Oil prices have been persistently low for well over a year and a half now, but as the April 2016 World Economic Outlook will document, the widely anticipated “shot in the arm” for the global economy has yet to materialize. We argue that, paradoxically, global benefits from low prices will likely appear only after prices have recovered somewhat, and advanced economies have made more progress surmounting the current low interest rate environment.
“The human influence on the climate system is clear and is evident from the increasing greenhouse gas concentrations in the atmosphere, positive radiative forcing, observed warming, and understanding of the climate system.” —Intergovernmental Panel on Climate Change, Fifth Assessment Report
Fossil fuel prices are likely to stay “low for long.” Notwithstanding important recent progress in developing renewable fuel sources, low fossil fuel prices could discourage further innovation in and adoption of cleaner energy technologies. The result would be higher emissions of carbon dioxide and other greenhouse gases.
Policymakers should not allow low energy prices to derail the clean energy transition. Action to restore appropriate price incentives, notably through corrective carbon pricing, is urgently needed to lower the risk of irreversible and potentially devastating effects of climate change. That approach also offers fiscal benefits.
(version in 日本語)
Japanese-brand cars have become everyday, household items in the United States, and it’s hard to drive in the country without seeing one on the roads. These cars may be manufactured by Japanese firms, but about 70 percent of these vehicles are actually produced in North America. Globally, in 2014, about two-thirds of Japanese cars were produced on assembly lines outside of that country. Despite the increase in overseas demand for Japanese vehicles, this hasn’t been mirrored by an expansion in investment, and the building of factories in Japan to meet that demand.
Against this background, our IMF Working Paper looks at possible reasons for this sluggish recovery of corporate investment in Japan, focusing on the role of Japanese firms overseas.
US$5.3 trillion; 6½ percent of global GDP—that is our latest reckoning of the cost of energy subsidies in 2015. These estimates are shocking. The figure likely exceeds government health spending across the world, estimated by the World Health Organization at 6 percent of global GDP, but for the different year of 2013. They correspond to one of the largest negative externality ever estimated. They have global relevance. And that’s not all: earlier work by the IMF also shows that these subsidies have adverse effects on economic efficiency, growth, and inequality.
What are energy subsidies
We define energy subsidies as the difference between what consumers pay for energy and its “true costs,” plus a country’s normal value added or sales tax rate. These “true costs” of energy consumption include its supply costs and the damage that energy consumption inflicts on people and the environment. These damages, in turn, come from carbon emissions and hence global warming; the health effects of air pollution; and the effects on traffic congestion, traffic accidents, and road damage. Most of these externalities are borne by local populations, with the global warming component of energy subsidies only a fourth of the total (Chart 1).
By Jeff Hayden
You can call this edition of F&D magazine our Bob Dylan issue. It may seem odd for an economics magazine to draw inspiration from the legendary singer/songwriter, but one of his most famous lines, “The times, they are a-changin,’” reverberated through our corridors as we put together this special issue on the global economy’s past and future.
We weren’t humming the tune to pass the time. The lyrics seemed especially relevant to us this year, as we mark the 70th anniversary of the IMF and World Bank and the 50th anniversary of F&D. The world has seen a staggering amount of change in the past seven decades.
So, with these two anniversaries in mind and with Dylan’s ode to changing times in the air, we focused our attention on the transformation of the global economy—looking back and looking ahead. We wanted to address the question, what will the global economy look like in another 70 years?
(Versions in Español)
The Finance Minister answers her mobile. On the line is the Minister of Energy, who informs her that the country has struck oil and that he expects revenues from its sale to start flowing into the budget in the coming four years. While excited by the prospects of higher revenues—indeed the average resource-rich country gets more than 15 percent of GDP in resource revenues—she starts to ponder how to use these revenues for her country’s development. She is aware that only in rare cases have natural resources served as a catalyst for development; too often they have led to economic instability, corruption, and conflict or what has been termed as “the resource curse.”
Even before geopolitical tensions unleashed currency flight, bank deposit withdrawals and surging risk premiums, Ukraine faced serious challenges. The crisis there has been years in the making, reflecting deep structural problems that left it vulnerable to periodic funding shortfalls and near the bottom of transition country league tables. Thus, any program to tackle the immediate crisis in Ukraine must inevitably come to grips with this legacy.
(Version in اردو)
Following my most recent visit to Pakistan I noticed there seem to be many different and contradictory views about the government’s reform agenda supported by the IMF program. This piece addresses some of the key concerns on people’s minds.
1. The IMF dictated the content of the program.
The government mostly produced the policies supported in this program, which respond to key challenges facing Pakistan today.
The economic section of the PML-N party manifesto shows that most of the policies agreed with the IMF were actually those proposed by Prime Minister Sharif and his team before the elections, such as: fiscal consolidation, tax reform, measures to tackle the energy crisis, restructuring and privatizations of public sector enterprises, trade policy reforms, and steps to boost the investment climate.
By Tim Mahedy
(Version in Español)
It’s no secret that the manufacturing sector in the United States has been in decline for the past three decades. But a strong rebound in durable goods, such as cars and electronics, has helped revive the manufacturing sector and has supported the post-recession recovery.
As of early 2013, manufacturing output was only 4 percentage points below its pre-recession peak. Comparing across countries, the United States has performed more strongly than most of its G-7 counterparts, with the exception of Germany. Yet, the recovery in Germany has stagnated since mid-2011, while the U.S. recovery continues to gain steam.
Is this strong rebound in U.S. manufacturing here to stay, or just a temporary phenomenon?