Challenges Ahead: Managing Spillovers

By Olivier Blanchard, Luc Laeven, and Esteban Vesperoni

The last five years have been a reminder of the importance of interconnections and risks in the global economy. They have triggered intense discussions on the optimal way to combine fiscal, monetary, and financial policies to deal with spillovers, and on the need and the scope for coordination of such policies.

The IMF’s 15th Jacques Polak Annual Research Conference, which took place in Washington DC on November 13 and 14, 2014, focused on Cross-Border Spillovers, and took stock of what we know and do not know.  The summary below picks and chooses some papers, and does not do justice to the full set of papers presented and discussed at the conference.  They can all be downloaded, and videos of each session are available, at


Three Key Questions About the Slowdown in Emerging Markets

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


When You Move, I Move: Increasing Synchronization Among Asia’s Economies

Romain DuvalBy Romain Duval

(Version in 中文, and 日本語)

In recent decades, trade integration within Asia has increased more than in other regions. In valued-added terms, intraregional trade grew on average by over 10 percent a year from 1990 to 2012, twice the pace seen outside of Asia. Likewise, financial integration within the region has started to catch up, although it still lags behind trade integration. Concomitantly, business cycles in Asia have become steadily more synchronized over the past two decades, with the correlation between ASEAN economies’ growth rates almost reaching the very high levels seen within the Euro Area.

As outlined in the IMF Asia and Pacific Department’s latest Regional Economic Outlook, these facts are related. Namely, increases in trade and financial integration have strengthened the propagation of growth shocks between regional partners, leading Asian economies to move more in lockstep. One driver of this synchronization of business cycles has been the increase in size and connectedness of China’s economy. Looking ahead, we expect regional integration agenda and a bigger China to further increase spillovers and growth co-movement across the region. Greater international cooperation, particularly regional and global financial safety nets, can help countries respond to the associated risk of more synchronized, sharper downturns, and thereby help Asia make the most of greater regional integration.


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