ΙΜF weekend read

 

Dear MARIA, In today's edition, we highlight: World Economic Outlook July 2024 Update Venture capital in Europe Germany's gradual economic recovery Deputy Managing Director Antoinette M. Sayeh to retire New surveillance tests in F&D Magazine Scaling up climate finance in Benin, and much more

WORLD ECONOMIC OUTLOOK UPDATE Global Growth Steady Amid Slowing Disinflation (Credit: IMF Photo) The July World Economic Outlook update raised its 2025 growth projection slightly to 3.3 percent, but there have been notable developments beneath the surface since April, Chief Economist Pierre-Olivier Gourinchas says in a blog. Growth in major advanced economies is more aligned. The United States shows signs of cooling, especially in the labor market, after a strong 2023. The euro area, meanwhile, is poised to pick up after a nearly flat performance last year. Asia’s emerging economies remain the main engine for the global economy, he writes. India and China are revised up and account for almost half of global growth. Yet prospects for the next five years remain weak, largely because of waning momentum in emerging Asia. Gourinchas said the latest WEO cites two main risks. “First, further challenges to disinflation in advanced economies could force central banks, including the Federal Reserve, to keep borrowing costs higher for even longer. That would put overall growth at risk, with increased upward pressure on the dollar and harmful spillovers to emerging and developing economies.” “Second, fiscal challenges need to be tackled more directly. The deterioration in public finances has left many countries more vulnerable than foreseen before the pandemic. Gradually and credibly rebuilding buffers, while still protecting the most vulnerable, is a critical priority,” he wrote. Watch the Press Briefing on the July 2024 WEO Update. Read the Blog

EUROPE Supporting Venture Capital to Boost Growth and Productivity (Credit: IMF Photo) The European Union has a productivity problem. Its people produce nearly 30 percent less per hour worked than they would have, had real output per hour worked increased in line with that in the US since 2000. A failure to sufficiently develop innovative startups into "superstar" firms is one of the reasons for the bloc's poor productivity growth, write the IMF's Nathaniel Arnold, Guillaume Claveres, and Jan Frie in a new blog.   A recently released IMF paper argues that measures to strengthen the EU’s venture capital markets and remove cross-border financial frictions to pension funds and insurers investing in venture capital could increase the flow of funding to promising startups and fuel productivity gains. The authors advise that national authorities could take several steps to support their domestic venture capital markets, including implementing well-designed preferential tax treatments for equity investments in startups and venture capital funds, which could help jumpstart the sector where it is underdeveloped or non-existent. Measures at the European level would help too, they note; the single most important step the EU could take is to complete the single market for goods, services, labor, and capital, which will take time. The authors suggest several immediate and mid-term actions authorities can take in the meantime, including fine-tuning rules for insurers and other investors in larger venture capital funds to reduce impediments to investing in venture capital. While government interventions are often a less-than-perfect solution, they may be needed in the near term to accelerate the development of the venture capital sector and financing for innovative startups. This would not only spur EU productivity, but also bolster competitiveness, the authors conclude. Read the Blog

GERMANY Gradual Economic Recovery Expected to Continue (Credit: IMF Photo/Lena Mucha) The German economy has begun to recover from the energy-price shock, and gradual economic recovery is expected to continue this year, said the IMF’s Executive Board in a statement marking the conclusion of the Article IV consultation with Germany. With wage growth now exceeding inflation, private consumption is expected to drive recovery during 2024, the statement said. Executive Directors commended the authorities for their strong economic fundamentals and policy response to the energy-price shock, which greatly mitigated its impact. Directors welcomed the gradual economic recovery underway, with broadly balanced risks, and the decline of inflation toward target levels. Noting persistent structural challenges, they encouraged additional reforms to strengthen potential growth by boosting investment, productivity, and labor supply. Read the recent Country Focus: Germany’s Real Challenges are Aging, Underinvestment, and Too Much Red Tape The Fund’s Executive Board also discussed the US Article IV this week. Read the July 17 statement and watch the Managing Director’s June 28 press briefing on the US economy. Read the Statement

IMF SENIOR MANAGEMENT Deputy Managing Director Antoinette M. Sayeh to Retire in September 2024 (Credit: IMF Photo) Deputy Managing Director Antoinette M. Sayeh intends to conclude her service to the Fund on September 12, 2024, IMF Managing Director Kristalina Georgieva announced in a statement. “Antoinette has been a pillar of the Fund’s leadership team for many years. Her incredible experience, deep integrity, and wise judgment have been invaluable to us, and her unwavering commitment to our institution has been truly exemplary,” Georgieva said. “Antoinette represents the best of a life devoted to public service: genuine care for the well-being of the people we serve and her ability to place them front and center of our work. This care and concern also extended to the staff of the Fund, for whom she has been a mentor, advisor, and coach to many,” Georgieva added. Sayeh, a Liberian national, has been a critical member of the IMF’s senior management team since March 2020. During her tenure, she oversaw vital areas of the IMF’s operations, policies, and corporate priorities, drawing on her deep knowledge of the institution. She is most known for her tireless advocacy for low-income and fragile and conflict-affected members of the IMF.

FINANCE & DEVELOPMENT MAGAZINE New Surveillance Tests (Credit: Illustration by Daniel Lievano) The world must navigate major structural transformations in the coming decades and IMF surveillance—its all-important checks of member countries’ economic health—can serve as both map and compass, director of the IMF's Strategy, Policy, and Review Department, Ceyla Pazarbasioglu, writes in F&D magazine. But just as countries must evolve and adapt, so too must IMF surveillance, she continues. The Fund has faced challenges before and has shown its ability to change. At its core, the IMF is a learning institution. "As we navigate an increasingly fragmented and uncertain world, the IMF’s surveillance role is even more critical. It’s not just about safeguarding the economy—it’s about uniting us all in the pursuit of a prosperous future in a dynamic yet stable global economy. In so doing, IMF surveillance will remain an essential and valued global public good," she says.

The world has changed markedly since the IMF was founded 80 years ago. In F&D’s June issue, we explore how the IMF can adapt to remain effective. Authors include Kristalina Georgieva, Ceyla Pazarbasioglu, Raghuram Rajan, Mia Amor Mottley, William Ruto, Pablo García-Silva, Harold James, Martin Wolf, Adam S. Posen, Edwin M. Truman, Masood Ahmed, Axel A. Weber, Anna Postelnyak, Réka Juhász, Nathan Lane, Mark Aguiar, James M. Boughton, Atish Rex Ghosh, Andrew Stanley, Adam Jakubik, Elizabeth Van Heuvelen, Henny Sender, Melinda Weir, Vivek Arora, Douglas A. Irwin, and Lisa Kolovich. Sign up for a free print copy here What is the IMF? | Ask An Economist What is the role of the IMF? We provide an overview of the IMF’s work in our newest episode of Ask an Economist. Weekly Roundup CLIMATE FINANCE IMF, World Bank Working Together to Scale Up in Benin Scaling up climate finance for Benin, as well as other countries, will require combining policy reforms, capacity development, and innovative funding arrangements, and above all else, unprecedented cooperation and coordination, said the IMF’s Tobias Adrian in a speech at the recent International Roundtable for Scaling Up Climate Finance for Benin. “We need ‘all hands on deck’ to scale up climate finance in adaptation and in transition finance. Comprehensive and tailored climate policies, inter-ministerial cooperation and planning, innovative financial instruments, strong governance, and a stronger climate information architecture will prove crucial,” Adrian noted. STAFF PAPER Distributional Impacts of Heterogenous Carbon Prices in the EU Economists have long recommended pricing GHG emissions as an environmentally effective and economically efficient climate policy instrument. Yet, carbon pricing mechanisms in place to date continue to elude more than three quarters of global GHG emissions and they have come with sector or fuel exemptions and price rebates which have dampened the marginal and average price signals faced by emitters across sectors of the economy. Within jurisdictions, one reason for existing carbon price heterogeneity is the perceived or actual heterogenous impact of uniform carbon pricing on firms and households. A new IMF staff paper analyzes the consequences of carbon price heterogeneity on households in the EU from 2010 to 2020, obtaining two key findings: first, due to widespread carbon pricing exemptions, household burdens are lower than previously estimated; and second, lower-income groups are affected disproportionately. STAFF PAPER Nowcasting and Near-Term Forecasting Cambodia’s Economy Assessing the current state of the economy and forecasting the economic outlook in the next few quarters are important inputs for policymakers. A new IMF staff paper presents a suite of forecasting models in an integrated approach to conduct nowcasting (forecast of the present, helping policymakers assess the current state of the economy) and near-term forecasting (assessment of the economic outlook in the next couple of quarters) of Cambodia’s economy, specifically, GDP and inflation. The authors propose an integrated four-step approach to produce these forecasts and showcase how high-frequency data sets can be utilized in assessing current economic activities in countries with limited and lagged data.

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.

Miriam Van Dyck Editor IMF Weekend Read mvandyck@IMF.org