Posted on July 22, 2014 by iMFdirect
By John Bluedorn and Shengzu Wang
Since the financial crisis, the euro area current account, made up mostly of the trade balances of the individual countries, has moved from rough balance into a clear surplus. But the underlying rebalancing across economies within the euro area has been highly asymmetric, with some debtors, like Greece, Ireland, and Spain, seeing large current account improvements (sometimes into surplus), while creditors, like Germany and the Netherlands, have basically maintained their surpluses (Chart 1). A set of new staff papers look at the drivers of the improvements in debtor current accounts and the persistence of creditor current accounts, and whether these developments are a cause for concern.
Filed under: Advanced Economies, Economic Crisis, Employment, Europe, Financial Crisis, IMF, International Monetary Fund, Investment, Reform | Tagged: competitiveness, economic rebalancing, employment, euro area, Germany, Greece, inflation, Ireland, labor cost, lowflation, Netherlands, Spain, trade | Leave a comment »
Posted on July 21, 2014 by iMFdirect
By Min Zhu
(Versions in 中文)
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:
Filed under: Asia, Emerging Markets, Employment, Finance, Financial Crisis, Financial regulation, Globalization, growth, IMF, Inequality, International Monetary Fund, Investment | Tagged: Asian financial crisis, bond markets, China, financial services, income inequality, India, Indonesia, Japan, Korea, Min Zhu, population aging | Leave a comment »
Posted on July 17, 2014 by iMFdirect
Fiscal policy makers have faced an extraordinarily challenging environment over the last few years. At the outset of the global financial crisis, the IMF for the first time advocated a fiscal expansion across all countries able to afford it, a seeming departure from the long-held consensus among economists that monetary policy rather than fiscal policy was the appropriate response to fluctuations in economic activity. Since then, the IMF has emphasized that the speed of fiscal adjustment should be determined by the specific circumstances in each country. Its recommendation that in general deficit reduction proceed steadily, but gradually, positions the IMF between the fiscal doves (who argue for postponing fiscal adjustment altogether) and the fiscal hawks (who argue for a front-loaded adjustment).
All this is highlighted in a recently released book Post-Crisis Fiscal Policy, edited by Carlo Cottarelli, Philip Gerson and Abdelhak Senhadji, that brings together the analysis underpinning the IMF’s position on the evolving role of fiscal policy. The book underscores how the global financial crisis has reshaped our understanding of the role of fiscal policy with topics that include a historical view of debt accumulation; the timing, size, and composition of fiscal stimulus packages in advanced and emerging economies; the heated debate surrounding the size of fiscal multipliers and the effectiveness of fiscal policy as a countercyclical tool and more.
Check out this book, which is written for a wide audience, and watch the webcast of the book launch hosted by the Peterson Institute for International Economics on July 14 .
Filed under: Advanced Economies, Economic research, Emerging Markets, Finance, Financial Crisis, Fiscal policy, Globalization, IMF, International Monetary Fund | Tagged: book launch, debt, fiscal adjustment, fiscal policy, Fiscal Stimulus | Leave a comment »
Posted on July 14, 2014 by iMFdirect
By Reza Moghadam and Ranjit Teja
As inflation has sunk in the euro area, talk of quantitative easing (QE)—and misgivings about it—have soared. Some think QE is not needed; others that it would not work; and yet others that it only creates asset bubbles and may even be “illegal.” In its latest report on the euro area, the IMF assesses recent policy action positively but adds that “… if inflation remains too low, the ECB should consider a substantial balance sheet expansion, including through asset purchases.” Given all the reservations, would the juice be worth the squeeze?
Filed under: Advanced Economies, Economic Crisis, Economic research, Employment, Europe, Finance, growth, International Monetary Fund | Tagged: balance sheets, Bank of Japan, banks, bond markets, euro area, European Central Bank, Germany, inflation, quantitative easing, stock market | Leave a comment »
Posted on June 26, 2014 by iMFdirect
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).
Filed under: Economic Crisis, Economic outlook, Economic research, Emerging Markets, Employment, growth, International Monetary Fund, Latin America, Middle East | Tagged: balance sheets, commodiity prices, emerging market, employment, investment, structural reforms, trade | Leave a comment »
Posted on June 25, 2014 by iMFdirect
By 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.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Finance, Financial regulation, growth, IMF, International Monetary Fund, Investment, Reform | Tagged: corporate income tax, Cyprus, foreign direct investment, Hong Kong SAR, Luxembourg, Mauritius, Netherlands, spillover, tax, Tax Treaties | Leave a comment »
Posted on June 17, 2014 by iMFdirect
By Julian Chow and Shamir Tanna
(Versions in Español)
Much has been said lately about growing private sector debt in emerging market economies. In our recent analysis, we examined the corporate sector in a number of countries and found their rising levels of debt could make them vulnerable.
Low global interest rates in the aftermath of the global financial crisis and ample amounts of money pouring in from foreign investors have enabled nonfinancial corporations to raise record levels of debt.
Credit was readily available in the aftermath of the crisis, and economic expansion enabled earnings to grow healthily, thus helping to prevent leverage from rising too far and too fast. Recently though, slowing growth prospects are beginning to put pressure on firms’ profitability. Moreover, higher debt loads have led to growing interest expense, despite low interest rates. As a result, the ability of firms to service their debt has weakened (Figure 1).
Filed under: Debt Relief, Economic outlook, Economic research, Emerging Markets, Financial Crisis, growth, IMF, International Monetary Fund | Tagged: banking sector, credit, emerging market, exchange rate, interest rates, macroprudential policies, private sector | Leave a comment »
Posted on June 11, 2014 by iMFdirect
By Min Zhu
(Versions in عربي, Español, 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.
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.
Filed under: Advanced Economies, Economic Crisis, Emerging Markets, Financial Crisis, growth, IMF, International Monetary Fund, Investment | Tagged: Article IV, Australia, Belgium, Canada, Estonia, Global House Price Index, Hong Kong, house prices, housing market, income, Ireland, Korea, macroprudential policies, Min Zhu, Norway, Peru, Spain, Sweden, Thailand | Leave a comment »
Posted on June 9, 2014 by iMFdirect
By Sanjeev Gupta and Enrique Flores
The Finance Minister answers her mobile. On the line is the Minister of Energy, who informs her that the country has struck oil and that he expects revenues from its sale to start flowing into the budget in the coming four years. While excited by the prospects of higher revenues—indeed the average resource-rich country gets more than 15 percent of GDP in resource revenues—she starts to ponder how to use these revenues for her country’s development. She is aware that only in rare cases have natural resources served as a catalyst for development; too often they have led to economic instability, corruption, and conflict or what has been termed as “the resource curse.”
Filed under: Economic research, Finance, Financial regulation, Fiscal policy, growth, IMF, International Monetary Fund, Investment, Reform | Tagged: Alaska, budget, energy, income, income distribution, macroeconomics, natural resources, Nigeria, oil, resource wealth, subsidies, wealth | Leave a comment »