International Monetary Fund:Weekend Read: Europe Needs a Coordinated Approach to Industrial Policy..

 

Dear MARIA, In today's edition, we highlight: Europe needs a coordinated approach to industrial policy Why Latin America needs lower deficits and stronger fiscal rules Foundation for human flourishing December 2024 F&D magazine Rose Ngugi on how indices are giving Kenya an edge, and more

GOVERNMENT SUBSIDIES Europe Needs a Coordinated Approach to Industrial Policy  (Credit: Tramino/iStock by Getty Images) Industrial policy is having a moment in Europe, as countries increasingly turn to sectoral policy interventions to address the challenges of geopolitical fragmentation and economic security, enhance productivity, and accelerate the green transition, write the IMF’s Alfred Kammer, Andrew Hodge, and Roberto Piazza in a new blog. State aid spending by European Union countries has tripled in the last decade, reaching 1.5 percent of GDP. As the recent report from Mario Draghi suggests, there is a growing consensus that even more such spending is necessary to spur growth. But before rushing ahead, it is important to take stock. A new IMF working paper shows that the success of industrial policy depends not just on how much is spent, but on spending it well: targeting the right priorities and avoiding costly missteps. Europe’s industrial policies need a unified, coordinated framework, the authors write. When countries align their efforts, the benefits of industrial policy can outweigh the costs. Coordinated policies preserve the gains from trade, ensure a level playing field, and make full use of the EU’s single market. The blog is based on the IMF Working Paper “Industrial Policy in Europe: A Single Market Approach”, by A. Hodge, R. Piazza, F. Hasanov, X. Li, M. Vaziri, A. Weller, and Y.C. Wong. Read the Blog

FISCAL POLICY AND MANAGEMENT Why Latin America Needs Lower Deficits and Stronger Fiscal Rules  (Credit: Joa Souza/iStock by Getty Images) Public debt in Latin America’s major economies is on pace to average 55 percent of gross domestic product this year, up significantly from 34 percent in 2013 (when the region’s commodity boom ended) and reversing the improvements achieved in the earlier part of this century, write the IMF’s Juan Passadore, Juan Pedro Treviño, and Rodrigo Valdés in a new blog.  That level is below the 93 percent global level shown in the October Fiscal Monitor, but it is still high by Latin America’s historical standards and the region’s capacity to borrow. A recent study included in the Fund’s October 2024 Regional Economic Outlook shows that the progress in reducing debt that Latin America made at the beginning of the century had essentially reversed in the years preceding the pandemic. To stabilize debt, the seven largest countries in the region have announced ambitious fiscal consolidation plans, aiming to revert an average deficit of 0.8 percent of GDP in 2024 to a surplus of around 0.6 percent by 2029. However, these plans have suffered delays, and lack political support. In many countries, they rely on raising additional revenue and spending cuts that have yet to be identified, write the authors. Stabilizing debt is an important first step, but not enough. With lackluster growth prospects, high financing costs, and an uncertain world, now is the moment to reduce deficits and enhance fiscal frameworks, both of which help with reducing borrowing costs, the authors conclude. Read the Blog

F&D MAGAZINE Foundation for Human Flourishing (Credit: iStock/Urii Bukhta) Proficiency with the “ingenious technology” of money accompanied innovations like writing, math, law, democracy, and philosophy. But does money enable such breakthroughs, or did they guide money’s evolution? This chicken-or-egg question animates David McWilliams’s surprisingly memorable joyride through 5,000 years from early coins to crypto. Money: A Story of Humanity opens by noting that writing came about only because of money—the oldest name to have survived in written form is, naturally, a debtor. Throughout, McWilliams is an enthusiastic narrator of “one of the most seductive and enduring ideas,” a skillful, conversational storyteller unpacking money’s joys and horrors. “Our entire world revolves around this strange, invented notion,” writes McWilliams, who puts human history into the sweeping context of “one foundational technology, often overlooked, that underpinned and animated human flourishing.”  Jeff Kearns reviews Money: A Story of Humanity by David McWilliams, Simon & Schuster, London, 2024, 416 pp., £25 Read the Review

The International Economic Association’s Women in Leadership in Economics Initiative (IEA-WE) connects women economists worldwide and helps showcase their important empirical research, especially in developing countries. IMF Podcasts has partnered with the IEA-WE to produce a special series featuring the economists behind the invaluable local research that informs policymakers in places often overlooked. This episode of Driving Change features Kenyan economist Rose Ngugi, whose indices are helping local counties design more effective policies.

Weekly Roundup STAFF PAPER The Dynamics of Trade Integration and Fragmentation in Latin America and the Caribbean Trade barriers and poor infrastructure play an important role in limiting trade integration in Latin America and the Caribbean (LAC), says a new IMF staff paper. Closing half of the infrastructure gap between LAC and advanced economies could lift exports by 30 percent. Amid deepening global trade tensions, LAC is well placed to withstand a mild trade fragmentation scenario, in which trade barriers are erected only among large economies. However, the region’s output losses could be sizable in more extreme scenarios, where the global economy splinters into competing economic blocs and LAC loses access to important markets. Boosting trade, including regional trade, could pay a double dividend of lifting growth in the region while mitigating risks from global fragmentation, the authors say. IMF PUBLICATIONS Background Information on Member Countries  Seeking background material on a particular country? IMF Country Reports, Selected Issues Papers, and Technical Assistance Reports provide comprehensive details on trends and economic developments in member countries. These series provide information on the economy and policy recommendations for specific countries. Browse In Selected Issues Papers, Book, Post, Journal Issue | IMF eLibrary Browse In IMF Staff Country Reports, Book, Post, Journal Issue | IMF eLibrary Browse In High-Level Summary Technical Assistance Reports, Book, Post, Journal Issue | IMF eLibrary

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.   The Weekend Read will return in the New Year.

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