Mediocre Growth, High Risks, and The Long Road Ahead

Geopolitical tension affecting the oil market is surely a risk. The main risk remains, however, that of another acute crisis in Europe. The building of the “firewalls”, when it is completed, will represent major progress. By themselves, however, firewalls cannot solve the difficult fiscal, competitiveness, and growth issues that some of these countries face. Bad news on the macroeconomic or the political front still carries the risk of triggering the type of dynamics we saw last fall.

Debt Hangover: Nonperforming Loans in Europe’s Emerging Economies

In emerging Europe, the share of loans classified as nonperforming—many of them household mortgages—have exploded from 3 percent before the crisis to 13 percent at the peak. NPLs in some parts of the Baltics and Balkans are already at par with previous financial crises elsewhere. Our analysis finds evidence that nonperforming loans are indeed a serious drag on credit supply and economic growth. They drive up banks’ funding costs and interest margins, and at the same time drain their profits and capital. On the credit demand side, over-extended households and businesses are reluctant to consume and invest.

The Logic and Fairness of Greece’s Program

The program deals squarely with the two most fundamental issues facing Greece―not only high debt but also low competitiveness. And it is fair, both in asking for shared sacrifices, not only within Greece, but also between Greece and its creditors.

Avoiding a Lost Generation

Young people were innocent bystanders in the global financial crisis, but they may well end up paying the heaviest price for the policy mistakes that have led us to where we are today. Young people will have to pay the taxes to service the debts accumulated in recent years.

Youth Speaking Out

Young people, hardest hit by the global economic downturn, are speaking out and demanding change. Coming of age in the Great Recession, the world’s youth face an uncertain future, with lengthening job lines, diminished opportunities, and bleaker prospects that are taking a heavy emotional toll. The March 2012 issue of Finance & Development magazine looks at the challenges facing young people today.

The Case for a Managed Float under Inflation Targeting

It is often claimed that inflation targeting , to be successful, needs to include a high degree of exchange rate flexibility, with the policy rate geared to stabilizing inflation and the exchange rate allowed to fluctuate freely. But a new paper from the IMF examines the case for using two policy instruments—the policy interest rate and sterilized foreign exchange market intervention—in emerging market countries aiming to maintain low inflation while avoiding the damage that large and abrupt currency movements may engender. It argues that in a world of volatile capital movements, and sharp ups and downs in exchange rates, there are important benefits to making use of all available policy instruments, both from a single country’s perspective, and from a global standpoint. Provided policymakers are clear about their objectives, there is no conflict between an inflation targeting framework and making use of the foreign exchange market intervention instrument to attenuate deviations of exchange rates.

Africa’s Growth Puzzle: Better Ways to Fill Infrastructure Gaps

The issue of reviving or maintaining economic growth is a the forefront of policymakers’ minds all around the world. Of course, the policies needed to achieve that differ from region-to-region, country-to-country. For many countries in Africa, weak infrastructure is an obstacle to raising growth. In a recent interview with the IMF’s Survey online magazine, Andrew Berg of the IMF’s Research Department (and one of our contributing bloggers) discusses how Africa can step up investment in its infrastructure by augmenting traditional sources of financing with foreign borrowing and private investment.

By | February 28th, 2012|Africa, Economic research, growth, IMF, LICs, Low-income countries, recession|

Lagarde: “World Economy Not Out of Danger Zone”

"Derailment of the global recovery, which was a clear and distinct danger a few months ago, has been avoided for now thanks to strong policy measures--in particular those of the European Central Bank--and strengthened governance in the euro area, and reforms and adjustment in countries such as Italy, Spain, and Greece," Lagarde said. "High frequency indicators also now suggest an uptick in activity, mostly in the United States."

IMF Welcomes New Eurozone Understanding on Greece

“The combination of ambitious and broad policy efforts by Greece , and substantial and long-term financial contributions by the official and private sectors, will create the space needed to secure improvements in debt sustainability and competitiveness," Lagarde said in a statement. "These actions, together with a significant strengthening of the financial sector, will pave the way for a gradual resumption of economic growth."

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