IMF update

 

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

Dear maria, In today's edition, we spotlight downgrades to the IMF's outlook for global growth, Latin America's public debt, Asia's need for rate rises, the new economics of fertility, the looming food crisis, the Democratic Republic of Congo, how to mobilize private climate finance, and much more. Global Economy Global Outlook Darkens Why Countries Must Cooperate on Carbon Prices (PHOTO: IMF) The global economy is set to slow sharply for the next two years as a result of stalling growth in the world’s three-largest economies and price pressures will last for longer, according to the latest update to the IMF’s World Economic Outlook. “The world may soon be teetering on the edge of a global recession, only two years after the last one,” the IMF’s chief economist Pierre-Olivier Gourinchas writes in a blog. “Amid great challenge and strife, strengthening cooperation remains the best way to improve economic prospects and mitigate the risk of geoeconomic fragmentation.” --Global Downgrades: Under the baseline forecast, growth slows from last year’s 6.1 percent to 3.2 percent this year and 2.9 percent next year, downgrades of 0.4 and 0.7 percentage points from April. This reflects stalling growth in the world’s three largest economies—the United States, China and the euro area—with important consequences for the global outlook. Despite slowing activity, global inflation has been revised up, in part due to rising food and energy prices. Inflation this year is anticipated to reach 6.6 percent in advanced economies and 9.5 percent in emerging market and developing economies—upward revisions of 0.9 and 0.8 percentage points respectively—and is projected to remain elevated longer. Watch a press conference where Gourinchas discusses the updated outlook with journalists, read a transcript of the briefing, or read the full report.   Latin America and Caribbean Pandemic Debts Test Fiscal Policy (PHOTO: FILIPEFRAZAO/ISTOCK BY GETTY IMAGES) Amid high post-pandemic public debt and rising interest rates, Latin America’s fiscal policy will need to focus on strengthening budget balances and ensuring debt sustainability, the director of the IMF’s Western Hemisphere Department, Ilan Goldfajn, writes in a blog. He adds that governments should continue to support the most vulnerable with targeted measures through a period of slower growth and high inflation. Asia Economies Under Pressure To Raise Rates (PHOTO: DA-KUK/ISTOCK BY GETTY IMAGES) Several Asian economies will need to raise interest rates rapidly to prevent capital flight and an upward spiral of inflation expectations and wages, according to a blog by Krishna Srinivasan, director of the IMF’s Asia and Pacific Department. Fiscal policy will need to tighten in countries with elevated debt, providing a complement to monetary efforts to tame inflation, he writes. F&D The New Economics of Fertility (CREDIT: GERALT/PIXABAY) Ultralow fertility rates in high-income economies make for rapid population-aging and pose challenges for governments, economies, and the sustainability of social security systems, write economists Matthias Doepke, Anne Hannusch, Fabian Kindermann and Michele Tertilt for F&D online. There has been a fundamental economic transformation: in many high-income countries women now participate in the labor force for much of their lives, the authors write. The earlier pattern of a woman entering the labor market but dropping out following marriage and children is now the exception rather than the norm. The compatibility of women’s careers and families is key. “Investing in gender equality—and especially the labor market prospects of potential mothers—may be cumbersome in the short run, but the medium- and long-term benefits will be sizable, for both the economy and society.” Read the full article   Visit F&D online for the latest insights from leading thinkers on the critical economic challenges of the day. Read our very latest articles on inflation and debt—and our recent reviews of C. Fred Bergsten's and Thomas Piketty's new books. F&D is also available in Arabic, Chinese, French, Japanese, Russian, and Spanish. Want to get a print copy delivered to your home or office? Click here to subscribe. (PHOTO: FAO)   Looming Food Crisis Inflation has pushed up prices for almost everything, but rising food costs could mean life or death for people in countries already struggling with conflict, economic downturns, and the effects of climate change. In a podcast, Maximo Torero Cullen, chief economist for the UN's Food and Agriculture Organization, says wheat and fertilizer supply shortages have driven up prices and increased food import bills for the most vulnerable countries by more than $25 billion dollars. (PHOTO: BENOIT DOPPAGNE BELGA/NEWSCOM)   DRC's Recovery The Democratic Republic of the Congo has made a strong recovery, with growth estimated at 6.2 percent in 2021, but development and infrastructure needs remain high, the IMF’s Guillaume Nolin, Aminata Toure and Solo Zerbo write in an article for Country Focus. “Reforms are needed to diversify and improve the resilience of the economy and to promote higher and more inclusive growth.” MARK YOUR CALENDAR   IMF Summer School The next sessions of the 2022 IMF Summer School will feature climate change economics (August 3) and the consumer price index (August 17). Sign up for free here. Previous presentations on revenue administration and debt management are available in our dedicated playlist on the IMF Institute’s Learning Channel.  WEEKLY ROUND-UP 01. IMF's New Gender Strategy The IMF has launched its first gender strategy aimed at integrating gender into the Fund’s core activities—surveillance, capacity development, and lending. This means more systematically assessing the macroeconomic consequences of gender gaps, evaluating how the impact of shocks and policies varies by gender, and providing granular and tailored macroeconomic and financial policy advice and capacity development support. “Successful implementation of this strategy will assist our member countries in achieving more inclusive and equitable economic growth and resilience,“ IMF Managing Director Kristalina Georgieva said in a statement. 02. Mobilizing Private Climate Finance Climate policies should be accompanied by financing flows to close the large financing gap globally, and in emerging market and developing economies in particular, according to a new IMF Staff Climate Note. The note discusses ways to mobilize domestic and foreign private capital for climate finance, as a complement to climate-related policies. Private climate financing can mitigate risks and constraints through public-private partnerships involving multilateral, regional, and national development banks. The note also presents an overview of the role the IMF. 03. Fiscal Policy in Pandemics Many countries deployed substantial fiscal packages to cushion the economic fallout from COVID-19 . A new IMF staff working paper—authored by Tidiane Kinda, Andras Lengyel and Kaustubh Chahande—shows that cumulative fiscal multipliers one year after a health crisis are about two times larger than during normal times, particularly in advanced economies. These results suggest that large-scale fiscal support at the onset of the pandemic could have a larger than usual lingering impact on economic activity. 04. Greener Labor Market The labor market implications of the green economic transition and environmental policies are the subject of a new IMF staff working paper by John Bluedorn, Niels-Jakob Hansen, Diaa Noureldin, Ippei Shibata, and Marina Tavares. Based on new indicators of the environmental properties of jobs in 34 economies between 2005 and 2019, the authors find that workers in green-intensive jobs earn on average 7 percent more than workers in pollution-intensive jobs. They also discover that greener and more polluting jobs are concentrated among smaller subsets of workers, and that individual workers rarely move from more pollution-intensive to greener jobs. Nick Owen Editor IMF Weekend Read nowen@IMF.org

The region continued its strong recovery in early 2022, but decelerating economic activity and persistent inflation will test resilience.

View as a webpage Dear maria, We just published a new blog—please find the full text below.  Shifting Global Winds Pose Challenges to Latin America (PHOTO: FILIPEFRAZAO/ISTOCK BY GETTY IMAGES) By Gustavo Adler, Ilan Goldfajn, and Anna Ivanova The economies of Latin America and the Caribbean have continued their strong post-pandemic rebound, but the winds are shifting as global financial conditions are tightening and commodity prices are reversing their upward trend, while inflationary pressures persist. The reopening of contact-intensive sectors, especially hospitality and travel, the unwinding of pandemic pent-up demand, and still favorable external financial conditions supported a solid expansion in the first half of the year, allowing services to catch up with manufacturing, and employment to reach pre-pandemic levels. Year-on-year growth reached 2.8 percent in the first quarter, compared to an average of 1.7 percent in the years preceding the pandemic, and high-frequency indicators point to continued momentum in the second quarter. On the back of this solid first half of the year, and despite an expected slowdown in the second half, we forecast the region to grow by 3.0 percent this year, an upgrade from our April forecast of 2.5 percent. However, the region faces significant challenges, including tightening global financial conditions, lower global growth, persistent inflation, and increasing social tensions amid growing food and energy insecurity. These factors contribute to our downgrade in growth to 2.0 percent in 2023, 0.5 percentage point lower than anticipated in April. Uneven recoveries, common inflationary pressures The strength of the post-pandemic recoveries has varied across the region. The global rebound of commodity prices from the pandemic lows, further boosted by the war in Ukraine, has generally supported the recovery of commodity exporters (some South American economies), while constraining those that depend more on commodity imports (Central America and tourism-dependent Caribbean economies). The upward trend of commodity prices seems to be reversing, as the global financial conditions tighten. Among the largest economies, Chile and Colombia have seen a particularly dynamic rebound, propelled by strong growth in services, in part due to the fiscal stimulus in late 2021, while Mexico’s economic output is yet to regain its pre-pandemic level as services and construction continue lagging. Caribbean economies are also behind in their recovery as tourism is yet to return to pre-pandemic levels, despite the recent rebound. Meanwhile, Central America, Panama, and the Dominican Republic have already surpassed their pre-pandemic output levels, driven by the rapid recovery in the United States, through strong exports and remittances inflows as well as supportive policies. Inflation, on the other hand, has accelerated throughout the region, amid rebounding domestic demand, lingering supply chain disruptions, and rising commodity prices. Central banks have appropriately tightened monetary policy to contain second-round effects and anchor longer-term inflation expectations. But inflation could prove persistent in the wake of compounding shocks and broadening price pressures. Meanwhile, after last year’s withdrawal of pandemic stimulus, fiscal policy in most countries has largely shifted into a neutral stance in 2022. This should help put fiscal balances on a more sustainable footing and support monetary policy in containing inflationary pressures. Challenging global conditions With inflation on the rise around the world and central banks in advanced economies tightening financial conditions, global demand is weakening. Growth forecasts for 2023 have been revised down considerably from 2.3 to 1.0 percent in the US and 2.8 to 1.8 percent in Canada. Even before the full impact of financial tightening, growth in these economies was decelerating, leading to a downward revision of our 2022 growth forecasts from 3.7 to 2.3 percent for the United States, and from 3.9 to 3.4 percent for Canada. Amid global monetary tightening and greater economic uncertainty, external financial conditions for Latin America and the Caribbean are worsening, leading to rising borrowing costs and currency pressures. Adding to this, and partly reflecting the global slowdown, some commodity prices have fallen and are expected to soften further. This could bring some welcome relief to global inflationary pressures with time, but at a cost of further challenges to the region. Inflation outlook As elsewhere, price pressures in the region are likely to remain high for some time, as indicated by our inflation forecasts of 12.1 and 8.7 percent for 2022 and 2023, respectively, the highest rates in the past 25 years. This means we expect inflation to exceed the upper bound of central banks’ target ranges by about 400 basis points, on average, in the five largest Latin American economies (Brazil, Chile, Colombia, Mexico, and Peru) by the end of this year, and to remain outside the target range for part of next year. Further currency weakening—especially if global financial conditions tighten further—and growing wage pressures, together with existing indexation mechanisms in some countries, could lead to additional inflationary pressures. Navigating shifting winds Persistent inflation amid decelerating economic activity in the context of falling commodity prices will make policymaking more challenging. Policymakers should remain focused on preserving macro-economic stability and social cohesion. Amid high post-pandemic public debt levels and rising real interest rates, fiscal policy will need to focus on strengthening fiscal balances and ensuring debt sustainability while continuing to support the most vulnerable people with targeted and if needed temporary measures through a period of slower growth and high inflation. Meanwhile, monetary policy must continue focusing on taming inflation and anchoring inflation expectations. This, together with clear communication, will remain key to preserve the hard-won credibility of central banks.   We Want To Hear From You! Click here for a 3-question survey on IMFBlog. Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org   Thank you again for your interest in IMF Blog. 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