IMF weekend read

 

The latest IMF analysis of global economics, finance, development and policy issues shaping the world //

Dear maria, Welcome to the Weekend Read! In today's edition we explore, among other things, the IMF's new forecasts for global growth, which included markdowns to the world's two largest economies, risks to asset prices from rising interest rates, how a shift in China's growth model could benefit the world, how fiscal rules are being tested by debts and deficits, and quantum computers. World Economic Outlook (Photo: Viewapart/iStock by Getty Images) Weaker Outlook than Expected The global economy enters 2022 in a weaker position than previously expected, according to the IMF's World Economic Outlook Update. Global growth is expected to moderate from 5.9 percent in 2021 to 4.4 percent in 2022—half a percentage point lower for 2022 than projected in the previous Outlook, in October, largely reflecting forecast markdowns in the world's two largest economies, the United States and China. In a new blog, IMF First Deputy Managing Director Gita Gopinath said the rapid spread of the Omicron variant has led to renewed mobility restrictions in many countries and increased labor shortages. Supply disruptions are still weighing on activity and contributing to higher inflation, while record debt and rising inflation constrain the ability of many countries to address renewed disruptions, she added. Global growth is expected to slow to 3.8 percent in 2023. Although this is 0.2 percentage point higher than the previous forecast, the upgrade largely reflects a pickup after current drags on growth dissipate in the second half of 2022. --Breaking out of the pandemic: To address many of the difficulties facing the world economy, it is pivotal to break the hold of the pandemic. This will require a global effort to ensure widespread vaccination, testing, and access to medication, including newly developed anti-viral medications. As of now, only 4 percent of the population of low-income countries are fully vaccinated versus 70 percent in high-income countries.   Watch a a press briefing where Gopinath and the IMF's Petya Koeva Brooks and Malhar Nabar answer questions about inflation and interest rates as well as the outlook for Brazil, India, Germany, Mexico, Nigeria and the United Kingdom, among other economies. Asset Prices (Photo: Chine Nouvelle/SIPA/Newscom) Risks to Asset Prices are Rising As financial vulnerabilities remain elevated in several sectors, monetary authorities should provide clear guidance about the future stance of policy to avoid unnecessary volatility and safeguard financial stability, the IMF's Nassira Abbas and Tobias Adrian write in a new blog. To contain price pressures, many economies have started tightening monetary policy, leading to a sharp increase in nominal interest rates, with long-term bond yields, often an indicator of investor sentiment, recovering to pre-pandemic levels in some regions such as the United States. --More Risks: Investors often look beyond nominal rates and base their decisions on real rates—that is, inflation-adjusted rates—which help them determine the yield on assets. Low real interest rates induce investors to take more risks. Despite somewhat tighter monetary conditions and the recent upward move, longer-term real rates remain deeply negative in many regions, supporting elevated prices for riskier assets. --Asset Selling: Further tightening may still be required to tame inflation, but this puts asset prices at risk. More and more investors could decide to sell risky assets as those would become less attractive. China (Photo: zhaojiankang/iStock by Getty Images) The Future of China's Growth Model China rebounded strongly from the pandemic, but growth is losing momentum while remaining overly dependent on support from investment and exports. Our latest Country Focus by the IMF's Chang Yong Rhee, Helge Berger and Wenjie Chen looks at how China can transition to sustained high-quality growth that’s balanced, inclusive and green. While China’s many challenges have no easy answer, the key message of the IMF’s annual Article IV review of the economy released this week is that rebalancing toward a more consumption-based model will boost growth prospects in the short term and deliver high-quality expansion in the long run. Importantly, it will also help bring the country closer to achieving its climate goal of carbon neutrality before 2060. --Green gains: Successfully rebalancing toward consumption will aid China’s climate aims by shifting activity to relatively untapped services industries and away from carbon-intensive industrial sectors. In fact, rebalancing alone can help cut carbon emissions by about 15 percent over the next three decades, according to IMF staff simulations. F&D (Image: iStock /AISLAN13) Quantum Computers Quantum computers have the potential to accelerate scientific discovery and innovation, revolutionize financial market modeling and simulations, and empower machine learning and artificial intelligence. Yet these powerful computers pose risks, too, including cracking the hitherto impenetrable cryptographic codes that underpin financial stability, as we explain in the most recent issue of Finance & Development. Read the entire article. Check out our December Issue of Finance & Development.  Want to get a print copy delivered to your home or office? Click here to subscribe.   (Photo: Alexandros Michailidis/iStock by Getty Images)   Fiscal Rules How has the pandemic challenged fiscal rules that governments use to strengthen the credibility of public finances? In a new blog, the IMF's W. Raphael Lam and Paulo Medas explain how countries can navigate the challenge, even as record debt and deficits test fiscal policy frameworks anchored by rules. (Photo: IMF)   Call For Papers The IMF is calling for papers covering global economic challenges including inflation and unconventional monetary policies for a conference it is co-hosting in April. The deadline for submissions is Jan. 31.  (Photo: IMF)   Essential Reading: SDGs Check out our eLibrary section on the Sustainable Development Goals, where you can find all the latest IMF research on how countries can reach these critical development benchmarks. Quote of the Week "A higher and sudden increase in real interest rates could lead potentially to a disruptive price revaluation and an even larger selloff in stocks." —The IMF's Nassira Abbas and Tobias Adrian in a blog about interest rates and risks to asset prices. WEEKLY ROUND-UP 01. Georgieva on Inflation In an interview with CNN's Christiane Amanpour on Tuesday, IMF Managing Director Kristalina Georgieva explained why she believes that the rapid inflation experienced in the United States and other countries can end if the pandemic is brought under control in 2022. Watch the interview. 02. Africa's Growth Outlook Monetary policy tightening by major central banks, uncertainty over new COVID variants, and stretched public finances are weighing on sub-Saharan Africa's economic outlook. IMF African Department Director Abebe Aemro Selassie explained in an interview with CNBC Africa how the latest World Economic Outlook update applies to the region which saw a slight downgrade in its growth forecast in the latest report. 03. BigTech in Financial Services BigTech firms are gradually entering the financial sector and becoming important service providers, particularly in emerging markets. This is potentially creating new systemic risks, write the IMF's Parma Bains, Nobuyasu Sugimoto, and Christopher Wilson in a new Fintech Note, and requires hybrid regulation and supervision, combining a mix of entity- and activity-based approaches. Check out two other Fintech Notes published this week on Blockchain Consensus Mechanisms and Fintech and the Evolution of Commercial Law. 04. Public Investment Management On average, countries lose over one-third of the potential benefits from infrastructure investment due to inefficiencies. This explains why strengthening public investment management has become an increasingly important part of the IMF’s capacity development work. The IMF has conducted 71 Public Investment Management Assessments (PIMAs) so far, and launched a Climate PIMA in December 2021, to support countries in strengthening their public investment management systems to deliver their climate objectives. This week, the IMF conducted a 4-day regional workshop on strengthening public investment management with countries from the Caucasus and Central Asia, as well as Mongolia, and Pakistan. Find out more. 05. IMF Online Courses The IMF’s online curriculum keeps expanding with 52 courses currently open for enrollment, including the Government Finance Statistics course now also available in French and Spanish. Find the right course for you and follow it at your own pace. The courses are available to all, and for free. You can find the full course offering here. MARK YOUR CALENDAR 01. Tackling Gender-Based Violence The COVID-19 pandemic and associated lockdowns have led to a rise in gender-based violence in many countries. In a seminar taking place Feb. 3 at 8 a.m. ET, speakers from the IMF, UN Women and the Government of Rwanda will highlight the evidence on and the economic consequences of violence against women in sub-Saharan Africa. Beyond the moral imperative, the speakers will underline the importance of combating violence against women from an economic standpoint and offer policy options, such reinforcing laws against domestic violence, strengthening women’s decision-making power, and finding home-grown solutions and programs to address the problem. Our latest Chart of the Week from the IMF's Jorge Alvarez and Philip Barrett shows how surging energy costs have boosted inflation, especially in Europe, after fossil-fuel prices nearly doubled in the past year. Rising food prices have also helped to boost inflation. Inflation is likely to remain elevated. Price gains this year will average 3.9 percent in advanced economies and 5.9 percent in emerging market and developing economies, before subsiding next year, according to the IMF’s January update to the World Economic Outlook.  Adam Behsudi Editor IMF Weekend Read abehsudi@IMF.org