IMF update

 

Dear MARIA, We just published a new blog—please find the full text below.  Industrial Policy is Back But the Bar to Get it Right Is High (Credit: DINphotogallery/iStock by Getty Images) By Anna Ilyina, Ceyla Pazarbasioglu, Michele Ruta Governments have traditionally used targeted interventions known as industrial policy to make domestic producers more competitive or promote growth in selected industries. While some developing countries continued to use it, industrial policy fell out of favor across most of the world for years, because of its complexity and uncertain benefits. Now, industrial policy appears to be back everywhere. The pandemic, heightened geopolitical tensions, and the climate crisis raised concerns about the resilience of supply chains, economic and national security, and more generally about the ability of markets to allocate resources efficiently and address these concerns. As a result, governments came under pressure to have a more active industrial policy stance. Economists have long debated the merits and drawbacks of industrial policy. These measures can help address market failures, such as interventions related to the climate transition. But industrial policy is costly, and can lead to various forms of government failures ranging from corruption to mis-allocation of resources. Industrial policies can also lead to damaging cross-border spillovers, raising the risk of retaliation by other countries, which can ultimately weaken the multilateral trading system and worsen geoeconomic fragmentation. More data, more analysis and more dialogue are needed to avoid costly mistakes. In this blog, we unpack the return of industrial policy and ask three questions about what is driving this resurgence, the trade-offs that it raises, and what the IMF is doing about it. The new wave

IMF update

 

Dear MARIA, We just published a new blog—please find the full text below.  Industrial Policy Is Not a Magic Cure for Slow Growth (Credit: olaser/iStock by Getty Images) By Era Dabla-Norris, Daniel Garcia-Macia, Vitor Gaspar, Li Liu Many countries are ramping up industrial policy to boost innovation in specific sectors in the hope of reigniting productivity and long-term growth, amid security concerns. Major initiatives are springing up around the world, such as the United States’ CHIPS and Science Act, which will fund domestic research and semiconductor manufacturing, the European Union’s Green Deal Industrial Plan, which supports the bloc’s transition to climate neutrality, the New Direction on Economy and Industrial Policy in Japan, or the K-Chips Act in Korea, alongside longstanding policies in emerging market economies like China. Industrial policy, in which governments support individual sectors, can drive innovation if done right. But striking the right balance is a crucial consideration, as history is full of cautionary tales of policy mistakes, high fiscal costs, and negative spillovers in other countries. This recent turn to industrial policy to support innovation in specific sectors and technologies is not a magic bullet, as we show in a chapter of the April 2024 Fiscal Monitor. Instead, well-designed fiscal policies that support innovation and technology diffusion more broadly, with an emphasis on fundamental research that forms the basis of applied innovation, can lead to higher growth across countries and accelerate the transition to a greener and more digital economy.

ΙΜF:Emerging Markets Are Exercising Greater Global Sway

 

Dear MARIA, We just published a new blog—please find the full text below.  Emerging Markets Are Exercising Greater Global Sway (Credit: IMF Photo) By Nicolas Fernandez-Arias, Alberto Musso, Carolina Osorio-Buitron, Adina Popescu The global economy is increasingly influenced by the Group of Twenty’s large emerging markets. Over the past two decades, these economies have become much more integrated with global markets and are generating larger economic “spillovers” to the rest of the world. At a time when growth prospects are weakening in China and several other large emerging markets, it is critical for policymakers—both in G20 emerging markets and those countries that could be impacted—to understand the channels through which a slowdown could propagate through the global economy. Growth spillovers from domestic shocks in G20 emerging markets have increased over the past two decades and are now comparable to those from advanced economies, as we detail in an analytical chapter of the April 2024 World Economic Outlook. We also examine how such shocks spread through trade to companies and industries in other countries. Spillovers are largest from China and they now explain just as much of the variation in emerging-market output as those from the United States. But other G20 emerging markets—such as India, Brazil, Russia, and Mexico—also play an important role in the economic performance of their neighbors. Our simulations—using a multi-country multi-sector trade model—suggest that a decline in productivity in G20 emerging markets can lower global output three times more than would have been the case in 2000.

IMF:Fast-Growing $2 Trillion Private Credit Market Warrants Closer Watch

 

Dear MARIA, We just published a new blog—please find the full text below.  Fast-Growing $2 Trillion Private Credit Market Warrants Closer Watch (Credit: da-kuk/iStock by Getty Images) By Charles Cohen, Caio Ferreira, Fabio Natalucci, Nobuyasu Sugimoto The private credit market, in which specialized non-bank financial institutions such as investment funds lend to corporate borrowers, topped $2.1 trillion globally last year in assets and committed capital. About three-quarters of this was in the United States, where its market share is nearing that of syndicated loans and high-yield bonds. This market emerged about three decades ago as a financing source for companies too large or risky for commercial banks and too small to raise debt in public markets. In the past few years, it has grown rapidly as features such as, speed, flexibility, and attentiveness have proved valuable to borrowers. Institutional investors such as pension funds and insurance companies have eagerly invested in funds that, though illiquid, offered higher returns and less volatility. Private corporate credit has created significant economic benefits by providing long-

International Monetary Fund :housing is One Reason Not All Countries Feel Same Pinch of Higher Interest Rates

 

Dear MARIA, We just published a new blog—please find the full text below.  Housing is One Reason Not All Countries Feel Same Pinch of Higher Interest Rates (Credit: Kajdi Szabolcs/iStock by Getty Images) By Mehdi Benatiya Andaloussi, Nina Biljanovska, Alessia De Stefani, and Rui Mano Central banks have raised interest rates significantly over the past two years to combat post-pandemic inflation. Many thought this would lead to a slowdown in economic activity. Yet, global growth has held broadly steady, with deceleration only materializing in some countries. Why are some feeling the pinch from higher rates and not others? The answer partly lies in differences in mortgage and housing market characteristics. The effects of rising monetary policy rates on activity partly depend on housing and mortgage market characteristics, which vary significantly across countries, as we show in a chapter of our latest World Economic Outlook.

International Monetary Fund : Weekend Read: Kristalina Georgieva on Low-Income Countries...

 

Dear MARIA, In today's edition, we highlight: Kristalina Georgieva on low-income countries Hidden debt Egypt Retirement realities Niall Kishtainy on economic models AI and employment

LOW-INCOME COUNTRIES Countries, Institutions Must Do More to Ensure Growth, says Georgieva (Credit: IMF Photo) The IMF must do more to support low-income countries and fragile states, Managing Director Kristalina Georgieva said on Tuesday at the Center for Global Development (CGD).