The Quest for Robust and Synchronized Growth

Maurice Obstfeld2By Maurice Obstfeld

Today, we released the October 2015 World Economic Outlook.

Our forecasts come at a moment when the world economy is at the intersection of at least three powerful forces.

First, China’s economic transformation – away from export- and investment-led growth and manufacturing, in favor of a greater focus on consumption and services. This process, however necessary and healthy in the longer term, has near-term implications for China’s growth and its relations with its trade partners.

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Managing China’s Economic Transition

Changyong RheeBy Changyong Rhee

(Version in 中文 and Español)

From advanced economy financial markets to developing country commodity producers, the world has closely followed developments in China in recent months. After 35 years of extraordinarily rapid growth, the Chinese economy is undergoing a major transition from export-led growth to a model increasingly driven by consumption and services, with less emphasis on debt-financed public investment.

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With China Slowing, Faster Reforms Critical to Generate Jobs

By W. Raphael Lam, Xiaoguang Liu, and Alfred Schipke         

(Version in 中国)            

China is moving toward a “new normal” of safer and more sustainable growth.  To this end, ensuring its labor market stays resilient will be critical.  Reforms to contain vulnerabilities caused by buildup of credits may temporarily slow growth, and raise the unemployment rate, but supported through a strong safety net, these reforms will raise productivity, and facilitate more sustainable growth.

Despite the slowdown of the past few years, however, China’s labor market has remained resilient.  Efforts to maintain labor market stability are paying off, helped by an expanding services sector.

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Metals and Oil: A Tale of Two Commodities

By Rabah Arezki and Akito Matsumoto

(Version in Español)

“It was the best of times, it was the worst of times.” With these words Charles Dickens opens his novel “A Tale of Two Cities”. Winners and losers in a “tale of two commodities” may one day look back with similar reflections, as prices of metals and oil have seen some seismic shifts in recent weeks, months and years.

This blog seeks to explain how demand — but also supply and financial market conditions — are affecting metals prices. We will show some contrast with oil, where supply is the major factor. Stay tuned for a deeper analysis of the trends in a special commodities feature, which will be included in next month’s World Economic Outlook.

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From Windfall to Windmill: Harnessing Asia’s Dynamism for Latin America

By Andre Meier and Fabiano Rodrigues Bastos

(Versions in Español and Português)

Latin America’s recent economic fortunes highlight the region’s closer economic ties with Asia. China, in particular, has grown into a crucial source of demand for Latin American commodities over the past two decades, providing significant gains to the region. The flip side is that the ongoing structural slowdown of Chinese investment is weighing considerably on the prices of those commodities, and the countries that export them.

But Asia can be much more than just a source of episodic windfall gains (and losses) for Latin America. Like a windmill, Asia could help to power a stronger Latin American economy—by providing an example of successful regional trade integration and through greater direct links across the Pacific that benefit both sides. However, securing these benefits will require clear and realistic objectives, a long-term strategy, and attention to the political and social implications of greater economic integration. 

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Act Local, Solve Global: The $5.3 Trillion Energy Subsidy Problem

By Benedict Clements and Vitor Gaspar

(Versions in 中文, Français日本語Русский and Español)

US$5.3 trillion; 6½ percent of global GDP—that is our latest reckoning of the cost of energy subsidies in 2015. These estimates are shocking. The figure likely exceeds government health spending across the world, estimated by the World Health Organization at 6 percent of global GDP, but for the different year of 2013. They correspond to one of the largest negative externality ever estimated. They have global relevance. And that’s not all: earlier work by the IMF also shows that these subsidies have adverse effects on economic efficiency, growth, and inequality.

What are energy subsidies

We define energy subsidies as the difference between what consumers pay for energy and its “true costs,” plus a country’s normal value added or sales  tax rate. These “true costs” of energy consumption include its supply costs and the damage that energy consumption inflicts on people and the environment. These damages, in turn, come from carbon emissions and hence global warming; the health effects of air pollution; and the effects on traffic congestion, traffic accidents, and road damage. Most of these externalities are borne by local populations, with the global warming component of energy subsidies  only a fourth of the total (Chart 1).

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Managing Capital Flows in Frontier Economies

By Jonathan D. Ostry, Atish R. Ghosh, and Mahvash S. Qureshi 

There has been a remarkable increase in financial flows to frontier economies from private sources which, in relation to their economic size, are now on par with those to emerging economies (see chart).

Ostry Capital Flows

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