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

Posted on November 4, 2009 by iMFdirect

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.

THAILAND-FINANCE-ECONOMY

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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Filed under: Asia, Economic Crisis, growth, IMF, recession | Tagged: , , , , | 1 Comment »

The Puzzle of Asia’s Rapid Rebound

Posted on November 2, 2009 by iMFdirect

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. 

Filed under: Asia, Economic Crisis, Fiscal Stimulus, growth | Tagged: , , , , , , | 4 Comments »

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

Posted on October 23, 2009 by iMFdirect

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.

Eyzaguirre102309Ch1

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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Filed under: Economic Crisis, Emerging Markets, Financial Crisis, Fiscal Stimulus, growth | Tagged: , , , , , | Leave a Comment »

IMF Annual Meetings – Key reports out

Posted on October 1, 2009 by iMFdirect

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.

 

Filed under: Economic Crisis, Financial Crisis, IMF | Tagged: , , , , , | 1 Comment »

Sharing in the Global Upturn—Better Prospects for Africa

Posted on September 8, 2009 by iMFdirect

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.

chart

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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Filed under: Africa, concessional lending, Economic Crisis, growth, IMF, LICs, Low-income countries, Multilateral Cooperation, recession | Tagged: , , , , , | Leave a Comment »

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

Posted on August 3, 2009 by iMFdirect

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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Filed under: Advanced Economies, Annual Meetings, Economic Crisis, Financial Crisis, Fiscal Stimulus, IMF, International Monetary Fund, Low-income countries | Tagged: , , , , , , | 1 Comment »

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