Financial Risks Rise Amid Uneven Global Economic Recovery


GFSR

By José Viñals

(Versions in عربي and Español)

The three main messages from this Global Financial Stability Report are:

  1. Risks to the global financial system have risen since October and have rotated to parts of the financial system where they are harder to assess and harder to address.
  2. Advanced economies need to enhance the traction of monetary policies to achieve their goals, while managing undesirable financial side effects of low interest rates.
  3. To withstand the global crosscurrents of lower oil prices, rising U.S. policy rates, and a stronger dollar, emerging markets must increase the resilience of their financial systems by addressing domestic vulnerabilities.

Let me now discuss these findings in detail. 

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Four Forces Facing the Global Economy


WEOBy Olivier Blanchard 

(Versions in عربي and Español)

In our April 2015 World Economic Outlook, we forecast global growth to be roughly the same this year than last year, 3.5% versus 3.4%.   This global number reflects an increase in growth in advanced economies, 2.4% versus 1.8%, offset by a decrease in growth in emerging market and developing economies, 4.3% versus 4.6% last year.   In short, to repeat the words used by the IMF Managing Director last week, we see growth as “moderate and uneven”.

Behind these numbers lies an unusually complex set of forces shaping the world economy.  Some, such as the decline in the price of oil and the evolution of exchange rates, are highly visible.  Some, from crisis legacies to lower potential growth, play more of a role behind the scene but are important nevertheless.  Let me briefly review them.

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Making Small Beautiful Again: The Challenge of SME Problem Loans in Europe


By Yan Liu, Kenneth Kang, Dermot Monaghan, and Wolfgang Bergthaler

Six years after the global financial crisis, Europe continues to be weighed down by high levels of corporate debt and millions of nonperforming loans. Small and medium-sized enterprises (SMEs) bear a disproportionately heavy burden. Their nonperforming loan ratios are on average more than double those of their larger corporate cousins. This is worrisome. SMEs are the lifeblood of the European economy, comprising 99 percent of all businesses and employing nearly two of every three workers in Europe. Given the importance of smaller businesses to the economy, addressing their problem loans could lay the foundation for a more robust and sustainable economic recovery.

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Investment in the Euro Area: Why Has It Been So Weak?


By Bergljot Bjørnson BarkbuS. Pelin Berkmen, and Hanni Schölermann

Investment in the euro area, and particularly private investment, has not recovered since the onset of the global financial crisis.

In fact, the decline in investment has been much more drastic than in other financial crises; and is more in line with the most severe of these crises (see Chart 1). The October 2014 World Economic Outlook showed that many governments cut investment because their finances became strained during the crisis. In addition, housing investment collapsed in some countries, reflecting a natural scaling back after an unsustainable boom. But what is holding back private non-residential investment?

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Battling Global Unemployment: Too Soon to Declare Victory


Prakash LounganiBy Prakash Loungani

(Version in Français and Español)

Seven years after the onset of the Great Recession, the global unemployment rate has returned to its pre-crisis level: the jobless rate fell to 5.6% in 2014; essentially the same as in 2007, the year before the recession (chart 1, left panel).

Global Unemployment 1

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Acting Collectively: A Better Way to Restructure Government Debt


By Sean Hagan 

(version in Español)

To restructure or not to restructure? That is a question few governments would like to face. Yet, if a country does find itself with an unsustainable debt burden, one way or another, it will have to be restructured. And if that time comes, it is better for the debtor, creditors, and the entire financial system that the restructuring be carried out in a prompt, predictable, and orderly manner.

The global financial crisis ushered in a new wave of sovereign debt crises that has reinvigorated discussions over the current framework for sovereign debt restructuring. The experience with Greece’s debt restructuring in 2012 and the ongoing litigation involving Argentina, in particular, provide a salutary reminder that vulnerabilities remain.

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Euro Area: An Unbalanced Rebalancing?


By John Bluedorn and Shengzu Wang

Since the financial crisis, the euro area current account, made up mostly of the trade balances of the individual countries, has moved from rough balance into a clear surplus. But the underlying rebalancing across economies within the euro area has been highly asymmetric, with some debtors, like Greece, Ireland, and Spain, seeing large current account improvements (sometimes into surplus), while creditors, like Germany and the Netherlands, have basically maintained their surpluses (Chart 1). A set of new staff papers look at the drivers of the improvements in debtor current accounts and the persistence of creditor current accounts, and whether these developments are a cause for concern.

Euro Area Current Account.Chart1

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