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Dear maria, We just published a new blog—please find the full text below.  How Falling Home Prices Could Strain Financial Markets as Interest Rates Rise (Credit: travellaggio/iStock by Getty Images) By Nina Biljanovska The pandemic propelled housing prices to record levels in many countries, especially advanced economies, amid low interest rates and tight property supplies. Then prices started falling late last year in many countries, while others saw the pace of gains slow. The deterioration was more pronounced in advanced economies with signs of stretched valuations before and during the pandemic. With central banks raising interest rates to contain inflation, the average mortgage rate reached 6.8 percent in advanced economies in late 2022, more than doubling from the start of last year. Now, if borrowing costs keep rising or remain elevated for longer, demand and prices are likely to weaken further. As the Chart of the Week shows, countries with high levels of household debt and a large share of borrowing issued at floating rates are more exposed to higher mortgage payments resulting in a higher risk of defaults. Canada, Australia, Norway, and Sweden are at greatest risk, according to data from the Organisation for Economic Co-operation and Development, a group of 38 mostly advanced economies. On the upside, in countries where housing prices grew rapidly, price declines in the runup to the current monetary policy tightening cycle could improve affordability—as we outlined in the World Economic Outlook published in April. Meanwhile there are important differences between current conditions and the global financial crisis a decade and a half ago. In most cases, while it is unlikely that falling home prices will spark a financial crisis, a sharp drop in house prices could dim the economic outlook. And the build-up of vulnerabilities warrants close monitoring in coming years—and possibly even intervention by policymakers. Banks are better capitalized than before the global financial crisis, and underwriting standards in many advanced economies are tighter today than before the crisis. However, the average household debt-to-income ratio across countries is about the same as in 2007, driven mainly by households in economies that managed to escape the brunt of the global financial crisis and have since run up substantial borrowing. Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org   Thank you again for your interest in IMF Blog. Read more of our latest content here. Take good care!

Dear maria, We just published a new blog—please find the full text below.  Trade in Turmoil (Credit: Nataliia Shulga) By Gita Bhatt “Globalization is a fact of life. But I believe we have underestimated its fragility,” United Nations Secretary-General Kofi Annan told the World Economic Forum almost a quarter century ago. Today, the fragility of the liberal international trading system that has underpinned peace and prosperity since the end of the Cold War is all too evident. Some policymakers, viewing globalization as a threat to domestic industries and national security, seek to reduce their reliance on precarious global supply chains. Even countries that once championed free trade are turning inward to isolate from rivals and secure strategic supplies of everything from computer chips to rare earths. In this issue of Finance & Development Magazine, we focus on the forces disrupting the established international trade order, such as Russia’s war on Ukraine and geopolitical fragmentation. We also look at how global trade is being reshaped by technology and policy priorities, such as climate change and equality. Mounting disillusionment with globalization has consequences. Yale’s Pinelopi Goldberg concludes that protectionism would make the world less resilient and more conflict-prone. Dartmouth’s Doug Irwin says history shows industrial policies and subsidies could leave countries worse off. Growing global tensions, notes the IMF’s Michele Ruta, may push regional trade alliances toward less integration and more discrimination. And smaller economies may be sidelined as the world fragments into rival trading blocs. Some will find it advantageous to remain nonaligned, says Oxford’s Ngaire Woods. But the IMF’s Kristalina Georgieva and the World Trade Organization’s Ngozi Okonjo-Iweala appeal to countries to keep faith in trade as a transformative force that has lifted many millions out of poverty and call for a strengthening of multilateral institutions. Other contributors advocate for a new political consensus to resolve competing demands on the global trading system, taking into account structural changes in the global economy. Reinforcing the trading system to safeguard its benefits and prevent losses is important. But as Georgieva and Okonjo-Iweala suggest, this will not be enough. In the new world of trade, there is a need for a forward-looking trade agenda—one that is inclusive, green, digital, and increasingly driven by services. As they note, “we cannot afford to stand still.” There is, of course, much more to explore within the pages of this issue. I hope you also find that it reveals something new to you and provides food for thought. Thank you as ever, for reading us. Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org

F&D June 2023 Issue: Trade, Disrupted (Credit: Nataliia Shulga) Dear maria, The liberal global trading system faces an existential moment, with many countries increasingly concerned that closer economic integration risks clashing with national security. Trade, Disrupted is thus the moniker of Finance & Development Magazine’s June edition. “Some policymakers, viewing globalization as a threat to domestic industries and national security, seek to reduce their reliance on precarious global supply chains,” writes F&D editor-in-chief, Gita Bhatt. “Even countries that once championed free trade are turning inward to isolate from rivals and secure strategic supplies of everything from computer chips to rare earths.” In this issue, eminent voices from international organizations, governments, and academia share their views on the global trading regime’s benefits, pitfalls, and opportunities for improvement. They discuss economic security, geoeconomic fragmentation, industrial policy, export controls, regional trade agreements, tech’s effect on trade, green trade tensions, trade’s impact on women, and much more. We hope you enjoy reading this edition. FEATURED ARTICLES: Growing Threats to Global Trade | Pinelopi K. Goldberg and Tristan Reed World Trade Can Still Drive Prosperity | Kristalina Georgieva and Ngozi Okonjo-Iweala The Return of Industrial Policy | Douglas Irwin Intersecting Paths | Caroline Freund The Challenge of Export Controls | Chad P. Bown Green Trade Tensions | Noah Kaufman, Sagatom Saha, and Christopher Bataille A Way Forward for Global Trade | Michael Froman Pillar of Economic Security | Ralph Ossa The Rise of Discriminatory Regionalism | Michele Ruta The Costs of Geoeconomic Fragmentation | Marijn A. Bolhuis, Jiaqian Chen, and Benjamin Kett Superpowers Are Forsaking Free Trade | Ngaire Woods Trade Drives Gender Equality and Development | Nadia Rocha and Roberta Piermartini Aging Is the Real Population Bomb | David E. Bloom and Leo M. Zucker Riskless Capitalism | Raghuram Rajan and Luigi Zingales Also in this issue, Bob Simison profiles Anne O. Krueger, whose research helped build the global trading system that’s now under attack. Former Korean trade chief Yoo Myung-hee talks about risk amid economic fragmentation. UNHCR’s Filippo Grandi argues that long-term solutions for refugees go beyond humanitarian aid. Elizabeth Van Heuvelen explains subsidy wars and how cooperation and common understanding could dial back trade tensions. Andrew Stanley illustrates how trade plateaus and restrictions rise, marking a new era for globalization. Smita Aggarwal explores how many Commonwealth countries are reconsidering whom to feature on their banknotes. Max Harris reviews We Need to Talk About Inflation: 14 Urgent Lessons from the Last 2,000 Years by Stephen D. King. Bert Van Selm looks at DeLisle Worrell’s book, Development and Stabilization in Small Open Economies: Theories and Evidence from Caribbean Experience. And Matthew Ball’s The Metaverse is reviewed by Pooja Singh. Sincerely, F&D Team   Stay Engaged Please don’t hesitate to contact me directly. I'd love to hear what you think of our content or what you would like to see more coverage of. Please do flag any interesting or significant research we should consider showcasing. We will be publishing more online articles in the coming weeks and months on a range of subjects. Nick Owen Senior Editor F&D Magazine nowen@IMF.org

(Photo: takenobu/iStock by Getty Images) As rising geopolitical tensions chip away at globalization, will a more fragmented world mean stronger regional pacts? Economist Michele Ruta says regionalism in a time of conflict is unlikely to triumph, but rather is likely to change. The trend toward strengthening ties with friends and loosening them with non-friends is making regional trade less about integration and more about discrimination.  Read the article in the IMF's Finance & Development Magazine   Listen to the podcast on: IMF.org | Apple Podcasts | Spotify | Libsyn |  Soundcloud | Google Podcasts   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

 

Dear maria, In today's edition, we highlight: IMF and WTO heads on threats to world trade Regionalism and discrimination House prices Africa's development challenges Gita Gopinath on fiscal policy

INTERNATIONAL TRADE World Trade Can Still Drive Prosperity (Credit: JBQDesignStudio/Adobe Stock) New trade restrictions, subsidies and other protectionist policies underscore the threats that geopolitical rivalries pose to economic interdependence. But, in a joint article for Finance & Development Magazine, the heads of the International Monetary Fund and World Trade Organization say that trade can drive global prosperity for decades to come. “Our two institutions were built on the idea that thriving international trade goes hand in hand with global prosperity and stability,” Kristalina Georgieva and Ngozi Okonjo-Iweala write in the June issue of the magazine. Today fewer than one in 10 of the world’s people are poor, a fourfold reduction since 1990, as low- and middle-income countries have doubled their share of global trade.  “The IMF, WTO, and other leading international institutions have a critical role in charting a way forward that is in the collective interest,” they say. “We must cooperate tirelessly to strengthen the multilateral trading system and demonstrate that our own institutions can adapt to a fast-changing world.” Read the article

As rising geopolitical tensions chip away at globalization, will a more fragmented world mean stronger regional pacts? IMF economist Michele Ruta says regionalism in a time of conflict is unlikely to triumph, but rather is likely to change. The trend toward strengthening ties with friends and loosening them with non-friends is making regional trade less about integration and more about discrimination.

FINANCE & DEVELOPMENT New Issue of F&D: Trade, Disrupted (Credit: Nataliia Shulga/IMF) With the liberal global trading system facing an existential moment, as many countries become increasingly concerned that closer economic integration risks clashing with national security, Finance & Development Magazine’s June edition focuses on Trade, Disrupted. In this issue, eminent voices from international organizations, governments, and academia share their views on the global trading regime’s benefits, pitfalls, and opportunities for improvement. They discuss economic security, geoeconomic fragmentation, industrial policy, export controls, regional trade agreements, tech’s effect on trade, green trade tensions, trade’s impact on women, and much more. Authors include Benjamin Kett, Caroline Freund, Chad Bown, Christopher Bataille, David Bloom, Douglas Irwin, Jiaqian Chen, Kristalina Georgieva, Leo Zucker, Luigi Zingales, Marijn Bolhuis, Michael Froman, Michele Ruta, Nadia Rocha, Ngaire Woods, Ngozi Okonjo-Iweala, Noah Kaufman, Pinelopi Goldberg, Raghuram Rajan, Ralph Ossa, Roberta Piermartini, Sagatom Saha, Tristan Reed, and many others. Read the issue online

AFRICA PERSPECTIVES Nobel Laureate Michael Kremer

Michael Kremer, Professor of Economics at the University of Chicago, speaks to the IMF’s African Department Director Abebe Aemro Selassie about the key measures policymakers can take to address global and regional challenges in this episode of Africa Perspectives.

RESILIENCE AND SUSTAINABILTY FACILITY Seychelles Seals $46-Million Agreement The IMF’s Executive Board has approved a $46-million three-year program for Seychelles under the Resilience and Sustainability Facility, the Fund’s new instrument to support countries facing long-term challenges such as climate change. “The RSF will focus on mainstreaming climate change in the government budget, strengthening climate-related risk management for financial institutions, and undertaking climate adaptation and mitigation reforms, including through measures to facilitate energy transition,” Gita Gopinath, the IMF’s First Deputy Managing Director, said in a statement. The Seychelles, which also sealed a separate $56-million Extended Fund Facility arrangement, is the second country in Africa to agree an RSF program.

The pandemic propelled housing prices to record levels in many countries, especially advanced economies, amid low interest rates and tight property supplies. Then prices started falling late last year in many countries, while others saw the pace of gains slow. As the Chart of the Week shows, countries with high levels of household debt and a large share of borrowing issued at floating rates are more exposed to higher mortgage payments resulting in a higher risk of defaults. Canada, Australia, Norway, and Sweden are at greatest risk, according to data from the Organisation for Economic Co-operation and Development, a group of 38 mostly advanced economies. Read the blog

Weekly Roundup FISCAL POLICY Recent Crises Force Rethink Gita Gopinath, the IMF’s First Deputy Managing Director, discussed how our understanding of the best use of fiscal policy in a crisis has changed in the past few years in a keynote conference speech. Vitor Gaspar, director of the IMF’s Fiscal Affairs Department, participated in the closing session of the Peterson Institute for International Economics conference on “Rethinking fiscal policy,” alongside Jason Furman of the PIIE, Christina Romer of the University of California, Berkeley, and Masaaki Shirakawa, former governor of the Bank of Japan. JAPAN Ultra-Low Interest Rates The Bank of Japan must keep monetary policy ultra-loose as it will take time to re-anchor inflation expectations to its 2 percent target, the IMF's chief economist told Reuters in an interview. But Pierre-Olivier Gourinchas said the central bank must be vigilant to the risk of price growth overshooting expectations, and be ready to tighten policy if inflation stays above its target for too long. Read a Country Focus article on why Japan may finally be able to sustain inflation around its target and an F&D article by former Bank of Japan governor Masaaki Shirakawa on why it’s time to rethink monetary policy. SRI LANKA Recovery Remains Challenging Sri Lanka’s economy is showing signs of improvement but recovery remains challenging, Kenji Okamura, Deputy Managing Director of the IMF, said at the end of a visit to the country. “Now, more than ever, it is essential to continue the reform momentum under strong ownership by both the authorities and the Sri Lankan people.” In March the IMF’s Executive Board approved a $3-billion program for Sri Lanka to restore macroeconomic stability and debt sustainability. SUBSIDIES One Stop Shop A new Subsidy Platform provides a “one-stop shop” for information and analysis on subsidies using data from the IMF, OECD, World Bank Group, and WTO. The platform is a first step to enhance transparency on the use of subsidies by bringing together in a common space information on subsidies from these four international organizations. The user-friendly interface also allows users to study subsidy trends related to various sectors such as agriculture, fossil fuels, fisheries, and industry. STAFF PAPER The Dollar and Emerging Markets An IMF staff paper finds that dollar exchange rate volatility reduces firm productivity growth in emerging markets. The results are driven by countries with low levels of financial development, high dollar invoicing, high bilateral trade with the US, widespread collective bargaining, and open capital accounts. Foreign exchange interventions dampen this impact on firm productivity. Younger firms, more likely to face financial constraints, are also found to be more vulnerable to dollar exchange rate volatility, as are firms with highly irreversible investment.

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