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 April 29, 2014 by iMFdirect
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.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Employment, Europe, Financial Crisis, growth, IMF, International Monetary Fund | Tagged: Albania, Austria, Belarus, Bosnia, Bulgaria, Central Europe, Croatia, Czech Republic, Estonia, euro area, Hungary, Kosovo, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Regional Economic Outlook: Europe, Romania, Russia, Serbia, Slovak Republic, Slovenia, spillovers, Turkey, U.S. Fed, Ukraine | Leave a comment »
Posted on September 10, 2012 by iMFdirect
By Bas B. Bakker and Christoph Klingen
With all eyes on the euro area, it is easy to forget that only a few years ago the emerging economies of Europe, from the Baltic to the Black Sea, went through a deep economic and financial crisis. This crisis is the topic of a new book that we will introduce to the public this week in Bucharest, London, and Vienna.
One lesson is that your best chance to prevent deep crises is forcefully addressing booms before they get out of hand. Another is that even crises that look abysmal can be contained and overcome— policies to adjust the economy and international financial support do work.
In the half decade leading up to the crisis, easy global financial conditions, confidence in a rapid catch-up with western living standards, and initially underdeveloped financial sectors spawned a tremendous domestic demand boom in the region. Western banking groups bankrolled the bonanza, providing their eastern subsidiaries with the funds to extend the loans that fueled the domestic boom. Continue reading
Filed under: Economic Crisis, Emerging Markets, Europe, International Monetary Fund, Public debt | Tagged: Baltics, Bucharest, Bulgaria, credit growth, crisis, debt, economic growth, emerging economies, Estonia, euro area, Europe, London, non-performing loans, Poland, Vienna Initiative | 9 Comments »
Posted on July 27, 2012 by iMFdirect
by Nemat Shafik
Central, Eastern and Southeastern Europe has been through a lot. In two short decades, the region moved from a communist planned system to a market economy, and living standards have converged towards those in the West.
It has also weathered major crises: first the break-up of the old Soviet system in the early 1990s, then the Russian financial crisis in 1998, and finally the recent global economic crisis. How did these countries do it?
From the Baltic to the Balkans, the region’s resilience and flexibility are the result of hard work and adaptability. But more than anything, it is the strong institutions built over the last two decades that have enhanced the region’s ability to deal with the momentous challenges of the past, the present—and those to come.
Filed under: Economic Crisis, Emerging Markets, Europe, Financial Crisis, IMF, International Monetary Fund, Multilateral Cooperation | Tagged: capacity building, communism, eastern Europe, Estonia, euro zone, global economic crisis, governance, grwoth, Hungary, IMF, International Monetary Fund, Joint Vienna Institute, Latvia, living standards, Nemat Shafik, Poland, privatization, Romania, technical assistance, trade liberalization, Ukraine, Vienna Initiative | Leave a comment »
Posted on June 13, 2012 by iMFdirect
By Bas Bakker and Christoph Klingen
With Western Europe’s banks under pressure, where does this leave Europe’s emerging economies and their financial systems that are dominated by subsidiaries of these very same banks? There is little doubt that the era of generous parent-funding for subsidiaries is over. But parent bank deleveraging—selling off assets, raising capital, and reducing loans, including to their subsidiaries—need not translate into a reduction of bank credit in emerging Europe.
A credit crunch can be avoided as long as parent banks reduce exposures gradually and domestic deposits, other banks, and local financial markets fill the void. Policymakers should create the conditions for this to happen.
The ties that bind
The dependence of the banking systems in emerging Europe on Western European banks is well known:
- Ownership— foreign banks control more than half of the banking systems in most of Central, Eastern, and Southeastern Europe. Their share exceeds 80 percent in Bosnia, the Czech Republic, Croatia, Estonia, Romania, and Slovakia. Only in Russia, Ukraine, Belarus, Moldova, Slovenia, and Turkey do they not dominate.
Filed under: Advanced Economies, Economic Crisis, Emerging Markets, Europe, Finance, growth, IMF, International Monetary Fund | Tagged: balance of payments, bank deposits, bank resolution, bank supervisors, banks, Bas Bakker, Belarus, Bosnia, capital, Christoph Klingen, credit, crisis, Croatia, cross-border banks, Czech Republic, debt, deleveraging, deposits, eastern Europe, emerging economies, Estonia, Europe, European Central Bank, financial system, foreign banks, Hungary, IMF, liqudity, Moldova, non-performing loans, policymakers, Romania, Russia, Slovakia, Slovenia, subsidiaries, Turkey, Ukraine, Vienna 2.0 | 2 Comments »
Posted on June 1, 2012 by iMFdirect
By Mark Griffiths
Latvia, a nation of about 2.2 million people bordering the Baltic Sea, went through the most extreme boom-bust cycle of the emerging market countries of Europe, and was among the first to ask for financial assistance from the international community.
Back in the dark days of December 2008, many doubted that Latvia—which joined the European Union in 2004 together with its Baltic neighbors Estonia and Lithuania—would be able to stick to the tough economic program it had just agreed with the IMF and the European Union. But it did. Against the odds, it successfully completed its IMF-supported program in December 2011.
Over the past three years, I have worked closely with the Latvian authorities in my capacity as IMF mission chief. Worked with them—but learnt from them too.
A successful comeback
Today, Latvia is one of the fastest growing economies in the European Union. Real GDP grew by 5½ percent in 2011, and is now projected to expand by 3½ percent in 2012, a number that possibly will come out even higher.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Europe, Financial Crisis, growth, IMF, Inequality, International Monetary Fund, Politics, Public debt, recession | Tagged: Baltics, Christine Lagarde, Estonia, euro, Giancarlo Corsetti, IMF, Jörg Asmussen, Latvia, Lithuania, Olivier Blanchard, Olli Rehn, the Bank of Latvia, Valdis Dombrovskis | 1 Comment »
Posted on April 6, 2012 by iMFdirect
By Mauricio Soto
We’re all getting older, and there’s no doubt that pension reform is a hot topic in the advanced economies. But it’s also critical in emerging economies.
Our analysis here at the IMF shows that across emerging economies pension spending is projected to rise as the population ages. On average, these spending increases are not that large. But reforms are needed to increase coverage of the system without making pension systems financially unsustainable over the long term.
In emerging Europe, we’ve seen how pension spending has increased from 7½ to 9 percent of GDP over the past two decades. Spending also increased rapidly in other emerging economies—albeit from much lower levels—going from 2 to 3 percent of GDP over the same period. It seems the relatively low spending in emerging economies outside Europe reflects relatively low coverage (generally only those in the formal sector are eligible) and younger populations.
Populations are aging rapidly in the emerging economies. As illustrated in Chart 1, a rather grim picture is developing where we see that the ratio of elderly to working population will more than double in the next four decades. In the future, there will be many more retirees consuming what fewer workers will produce.
Filed under: Africa, Emerging Markets, Europe, Finance, growth, Inequality, Latin America, Middle East, Public debt | Tagged: Asia, Bulgaria, Chile, Estonia, Hungary, pensions, Poland, retirement, spending | 11 Comments »
Posted on January 7, 2011 by iMFdirect
By Christoph Rosenberg
Two years ago, the eyes of the financial world were not on Europe’s Western periphery but on its North-Eastern corner. The three Baltic states—Estonia, Latvia and Lithuania—were among the first victims of the global financial crisis.
After a spectacular boom, with several years of Chinese-style growth rates, these small and open economies faced an equally spectacular bust. Credit―and with it property prices, consumption, and investment―collapsed. Exports were hit by the global depression. And the financial sector came under severe stress. Indeed, Latvia was forced to nationalize its largest domestic bank and had to ask for a bailout from the European Union and the IMF.
The conventional wisdom at the time was that these three countries would have to give up their long-standing currency pegs against the euro and devalue. After all, this is what countries facing a trade and financial shock most often choose to do.
Filed under: Economic Crisis, Emerging Markets, Employment, Europe, Fiscal Stimulus | Tagged: bailout, Baltics, banks, crisis, currency, Estonia, EU, euro, euro area, Europe, European Union, eurozone, growth, Ilmars Rimsevics, IMF, Ingrida Simonyte, jobs, Jurgen Ligi, Latvia, Lithuania, loan, markets, meltdown, recovery, unemployment | 11 Comments »
Posted on February 24, 2010 by iMFdirect
By Marek Belka
(Version in ελληνικά)
Let’s think now about some of the lessons from the global economic crisis for Europe’s policymakers. In my previous five blogs, I’ve discussed the challenges faced by both advanced and emerging European economies as we emerge from the acute phase of the crisis. The questions I attempted to answer have included: In what shape and form will European integration survive the crisis? Will eastern Europe be able to sustain its remarkable catching up with living standards in western Europe?
For my final blog in this series on iMFdirect, I have decided to add a personal touch and draw on my experience as a former policymaker. So while this article builds on the previous five posts, it goes beyond them and includes some highly subjective comments on what lessons I believe the reformers in eastern Europe should take away from the crisis. And, although my primary focus is on countries outside the eurozone, it is clear that the eurozone will need to address long-term challenges, as I pointed out in my post After the Crisis, Much Still at Stake for Eurozone.
Filed under: Economic Crisis, Emerging Markets, Europe, Financial Crisis, growth, IMF | Tagged: banks, capital controls, capital flows, crisis lessons, Czech Republic, Estonia, eurozone, Marek Belka, Poland, Romania | 1 Comment »
Posted on February 10, 2010 by iMFdirect
By Marek Belka
As the deep recession in Europe’s emerging market countries finally comes to an end, the question on everyone’s minds is where growth in the region will come from in the years ahead. Exports are rebounding, and domestic demand is showing signs of stabilization. Most countries will see positive GDP growth this year—a stark difference from 2009. But a return to the high growth rates that preceded the crisis is highly unlikely.
An unbalanced picture
During the boom years, Eastern Europe grew rapidly, but growth in many countries was rather unbalanced. Capital inflows were large, but to a great extent went to the “non-tradable” sector—in particular, real estate, construction, and banking. Capital flows boosted domestic demand rather than supply—leading to a surge in imports, current account deficits that widened to unprecedented levels, and overheating economies.
This kind of growth will not come back. The domestic demand boom came to an end in the fall of 2008. In the global financial turmoil that followed the demise of Lehman Brothers, capital flows to Eastern Europe plunged, leading to a sharp decline in domestic demand. Further exacerbated by a decline in exports, this contributed a deep economic downturn—in the Baltics and Ukraine, GDP declined between 14 and 19 percent last year.
Filed under: Economic Crisis, Emerging Markets, Europe, Financial Crisis, growth, recession | Tagged: Baltics, banking, Bulgaria, capital flows, construction, Czech Republic, Estonia, exports, labor force, Latvia, Lithuania, real estate, Romania, Slovak Republic, Ukraine | Leave a comment »