Global Economy Faces Strong and Complex Cross Currents

2017-04-14T01:48:41+00:00January 19, 2015|

WEOBy Olivier Blanchard

(version in Español)

The world economy is facing strong and complex cross currents.  On the one hand, major economies are benefiting from the decline in the price of oil.  On the other, in many parts of the world, lower long run prospects adversely affect demand, resulting in a strong undertow.

We released the World Economic Outlook Update today in Beijing, China. The upshot for the global economy is that while we expect stronger growth in 2015 than in 2014, our forecast is slightly down from last October.  More specifically, our forecast for global growth in 2015 is 3.5%, 0.3% higher than global growth in 2014, but 0.3% less than our forecast in October. For 2016, we forecast 3.7% growth, again a downward revision from the last World Economic Outlook.

At the country level, the cross currents make for a complicated picture. Good news for oil importers, bad news for exporters. Good news for commodity importers, bad news for exporters. Continuing struggles for the countries which still show scars of the crisis, not so for others. Good news for countries more linked to the euro and the yen, bad news for those more linked to the dollar. In short, many different combinations, many different boxes, and countries in each box.

Let me expand a bit on some of these themes.

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The Top Ten Blogs of 2014

2017-04-14T01:49:06+00:00December 31, 2014|

by iMFdirect

As 2014 draws to a close, we thought you might like a look back at the most read blogs of the year.  These are the headlines and ideas that caught your eyes and the list is based on readership.  We thought we’d pull them all together for you in one quick read.

Wishing you a wonky & worldy 2015 from all of us at iMFdirect.

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Seven Questions About The Recent Oil Price Slump

2017-04-14T01:49:12+00:00December 22, 2014|

By Rabah Arezki and Olivier Blanchard[1]

(Versions in عربي中文, Français, 日本語Русский, and Español)

Oil prices have plunged recently, affecting everyone: producers, exporters, governments, and consumers.  Overall, we see this as a shot in the arm for the global economy. Bearing in mind that our simulations do not represent a forecast of the state of the global economy, we find a gain for world GDP between 0.3 and 0.7 percent in 2015, compared to a scenario without the drop in oil prices. There is however much more to this complex and evolving story. In this blog we examine the mechanics of the oil market now and in the future, the implications for various groups of countries as well as for financial stability, and how policymakers should address the impact on their economies.  

In summary: 

  • We find both supply and demand factors have played a role in the sharp price decline since June. Futures markets suggest that oil prices will rebound but remain below the level of recent years. There is however substantial uncertainty about the evolution of supply and demand factors as the story unfolds.
  • While no two countries will experience the drop in the same way, they share some common traits: oil importers among advanced economies, and even more so emerging markets, stand to benefit from higher household income, lower input costs, and improved external positions. Oil exporters will take in less revenue, and their budgets and external balances will be under pressure.
  • Risks to financial stability have increased, but remain limited. Currency pressures have so far been limited to a handful of oil exporting countries such as Russia, Nigeria, and Venezuela. Given global financial linkages, these developments demand increased vigilance all around.
  • Oil exporters will want to smooth out the adjustment by not curtailing fiscal spending abruptly. For those without savings funds and strong fiscal rules, budgetary and exchange rate pressures may, however, be significant. Without the right monetary policies, this could lead to higher inflation and further depreciation. 
  • The fall in oil prices provides an opportunity for many countries to decrease energy subsidies and use the savings toward more targeted transfers, and for some to increase energy taxes and lower other taxes.  
  • In the euro area and Japan, where demand is weak and conventional monetary policy has done most of what it can, central banks forward guidance is crucial to anchor medium term inflation expectations in the face of falling oil prices.

Again, our simulations of the impact of the oil price drop do not represent a forecast for the state of the world economy in 2015 and beyond. This we will do in the IMF’s next World Economic Outlook in January, where we will also look at many other cross-currents driving growth, inflation, global imbalances and financial stability. 

What follows is our attempt to answer seven key questions about the oil price decline:

  1. What are the respective roles of demand and supply factors?
  2. How persistent is this supply shift likely to be?
  3. What are the effects likely to be on the global economy?
  4. What are likely to be the effects on oil importers?
  5. What are likely to be the effects on oil exporters?
  6. What are the financial implications?
  7. What should be the policy response of oil importers and exporters?

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Acting Collectively: A Better Way to Restructure Government Debt

2017-04-14T01:51:25+00:00November 24, 2014|

By Sean Hagan 

(version in Español)

To restructure or not to restructure? That is a question few governments would like to face. Yet, if a country does find itself with an unsustainable debt burden, one way or another, it will have to be restructured. And if that time comes, it is better for the debtor, creditors, and the entire financial system that the restructuring be carried out in a prompt, predictable, and orderly manner.

The global financial crisis ushered in a new wave of sovereign debt crises that has reinvigorated discussions over the current framework for sovereign debt restructuring. The experience with Greece’s debt restructuring in 2012 and the ongoing litigation involving Argentina, in particular, provide a salutary reminder that vulnerabilities remain.

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Legacies, Clouds and Uncertainties

2017-04-14T01:54:23+00:00October 7, 2014|

WEOBy Olivier Blanchard

(Versions in Françaisespañol, 中文Русский日本語)

The recovery continues, but it is weak and uneven.

You have now seen the basic numbers from our latest projections in the October 2014 World Economic Outlook released today.  We forecast world growth to be 3.3% in 2014, down 0.1% from our July forecast, and 3.8% in 2015, down 0.2% from our July forecast.

This number hides however very different evolutions.  Some countries have recovered or nearly recovered.  But others are still struggling.

Looking around the world, economies are subject to two main forces.  One from the past:  Countries have to deal with the legacies of the financial crisis, ranging from debt overhangs to high unemployment.  One from the future, or more accurately, the anticipated future:   Potential growth rates are being revised down, and these worse prospects are in turn affecting confidence, demand, and growth today.

Because these two forces play in different countries to different degrees, economic evolutions are becoming more differentiated.  With this in mind, let me take you on the usual quick tour of the world:

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Three Key Questions About the Slowdown in Emerging Markets

2017-04-14T01:54:44+00:00September 18, 2014|

Sweta SaxenaBy Sweta Saxena

1. Are emerging markets slowing down? Yes. They have been slowing down for some time now. GDP growth has declined from 7 percent during the pre-crisis period (2003-8) to 6 percent over the post-crisis period (2010-13) to 5 percent, in our projections, over the next 5 years (2014-18).  This path is illustrated below in Chart 1. This last point stands out. Despite an uneven recovery, growth in advanced economies is projected to eventually recover. Not so for emerging markets.

EMs chart 1

Chart 1

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The Slow Recovery Continues

2017-04-14T01:58:26+00:00July 24, 2014|

WEO

By Olivier Blanchard

(Versions in Español中文,  日本語Русский )

The recovery continues, but it remains weak, indeed a bit weaker than we forecast in April.

We have revised our forecast for world growth in 2014 from 3.7 percent in April to 3.4 percent today. This headline number makes things look worse than they really are. To a large extent, it reflects something that has already happened, namely the large negative US growth rate in the first quarter. But it is not all due to that. It also reflects a number of small downward revisions, both in advanced and in emerging economies.

The overall story remains largely the same as before:

Advanced economies are still confronted with high levels of public and private debt, which act as brakes on the recovery. These brakes are coming off, but at different rates across countries.

Emerging markets are slowing down from pre-crisis growth rates. They have to address some of their underlying structural problems, and take on structural reforms. At the same time, they have to deal with the implications of monetary policy normalization in the US.

Let me take you on the usual tour of the world.

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Slowdown in Emerging Markets: Not Just a Hiccup

2017-04-14T01:59:00+00:00June 26, 2014|

By Evridiki Tsounta and Kalpana Kochhar 

(Versions in Español)

Emerging market economies have been experiencing strong growth, with annual growth for the period 2000-12 averaging 4¾ percent per year—a full percentage point higher than in the previous two decades. In the last two to three years, however, growth in most emerging markets has been cooling off, in some cases quite rapidly.

Is the recent slowdown just a hiccup or a sign of a more chronic condition? To answer this question, we first looked at the factors behind this strong growth performance.

Our new study finds that increases in employment and the accumulation of capital, such as buildings and machinery, continue to be the main drivers of growth in emerging markets. Together they explain 3 percentage points of annual GDP growth in 2000–12, while improvements in the efficiency of the inputs of production—which economists call “total factor productivity”—explain 1 ¾ percentage points (Figure 1).

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Are Emerging Markets Still On the Receiving End?

2017-04-14T02:06:57+00:00April 3, 2014|

By Aseel Almansour, Aqib Aslam, John Bluedorn and Rupa Duttagupta

(Version in EspañolFrançaisРусский中文 and 日本語)

The recent slowdown in emerging market growth is fueling a growing mania across markets and policy circles. Some worry that a large part of their stellar pace of growth over the 2000s (Figure 1) was due to a favorable external environment—cheap credit and high commodity prices. And, therefore, as advanced economies gather momentum now and begin to normalize their interest rates, and commodity price gains begin to reverse, emerging market growth could slip further.

Others instead contend that internal or domestic factors have played a role, with improved standards of governance and genuine structural reforms and robust policies, driving a fundamental transformation in the sources of emerging market growth towards a lower yet more sustainable trajectory.

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Emerging Markets Need To Do More To Remain Engines of Global Growth

2017-04-14T02:12:17+00:00January 22, 2014|

Min ZhuBy Min Zhu

(Version in FrançaisРусский日本語Portuguêsعربي 中文, and Español)

We had a big debate on emerging markets’ growth prospects at our Annual Meetings in October 2013. We lowered our 2013 growth forecast for emerging markets and developing economies by a whopping 0.5 percentage points compared to our earlier forecast. Some argued that we were too pessimistic. Others said that we should have stuck with the lower-growth scenario we had devised at the onset of the global financial crisis.

Fast forward to today. Indeed, most recent figures indicate that the engines of global growth—emerging markets and developing economies—have slowed significantly. Their growth rate dropped about 3 percentage points in 2013 from 2010 levels, with more than two thirds of countries seeing a decline— Brazil, China, and India lead the pack. This is important for the global economy, since these economies generate half of today’s global economic activity.

In my more recent travels around the world—five regions on three continents—I received the same questions everywhere: what is happening with the emerging markets? Is the slowdown permanent? Can emerging markets boost their growth? What are the downside risks?

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