IMF update

 

Dear maria, welcome to a special edition of the Weekend Read Ahead of next week's Spring Meetings, we spotlight Kristalina Georgieva’s call for action to secure a robust economic recovery in a curtain-raising speech, the threats geopolitical fragmentation pose to global growth and financial stability, mounting vulnerabilities at pension funds and insurance firms, and look forward to next week's highlights.   FULL SCHEDULE

Managing Director Calls for Strong Policy To Secure Recovery The IMF’s managing director on Thursday called for strong policy action to secure a robust recovery, as global growth over the next five years is expected to languish at the slowest pace for more than three decades. In a curtain-raising speech ahead of the Spring Meetings, Kristalina Georgieva said that countries should fight inflation and safeguard financial stability, improve medium-term prospects for growth, and cooperate to reduce global disparities. “With rising geopolitical tensions and still-high inflation, a robust recovery remains elusive,” she said. “This harms the prospects of everyone, especially for the most vulnerable people and countries.” The IMF projects global growth to remain around 3 percent over the next five years—the lowest medium-term growth forecast since 1990. Georgieva called on countries to work together to prevent conflict from worsening global poverty and hunger and from wiping out the peace dividend the world has enjoyed for the past three decades. “We also need a step change in international cooperation to reduce the impact of economic fragmentation and geopolitical tension, especially over Russia’s invasion of Ukraine.” WATCH THE MANAGING DIRECTOR'S SPEECH

Geopolitics and Fragmentation Emerge as Serious Financial Stability Threats Rising geopolitical tensions amid strained ties between the United States and China could trigger cross-border capital outflows and increased uncertainty that would threaten macro-financial stability, IMF economists write in a blog. Financial fragmentation has important implications for global financial stability by affecting cross-border investment, international payment systems, and asset prices, the authors say in the blog, based on an analytical chapter of the latest Global Financial Stability Report to be launched next week. Policymakers should be aware that imposing financial restrictions for national security reasons could have unintended consequences for global macro-financial stability, they authors say. “Given the significant risks to global macro-financial stability, multilateral efforts should be strengthened to reduce geopolitical tensions and economic and financial fragmentation.”

GEOPOLITICS AND THE ECONOMY The cost of fragmentation

Andrea F. Presbitero of the IMF's Research Department and Mario Catalán of he  Monetary and Capital Markets Department discuss their respective chapters on aspects of global fragmentation during a live broadcast discussion convened by the Atlantic Council’s GeoEconomics Center in Washington.

Fragmenting Foreign Direct Investment Hits Emerging Economies Hardest As geopolitical tensions rise, companies and policymakers are increasingly looking at strategies to make supply chains more resilient by moving production home or to trusted countries. Writing in a blog based on an analytical chapter of the latest World Economic Outlook, IMF economists say that geopolitical preferences increasingly drive the geographic footprint of foreign direct investment. In general, a fragmented world is likely to be poorer, with long-term global output losses close to 2 percent of world gross domestic product, the authors estimate. But emerging market and developing economies are particularly affected due to reduced capital formation and productivity gains from technology and knowledge transfers, they add. “The widespread economic costs from FDI fragmentation suggest that policymakers should carefully balance the strategic motivations behind reshoring and friend-shoring against economic costs to their own economies and the spillovers to others.”

NUMBER OF THE DAY A fragmented world is likely to be poorer, with long-term global output losses from shifting patters of foreign direct investment alone close to 2 percent of world gross domestic product, IMF economists estimate.   2% OF WORLD GDP

Nonbank Financial Sector Vulnerabilities Surface as Financial Conditions Tighten Nonbank financial intermediaries—including pension funds, insurers, and hedge funds—account for nearly half of all global financial assets, but NBFI vulnerabilities have increased in the past decade, IMF economists write in a blog based on an analytical chapter of the Global Financial Stability Report. In a low-inflation environment, central banks can respond to financial stress by easing policy such as cutting interest rates or purchasing assets to restore market functioning. Amid high inflation, however, challenging tradeoffs may emerge for central banks between fostering financial stability and achieving price stability during periods of stress that may threaten the health of the financial system, the authors note. “Given the growing size and intermediation capacity of the NBFI sector globally, the development of the right toolbox for access to central bank liquidity, along with the appropriate guardrails limiting the need for its use, is a priority. The need to do so is all that much greater given that financial sector vulnerabilities could be poised to grow amid the continued tightening of monetary policy.” WATCH THE VIDEO

CHART OF THE WEEK   Non-bank financial stress could intensify Stress in the non-bank financial sector tends to emerge alongside elevated leverage, for example borrowing money to finance investments or boost returns, or using financial instruments, like derivatives. Stress is also brought on by liquidity mismatches, where an institution is unable to generate sufficient cash either through liquidation of assets, such as bonds or equities, or use of credit lines to satisfy investor redemption requests. High levels of interconnectedness can also become a crucial amplification channel of financial stress.

Fiscal Policy Can Help Tame Inflation To respond effectively to the sharpest upsurge in inflation in three decades and to address the damage done to households, policymakers need a better understanding of how inflation affects various segments of society in different places, Vitor Gaspar, the director of the IMF's Fiscal Affairs Department, and others write in a blog based on an analytical chapter of the Fiscal Monitor report. To safeguard the poor—who benefit more from public services—tax hikes or cuts in lower-priority spending must be combined with larger transfers. This strategy results, by design, in no drop in consumption for the poor, but also in a lower decline in overall consumption, the blog notes. The authors also find that unexpected inflation—such as in the recent episode—erodes the real value of government debt at the expense of bondholders. For countries with debt exceeding 50 percent of GDP, each percentage point of unexpected increase in inflation reduces public debt by 0.6 percentage points of GDP, with the effect lasting for several years. WATCH THE VIDEO

NEXT WEEK'S HIGHLIGHTS

MONDAY, APRIL 10

9:00 AM - 9:30 AM ET Joint Seminar: The Way Forward: Building Resilience and Reshaping Development 12:30 PM - 1:00 PM ET IMF Inspired—Conversation with Gillian Tett: Lessons from Anthropology for the Modern Economist

TUESDAY, APRIL 11

9:00 AM - 9:45 AM ET IMF Press Briefing: World Economic Outlook 10:30 AM - 11:15 AM ET IMF Press Briefing: Global Financial Stability Report 2:00 PM - 2:45 PM ET IMF Seminar: Climate Finance and Energy Security

WEDNESDAY, APRIL 12

8:00 AM - 8:45 AM ET IMF Press Briefing: Fiscal Monitor 2:30 PM - 3:15 PM ET IMF Seminar: Spending Well. Spending with Accountability 4:00 PM - 4:45 PM ET Capacity Development Talk: Tackling Global Risks—Building Capacity To Manage Public Debt

THURSDAY, APRIL 13

8:30 AM - 9:15 AM ET IMF Managing Director Press Briefing on the Global Policy Agenda 2:00 PM - 2:45 PM ET IMF Seminar: Debate on the Global Economy

FRIDAY, APRIL 14

11:30 AM - 12:00 PM ET Press Briefing: IMFC 11:30 AM - 12:30 PM ET IMF Seminar: How Should Central Banks Battle High Inflation? 1:00 PM - 2:15 PM ET IMF Seminar: Digital Public Infrastructure: Stacking up the Benefits

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