IMF update

 

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

Dear maria, In today's edition, we discuss the impact of a complete cutoff in Russian gas supplies on Europe's economies, Germany's economic outlook, how consumers think about inflation, global food security, central bank digital currencies, carbon pricing, women in fintech, and much more. Europe's Economies Impact of a Russian Gas Cutoff Why Countries Must Cooperate on Carbon Prices (IMAGE: MIKEMAREEN/ISTOCK BY GETTY IMAGES) Russia’s invasion of Ukraine has further darkened the global growth outlook, with the European economy facing a serious setback given trade, investment, and financial links with the warring countries. Now, Europe is enduring a partial cutoff of natural gas exports from Russia, its largest energy supplier. The IMF’s Mark Flanagan, Alfred Kammer, Andrea Pescatori and Martin Stuermer discuss the possible impact of a complete cessation of Russian gas flows in a blog based on three new working papers. “Our work shows that in some of the most-affected countries in Central and Eastern Europe—Hungary, the Slovak Republic and the Czech Republic—there is a risk of shortages of as much as 40 percent of gas consumption and of gross domestic product shrinking by up to 6 percent.” --Infrastructure Bottlenecks: The authors say a reduction of up to 70 percent in Russian gas could be managed in the short term, but bottlenecks could reduce the ability to re-route gas within Europe because of insufficient import capacity or transmission constraints. “These factors could lead to shortages of 15 percent to 40 percent of annual consumption in some countries in Central and Eastern Europe.” They call on governments to secure supplies from global LNG markets and alternative sources, alleviate infrastructure bottlenecks to import and distribute gas, plan to share supplies across the European Union, encourage energy savings while protecting vulnerable households, and prepare smart gas rationing programs. “This is a moment for Europe to build upon the decisive action and solidarity displayed during the pandemic to address the challenging moment it faces today.” Read the working papers for more about how fragmented gas markets can aggravate the impact, how the global LNG market could ameliorate it, and how such factors could play out in Germany.   Germany Weaker Growth Amid Energy Concerns (IMAGE: IMF) At the start of the year, Germany’s economy was showing signs of overcoming the problems that had capped growth in 2021. Supply disruptions that had hampered manufacturing were easing and services opening up again as the country emerged from a severe winter wave of the Delta variant. It all changed with Russia’s invasion of Ukraine on February 24. This week, the IMF Executive Board discussed the worsening German economic outlook and policies that could help. In a Country Focus article, the IMF’s Germany team explain the reasons for steep downgrades to the country’s growth forecasts amid soaring inflation, souring consumer confidence, and weakening demand for exports. About three-fifths of inflation so far has come from energy prices, but price pressures have spread to other goods and to services. The authors say an upward spiral between wages and prices does not seem likely at this stage and inflation should slow in 2023 as energy prices stabilize. Facing these rising economic risks, the Germany team says fiscal policy needs to be flexible and ready to provide more support to vulnerable households if the situation deteriorates. In a severe downside scenario, it may be necessary to postpone the return to the debt brake rule so the government can take on additional borrowing to support the economy. Read more about Germany’s economy, including the Executive Board’s latest statement and recent blogs, videos and news, on the IMF’s country page.   F&D How Consumers Think About Inflation (IMAGE: ISTOCK/FRANCESCOCH) With inflation rising to levels unseen in decades, people across the world are asking themselves how much more they can expect to pay for gasoline, groceries, and other necessities, writes IMF economist Carlo Pizzinelli in an online exclusive article for Finance and Development Magazine. Pizzinelli outlines the results of a new survey that measures people’s beliefs about the effects of economic shocks on unemployment and inflation. He describes how people's predictions for the economy often differ from those of experts, and how households and experts see shocks working in different ways. Are these results bad news for central bankers? asks Pizzinelli, who says that “a deeper understanding of how consumers think about the economy would help policymakers control inflation.” Read the full article   F&D Online Visit F&D online for the latest insights from leading thinkers on the critical economic challenges of the day. Recent contributors include Tharman Shanmugaratnum, Pierre-Olivier Gourinchas, Eswar Prasad, Raj Chetty, Barry Eichengreen, Patricia Clavin, and many others.  NEW: F&D is now also available in HTML format in languages other than English: Arabic, Chinese, French, Japanese, Russian, and Spanish. Want to get a print copy delivered to your home or office? Click here to subscribe.   Global Food Security IMF Managing Director Kristalina Georgieva and the heads of several other international organizations have issued a joint statement calling for urgent action to address the global food security crisis. The number of acute food insecure people increased to 345 million in 82 countries as of June 2022. Among other things, they “call for countries to strengthen safety nets, facilitate trade, boost production, and invest in resilient agriculture.”   Piketty on Inequality The long march of progress is marked by revolutions, struggles, economic crises, liberations, injustices, and regressions—the “turning points where social conflicts are crystalized and power relationships are redefined,” explains Thomas Piketty in his new book, A Brief History of Equality, reviewed by the IMF’s Era Dabla-Norris for F&D Magazine. “Piketty offers hope that ‘a profound transformation of the world economic system’ is possible.”   Possibilities of CBDCs Dong He of the IMF's Monetary and Capital Markets Department discusses how central bank digital currencies are set to transform the global monetary system. In episode 2 of the Fintech Forward podcast, He tells host Tara Iyer that CBDCs allows ordinary citizens to have direct access to the central bank money in a very user-friendly way. Read the transcript.   Factsheet: IMF Money The money the IMF loans to its members on its best terms comes from member countries, mainly through their payment of quotas, supplemented by multilateral and bilateral arrangements. The IMF’s current total resources translates into a capacity for lending of about $1 trillion. Read our new factsheet to find out more about where the IMF gets its money.   As the world gears up to avoid a climate catastrophe by limiting global warming to 1.5 to 2 degrees Celsius, more countries are putting carbon pricing at the center of their mitigation strategies. Yet designing ways to put a price on carbon can be complicated and countries face multiple choices. The Chart of the Week by the IMF's Simon Black, Ian Parry and Karlygash Zhunussova shows the expansion of carbon pricing schemes. So far, 46 countries are pricing emissions through carbon taxes or emissions trading schemes. Read an article by the authors in VoxEU on how to design carbon pricing schemes. WEEKLY ROUND-UP 01. Tanzania Financing Facility The IMF’s Executive Board on Monday approved an extended arrangement under the Extended Credit Facility for Tanzania, providing the East African nation with access to $1,046.4 million. In a statement, the board said the 40-month financing package will assist economic recovery and address spillovers from Russia’s invasion of Ukraine, help preserve macroeconomic stability, and support structural reforms for sustainable and inclusive growth. “Reforms will focus on strengthening fiscal space for much-needed social spending and high-yield public investment, resuming and advancing the authorities’ structural reform agenda and strengthening financial deepening and stability.” 02. Singapore's Impressive Recovery Singapore’s skillful containment measures, effective vaccination campaign and decisive policy support have helped the economy to recover impressively, the IMF’s Executive Board said in a statement on Thursday after annual consultations with the authorities. “Growth is expected to remain above potential in the near term and broaden across sectors, supported by widespread vaccinations and pent-up demand as the economy reopens.” Staff projects GDP growth of 3.7 percent for 2022 and 2.6 percent for 2023. 03. Closures and Covid What impact do business closures have on COVID? In a working paper, the IMF’s Xuequan Elsie Peng and Chima Simpson-Bell use New York City, one of the epicenters of the outbreak in the United States, as a case study by exploiting variation in the industry composition of business in each zip code. The authors say early reopening led to a prolonged pandemic and a large surge in cases in 2020 but allowed the city to regain its economic role as a consumption hub. They found an alternative policy of longer lockdown to be more cost-effective as it prevented a relapse into a more restrictive policy regime. 04. Women in Fintech Female leaders in the fintech industry are scarce even though fintech firms with more women on their executive boards tend to perform better, according to the IMF’s Purva Khera, Sumiko Ogawa, Ratna Sahay and Mahima Vasishth. In a working paper, the authors say a 10 percent higher share of women on executive boards lifts revenue by roughly 13 percent. “Female leaders in the fintech industry could be pivotal in developing, marketing, and supplying financial products that may better suit women’s needs—which may further help in bridging the gender gap in digital financial inclusion.” Nick Owen Editor IMF Weekend Read nowen@IMF.org   Thank you again very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.

Daniel Yergin on Energy's New Map July 14, 2022 (Photo: Courtesy of S&P Global) The energy crises of the early 70s, the 80s, and the early 2000s all had their challenges, but none were so intertwined with other emergencies like a war in Europe, climate change, and a global pandemic. Daniel Yergin won the Pulitzer Prize and many other accolades for his writing on the political economy of global energy. His latest book The New Map: Energy, Climate and the Clash of Nations looks at where today's energy markets are headed and the geopolitics of an energy transition from hydrocarbons to renewable energy. In this podcast, Yergin says renewables use a lot more minerals than people realize and will move us from the world of big oil to a world of big shovels. Daniel Yergin is Vice Chairman of S&P Global. Listen to the podcast Read the transcript   ***** Thanks for listening to the podcast. We're always looking to improve your experience so let us know if you have any suggestions! Send your comments to me at bedwards2@imf.org.   Bruce Edwards Producer, IMF Podcasts