교. 출처 : FRED

셋째, 당시 신흥국 통화 강세를 통해, 신흥국들이 외화채를 보유하는 것이 더 매력적으로 변했습니다. 신흥국 통화가 강세를 띌수록 달러의 가치는 떨어지기 때문에, 당시 신흥국은 상대적으로 싼 값으로 채권을 발행할 수 있었습니다. 따라서 많은 동남아, 아프리카, 남미 국가들을 중심으로 외화채를 더 많이 발행한 것으로 나타났습니다 (Figure 6).

Figure 6 신흥국 신규채권 발행 현황. 출처 : FRED

문제는 이 과도한 부체를 기업들이 부담할 수 없다는 것입니다. 기업들의 재무상태는 오히려 나빠지기 시작 하였습니다 (Figure 7). 이는 양적 완화 축소시 기업들의 부담은 급격히 증가하게 되며, 나아가 2008년과 같은 신용 경색과 금융 위기를 불러 일으킬 수 있습니다.

Figure 7 신흥국 내 기업 부채 대비 수익율. 출처 : IMF

글로벌 경제 상황과 신흥국 채권 시장

기업부채 증가의 본질적인 원인은 해외 자본의 증가 때문이기에, 자국내 요소보다 글로벌 경제 상황에 기업부채의 상태가  좌우되는 현상을 보여주고 있습니다.

가장 큰 문제는 신흥국 기업부채의 가장 큰 비중을 차지하는 산업군은 건설과 에너지라는 것입니다. 이 두 산업은 경제 상황에 여파를 많이 받는 것으로 알려져 있는데, 특히 최근 원자재 가격의 폭락과 부동산 시장 악화는 이 두 산업에 직접적인 타격을 주어 수익성을 악화시키고 있습니다 (Figure 8).

Figure 8 신흥국 기업들의 순수 자본 대비 부채 비율. 출처 : IMF

금융위기 이후 자금의 유동성은 증가 되었으나, 기업들의 전반적인 수익율은 경제 상황이 악화되면서 같이 나빠지는 현상을 보여주고 있습니다. 이는 기업들이 채권시장을 통해 자금을 더 끌어 모으지만, 실질적인 수익은 크게 나아지지 않고 있다는 것을 뜻합니다.

그나마 다행인 것은, 기업들의 환 위험은 외환 보유고와 수출의 증가, 파생상품의 개발로 인해 크게 증가하지 않았습니다. 하지만 전반적인 수익성 악화와 부채의 증가는 큰 위험으로 남아있습니다.

IMF의 신흥국 권고사항

IMF는 신흥국들에게  양적완화 축소와 경제 둔화에 대비하여 5가지 권고 사항을 제시 하였습니다.

첫째, 기업 부채가 높은 산업과 금융 회사의 관계를 조사할 것. 둘째, 비금융 기업들의 재정 및 경제 지표들을 더 많이 모을 것. 셋째, 경제 정책을 통해 기업의 재무상황과 금융 회사들의 관계를 개선시켜야 할 것. 넷째, 경제 건전성, 특히 환 위험과 파생상품 위험을 측정해야 할 것. 다섯째, 대규모 파산을 대비할 구제 방안을 만들어야 할 것.

신흥국들은 권고 사항을 통해 최악의 상황에 대비해야 할 것입니다.

양적 완화의 후폭풍

글로벌 금융 시장은 미국에서 시작된 양적 완화의 효과를 톡톡히 누려 왔습니다. 주식시장, 채권시장, 부동산 시장 모두 성장하며 경제 침체에서 벗어나고 있었다. 하지만 경제 펀더멘털과 기업의 이익이 개선되지 않는 이상, 인위적인 경제 부양은 또다른 경제 위기를 불러 올 것입니다. 신흥국들이 이러한 위기에 어떻게 대비하고 있는지 점검해야 할 시기입니다.