Taper Tantrum or Tedium: How U.S. Interest Rates Affect Financial Markets in Emerging Economies


By Alexander Klemm, Andre Meier, and Sebastián Sosa

(Version in Español)

Governments in most emerging economies, including in Latin America, have reduced their exposure to U.S. interest rates over the past decade, by issuing a greater share of public debt in domestic currencies.

Even so, sudden changes in U.S. interest rates still have the power to roil financial markets in emerging economies. Witness last year’s “taper tantrum”—when the Fed hinted at the possibility of tapering its bond purchases sooner than previously expected, causing bond yields to rise sharply. Continue reading

Central, Eastern, and South-Eastern Europe: Safeguarding the Recovery as the Global Liquidity Tide Recedes


By Reza Moghadam, Aasim M. Husain, and Anna Ilyina

(Version in Türk)

Growth is gathering momentum in most of Central, Eastern, and South-Eastern Europe (CESEE) in the wake of the recovery in the euro area. Excluding the largest economies—Russia and Turkey—the IMF’s latest Regional Economic Issues report  projects the region to grow 2.3 percent in 2014, almost twice last year’s pace. This is certainly good news.

Figure 1

Continue reading

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).

Continue reading

Emerging Markets Need To Do More To Remain Engines of Global Growth


Min ZhuBy Min Zhu

(Version in FrançaisРусский日本語Portuguêsعربي 中文, and Español)

We had a big debate on emerging markets’ growth prospects at our Annual Meetings in October 2013. We lowered our 2013 growth forecast for emerging markets and developing economies by a whopping 0.5 percentage points compared to our earlier forecast. Some argued that we were too pessimistic. Others said that we should have stuck with the lower-growth scenario we had devised at the onset of the global financial crisis.

Fast forward to today. Indeed, most recent figures indicate that the engines of global growth—emerging markets and developing economies—have slowed significantly. Their growth rate dropped about 3 percentage points in 2013 from 2010 levels, with more than two thirds of countries seeing a decline— Brazil, China, and India lead the pack. This is important for the global economy, since these economies generate half of today’s global economic activity.

In my more recent travels around the world—five regions on three continents—I received the same questions everywhere: what is happening with the emerging markets? Is the slowdown permanent? Can emerging markets boost their growth? What are the downside risks?

Continue reading

Turkey: How To Boost Growth Without Increasing Imbalances


by Isabel Rial, Suchanan Tambunlertchai, and Alexander Tieman

(Version in Türk)

Actual and Current Trend accountTurkey has received well-deserved praise for its growth performance over the last decade. Yet along with this success story has come a steady widening of the current account deficit, projected to come out at 7.4 percent of GDP in 2013. The counterpart of this deficit is a reliance on external financing, much of which is of a short-term nature, highlighting the Turkish economy’s main problem at the moment.

Continue reading

Scenes From A Central Bank: A Turkish Tale in Two Acts


By Robert Tchaidze and Heiko Hesse 

In mid 2010 the Turkish central bank decided to introduce a policy that increased uncertainty in interest rates hoping that would stop foreign investors who were pouring money into the country in search of a quick buck. That’s right. ‘Keep calm and carry on’ was replaced by ‘Keep them guessing.’

The Turkish economy was overheating.  Money poured into the country from foreign investors attracted by a strong economy and high yields. A lending boom resulted in excessive growth along with an appreciating exchange rate and widening current account deficit. While evidence of success, these kinds of capital inflows are a headache policymakers would rather avoid, as they expose a country to risks that affect the economy and financial system as a whole, while undermining the objective of controlling inflation.

Continue reading

Middle East and North Africa Face Historic Crossroads


By David Lipton

(Version in عربي)

Almost two years since the Arab Awakening started, the future of the Middle East and North Africa is in a flux, with fledgling democracies struggling to find their way and renewed outbreaks of violence adding to the challenges the region is facing. Some are starting to worry aloud that the revolutionary path may hit a dead end.

To me, a useful way to think about the present situation is that the region could end up taking any one of three alternative paths, as far as its economic future is concerned. We could witness either:

  • Economic deterioration, if squabbling over political power prevents stabilization, let alone reform;
  • Stabilization through a reassertion of vested business interests that would offer a respite from eroding economic conditions, but condemn the region to a return to economic stagnation or at best tepid growth;
  • Or we could see a new economy emerge, as newly elected governments gradually find a way to end economic disruptions and undertake reforms that open the way to greater economic opportunity for their people.

While the first two paths would be undesirable, they could come to pass. Needless to say, the third path of transformation would be best.

No doubt the Arab countries in transition will chart their own paths. But I strongly believe that the international community also has a role in helping them avoid the unfavorable outcomes. Let me share some thoughts on how we can provide support.

Continue reading

Follow

Get every new post delivered to your Inbox.

Join 783 other followers

%d bloggers like this: