Thursday , May 13 2021
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Chart of the WeekHow Stock Markets Respond to Social Unrest

2 days ago

Philip Barrett and Sophia Chen
What happens to stock markets when social unrest—such as mass protests and riots—occurs? Are investors scared-off by the disorder? Or are they buoyed by the prospect of positive, popular change in response to unrest?
Our chart of the week, drawn from our recent IMF staff working paper, uses a new dataset of 156 social unrest events during 2011–20 to shed some light on these questions. It shows that in countries with more open and democratic institutions, social unrest events have a negligible impact on stock market returns (blue line). But in countries with more authoritarian regimes, the effect is large and negative: on average, stock market returns fall by 2 percent within 3 days, and by about 4 percent in the following month (black line).
These findings

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Economies in the Financial Spotlight in 2021

7 days ago

By IMFBlog
Throughout 2020 and into 2021, the global financial system withstood the effects of the global pandemic and economic lockdowns due to unprecedented policy support. Strong financial systems that are well regulated and well supervised help maintain financial stability. But like a well calibrated engine on a car, maintenance is key. Each year the IMF takes a look under the hood of select economies, which helps to unmask vulnerabilities that could present bigger problems down the road.
The Financial Sector Assessment Program, or “FSAP” as it’s widely known, helps to assess financial vulnerabilities and make financial systems stronger and better able to withstand adverse events. The IMF considers country-specific features of financial systems and tailors its analysis to the needs

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Chart of the WeekUS Dollar Share of Global Foreign Exchange Reserves Drops to 25-Year Low

8 days ago

By Serkan Arslanalp and Chima Simpson-Bell
عربي, 中文, Español, Português, Русский
The share of US dollar reserves held by central banks fell to 59 percent—its lowest level in 25 years—during the fourth quarter of 2020, according to the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) survey. Some analysts say this partly reflects the declining role of the US dollar in the global economy, in the face of competition from other currencies used by central banks for international transactions. If the shifts in central bank reserves are large enough, they can affect currency and bond markets.
Our Chart of the Week looks at the recent data release from a longer-term perspective. It shows that the share of US dollar assets in central bank reserves dropped by 12 percentage

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COVID-19: The Moms’ Emergency

13 days ago

By Kristalina Georgieva, Stefania Fabrizio, Diego B. P. Gomes, and Marina M. Tavares
عربي, 中文, Español, Français, 日本語, Português, Русский
A year ago, the world changed. While the pandemic’s effect on workers has varied worldwide, the new reality has left many mothers scrambling. With schools and daycares closed, many were forced to leave their jobs or cut the hours they worked. New IMF estimates confirm the outsized impact on working mothers, and on the economy as a whole. In short, within the world of work, women with young children have been among the biggest casualties of the economic lockdowns.

Mothers of young children have been disproportionately affected by the lockdown.

Three countries—the United States, the United Kingdom, and Spain—illustrate the varied impact of the

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Achieving the Sustainable Development Goals Will Require Extraordinary Effort by All

14 days ago

By Abdelhak Senhadji, Dora Benedek, Edward Gemayel, and Alexander Tieman
عربي, 中文, Español, Français, 日本語, Português, Русский
The pandemic’s impact on the world’s poor has been especially harsh. COVID-19 may have pushed about 100 million people into extreme poverty in 2020 alone, while the UN warns that in some regions poverty could rise to levels not seen in 30 years. The current crisis has derailed progress toward basic development goals, as low-income developing countries must now balance urgent spending to protect lives and livelihoods with longer-term investments in health, education, physical infrastructure, and other essential needs.
In a new study, we propose a framework for developing countries to evaluate policy choices that can raise long-term growth, mobilize more revenue,

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Understanding the Rise in Long-Term Rates

21 days ago

By Tobias Adrian, Rohit Goel, Sheheryar Malik, Fabio Natalucci
عربي, Español, Français, Português, Русский
The rise in long-term US interest rates has become a focus of global macro-financial concerns. The nominal yield on the benchmark 10-year Treasury has increased about 70 basis points since the beginning of the year. This reflects in part an improving US economic outlook amid strong fiscal support and the accelerating recovery from the COVID-19 crisis. So an increase would be expected. But other factors like investors’ concerns about the fiscal position and uncertainty about the economic and policy outlook may also be playing a role and help explain the rapid increase early in the year.
Because US bonds are the basis for fixed-income pricing, and affect almost any security around the

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A Future with High Public Debt: Low-for-Long Is Not Low Forever

23 days ago

By Marcos Chamon and Jonathan D. Ostry
Many countries are experiencing a combination of high public debt and low interest rates. This was already the case in advanced economies even prior to the pandemic but has become even starker in its aftermath. A growing number of emerging market and developing economies are likewise enjoying a period of negative real rates—the interest rate minus inflation—on government debt. The IMF has called on countries to spend as much as they can to protect the vulnerable and limit long-lasting damage to economies, stressing the need for spending to be well targeted. This is especially critical in emerging market and developing economies, which face tighter constraints and associated fiscal risks, where greater prioritization of spending is of the essence.

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What Pandemics Mean for Robots and Inequality

24 days ago

By Tahsin Saadi Sedik and Jiae Yoo
From car manufacture to self-service checkouts, we all see how automation can transform the world of work—with lower costs and higher productivity on one hand, and more precarious employment for people on the other. But the COVID-19 pandemic added fuel to the fire. The rise in telework, for example, is hurting low-wage workers and increasing inequality. More broadly, if the pandemic accelerates the pace of automation, then we may face a jobless recovery for low-skilled workers. Our recent IMF staff research suggests that such concerns are justified.

Low-skilled workers are more at risk of displacement by robots than high-skilled workers, which reinforces existing inequality dynamics.

We focus on one form of automation, industrial robots, and analyze

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A COVID-19 Recovery Contribution

27 days ago

By Vitor Gaspar, Michael Keen, Alexander Klemm, and Paolo Mauro
The economic costs of the pandemic have fallen most heavily on those least able to bear them. Governments have taken steps to support people and firms through wage subsidies, unemployment benefits, and other fiscal measures. But more investment in health care, education, and other basic public services will still be needed, and this will come at a cost. With rising inequality and mounting public debt, countries will have to find innovative approaches to raise the money to pay for it all.

Public sentiment may be shifting in favor of more progressive taxation.

To this end, governments are now starting to focus on mobilizing revenue from corporations and individuals who can best afford to pay. This revenue will help meet the

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Short-term Shot and Long-term Healing for Latin America and the Caribbean

27 days ago

By Alejandro Werner, Takuji Komatsuzaki, and Carlo Pizzinelli
Español, Português
Growth in Latin America and the Caribbean recovered briskly in the second half of 2020, yet still more slowly than the global economy and other emerging markets. That’s despite unprecedented policy support, strong performance of trading partners, soaring commodity prices and accommodative global financial conditions. The persistence of the health crisis in many countries casts a shadow on the near-term outlook. People and economies continue to require a short-term shot to exit from the COVID-19 crisis, while the aggravation of several underlying structural fragilities poses significant long-term challenges.

The region’s contraction of 7 percent in 2020 was the sharpest in the world.

The region’s contraction

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From Vaccines to V-Shaped Recovery in Europe

29 days ago

By Alfred Kammer
Español, Français, Português
One year into the pandemic, Europe finds itself at another turning point. New waves of infection are hitting the continent, requiring new lockdowns. But, unlike last year, safe and effective vaccines are now available. While the pace of vaccination is still slow, an end to the pandemic is in sight.
Reflecting the periodic infection waves and the pace of vaccinations, the economic recovery in Europe is still halting and uneven. While industrial production has returned to pre-pandemic levels, the service sector is still contracting.

While the pace of vaccination is still slow, an end to the pandemic is in sight.

However, looking ahead, we project that Europe’s economic growth will rebound by 4.5 percent this year. Assuming that vaccines become

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After a Strong Crisis Response, Asia Can Build a Fairer and Greener Future

April 13, 2021

By Jonathan D. Ostry
中文, 日本語
In some Asia-Pacific countries, the unpleasant memory of the pandemic is receding; elsewhere, second or third waves of infections are raging. A recovery is underway, but the regional averages obscure wide differences within and across countries.

Asia is likely to benefit from the US fiscal expansion through trade channels, but could experience financial turbulence or capital outflows if US yields rise faster than markets expect.

Everywhere, the pandemic has inflicted historic income losses borne mostly by the less advantaged: low-wage and informal workers, as well as youth and women. A region known for its trademark growth-with-equity model now runs the risk of entrenching excessive inequality. If policymakers do not act, they risk stunted opportunities,

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Tailoring Government Support

April 7, 2021

By Vitor Gaspar, W. Raphael Lam, Paolo Mauro, and Mehdi Raissi
عربي, 中文, Español, Français, 日本語, Português, Русский
The race to vaccinate against COVID-19 continues, but the pace of inoculation varies widely across countries, with access unavailable to many. Global cooperation must be stepped up to produce and distribute vaccines to all countries at affordable costs. The sooner vaccinations curb the pandemic, the faster economies can return to normal.

The sooner vaccinations curb the pandemic, the faster economies can return to normal.

If the global pandemic is controlled via vaccination, the resulting stronger economic growth would yield more than $1 trillion in additional tax revenues in advanced economies by 2025—and save more in fiscal support measures. The COVID-19 vaccination will

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An Asynchronous and Divergent Recovery May Put Financial Stability at Risk

April 6, 2021

By Tobias Adrian
عربي, 中文, Español, Français, 日本語, Português, Русский
After enduring a tumultuous 2020, the global economy is finally emerging from the worst phases of the COVID-19 pandemic, albeit with prospects diverging starkly across regions and countries—and only after a “lost year” spent in suspended animation. The economic trauma would have been much worse if the global economy had not been supported by the unprecedented policy actions taken by central banks and by the fiscal measures implemented by governments.

Global markets are watching the current rise of US long-term interest rates.

Global markets are watching the current rise of US long-term interest rates, worried that a rapid and persistent increase may result in tighter financial conditions, potentially hurting growth

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Managing Divergent Recoveries

April 6, 2021

By Gita Gopinath
عربي, 中文, Español, Français, 日本語, Português, Русский
It is one year into the COVID-19 pandemic and the global community still confronts extreme social and economic strain as the human toll rises and millions remain unemployed. Yet, even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis is increasingly visible. Thanks to the ingenuity of the scientific community hundreds of millions of people are being vaccinated and this is expected to power recoveries in many countries later this year. Economies also continue to adapt to new ways of working despite reduced mobility, leading to a stronger-than-anticipated rebound across regions. Additional fiscal support in large economies, particularly the United States, has further

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Funding the Recovery of Low-income Countries After COVID

April 5, 2021

By Guillaume Chabert, Robert Gregory, and Gaelle Pierre
عربي, 中文, Français, 日本語, Português, Русский
Many of the poorest countries in the world are facing the threat of a weak recovery, and setback in their development path.

The needs of the poorest countries over the next five years are acute. But they are not out of reach.

In our paper, we estimate that low-income countries will need around $200 billion until 2025 to step up their response to the pandemic, and a further $250 billion to catch up with advanced economies. An additional $100 billion will be needed if risks identified in the baseline scenario materialize. Meeting these needs will require a coordinated, multifaceted, strong response.
Several factors hamper the economic recovery of low-income countries. First, they face

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How Rising Interest Rates Could Affect Emerging Markets

April 5, 2021

By Philipp Engler, Roberto Piazza and Galen Sher
عربي, 中文, Español, Français, 日本語, Português, Русский
Rapid vaccine rollout in the United States and passage of its $1.9 trillion fiscal stimulus package have boosted its expected economic recovery. In anticipation, longer-term US interest rates have risen rapidly, with the rate on 10-year Treasury securities going from under 1 percent at the start of the year to over 1.75 percent in mid-March. A similar surge has occurred in the United Kingdom. In January and February, interest rates also rose somewhat in the euro area and Japan before central banks there stepped in with easier monetary policy.

Our research in the latest World Economic Outlook finds that for emerging markets, what matters is the reason for the rise in US interest rates.

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Taming the Wave of Small and Medium Enterprise Insolvencies

April 2, 2021

By Federico J. Díez, Romain Duval, Chiara Maggi and Nicola Pierri
The pandemic has hit small and medium enterprises particularly hard, partly because they are predominant in some contact-intensive sectors like hotels, restaurants, and entertainment. As a result, many advanced economies risk experiencing a wave of liquidations that could destroy millions of jobs, damage the financial system, and weaken an already fragile economic recovery. Policymakers should take novel and swift action to alleviate this wave.

Compared to past crises, this time around there is a clearer case for solvency support by governments.

Abundant liquidity support through loans, credit guarantees, and moratoria on debt payments have protected many small and medium enterprises from the immediate risk of

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Giving Everyone a Fair Shot

April 1, 2021

By David Amaglobeli, Vitor Gaspar, and Paolo Mauro
عربي, 中文, Español, Français, 日本語, Português, Русский
The COVID-19 pandemic is intensifying the vicious circle of inequality. To break this pattern and give everyone a fair shot at prosperity, governments need to improve access to basic public services—such as health care (including vaccination) and education—and strengthen redistributive policies.
For most countries, this would require raising additional revenue and improving the efficiency of spending. These reforms must be complemented by greater transparency and accountability, which can help increase overall trust in government and contribute to more cohesive societies.
COVID-19 and inequality
Inequality was a pre-existing condition that worsened COVID-19’s impact. Disparities in

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Slow-Healing Scars: The Pandemic’s Legacy

March 31, 2021

By Sonali Das and Philippe Wingender
عربي, 中文, Español, Français, 日本語, Português, Русский
Recessions wreak havoc and the damage is often long-lived. Businesses shut down, investment spending is cut, and people out of work can lose skills and motivation as the months stretch on. But the recession brought on by the COVID-19 pandemic is no ordinary recession. Compared to previous global crises, the contraction was sudden and deep—using quarterly data, global output declined about three times as much as in the global financial crisis, in half the time.

We expect world output in the medium-term to be about 3 percent lower in 2024 than pre-pandemic projections.

Systemic financial stress—associated with long-lasting economic damage—has been largely avoided so far, owing to the unprecedented

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Working Out the Differences: Labor Policies for a Fairer Recovery

March 31, 2021

By John Bluedorn
عربي, 中文, Español, Français,  日本語,  Português, Русский
The COVID-19 pandemic’s destruction of jobs was sure and swift. The lasting effects of the crisis on workers could be just as painful and unequal.
Youth and lower-skilled workers took some of the hardest hits on average. Women, especially in emerging market and developing economies, also suffered. Many of these workers face earnings losses and difficult searches for job opportunities. Even after the pandemic recedes, structural changes to the economy in the wake of the shock may mean that job options in some sectors and occupations permanently shrink and others grow.

The pandemic is likely to inflict sizable costs on the unemployed, particularly lower-skilled workers.

In our latest World Economic Outlook we examine

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Confronting the Hazards of Rising Leverage

March 29, 2021

By Adolfo Barajas and Fabio Natalucci
عربي, 中文, Español, Français, 日本語, Português, Русский
Leverage, the ability to borrow, is a double-edged sword. It can boost economic growth by allowing firms to invest in machinery to expand their scale of production, or by allowing people to purchase homes and cars or invest in education. During economic crises, it can play a particularly important role by providing a bridge to the economic recovery.

The question becomes how to ensure that the fledgling recovery is not endangered, while at the same time avoiding an excessive buildup of leverage.

Most recently, amid the sharp contraction in economic activity brought on by lockdowns and social distancing practices during the COVID-19 pandemic, policymakers took actions to ensure that firms and

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Commercial Real Estate at a Crossroads

March 29, 2021

By Andrea Deghi and Fabio Natalucci
عربي, 中文, Español, Français, 日本語, Português, Русский
Empty office buildings. Reduced store hours. Unbelievably low hotel room rates. All are signs of the times. The containment measures put in place last year in response to the pandemic shuttered businesses and offices, and dealt a severe blow to the demand for commercial real estate—especially, in the retail, hotel, and office segments.

The commercial real estate sector has the potential to affect broader financial stability.

Beyond its immediate impact, the pandemic has also clouded the outlook for commercial real estate, given the advent of trends such as the decline in demand for traditional brick-and-mortar retail in favor of e-commerce, or for offices as work-from-home policies gain traction.

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How European Banks Can Support the Recovery

March 26, 2021

By Mai Chi Dao, Andreas Jobst, Aiko Mineshima, and Srobona Mitra
Español, Français, Português
A robust post-COVID-19 recovery will depend on banks having sufficient capital to provide credit. While most European banks entered the pandemic with strong capital levels, they are highly exposed to economic sectors hit hard by the pandemic.
A new IMF study assesses the impact of the pandemic on European banks’ capital through its effect on profitability, asset quality, and risk exposures. The approach differs from other recent studies—by the European Central Bank and European Banking Authority—because it incorporates policy support provided to banks and borrowers. It also incorporates granular estimates of corporate sector distress, and examines a larger number of European countries and

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Asia-Pacific, the Gigantic Domino of Climate Change

March 25, 2021

By Vitor Gaspar and Chang Yong Rhee
Forget the poetic flap of a butterfly’s wings in Beijing causing rain in Central Park. Climate issues in Asia-Pacific are measured in superlatives. The world’s biggest population. Two of the three largest carbon dioxide-emitting countries and the largest share of emissions globally. The most exposed to extreme weather events. Some of the smallest and most vulnerable countries. Also, the fastest-growing part of the global economy and many of the leaders in green technology.

What Asia does to fight global warming will be literally felt across the whole planet.

It’s not hard to see that what Asia does to fight global warming will be literally felt across the whole planet.
Pursuing a green recovery in the aftermath of COVID-19 might sound daunting, but

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The Future of Asia: What a Difference a Year Can Make

March 17, 2021

By Chang Yong Rhee and Katsiaryna Svirydzenka
 中文, 日本語
The Sydney Opera resumed live performances and the city of Melbourne recently hosted the Australian Open tennis tournament with fans (mostly) in attendance. Japan is back to planning the delayed 2020 Summer Olympics, while China focuses on the Beijing 2022 Winter Games. Having been hit by COVID-19 first, Asia is also recovering first. At the pandemic’s first anniversary, is the region back to full health?

Asia must remain agile and innovative to exit the crisis in a durable, greener, and more equitable way.

The best answer is that it is too early to know for sure. The pandemic exacerbated existing long-term issues: slowing productivity growth, growing indebtedness, aging population, rising inequality, and managing climate change. A

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CHART OF THE WEEKBlowing Hot and Cold

March 16, 2021

By Jiaxiong Yao
When it’s cold we reach for the heater, and when it’s hot we turn on the air conditioning. A warming globe could reduce the need for heating in cold seasons and increase the demand for cooling when it’s hot. In principle, there is a sweet spot where it is neither too cold nor too hot to demand much electricity. The question is: where are we now relative to this sweet spot, and what are the implications?
My recent IMF staff working paper uses satellite data to examine the relationship between electricity demand and temperature. The study compares changes in electricity usage—approximated by nighttime lights recorded by satellites, which are highly correlated with electricity usage—with changes in temperature over time at subnational levels. Since electricity is often used

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Rising Market Power—A Threat to the Recovery?

March 15, 2021

By Kristalina Georgieva, Federico J. Díez, Romain Duval, and Daniel Schwarz
عربي, 中文, Español, Français, 日本語, Português, Русский 
The crisis has hit small and medium enterprises especially hard, causing massive job losses and other economic scars. Among these—less noticeable, but also serious—is rising market power among dominant firms as they emerge even stronger while smaller rivals fall away.
We know from experience and IMF research that excessive market power in the hands of a few firms can be a drag on medium-term growth, stifling innovation and holding back investment. Such an outcome could undermine the recovery from the COVID-19 crisis, and it would block the rise of many emerging firms at a time when their dynamism is desperately needed.

We see growing signs in many industries

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Keeping it Local: A Secure and Stable Way to Access Financing

March 12, 2021

By Tobias Adrian, Thor Jonasson, Ayhan Kose, and Anderson Silva
عربي, Español, 日本語, Русский
Paychecks for teachers, new hospital equipment, social assistance programs, and other public expenditures. All depend to large extent on governments’ ability to fund them. When governments—particularly those in emerging and developing economies—need money to pay these and other goods and services, they often turn to bond markets, where they interact with investors seeking to buy government bonds.

A local-currency bond market can make an economy more resilient to sudden movements in foreign capital flows.

But borrowing in foreign currencies in international bond markets can leave these countries exposed to volatile exchange-rate movements. To avoid risks from currency fluctuations, many have

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A New Vision for the US Climate Agenda

March 10, 2021

By Ian Parry
 عربي, 中文, Español, 日本語, Português, Русский 
Over the next decade, global greenhouse gas emissions need to be cut by 25– 50 percent to be on track for meeting the 2015 Paris Agreement goal of containing global warming to 1.5–2°C.
The United States intends to do its part. Its climate plan pledges US carbon neutrality by 2050, with a 2030 emissions target to be announced shortly.

The United States will need to act decisively to help deliver the global emissions reductions needed over the next decade.

The plan envisions stronger energy efficiency standards, clean technology subsidies, and $2 trillion of public funding over ten years for clean energy infrastructure and critical technologies, such as green hydrogen.
This blueprint is an excellent start. Our new research

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