Turkey’s Recipe to Escape the Middle-Income Trap


By Gregorio Impavido and Uffe Mikkelsen

(Version in Türk)

Turkey is going through a time of economic transition, with slowing growth that risks the country being caught in a “middle-income trap,” unable to join the ranks of high income economies. 

The country grew at 6 percent per year on average in the period 2010-13, with policies supportive of domestic consumption. This has generated a large current account deficit, mostly financed by short-term capital flows. The reliance on consumption at the expense of investment, slow export growth, and sizable investment needs have hurt potential growth, with the economy already growing more modestly. Moreover, Turkey’s low domestic savings and competitiveness challenges have limited investment as well as exports, which have also suffered from the slow growth in Europe.

With current policies, Turkey’s economy is expected to grow only 3.5 percent annually over the next five years. Going forward, the economy must be rebalanced to make it more competitive and to restore output and employment growth.

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25 Years of Transition


By iMFdirect

What a difference 25 years can make. The fall of the Berlin Wall on November 9, 1989 was  a day that changed world history and transformed Europe.

Central and Eastern Europe embarked on a historic transition from communism to capitalism and democracy. We thought this landmark anniversary was a good time to look back at the achievements and also forward to the future, as we do in a new IMF report on 25 Years of Transition. The IMF’s First Deputy Managing Director David Lipton also gave a recent speech in Warsaw, Poland on this important chapter in history.

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Aristotle & the Archbishop of Canterbury: Overheard at the IMF’s Annual Meetings


By iMFdirect editors

What a week it’s been.  Practical and existential questions on how to do good and be good for the sake of the global economy and finance dominated the seminars at the IMF’s Annual Meetings in Washington.

Our editors fanned out to cover what the panelists, moderators, and audiences said in a variety of seminars, and two big themes caught our eye.

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The New Global Imbalance: Too Much Financial Risk-Taking, Not Enough Economic-Risk Taking


GFSR By José Viñals

(Versions in Español中文)

I have three key messages for you today:

1. Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.

2. Banks are safer but may not be strong enough to vigorously support the recovery. And risks are shifting to the shadow banking system in the form of rising market and liquidity risks. If left unaddressed, these risks could compromise global financial stability.

3. In order to address this new global imbalance, we must promote economic risk-taking by improving the transmission of monetary policy to the real economy. And we must address financial excesses through better micro- and macroprudential policies.

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Back-to-School Blogs


By iMFDirect

As you trudge back to the office or cubie with a little sand still crunching in your backpack, you know the holiday is over. To help you catch up, here are some blogs to re-read to get you back into the swing of things.

Remember Europe? I thought so. The European Central Bank is center stage this week as inflation in Europe has hit a trough, which reminded me of our blog about deflation back in March that rattled a few cages.

Which brings us to what will or won’t happen with global interest rates, and their impact on well, pretty much everyone. We’ve analyzed the tea leaves so you don’t have to.

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Global Financial Stability: Beginning To Turn The Corner


GFSRBy José Viñals

(Version in  EspañolFrançaisРусский中文 and 日本語)

 

Global financial stability is improving—we have begun to turn the corner.

But it is too early to declare victory as there is a need to move beyond liquidity dependence—the central theme of our report—to overcome the remaining challenges to global stability.

Progress

We have made substantial strides over the past few years, and this is now paying dividends.  As Olivier Blanchard discussed at yesterday’s press conference of the World Economic Outlook, the U.S. economy is gaining strength, setting the stage for the normalization of monetary policy.

In Europe, better policies have led to substantial improvements in market confidence in both sovereigns and banks.

In Japan, Abenomics has made a good start as deflationary pressures are abating and confidence for the future is rising. And emerging market economies, having gone through several recent bouts of turmoil, are adjusting policies in the right direction.

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Euro Area — “Deflation” Versus “Lowflation”


By Reza Moghadam, Ranjit Teja, and Pelin Berkmen

Recent talk about deflation in the euro area has evoked two kinds of reactions. On one side are those who worry about the associated prospect of prolonged recession. On the other are those who see the risk as overblown. This blog and the video below sift through both sides of the debate to argue the following:

  • Although inflation—headline and core—has fallen and stayed well below the ECB’s 2% price stability mandate, so far there is no sign of classic deflation, i.e., of widespread, self-feeding, price declines.
  • But even ultra low inflation—let us call it “lowflation”—can be problematic for the euro area as a whole and for financially stressed countries, where it implies higher real debt stocks and real interest rates, less relative price adjustment, and greater unemployment.
  • Along with Japan’s experience, which saw deflation worm itself into the system, this argues for a more pre-emptive approach by the ECB.

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