How to Exit the Danger Zone: IMF Update on Global Financial Stability


By José Viñals

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Since September of last year, risks to global financial stability have deepened, notably in the euro area.

However, over the past few weeks, markets have been encouraged by measures to provide liquidity to banks and sovereigns in the euro area. This recent improvement should not be taken for granted, as some sovereign debt markets remain under stress, and as bank funding markets are on life support from the European Central Bank (ECB).

Main sources of risk

Many of the root causes of the euro area crisis still need to be addressed before the system is stabilized and returns to health. Until this is done, global financial stability is likely to remain well within the “danger zone,” where a misstep or failure to address underlying tensions could precipitate a global crisis with grave economic and financial consequences.

Despite the recent improvements, sovereign financing stress has increased for many countries—with almost two-thirds of outstanding euro area bonds at spreads in excess of 150 basis points—and financing prospects are challenging. Markets remain very volatile and long-term foreign investors have sharply reduced their exposure to a number of euro area debt markets, including some in the core. Keeping these investors involved is essential to stabilizing markets.

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Global Growth Hits a Soft Patch


By Olivier Blanchard

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Today we’re in Sao Paulo, Brazil, to release our update to the IMF’s World Economic Outlook.

Despite a mild slowdown, the global economic recovery continues but the road to health will be a long one.  Downside risks, both old and new, are increasing.

Our world forecast is 4.3% growth for 2011, and 4.5% for 2012, so down by 0.1% for 2011, and unchanged for 2012, relative to April.  This figure hides very different performances for advanced economies on the one hand, and for emerging and developing economies on the other.  Continue reading

Nanjing and the New International Monetary System


By Dominique Strauss-Kahn

(Version in 中文)

I am delighted to be back in China this week for a high-level seminar in Nanjing on the international monetary system. Every time I come to this part of the world, I am impressed by the dynamism of the economies and the optimism of the people. The future is here.

The region’s economic performance over the past few decades has been nothing short of remarkable. Asia now accounts for about a third of the global economy, up from under just a fifth in 1980. This trend has been reinforced by the crisis, with the emerging market powerhouses leading the global recovery.

Asia has also made tremendous progress with poverty reduction. China alone has pulled hundreds of millions of people out of poverty over the past few decades. Such a feat has never before been accomplished in the history of human civilization.

But to sustain this progress, Asia needs to grapple with numerous challenges today, among them the need to deal with overheating pressures and volatile capital inflows. And this relates directly to our discussion at Nanjing. Continue reading

Continuing the Momentum—Asia’s Updated Economic Outlook


By Anoop Singh

Asia’s leadership of the global economic recovery is continuing unabated. And, even though heightened risks mean there may be tough times ahead again, the region is well equipped to handle them.

Asia’s remarkably fast recovery from the global financial crisis continued in the first half of 2010, despite the recent tensions in global financial markets. In fact, GDP growth in the first quarter was generally stronger than we anticipated in our Regional Economic Outlook in April. And high-frequency indicators suggest that Asian economic activity remained brisk in the second quarter. Even more notable, this is true both for economies that escaped a recession in 2009, thanks to their relatively larger domestic demand bases (China, Indonesia, and India), and for the more export-oriented economies such as Japan, the Newly Industrialized Economies (NIEs), and the rest of the ASEAN.

Two growth engines

What explains the strong economic momentum across the region? It is simple. The two “engines of growth” that spurred Asia’s recovery in 2009— exports and private domestic demand—have remained robust in 2010.

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Asia and the IMF: A Closer Engagement


By Anoop Singh

In just a few days’ time, the Korean government and the IMF will jointly host a high-level international conference in Daejeon, Korea. At the Fund, we are trying continually to enhance our strategic dialogue with Asia, and the conference is an important part of this effort.

Asia’s leadership of the global recovery is undeniable, as I have said in earlier blogs. And the extensive reforms and improved macroeconomic policy frameworks that underpinned the region’s remarkable resilience to the global crisis will see Asia’s successes continue. In just two short decades, we expect it to become the largest economic region in the world.

The Korea conference will be an opportunity to showcase Asia’s economic successes, and also highlight the importance of regional integration and cooperation, which has been growing rapidly in Asia.

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World Faces Serious New Economic Challenges


By Olivier J. Blanchard 

Let me begin with some good news. The global recovery has evolved better than expected.  We at the IMF now forecast global growth to reach 4.2% in 2010, an upward revision of 0.3% from our  January forecast, and 4.3% in 2011. Alongside growth, global trade has also shown a strong rebound, and so have capital flows.  And, as discussed in the newly released Global Financial Stability Report, financial market conditions and stability have improved.

These good global numbers hide however a more complex reality, namely a tepid recovery in many advanced economies, and a much stronger one in most emerging and developing economies.

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The Global Crisis and Emerging Europe: Why the Script Differs from the Asian Crisis


By Ajai Chopra

When the global financial crisis spread to emerging Europe in the last quarter of 2008, memories of the Asian crisis of the late 1990s sprang back to life. Would emerging Europe face the same chaotic currency depreciations, mass defaults of banks and companies, double-digit output losses and social unrest that beset several Asian countries back then?

Nine months into the crisis, it is clear that emerging Europe as a whole is not following Asia’s script. But it is also clear that the crisis is evolving differently across countries.

The Baltic countries (Estonia, Latvia and Lithuania) are suffering output declines that already exceed those of the Asian crisis (see chart below).

Chopra4Chart1

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