The Lowdown on U.S. Core Inflation


Yasser AbdihBy Yasser Abdih

There was a time when U.S. central bankers worried that inflation was too high, and they tried to bring it down. Now the opposite is true: the Federal Reserve is concerned that inflation has remained stubbornly low, and it’s trying to boost prices. The reason: persistently low inflation raises the risk that prices will actually start to decline, a dangerous condition known as deflation. That’s bad news because it makes people less willing to borrow and spend—anticipating lower prices, consumers will put off spending—and could also lead to a fall in wages. Continue reading

In Transition: The Outlook for Latin America and the Caribbean


Event onlyBy Alejandro Werner

Versions in: Português (Portuguese),  Español (Spanish)

Following a rough start at the beginning of the year, both external and domestic conditions in Latin America and the Caribbean have improved. But the outlook for the region is still uncertain.

Commodity prices have recovered since their February 2016 trough, but they are still expected to remain low for the foreseeable future. This has been accompanied by a brake—or even a reversal—in the large exchange rate depreciations in some of the largest economies in the region.

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Rising Latin American Corporate Risk: Walking a Tightrope


By Carlos Caceres and Fabiano Rodrigues Bastos

Versions in Português (Portuguese) and Español (Spanish)

The rapid increase in Latin American corporate debt—fueled by an abundance of cheap foreign money during the past decade—has contributed to an increase in corporate risk. Total debt of nonfinancial firms in Latin America increased from US$170 billion in 2010 to US$383 billion in 2015. With potential growth across countries in the region slowing, in line with the end of the commodity supercycle, it will now be more difficult for firms to operate under increased debt burdens and reduced safety margins.

In this environment, Latin American firms are walking a tightrope. With external financial conditions tightening, the walk towards the other side—notably through adjustment and deleveraging—while necessary, has become riskier. After making good progress, the crossing has also become more perilous due to strong headwinds—including slower global demand and bouts of heightened market volatility.

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The Changing Roles of Emerging Economies and the Insurance Sector


by iMFdirect

Today the IMF published some of its new research from the Global Financial Stability Report on two hot topics: emerging economies and the insurance sector in advanced economies.  Here’s a quick take on the latest analysis. Continue reading

Trading Out of Trouble in Latin America


By Natalija Novta and Fabiano Rodrigues Bastos

(Versions in Español and Português)

Growth in Latin America and the Caribbean is suffering a double whammy—economic activity has slowed down sharply and the medium-term outlook continues to deteriorate. It is therefore not surprising that policymakers across the region are eagerly searching for ways to revitalize growth.

One answer may be more trade—both within the region and with the rest of the world. Our new study analyzes the export performance in developing and emerging market regions over the past two decades to assess the potential for future export growth in Latin America. We find evidence that most countries in the region “undertrade” compared to what standard models would predict. This has been an entrenched problem for almost a quarter of a century, partly as a result of the region’s geography and a legacy of protectionist policies.

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To Hike or Not to Hike? Monetary Policy in Latin America During Fed Liftoff


By Carlos Caceres, Yan Carrière-Swallow, and Bertrand Gruss

(Versions in Español and Português)

As the U.S. Federal Reserve prepares to raise policy rates for the first time in almost a decade, Latin America is in the midst of a sharp downturn with unemployment on the rise. In this context, many central banks across the region have kept interest rates low to support economic activity. But can monetary policy stay that way as global rates rise? What will the Fed liftoff imply for the region?

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Uncertain Times, Difficult Choices


By Vitor Gaspar and Alejandro Werner              

(Versions in Español and Português)                                         

Latin America under stress

After a period of strong growth, economic activity in Latin America has slowed sharply. Growth among the six larger, financially-integrated economies—Brazil, Chile, Colombia, Mexico, Peru, and Uruguay—is expected to be negative this year. With heightened financial market pressures and limited policy space, the credibility of policy makers is being seriously tested. In this challenging environment, policy-makers in these six countries face some difficult questions: how to strike the right balance between smoothing the adjustment and strengthening credibility? What role should fiscal policy play in this new, uncertain and rapidly evolving environment?

These and other questions will be addressed at the Annual Meetings in Lima, Peru next week.  As we prepare for these meetings, we offer our thoughts on some of the pressing issues for Latin America.

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