Regional Spillovers in South America: How “Systemic” is Brazil?


By Gustavo Adler and Sebastián Sosa

(Version in Español)

The risks that policies and shocks in major economies can spillover on other countries and regions have become a matter of renewed concern since the global crisis of 2008–09. Brazil is South America’s giant; how important is its influence on neighboring countries?

Brazil accounts for 60 percent of South America’s output and its economic fluctuations are closely correlated with those of many of its neighboring countries. This would appear to suggest that economic activity in Brazil’s neighbors is strongly influenced by Brazil’s business cycle.

But these close comovements could also reflect common global factors that affect all South American countries similarly, such as commodity prices, international financial conditions, and global demand.

Our latest Regional Economic Outlook: Western Hemisphere examines this question, quantifying the importance of spillovers from Brazil to the rest of South America.

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India’s Slowdown May Have a Silver Lining


By Roberto Guimarães and Laura Papi

The extent of the recent slowdown in India’s growth rate has surprised most India watchers even in the face of ongoing international financial market volatility, high and volatile oil prices, and the uneven global recovery.

GDP growth fell throughout 2011, from a high of 7.8 percent at the beginning of the year to 6.1 percent in the quarter ending in December. The slowdown in the economy has affected the industrial sector particularly hard and has extended to 2012 as shown by the 3.5 percent contraction (y/y) in March industrial production. For 2012/13, we at the IMF project that GDP growth is likely to be about 7 percent.

While India has been affected by the worldwide slowdown, many observers have started to question the inner strength of the Indian growth story.

By international standards 7 percent growth is still very robust, but it sometimes feels like underachievement for a country that was growing at more than 9 percent just a few years ago.

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Without Better Data, Middle East Policymakers Risk Getting Lost


By Nemat Shafik

(Version in عربي)

Recently I went orienteering with my children as part of a school trip.  Orienteering is a sport whereby you have to find your way to various checkpoints through unknown terrain with only a compass and a topographical map.

Wandering through the woods with six 9-year-olds was a good lesson in the value of good directions and data to find your way when you are in unchartered territory.

Likewise, making policy decisions without adequate and timely data would also result in getting lost, wasting time and money, and making policy mistakes with obvious negative consequences for growth and development.

The Middle East and North Africa (MENA) region suffers significant shortcoming in data, which are particularly problematic at a time economic transition (see table below).  There are important data gaps, poor data quality and in many cases, internationally agreed standards of statistical methodologies, compilation periodicity and timeliness, and data dissemination practices are not followed.  I emphasized these issues during my participation at the ArabStat Conference in Morocco this month.

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Beyond the Austerity Debate: the Deficit Bias in the post-Bretton Woods Era


By Carlo Cottarelli

(Version in Español)

The austerity vs. growth debate has raged in recent months, pitting those who argue that fiscal policy should be tightened more aggressively now to bring down high levels of debt, even though economic growth remains weak, against those who want to postpone the adjustment to better times. This is a critical issue for policymakers, perhaps the most important one in the short run.

And yet, this debate—which, mea culpa, I have myself contributed to―is attracting too much attention.

This is bad for two reasons:

  • The debate is driven, to some degree, by ideology and is therefore more focused on the relatively limited areas of disagreement than on the far broader areas of agreement. Most economists would agree that fiscal consolidation is needed in advanced economies, and that the average annual pace of adjustment during 2011-12―about 1 percentage point―is neither too aggressive nor excessively slow. Most economists would also agree that countries under pressure from markets have to adjust at a faster pace, while those that do not face such constraints have more time. Of course, there is disagreement on some aspects of the fiscal strategy, but it relates to specific country cases.
  • The debate is detracting attention from policy issues that may seem less urgent, but which are nevertheless critical in the medium term. I am referring to what I would call the institutional gaps in fiscal policymaking that still exist in most advanced and emerging economies. These gaps have contributed to a bias in the conduct of fiscal policy in favor of deficits that is behind many of the current problems.

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Economics – New Links for Students from the IMF


The IMF’s well written Finance & Development magazine has recently published two helpful online compilations of articles that may be useful to students and those interested in economic issues.    They are rich collections of material that are totally free!!
1. Back to Basics — explaining some fundamental concepts in Economics and Finance
2. People in Economics — a collection of profiles of leading economists and policymakers, including 10 Nobel Prize winners.
In addition,
  • listen to regular audio podcasts with leading experts on development issues around the world–or download from iTunes.
  • and get free a neat new ipad app for IMF news and data–it lets you chart and view global economic indicators and forecasts

Why the Arab World Needs an Economic Spring


By Nemat Shafik

(Version in عربي)

What strikes you on a trip to the Middle East is that everyone is talking politics—all of the time. That had been the case in countries like Lebanon where it is a national pastime, but it is a new phenomenon in countries across North Africa and the Gulf.

Constitutions are being rewritten, political parties and youth groups are vibrant, and everyone has an opinion on current events. The older generation seems worried by the uncertainty associated with change. The young generation continues to be energized.

Need for an economic rethink

But, what I noticed during a week of travel through the region is that almost no one is talking economics, and that is a worry. Because while 2011 was a year of major transitions in the political domain, almost every economic indicator in the non-oil countries went in the wrong direction. Growth halved, unemployment rose, reserves came under pressure and deficits ballooned as governments responded to social pressures by increasing spending on wages and generalized subsidies.

New governments across the region are keen to respond to the demand for jobs and justice that brought them to power but are quickly faced with the hard reality of limited resources and powerful vested interests.

So, just as the “Arab Spring” opened a debate about politics in the Middle East, we now need an “Economic Spring” on how to rethink the region’s economic future.

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