Europe’s Economic Outlook


moghadamsmallBy Reza Moghadam

Economic growth across Europe is slowly picking up, which is good news. But the recovery is still modest and measures to boost economic growth and create jobs are important.

Western Europe: picking up the pace

The recovery projected last October for the euro area has solidified. This is reflected in our revised forecasts—e.g., the 2014 forecast for the euro area is up from 1 percent last October to 1.2 percent now, with important upgrades in countries like Spain. These revisions reflect the stronger data flow on the back of past policy actions, the revival of investor confidence, and the waning drag from fiscal consolidation. The positive impact on program countries is palpable—improving economies, lower spreads, and evidence of market access. We’ve also seen a welcome pick-up in growth in the UK (almost 3 percent is expected for 2014).

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As Demand Improves, Time to Focus More on Supply


2010 WEO BLANCHARD By Olivier Blanchard

(Version in  FrançaisEspañol, Русский, عربي中文  and 日本語)

The dynamics that were emerging at the time of the October 2013 World Economic Outlook are becoming more visible. Put simply, the recovery is strengthening.

In our recent World Economic Outlook, we forecast world growth to be 3.6 percent this year and 3.9 percent next year, up from 3.0 percent last year.

In advanced economies, we forecast growth to reach 2.2 percent in 2014, up from 1.3 percent in 2013.

The recovery which was starting to take hold in October is becoming not only stronger, but also broader.  The various brakes that hampered growth are being slowly loosened.   Fiscal consolidation is slowing, and investors are less worried about debt sustainability. Banks are gradually becoming stronger. Although we are far short of a full recovery, the normalization of monetary policy—both conventional and unconventional—is now on the agenda.

Brakes are loosened at different paces however, and the recovery remains uneven.

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The Evolution of Monetary Policy: More Art and Less Science


By Giovanni Dell’Ariccia and Karl Habermeier

The global financial crisis shook monetary policy in advanced economies out of the almost complacent routine into which it had settled since Paul Volcker’s Fed beat inflation in the United States in the early 1980s.

Simply keep inflation low and stable, target a short-term interest rate, and regulate and supervise financial institutions, the mantra went, and all will be well.

Of course many scholars and policymakers, especially in emerging markets, were skeptical of this simple creed. But they did not make much headway against a doctrine seemingly well-buttressed by sophisticated theoretical models, voluminous empirical research, and over 20 years of “Great Moderation” —low inflation and output volatility. All of that has changed since the crisis, and ideas that were once marginal have now moved to center stage.

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Unleashing Brazil’s Growth


By Martin Kaufman and Mercedes García-Escribano

(Version in Español and Português)

Since the early 2000s, Brazil’s economy has grown at a robust clip, with growth in 2010 reaching 7.5 percent—its strongest in a quarter of a century. A key pillar of its hard-won economic success has been sound economic policies and the adoption of far-reaching social programs, which resulted in a substantial decline in poverty.

In the last couple of years Brazil’s growth slowed down. Although other emerging market economies experienced a similar slowdown, the growth outturns in Brazil were particularly disappointing. And the measures taken to stimulate the economy did not produce a sustained recovery. This is because unleashing sustained growth in Brazil requires measures geared not at stimulating domestic demand but at changing the composition of demand towards investment and at increasing productivity.

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Rethinking Macroeconomic Policy


blanchBy Olivier Blanchard

(Versions in عربي中文FrançaisРусский, and Español)

The IMF has just hosted a second conference devoted to rethinking macroeconomic policy in the wake of the crisis. After two days of fascinating presentations and discussions, I am certain of one thing:  this is unlikely to be our last conference on the subject.

Rethinking and reforms are both taking place.  But we still do not know the final destination, be it for the redefinition of monetary policy, or the contours of financial regulation, or the role of macroprudential tools. We have a general sense of direction, but we are largely navigating by sight.

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Top 20 — iMFdirect’s Top 20 list


Three years after the launch of iMFdirect as a forum for discussing economic issues around the world, we look back at some of our most popular posts.

The IMF blog has helped stimulate considerable debate about economic policy in the current crisis, on events in Europe and around the world in Asia, Africa, Latin America, and the Middle East, on fiscal adjustment, on regulating the financial sector, and the future of macroeconomics–as economists learn lessons from the Great Recession.

As readers struggled to understand the implications of the crisis, our most popular post by far was IMF Chief Economist Olivier Blanchard’s Four Hard Truths, a look back at 2011 and the economic lessons for the future.

Here’s our Top 20 list of our most popular posts by subject (from more than 300 posts):

1.  Global Crisis: Four Hard Truths; Driving With the Brakes On

2.  Financial Stability: What’s Still to Be Done?

3.  Fiscal Policy:  Ten Commandments ; Striking the Right Balance

4.  Macroeconomic Policy: Rewriting the Playbook;  Nine Tentative Conclusions ; Future Study

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Closer, Ever Closer


By Anoop Singh

(Version in 中文)

Here’s the good news: thanks to relatively strong fundamentals and good policies,  Asian economies have coped well with the global market turbulence of recent years. Now the bad: a major financial shock—say, of type ignited by the bankruptcy of U.S. investment bank Lehman Brothers in 2008—is likely to have a substantial impact on Asia.  The reason: Asia’s increasing financial interconnectedness.

Over the past two decades—in line with the region’s growing role in the global economy—Asia’s equity markets have become increasingly sensitive to global financial developments.   More specifically, we have discovered that equity returns in Asia generally now move in tandem with those in systemic economies.  (By systemic economies, we are talking here about those countries—such as the United States and the United Kingdom which are home to major, global, financial centers such as Wall Street and the City of London.)

How do we measure that degree of financial interconnectedness?  Or put another way, how do we measure the relationship—if any—between those Asian equity returns and the performance of systemic economies?

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Keeping Asia from Overheating


By Anoop Singh

Asia’s vigorous pace of growth has seen the region play a leading role in the global recovery. But, there are also now growing signs of price pressure across the region’s goods and asset markets.

Headline inflation in Asia has accelerated since October 2010, mainly owing to higher commodity prices. There are, of course, variations in how much this has affected inflation across Asia, partly reflecting differences in the shares of food and energy items in expenditures.

But there are signs that higher commodity prices are spilling over to a more generalized increase in inflation. Continue reading

Rethinking Economic Principles: Join the Debate


By iMFdirect

The global financial crisis caused immense hardship and suffering all over the world. To prevent a repeat, we need to rethink…

… what we know about economic theory …. We need to rethink, following this, the policies … coming from the analytical work. And then we will need also to rethink multilateralism.

IMF Managing Director Dominique Strauss-Kahn (April 16, 2011)

A wholesale reexamination of macroeconomic principles in the wake of the crisis was the goal of a conference at the IMF in early March.

But, for Olivier Blanchard and others, the conference was merely “the beginning of a conversation, the beginning of an exploration.”

Here is our list of recommended reads to help you be part of the conversation. Continue reading

South Africa’s Unemployment Puzzle


By Abebe Aemro Selassie

Among the havoc wrought by the global financial crisis, unemployment ranks at the top. This discussion often focuses on the situation in advanced countries. Unemployment in the United States, for example, continues to hover around 9 percent.

Take that and double it. Then you can begin—yes, just begin—to get a sense of the magnitude of the problem in South Africa. Unemployment in South Africa now stands at some 24 percent. Youth unemployment is phenomenally higher still at some 50 percent. Continue reading

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