Back-to-School Blogs


By iMFDirect

As you trudge back to the office or cubie with a little sand still crunching in your backpack, you know the holiday is over. To help you catch up, here are some blogs to re-read to get you back into the swing of things.

Remember Europe? I thought so. The European Central Bank is center stage this week as inflation in Europe has hit a trough, which reminded me of our blog about deflation back in March that rattled a few cages.

Which brings us to what will or won’t happen with global interest rates, and their impact on well, pretty much everyone. We’ve analyzed the tea leaves so you don’t have to.

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Structural Reforms Can Help Japan’s Post-Consumption Tax Blues


Stephan DanningerBy Stephan Danninger 

(Versions in 日本語)

Japan’s GDP declined by almost 7 percent in the second quarter, more than many had forecast including us here at the IMF.  Many cite the increase in the sales tax this April for this decline.  But that is not the full story.

Yes, it is true that consumer responses to major tax increases are difficult to predict, and large spending swings are not unusual. We see this pattern in many countries (see chart) including Germany’s 2007 VAT increase, which had a short-lived impact.

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Can Japan Afford to Cut Its Corporate Tax?


By Ruud de Mooij and Ikuo Saito

(Versions in 日本語)

It is no surprise that, as part of its revised growth strategy presented in June, the Japanese government has announced it will reduce the corporate income tax rate. At more than 35 percent for most businesses, the Japanese rate is one of the highest among the industrialized countries of the Organization for Economic Cooperation and Development (see Chart 1). Moreover, at a time when Japan needs to boost economic growth, the corporate income tax rate is generally seen as the country’s most growth-distortive tax.

japan1

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Links and Levers: How the Caucasus and Central Asia Are Tied to Russia


Alberto BeharBy Alberto Behar

(Version in Русский)

The countries of the Caucasus and Central Asia (CCA) are closely linked with Russia through trade, financial, and labor market channels. These ties have served the region well in recent years, helping it make significant economic gains when times were good. But how is the region affected when Russia’s economy slows down?

Underlying structural weaknesses have reduced Russia’s growth prospects for this year and over the medium term. Tensions emanating from developments in eastern Ukraine—including an escalation of fighting, the downing of Malaysian Airlines Flight 17, and new sanctions—have led to renewed market turbulence in Russian markets.

Experience has shown that lower growth in a large country can inflict significant collateral damage on neighboring countries with strong linkages of the type that the CCA has with Russia. (See also separate blog on Russia-Europe links.) We took a closer look at these connections to see how they transmit shocks, with particular attention to the impact on the region’s two main categories of economies—hydrocarbon importers and hydrocarbon exporters (see map).

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The Slow Recovery Continues


WEO

By Olivier Blanchard

(Versions in Español中文,  日本語Русский )

The recovery continues, but it remains weak, indeed a bit weaker than we forecast in April.

We have revised our forecast for world growth in 2014 from 3.7 percent in April to 3.4 percent today. This headline number makes things look worse than they really are. To a large extent, it reflects something that has already happened, namely the large negative US growth rate in the first quarter. But it is not all due to that. It also reflects a number of small downward revisions, both in advanced and in emerging economies.

The overall story remains largely the same as before:

Advanced economies are still confronted with high levels of public and private debt, which act as brakes on the recovery. These brakes are coming off, but at different rates across countries.

Emerging markets are slowing down from pre-crisis growth rates. They have to address some of their underlying structural problems, and take on structural reforms. At the same time, they have to deal with the implications of monetary policy normalization in the US.

Let me take you on the usual tour of the world.

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Asia’s Seismic Shift: How Can the Financial Sector Serve Better?


Min ZhuBy Min Zhu

(Versions in  中文Español)

Asia is set to be the powerhouse for growth in the next decade, just as it was in the last one. The size of its economy is expected to expand more rapidly than the other regions of the world, and its share in the world output is expected to rise from 30 percent to more than 40 percent in the coming decade. The structure of the economy is expected to continue to transform from a narrower manufacturing hub to a group of vibrant, diverse and large markets with a rising middle-class population.

The role of the financial sector is critical in the success of this seismic transformation. Let me explain by focusing on three areas:

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How Low-Income Countries Can Diversify and Grow


By Chris Papageorgiou, Lisa Kolovich, and Sean Nolan 

(Version in Español)

Low-income countries have spent a lot of time thinking about how they can achieve faster growth, and we have done some research to help them. We found that pursuing export diversification is a gateway to higher growth for these economies. Using a newly constructed diversification toolkit, our empirical analysis shows that both the range and quality of the goods a country produces has a direct impact on growth 

Country trends 

Low-income countries have historically depended on a narrow range of primary products and few export markets for the bulk of their export earnings.

But export diversification is associated with higher per capita incomes, lower output volatility, and higher economic stability—relationships that can be tracked using our new publically available  dataset, which gives researchers and policymakers access to measures of export diversification and product quality for 178 countries from 1962-2010.

We have looked at two measures of export diversification and their impact on economic growth.  One measure captures diversification into new product lines, the other development of a more balanced mix of existing products.  Analysis using these measures shows that export diversification in low-income countries is indeed among the most effective drivers of economic growth.

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