Toughing It Out: How the Baltics Defied Predictions


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.

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World Faces Serious New Economic Challenges


By Olivier J. Blanchard 

Let me begin with some good news. The global recovery has evolved better than expected.  We at the IMF now forecast global growth to reach 4.2% in 2010, an upward revision of 0.3% from our  January forecast, and 4.3% in 2011. Alongside growth, global trade has also shown a strong rebound, and so have capital flows.  And, as discussed in the newly released Global Financial Stability Report, financial market conditions and stability have improved.

These good global numbers hide however a more complex reality, namely a tepid recovery in many advanced economies, and a much stronger one in most emerging and developing economies.

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Africa Is Back


By Dominique Strauss-Kahn,

Managing Director of the International Monetary Fund

In the wake of the global financial crisis, there is a fresh energy in Sub-Saharan Africa–and a broad consensus on the road ahead. Above all, there is the strong sense that Africa’s destiny will be driven by Africans, not by others.

That at least is my initial feeling after two days of dialogue in Kenya with President Kibaki and government officials, civil society leaders and trade unionists, academics and students, and ordinary Kenyans. “Africa is back” is how I described it in a live TV debate in Nairobi with Prime Minister Odinga,  Minister of Finance Kenyatta, Nobel Laureate Wangari Mathai, Transparency International’s Akere Muna and my friend, Bob Geldof. 

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Unwinding Crisis Policies in Europe: Are We There Yet?


By Marek Belka

Much is riding on getting the timing of the exit right from the stimulative policies used to combat the global economic and financial crisis. This is something that IMF Managing Director Dominique Strauss-Kahn has repeatedly emphasized. Exiting too early may jeopardize the recovery. But exiting too late may sow the seeds for the next crisis, as Wolfgang Munchau and others have argued recently. I also agree with Jean Pisani-Ferry and his colleagues that exiting in an uncoordinated fashion will lead to a renewed build up of financial instability.

To successfully unwind the extraordinary policy measures taken in response to the crisis, we need more than just a good sense of the state of the economic recovery and the degree of financial stability. We also need to know to what extent the global economy currently is influenced by those supportive policy measures. Is it safe yet to change course?

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Aristotle as an IMF Economist: Asia’s Difficult Balancing Act


By Anoop Singh

It was Aristotle who said “one swallow does not a summer make, nor one fine day.” Perhaps if Aristotle had been an IMF economist living in current times, he might have said “a few green shoots do not a recovery make.”  Despite budding green shoots in Asia, policymakers in the region will need to be cautious about how they sustain this fragile recovery. In the coming year, they will need to pull off a difficult balancing act.

On the one hand, they need to continue providing extensive macroeconomic support to their economies until it is clear that the recoveries are sufficiently robust and sustainable.  On the other hand, they have to make sure that stimulus is not maintained for so long that it ignites asset price bubbles, inflation pressures, or concerns about fiscal sustainability.

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Where policymakers strike this balance will depend on a prior assessment: they will need to decide whether private demand has become strong enough to substitute for a withdrawal of public sector demand.

And if that isn’t difficult enough, this assessment will need to be forward-looking, at a time when the economic outlook has become exceptionally uncertain. 

In figuring out how to pull off this delicate balancing act, the lessons of the past may prove instructive. So, Chapter II of the latest Regional Economic Outlook for Asia and the Pacific, launched last week in Seoul and Tokyo, looks at the experience of Japan, when it emerged from its 1990s banking crisis.

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The Puzzle of Asia’s Rapid Rebound


By Anoop Singh

Now here’s the puzzle: how is it that Asia has rebounded sooner and more strongly than the rest of the globe from the economic slump when the region is so heavily dependent on exports for its growth? This, and the future prospects for the region, are two of the key issues we analyzed in the latest Regional Economic Outlook (REO) for Asia and the Pacific, recently launched in Seoul and Tokyo.

There are three pieces to the puzzle of Asia’s rebound: 

  • Exports (in value added terms) account on average for about one-third of GDP in emerging Asian countries, while many of the region’s large firms depend on global capital markets to finance their investment projects.
  • Recovery in the rest of the world has been unsteady.
  • Yet Asia’s own GDP figures for the third quarter have been impressive: Korea grew nearly 3 percent in that quarter alone, Singapore grew even faster, and China’s growth accelerated to 9 percent year-on-year, propelled by booming investment. 

The Commodity Connection: Rising Commodity Prices and the Outlook for Latin America and the Caribbean


By Nicolás Eyzaguirre

(Version en español)

As the world economy emerges from recession, it’s worth thinking about how the composition of this recovery, in terms of which countries expand faster, will affect commodity prices—and how those prices influence the outlook for economies of the Latin American and Caribbean (LAC) region.

Commodity prices usually follow a pattern of sizable declines in episodes of world recession, followed by some degree of recovery—and the current episode is no exception (Figure 1).

But within that pattern, what is notable is that this time the recovery of global activity is uneven, with emerging Asian countries already taking the lead, while the most advanced economies are recovering more slowly. Because the former countries consume relatively more commodities, this uneven composition of global growth is a key reason for the recovery recently seen in commodity prices, and for thinking that this will continue.

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This pattern of commodity prices’ being sensitive to the condition of Asian economies is not new: the crisis in East Asia in the late 1990s sent commodity prices down, even while the advanced economies maintained growth. And in the early 1990s, when advanced economies had a downturn that was not shared by other countries, commodity prices avoided a big decline.

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IMF Annual Meetings – Key reports out


The IMF has just published its latest forecast for the global economy, the World Economic Outlook. After a deep recession, global economic growth has turned positive, driven by wide-ranging, coordinated public intervention that has supported demand and reduced uncertainty and systemic risk in financial markets, according to the report.

“The recovery has started. Financial markets are healing,” says IMF Chief Economist Olivier Blanchard. But he warned the recovery will be slow. “The current numbers shuld not fool governments into thinking that the crisis is over,” he said.

The Fund also published its Global Financial Stability Report.  It also sees a recovery, but much more needs to be done to heal the international financial  system, including repairing bank balance sheets. Read the IMF Survey story.

 

Sharing in the Global Upturn—Better Prospects for Africa


By Antoinette Sayeh

The shape of the global recovery is on everybody’s mind. But how will it affect sub-Saharan Africa? A key lesson from the past is that global cycles matter for Africa.

For sure, there have been definite idiosyncrasies in sub-Saharan African cycles–as will be discussed more fully in the forthcoming October issue of our Regional Economic Outlook—but the global dimension remains paramount.

Previous global cycles—and I’m talking here about the regular fluctuations in global economic growth that bottomed out in 1975, 1982, and 1991—followed some clear patterns. Typically, the end of an unsustainably high period of global growth coincided with the emergence of production bottlenecks and a burst of inflation triggered by accelerating commodity prices (particularly oil), prompting a tightening of monetary policy. The subsequent downturns were relatively short and growth rates typically bounced back fairly
quickly to previous levels.

By and large, Africa followed this pattern too. But the timing and the strength of the recovery were a bit different. Growth rates stayed high during the first year of the global slowdown, and they tended to bottom out later. The rebound was slower, lagging global growth by a year or two. Critically, when growth did recover, it was generally hesitant and low.

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What can the past tell us about the present? It is clear that the initial shock to sub-Saharan Africa has been greater than in the past. This reflects both the magnitude of the global crisis and the deeper integration between the region and the world, both in trade and in financial markets.

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Amid Signs of Crisis Abating, IMF Invites Debate on Next Steps


By Caroline Atkinson

Welcome to iMFdirect, the International Monetary Fund’s new blog.

The global economy has pulled back from the brink.  Financial systems are beginning to function more normally. The panic that threatened to spread among depositors and savers earlier this year has receded. But enormous economic challenges remain, challenges that are often global in scope and may require a global response.

It is against that background that economists and policymakers at the International Monetary Fund are now preparing for the IMF-World Bank Annual Meetings in early October.  And as we do that, we wanted to open up our work to a broader audience. In coming weeks, senior staff and IMF management would like to discuss with you, through this blog, some of the key issues.

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