Slowdown in Emerging Markets: Not Just a Hiccup


By Evridiki Tsounta and Kalpana Kochhar 

(Versions in Español)

Emerging market economies have been experiencing strong growth, with annual growth for the period 2000-12 averaging 4¾ percent per year—a full percentage point higher than in the previous two decades. In the last two to three years, however, growth in most emerging markets has been cooling off, in some cases quite rapidly.

Is the recent slowdown just a hiccup or a sign of a more chronic condition? To answer this question, we first looked at the factors behind this strong growth performance.

Our new study finds that increases in employment and the accumulation of capital, such as buildings and machinery, continue to be the main drivers of growth in emerging markets. Together they explain 3 percentage points of annual GDP growth in 2000–12, while improvements in the efficiency of the inputs of production—which economists call “total factor productivity”—explain 1 ¾ percentage points (Figure 1).

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Fixing International Corporate Taxation—Not Just a Problem for Advanced Economies


Mick KeenBy Michael Keen

It’s hard to pick up a newspaper these days (or, more likely for readers of blogs, to skim one online) without finding another story about some multinational corporation managing, as if by magic, to pay little corporate tax. What lets them do this, of course, are the tax rules that countries themselves set. A new paper takes a closer look at this issue, which is at the heart of the IMF’s mandate: the way tax rules spill over national boundaries, and what this means for macroeconomic performance and economic development. These effects, the paper argues, are pretty powerful and need to be discussed on a global level.

Follow the money

Take, for instance, international capital movements. Though tax is not the only explanation, the foreign direct investment (FDI) positions shown in Table 1 are hard to understand without also knowing that  tax arrangements in several of these countries make them attractive conduits through which to route investments. In its share of the world’s FDI, for example, the Netherlands leads the world; and tiny Mauritius is home to FDI 25 times the size of its economy.

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What a Drag: The Burden of Nonperforming Loans on Credit in the Euro Area


By Will Kerry, Jean Portier, Luigi Ruggerone and Constant Verkoren 

High and rising levels of nonperforming loans in the euro area have burdened bank balance sheets and acted as a drag on bank profits. Banks, striving to maintain provisions to cover bad loans, have had fewer earnings to build-up their capital buffers. This combination of weak profits and a decline in the quality of bank assets, resulting in tighter lending standards, has created challenging conditions when it comes to new lending.

We took a closer look at this relationship and the policies to help fix the problem in our latest Global Financial Stability Report because credit is the grease that helps the economy function.

The stock of nonperforming loans has doubled since the start of 2009 and now stands at more than €800 billion for the euro area as whole (see chart). Around 60 percent of these nonperforming loans stem from the corporate loan book.

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Era of Benign Neglect of House Price Booms is Over


Min ZhuBy Min Zhu

(Versions in  عربيEspañol, 日本語中文, Français, and Русский)

House prices are inching up.  But is this a cause for much cheer?  Or are we watching the same movie again? Recall how after a decade-long boom, house prices started to fall in 2006, first in the United States and then elsewhere, contributing to the 2008-9 global financial crisis. In fact, our research indicates that boom-bust patterns in house prices preceded more than two-thirds of the recent 50 systemic banking crises. Real Estate Boom.Chart1

While a recovery in the housing market (Figure 1) is surely a welcome development, we need to guard against another unsustainable boom. Housing is an essential sector of every country’s economy and has systemic implications, which is why we at the IMF are focusing on it not only in individual countries but on a cross-country basis.

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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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Stabilizing Ukraine


moghadamsmallBy Reza Moghadam

(Version in Русский and Español)

Even before geopolitical tensions unleashed currency flight, bank deposit withdrawals and surging risk premiums, Ukraine faced serious challenges. The crisis there has been years in the making, reflecting deep structural problems that left it vulnerable to periodic funding shortfalls and near the bottom of transition country league tables. Thus, any program to tackle the immediate crisis in Ukraine must inevitably come to grips with this legacy.

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Central, Eastern, and South-Eastern Europe: Safeguarding the Recovery as the Global Liquidity Tide Recedes


By Reza Moghadam, Aasim M. Husain, and Anna Ilyina

(Version in Türk)

Growth is gathering momentum in most of Central, Eastern, and South-Eastern Europe (CESEE) in the wake of the recovery in the euro area. Excluding the largest economies—Russia and Turkey—the IMF’s latest Regional Economic Issues report  projects the region to grow 2.3 percent in 2014, almost twice last year’s pace. This is certainly good news.

Figure 1

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