IMF Weekend Read

 

Dear maria, In today's edition, we highlight: China's reopening Central bank groupthink Latin America's social tensions France's reforms Globalization to slowbalization

CHINA OUTLOOK Economy is Rebounding, But Reforms Are Still Needed (Credit: SeanPavonePhoto/Getty Images Pro) China’s economy is set to rebound this year as mobility and activity pick up after the lifting of pandemic restrictions, providing a boost to the global economy. In a Country Focus article, the IMF’s Diego Cerdeiro and Sonali Jain-Chandra say the world's second-largest economy will expand 5.2 percent this year, up from 3 percent last year. “That’s good news for China and the world as the Chinese economy is now expected to contribute a quarter of global growth this year.” But the authors say China still faces significant economic challenges, including a contraction in real estate and uncertainty around the evolution of the virus. Longer-term, headwinds to growth include a shrinking population and slowing productivity growth. As noted in the IMF’s latest annual report for China, the economy needs comprehensive macroeconomic policies and structural reforms to secure the recovery and promote balanced, green, and inclusive growth.

In this podcast, IMF economists Sonali Jain-Chandra and Thomas Helbling walk us through China’s latest economic review and explain how the ailing real estate sector is weighing on the outlook.

FINANCE & DEVELOPMENT Diverse Views in Monetary Policy While monetary policymaking requires complex real-time judgments, decision-making is too often impaired by groupthink, tokenism, and marginalization of dissenting views, write David Blanchflower and Andrew Levin for F&D. They propose a set of reforms to monetary policy committees, including greater diversity, full-time status, accountability for individual views, further steps to avoid political interference, and greater efforts to communicate clearly to the public. “Governance reforms will be crucial for ensuring the effectiveness of monetary policymaking in facing the inevitable complex and evolving challenges of the coming years and decades.”

MANAGING DIRECTOR INTERVIEW Risks to the global economy

A debt default by the United States would cause significant damage to the global economy, but history suggests that Congress usually finds a solution, Kristalina Georigeva tells CBS’s 60 Minutes in a wide-ranging interview.

LATIN AMERICA OUTLOOK Slow Growth, Inflation Fan Social Tensions (Credit: Alexis Gonzalez/iStock by Getty Images) Slowing economic growth, high inflation and global uncertainty mean that many people in Latin America will see their living standards decline this year and will likely face increased anxiety about their future. Growing social discontent and diminished trust in public institutions has been an important trend in the region for some time, IMF economists write in a blog. Social tensions were certainly exacerbated during the pandemic. Poorer people—particularly those employed in in-person services—bore the brunt of the economic fallout. “While government support helped, many were unable to fully insulate themselves from the negative impact, as shown by the noticeable increase in poverty.” Policies must focus on securing economic stability, spurring growth and job creation, supporting entrepreneurship, and attending to the pressing social needs facing many people in the region, the authors say. “This will help to mitigate social discontent and restore confidence in public institutions.” FRANCE OUTLOOK Bold Reforms Are Building Resilience (Credit: tigristiara/iStock by Getty Images) After a strong economic recovery from the pandemic, France was hit by an energy shock driven by Russia’s invasion of Ukraine, yet the economy has remained resilient and inflation well below other EU countries. In a Country Focus article, IMF economists say the government has made progress putting forward reforms to boost growth potential while reducing fiscal costs, including revised unemployment benefits that will help raise labor supply, and a comprehensive pension reform to move the retirement age closer to the EU average. But France’s budget deficit has remained high and public debt is increasing relative to euro-area peers, partly due to costly and poorly targeted support measures. “To move the budget closer to balance and set the debt ratio on a declining path, France should undertake gradual but substantial fiscal consolidation over the medium term,” the authors say, underscoring the conclusions of the IMF’s latest annual report for the country. In a speech to the International Financial Markets conference in the Lithuanian capital Vilnius, Alfred Kammer, director of the IMF’s European Department, called for tight monetary policy because inflation could prove stickier than market participants assume. Read the speech

The free flow of ideas, people, goods, services and capital across national borders leads to greater economic integration. But globalization has seen ebbs and flows over the decades. Those trends are coming into sharper focus this year as policymakers work to understand the prospect of geoeconomic fragmentation. Looking back over a century and a half of data, the main phases of globalization are clearly visible using the trade openness metric—the sum of exports and imports of all economies relative to global gross domestic product. As the Chart of the Week shows, globalization plateaued in the decade and a half since the global financial crisis. See the interactive chart

Weekly Roundup INTERVIEW A New Debt Crisis The global economy has seen three major debt crises since the 1970s, from Latin America to East Asia. The world is now facing a fourth crisis, Ceyla Pazarbasioglu, director of the IMF's Strategy, Policy and Review Department, told NPR radio's The Indicator in an interview. The arrival of new creditors such as China, India and private companies is complicating matters. It’s in everyone’s interests to find a solution as soon as possible so that the countries can get out of debt traps, start growing and are able to service new debt, Pazarbasioglu said. STAFF PAPER Bank Lending During COVID A new staff paper analyzes the impact of fiscal, monetary and prudential policies during the COVID-19 pandemic on bank lending. Lending grew faster at banks in countries that announced packages combining all these measures relative to those that relied on some, but not all, dimensions. Within packages including all three types of policy measures, banks in countries with more and larger measures saw faster loan growth. The impact was larger among more constrained banks with low equity levels. Large packages combining all three policies also increased liquidity for bank dependent firms, but did not disproportionately benefit unviable firms. STAFF PAPER Fintech in Public Finance The use of fintech in public finance could bring various benefits if public sector institutional and technological capacities are strengthened and risks are adequately mitigated, according to a new IMF staff paper. Potential benefits include strengthening fiscal transparency, improving budget planning and execution, and upgrading cash management. The study explores how public financial management, especially treasury payments and non-tax revenue collections, could benefit from fintech payments by providing examples of early fintech applications in different countries and discussing the challenges of integrating them into the public sector. SEMINAR Green Development in Africa Sub-Saharan Africa has contributed little to global greenhouse gas emissions and yet is the world’s most vulnerable region to climate change. The latest Africa Perspective episode focused on how to make the region more resilient to climate change without undercutting development goals. Moderated by IMF African Department Director Abebe Aemro Selassie, the discussion featured Gabon’s environment minister, Lee White, and Mavis Owusu-Gyamfi of the African Center for Economic Transformation.

MARK YOUR CALENDAR

FEBRUARY 19 Yemen Hackathon Yemen’s finance ministry is organizing a hybrid hackathon with technical assistance from the IMF to find smart-phone solutions to the challenges of collecting spending data. Registration closes on February 19. Register here

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.

Nick Owen Editor IMF Weekend Read nowen@IMF.org