Economic growth appears to be strengthening across the large economies, but that does not mean financial-sector regulation can now be relaxed. On the contrary, it remains more necessary than ever, as does international cooperation to ensure the safety and resilience of global capital markets. That is why the Group of Twenty (G20) finance ministers and central bank governors reiterated their support for continuing financial-sector reform at their meeting in Baden-Baden last week. (more…)
Basic economic theory tells us that capital should flow from slow-growing rich countries to faster-growing poor ones in search of higher returns. A decade ago, our former Research Department colleagues Eswar Prasad, Raghuram Rajan, and Arvind Subramanian examined why the reverse had been true—capital generally flowed “uphill” from poorer to richer countries. Building on the seminal work of Robert Lucas, they argued that certain characteristics of poorer countries, such as weaker institutions and lower levels of education, may reduce the risk-adjusted returns to investing there. (more…)
Debt is central to the functioning of a modern economy. Firms can use it to finance investments in future productivity. Households can use it to finance lumpy purchases, such as big consumer durables, or a home. Sometimes, however, firms’ investments do not pan out or a household’s main earner loses his or her job. Countries’ legal systems generally recognize that in these cases, debtors and creditors alike—along with society at large—may be better off if there is an orderly procedure for reorganizing debts. (more…)
An accumulation of recent data suggests that the global economic landscape started to shift in the second half of 2016. Developments since last summer indicate somewhat greater growth momentum coming into the new year in a number of important economies. Our earlier projection, that world growth will pick up from last year’s lackluster pace in 2017 and 2018, therefore looks increasingly likely to be realized. At the same time, we see a wider dispersion of risks to this short-term forecast, with those risks still tilted to the downside. Uncertainty has risen. (more…)
In December 2016, the U.S. Fed raised interest rates for the first time in a year, and said they planned more increases in 2017. Emerging market currencies took a bit of a dive, but overall investors didn’t overreact and run for the doors with their money. For the bigger picture, you can read IMF Chief Economist Maurice Obstfeld’s blog that outlines how the U.S. election and Fed decision will impact the global economy. (more…)
What a year it has been. 12 months with big implications for the global economy.
In 2016 our readers’ curiosity focused on a wide range of hot topics in the world of economic and financial policy: the economic impact of migration, China’s economic transition, the prospects for negative interest rates, the way forward for Greece, the future of commodity prices, and the outlook for Latin America, to name a few. We compiled this top ten list for the past year based on readership. (more…)
A return to the strong, sustainable, balanced, and inclusive growth that Group of Twenty leaders called for at Hangzhou in September still eludes us. Global growth remains weak, even though it shows no noticeable deceleration over the last quarter. The new World Economic Outlook sees a slowdown for the group of advanced economies in 2016 and an offsetting pickup for emerging and developing economies. Taken as a whole, the world economy has moved sideways. Without determined policy action to support economic activity over the short and longer terms, sub-par growth at recent levels risks perpetuating itself—through the negative economic and political forces it is unleashing.
There are policy options to bring new life into anemic economic recoveries and to counteract renewed slowdowns. Our new paper, along with our co-authors, debunks widespread concerns that little can be done by policymakers facing a vicious cycle of (too) low growth, (too) low inflation, near-zero interest rates, and high debt levels.
The global financial crisis led to a broad rethink of macroeconomic and financial policies in the global academic and policy community. Eight months into the job as IMF Chief Economist, Maury Obstfeld reflects on the IMF’s role in this rethinking and in furthering economic and financial stability.