The Future of the State Revisited: Reforming Public Expenditure


By: Sanjeev Gupta and Martine Guerguil

(Version in FrançaisРусский中文, and 日本語)

The global financial crisis brought to the fore the question of sustainability of public finances. But it merely exacerbated a situation that was bound to attract attention sooner or later—governments all over the world have been spending more and more in recent decades. Here at the IMF, we’ve been looking into the factors behind this increase in public spending, particularly social spending, and our latest Fiscal Monitor report discusses some of the options for spending reform.

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Europe’s Economic Outlook


moghadamsmallBy Reza Moghadam

Economic growth across Europe is slowly picking up, which is good news. But the recovery is still modest and measures to boost economic growth and create jobs are important.

Western Europe: picking up the pace

The recovery projected last October for the euro area has solidified. This is reflected in our revised forecasts—e.g., the 2014 forecast for the euro area is up from 1 percent last October to 1.2 percent now, with important upgrades in countries like Spain. These revisions reflect the stronger data flow on the back of past policy actions, the revival of investor confidence, and the waning drag from fiscal consolidation. The positive impact on program countries is palpable—improving economies, lower spreads, and evidence of market access. We’ve also seen a welcome pick-up in growth in the UK (almost 3 percent is expected for 2014).

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Public Finances Are on the Mend, but No Clean Bill of Health


By Sanjeev Gupta and Martine Guerguil

(Version in Español FrançaisРусский中文, and 日本語)

We’ve had a spate of good news on the economic front recently. Does this mean that we are finally out of the fiscal woods? According to our most recent Fiscal Monitor report, not yet, as public debt remains high and the recovery uneven.

First, the good news. The average deficit in advanced economies has halved since the 2009 peak. The average debt ratio is stabilizing. Growth is strengthening in the United States and making a comeback in the euro area, and should benefit from the slower pace of consolidation this year. Emerging markets and developing countries have maintained their resilience, in part thanks to the policy buffers accumulated in the pre-crisis period. Talks of tapering in the United States have left a few of them shaken, but not (quite) stirred.

But there is still some way to go. The average debt ratio in advanced economies, although edging down, sits at historic peaks, and we project it will still remain above 100 percent of GDP by 2019 (Chart 1). The recovery is still vulnerable to several downside risks, including those stemming from the lack of clear policy plans in some major economies. The recent bouts of financial turmoil have raised concerns that the anticipated tightening of global liquidity could expose emerging markets and low-income countries to shifts in investor sentiment and more demanding debt dynamics.

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Global Financial Stability: Beginning To Turn The Corner


GFSRBy José Viñals

(Version in  EspañolFrançaisРусский中文 and 日本語)

 

Global financial stability is improving—we have begun to turn the corner.

But it is too early to declare victory as there is a need to move beyond liquidity dependence—the central theme of our report—to overcome the remaining challenges to global stability.

Progress

We have made substantial strides over the past few years, and this is now paying dividends.  As Olivier Blanchard discussed at yesterday’s press conference of the World Economic Outlook, the U.S. economy is gaining strength, setting the stage for the normalization of monetary policy.

In Europe, better policies have led to substantial improvements in market confidence in both sovereigns and banks.

In Japan, Abenomics has made a good start as deflationary pressures are abating and confidence for the future is rising. And emerging market economies, having gone through several recent bouts of turmoil, are adjusting policies in the right direction.

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As Demand Improves, Time to Focus More on Supply


2010 WEO BLANCHARD By Olivier Blanchard

(Version in  FrançaisEspañol, Русский, عربي中文  and 日本語)

The dynamics that were emerging at the time of the October 2013 World Economic Outlook are becoming more visible. Put simply, the recovery is strengthening.

In our recent World Economic Outlook, we forecast world growth to be 3.6 percent this year and 3.9 percent next year, up from 3.0 percent last year.

In advanced economies, we forecast growth to reach 2.2 percent in 2014, up from 1.3 percent in 2013.

The recovery which was starting to take hold in October is becoming not only stronger, but also broader.  The various brakes that hampered growth are being slowly loosened.   Fiscal consolidation is slowing, and investors are less worried about debt sustainability. Banks are gradually becoming stronger. Although we are far short of a full recovery, the normalization of monetary policy—both conventional and unconventional—is now on the agenda.

Brakes are loosened at different paces however, and the recovery remains uneven.

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Portugal: Completing the Job


Subeer LallBy Subir Lall

(Version in Português)

Today the IMF released a report on Portugal’s progress under the country’s Economic Adjustment Program. What is the latest assessment?

A strong start

There is no doubt that Portugal has made remarkable progress over the past three years. When the sovereign lost access to international bond markets in 2011, the outlook was grim. The economy was facing large domestic and external imbalances and dismal growth prospects. Unprecedented official financing from Portugal’s European partners and the IMF provided a window of opportunity to address the weaknesses at the root of the crisis and regain market confidence. While constrained by formal and informal strictures, the authorities rose to the occasion.

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Are Jobs and Growth Still Linked?


Prakash LounganiBy Prakash Loungani 

(Version in Español)

Over 200 million people are unemployed around the globe today, over a fifth of them in advanced economies. Unemployment rates in these economies shot up at the onset of the Great Recession and, five years later, remain very high. Some argue that this is to be expected given that the economy remains well below trend and press for greater easing of macroeconomic policies (e.g. Krugman, 2011, Kocherlakota (2014)). Others suggest that the job losses, particularly in countries like Spain and Ireland, have been too large to be explained by developments in output, and may largely reflect structural problems in their labor markets. Even in the United States, where unemployment rates have fallen over the past year, there is concern that increasing numbers of people are dropping out of the labor force, thus decoupling jobs and growth.

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Finish the Job on Financial Regulation


GFSRBy José Viñals

Brisbane and Basel may be 10,000 miles apart, but when it comes to financial regulation the two cities will be standing cheek by jowl.

At the next summit of the Group of Twenty advanced and emerging economies, to be held in Brisbane in November, political leaders will take the pulse of the global financial regulatory reform agenda, launched five years ago. The explicit goal of the Australian G-20 presidency is to finally complete these essential reforms. As Prime Minister Tony Abbott said today in Davos, “Financial regulation is always a work-in-progress, but these reforms now need to be finalized in ways that promote confidence without eliminating risk.”

I strongly support this extra push to create a safer financial system that can better support the needs of the real economy, and better protect taxpayers. For far too long, critics have been able to portray the G-20 reform agenda as a regulatory supertanker stuck in the shallow waters of technical complexity, financial industry pushback, and diverging national views. This image is increasingly off the mark.

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Emerging Markets Need To Do More To Remain Engines of Global Growth


Min ZhuBy Min Zhu

(Version in FrançaisРусский日本語Portuguêsعربي and 中文)

We had a big debate on emerging markets’ growth prospects at our Annual Meetings in October 2013. We lowered our 2013 growth forecast for emerging markets and developing economies by a whopping 0.5 percentage points compared to our earlier forecast. Some argued that we were too pessimistic. Others said that we should have stuck with the lower-growth scenario we had devised at the onset of the global financial crisis.

Fast forward to today. Indeed, most recent figures indicate that the engines of global growth—emerging markets and developing economies—have slowed significantly. Their growth rate dropped about 3 percentage points in 2013 from 2010 levels, with more than two thirds of countries seeing a decline— Brazil, China, and India lead the pack. This is important for the global economy, since these economies generate half of today’s global economic activity.

In my more recent travels around the world—five regions on three continents—I received the same questions everywhere: what is happening with the emerging markets? Is the slowdown permanent? Can emerging markets boost their growth? What are the downside risks?

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Recovery Strengthening, but Much Work Remains


WEOBy: Olivier Blanchard

(Versions in Español عربيРусский,  Français, and 中文 )

I want to take a moment today to remember our colleague Wabel Abdallah, who was our resident representative in Afghanistan and who, as many of you know, was killed in the terrorist attack in Kabul on Friday. We are mourning a colleague, a friend to many of us, above all a dedicated civil servant who represented the best the Fund has to offer, and gave his life in the line of duty, helping the Afghan people. Our hearts go out to his family and to the many victims of this brutal attack.

Let me now turn to our update of the World Economic Outlook and distill its three main messages:

First, the recovery is strengthening.  We forecast world growth to increase from 3% in 2013 to 3.7% in 2014.  We forecast growth in advanced economies to increase from 1.3% in 2013 to 2.2% in 2014.  And we forecast growth in emerging market and developing economies to increase from 4.7% in 2013 to 5.1% in 2014.

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