Posted on October 10, 2014 by iMFdirect
By Serkan Arslanalp, David Jones, and Sanjay Hazarika
Six years after the start of the global financial crisis, low interest rates and other central bank policies in the United States remain critical to encourage economic risk-taking—increased consumption by households, and greater willingness to invest and hire by businesses. However, this prolonged monetary ease also may have encouraged excessive financial risk-taking. Our analysis in the latest Global Financial Stability Report suggests that although economic benefits are becoming more evident, U.S. officials should remain alert to excessive financial risk-taking, particularly in lower-rated corporate debt markets.
Bullish financial risk-taking bears monitoring
Persistently low global interest rates have prompted investors to search for higher returns in a wide range of markets, such as stocks, and investment-grade and high-yield bonds. This has resulted in escalating asset prices, and enabled issuers to sell assets with a reduced degree of protection for investors (we give you an example below). The combined trends of more expensive assets and a weakening quality of issuance could pose risks to stability.
Filed under: Advanced Economies, Annual Meetings, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Finance, Financial Crisis, Fiscal policy, Globalization, IMF, International Monetary Fund, Investment | Tagged: banking system, corporate debt, emerging market, Global Financial Stability Report, interest rates, U.S. Fed, United States | Leave a comment »
Posted on September 30, 2014 by iMFdirect
By Abdul Abiad, Davide Furceri, and Petia Topalova
Infrastructure is the backbone of well-functioning economies. Unfortunately, that backbone is becoming increasingly brittle in a number of advanced economies. For example, there has been a decline in the overall quality of infrastructure in the United States and Germany (Figure 1; see the FT 2014 and ASCE 2013 for more in infrastructure in the U.S., and Der Speigel 2014 and Kunert and Link 2013 for Germany). In many emerging market and developing economies, the expansion of the backbone has not kept pace with the broader economy, and this is stunting the ability of these economies to grow.
Filed under: Advanced Economies, Economic outlook, Economic research, Emerging Markets, growth, International Monetary Fund, Investment, Public debt, Reform | Tagged: Brazil, emerging market, Germany, India, infrastructure, investment, Macroeconomic policies, public investment, South Africa, taxes, the Philippines, United States, World Economic Outlook | 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 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 April 14, 2014 by iMFdirect
By IMFdirect editors
Socrates’ famous method to develop his students’ intellect was to question them relentlessly in an unending search for contradictions and the truth—or at the very least, a great quote.
The method was alive and well among the moderators, panelists and audiences of the IMF’s Spring Meetings seminars that took place alongside official discussions, where boosting high-quality growth, with a focus on the medium term, was at the top of the agenda. Our editors fanned out and found a couple of big themes kept coming up. Here are some of the highlights.
Lots of people are talking about what happens when the flood of easy money into emerging markets thanks to low interest rates in advanced economies like the United States slows even more than it has in the past year.
At a seminar on fiscal policy the discussion focused on the challenges facing policymakers as central banks slowly exit from unconventional monetary policy and interest rates begin rising.
A live poll of the audience found 63 percent said the global economy remains weak and unconventional monetary policies should remain in place.
Filed under: Advanced Economies, Africa, Annual Meetings, Asia, Economic outlook, Emerging Markets, Financial Crisis, Fiscal policy, Globalization, IMF, Inequality, International Monetary Fund, Politics, Public debt | Tagged: Chile, Christine Lagarde, emerging market, Federal Reserve, global economy, growth, income inequality, macroprudential policies, Olivier Blanchard, Oxfam, Program of Seminars, Reserve Bank of India, Spring Meetings, United Kingdom | 1 Comment »
Posted on April 3, 2014 by iMFdirect
By Aseel Almansour, Aqib Aslam, John Bluedorn and Rupa Duttagupta
(Version in Español, Français, Русский, 中文 and 日本語)
The recent slowdown in emerging market growth is fueling a growing mania across markets and policy circles. Some worry that a large part of their stellar pace of growth over the 2000s (Figure 1) was due to a favorable external environment—cheap credit and high commodity prices. And, therefore, as advanced economies gather momentum now and begin to normalize their interest rates, and commodity price gains begin to reverse, emerging market growth could slip further.
Others instead contend that internal or domestic factors have played a role, with improved standards of governance and genuine structural reforms and robust policies, driving a fundamental transformation in the sources of emerging market growth towards a lower yet more sustainable trajectory.
Filed under: Advanced Economies, Asia, Economic outlook, Economic research, Emerging Markets, Financial Crisis, growth, International Monetary Fund, Latin America | Tagged: Chile, China, emerging market, forecast, India, interest rates, Malaysia, Mexico, Thailand, United States, WEO | Leave a comment »
Posted on April 1, 2014 by iMFdirect
By Aseel Almansour, Aqib Aslam, John Bluedorn and Rupa Duttagupta
Emerging markets have grown at a remarkable pace through most of the 2000s. They even rebounded strongly from the Great Recession, notwithstanding the sluggishness in advanced economies. Easy global financial conditions, rising commodity prices and beneficial terms of trade potentially compensated for weak external demand from the advanced economies.
But now, emerging market growth, while still strong, has begun to slow. This oddly coincides with an outlook for advanced economies that is improving, even if gradually. So what’s behind this dichotomy?
Emerging markets are adjusting to changes in the external environment. On the one hand, the incipient recovery in advanced economies is helping emerging markets, including through higher exports. On the other hand, the favourable external financing conditions are now beginning to reverse, implying a tougher financial environment for emerging markets. Then you have domestic factors, which appear to have pulled down growth in some emerging markets (see also IMF blog post on January 22, 2014, and December 18, 2013).
Filed under: Advanced Economies, Asia, Economic outlook, Economic research, Emerging Markets, Financial Crisis, growth, International Monetary Fund | Tagged: China, emerging market, Great Recession, WEO, World Economic Outlook | Leave a comment »