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To Reduce Inequality, Employ Young People

3 days ago

Burcu Hacibedel and Priscilla Muthoora
Español, Português
Rising economic growth has reduced inequality in low-income and emerging market countries over the years. In good economic times, young people working helps reduce inequality in both groups of countries. But when growth slows down and jobs are lost, more young people out of work in low-income countries leads to a rise in inequality.  In emerging markets, the story is a bit different and we’ll explain why.
The results in our coauthored recent paper, which studies a group of 71 low-income and emerging market countries, emphasize the importance of both the quality of jobs created and a country’s policies to support employment, which helps reduce inequality and foster more inclusive growth.
A new way of knowing
The relationship

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Chart of the WeekKeeping the Wheels of Commerce Turning

6 days ago

By IMFBlog
The tariff disputes roiling markets are a reminder that the global system of free trade, which has delivered so much prosperity, is a fragile one.
We all know what happened in the 1930s, when trade wars only served to deepen the misery inflicted by the Great Depression. That is why, after World War II, countries agreed to gradually reduce tariffs.
But many continued to restrict flows of goods across borders in other ways as they sought to give their domestic industries an edge over foreign competitors.
One common method was to impose different exchange rates for different kinds of transactions in a bid to stimulate exports and discourage imports. That is one example of what is known as a multiple currency practice, or MCP. Another is to offer favorable exchange rates to

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Chart of the WeekThe Rise of Powerful Companies

10 days ago

By IMFBlog
People are concerned that the rising power of big successful companies could lower capital investment, weaken productivity, and reduce people’s take-home pay.
While rising corporate market power has had a fairly limited negative economic impact so far, if left unchecked, it could take a bigger toll on growth and people’s income.
Our Chart of the Week from the April World Economic Outlook analyzes nearly 1 million companies from 27 advanced and emerging market economies since the early 2000s and shows that firms’ average price markup—the ratio of a company’s product price to its production cost—has increased moderately.
Across advanced economies, average markups increased by 8 percent since 2000 but by less than 2 percent in those emerging economies covered by the analysis.

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How to Help, Not Hinder Global Growth

11 days ago

By Christine Lagarde
As the G-20 finance ministers and central bank governors gather this week in Fukuoka, they can take inspiration from their host city. Known as Japan’s “startup city,” Fukuoka has flourished in recent decades by embracing trade, innovation, and openness.
That spirit is needed more than ever to help reduce trade tensions and clear other stumbling blocks on the way back to higher and more sustainable growth. The goal must be to help, not stand in the way of global growth.
Signs of stabilization
In April, I described the global economy as being at a “delicate moment.” The IMF cut its global growth forecast to 3.3 percent in 2019, largely because of temporary, country-specific factors and the tangible effects of trade tensions. At the same time, we projected a pickup in

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Keynes, the IMF, and the Future

17 days ago

By Gita Bhatt
If Lord Keynes, who helped usher in the post–World War II economic order at the Bretton Woods conference, visited the IMF today, he would be astonished at the institution’s evolution. He would find a modern IMF able to help countries with new tools for analyzing financial risks and external imbalances and take on income inequality, corruption, and climate change. He would marvel at our universal membership, diverse staff, and female head.
He would also find a world transformed by new emerging powers and technologies that link countries and markets at light speed.
Keynes would understand today’s reality too. He saw it all before: growing economic and political nationalism, fraying of alliances, and sharply declining support for multilateralism. Yet he wouldn’t despair. With

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Chart of the WeekCorruption and Your Money

19 days ago

By IMFBlog
The costs of corruption run deep. Your taxpayer dollars are lost in different ways, siphoned off from schools, roads, and hospitals to line the pockets of people up to no good.
Equally damaging is the way it corrodes the government’s ability to help grow the economy in a way that benefits all citizens.
And no country is immune to corruption. Our Chart of the Week from the Fiscal Monitor analyzes more than 180 countries and finds that more corrupt countries collect fewer taxes, as people pay bribes to avoid them, including through tax loopholes designed in exchange for kickbacks. Also, when taxpayers believe their governments are corrupt, they are more likely to evade paying taxes.
The chart shows that overall, the least corrupt governments collect 4 percent of GDP more in

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The Impact of US-China Trade Tensions

24 days ago

By Eugenio Cerutti, Gita Gopinath, and Adil Mohommad
US-China trade tensions have negatively affected consumers as well as many producers in both countries. The tariffs have reduced trade between the US and China, but the bilateral trade deficit remains broadly unchanged. While the impact on global growth is relatively modest at this time, the latest escalation could significantly dent business and financial market sentiment, disrupt global supply chains, and jeopardize the projected recovery in global growth in 2019.

Evolution of trade in the US and China
The raising of US tariffs to 25 percent on $200 billion of annual Chinese imports on May 10, together with the announced Chinese retaliation, marks the latest escalation in the US–China trade tensions.
The impact of previously

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Communications as a Policy Tool

25 days ago

By Gerry Rice and Olga Stankova
عربي, 中文, Español, Русский
When it comes to forging economic policy, communicating with the public is no longer an afterthought. Instead, communications are increasingly seen as a policy tool in itself. To be sure, communications can never be a substitute for good policies. But economic reforms are more likely to fail or even be reversed unless they are understood, believed, and accepted by those whom they affect. The same principle applies to a wide range of policies—monetary, financial, fiscal, and structural.
The proliferation of social media makes it possible for ever more people to express their views on public policies, fueling rising expectations for transparency and accountability across the globe. As a result, policymakers face growing pressure

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Designing Labor Policies to Foster Inclusive Growth in Emerging Markets

26 days ago

By Romain Duval and Prakash Loungani
Emerging market economies have enjoyed good growth in recent decades but are still far from closing gaps in living standards with advanced economies. Emerging markets also need growth to be shared by everyone, particularly by providing their growing populations with good jobs and social protection.
In a new IMF staff paper, we look at how the design of labor markets—institutions and policies—could foster inclusive growth in these countries.    
Different designs
The design of labor market policies in emerging markets differs significantly from that in advanced economies, as shown in this simple summary figure.

Only half of emerging markets have unemployment insurance systems in place, while they exist in nearly all advanced economies. This

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A Review of IMF-Supported Lending Programs

27 days ago

By Petya Koeva Brooks, Martin Mühleisen, and Chad Steinberg
The IMF’s Review of Program Design and Conditionality provides a deep look into the design of 133 IMF-supported lending programs in operation between September 2011 and December 2017. This review is the first major stocktaking of IMF programs since the Global Financial Crisis, a period of unexpectedly slow economic growth.
Programs as shock absorbers
Countries often come to the IMF when they already face major threats to economic or financial stability. Hence, IMF programs serve as “shock absorbers,” enabling countries to meet immediate financial needs and significantly cushion economic distress. IMF programs also catalyze additional financing from the markets, other official lenders, and donors. This helps protect the

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Chart of the Week House Prices Are Up: Should We Be Happy?

May 16, 2019

By IMFBlog
Español, Português
House prices around the world have recovered smartly since the 2008 global financial crisis. Depending on where you live, that may or may not be a good thing.
IMF research shows that there is a tight link between movements in house prices, on the one hand, and economic and financial stability, on the other.
In fact, more than half of the banking crises in recent decades were preceded by boom-bust cycles in house prices. So it’s no wonder that central bankers in Australia, Canada, Europe, and elsewhere have expressed concern about the potential for large declines.

The Chart of the Week shows average annual price changes in 32 advanced and emerging market economies and their major cities from 2013 through the second quarter of 2018. Dublin tops the gains

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Tackling Income Inequality Requires New Policies

May 15, 2019

By IMFBlog
Español, Português
The hollowing out of the middle class, rising social and political tension, lack of education, globalization, and rapid technological change are just a few of the many drivers of growing income inequality.
“Inclusive growth is one of the critical challenges of our time,” IMF Managing Director Christine Lagarde said at a recent event on income inequality at the IMF Spring Meetings.
“The bitter-sweet reality is that despite economic growth there are still far too many people who are left out,” Lagarde added.
The IMF’s Gita Gopinath, the World Bank’s Pinelopi Koujianou Goldberg, and the OECD’s Laurence Boone—all chief economists of their respective institutions, talked about inequality and its economic origins during a roundtable discussion opened by

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Chart of the WeekFintech Can Cut Costs of Remittances to Latin America

May 7, 2019

By IMFBlog
Español, Português
For Latin Americans living abroad, sometimes sending money back home can be a complicated and costly ordeal. Most people rely on traditional banking methods and money transfer operators to send their remittances. But using these financial services for cross-border payments is costly—about a 6 percent charge on the total amount—and these fees are typically paid by the sender. This means less money left over for the family or friends receiving the money.
A more cost-effective approach for Latin American countries relies on using fintech, like mobile banking, to send money across borders, according to a recent IMF staff Working Paper.
Our chart of the week shows Latin America’s share of remittances transmitted with mobile money along with its overall share of

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Getting Real on Meeting Paris Climate Change Commitments

May 3, 2019

By Christine Lagarde and Vitor Gaspar
Español, Português
Climate change is the great existential challenge of our times. It is a challenge that spans all regions, with especially severe consequences for low-income countries.
Without mitigating actions, global temperatures are projected to rise by 4oC above pre-industrial levels by the end of the century—with increasing and irreversible risks of collapsing ice sheets, inundation of low-lying island states, extreme weather events, and runaway warming scenarios.
A warming climate could also mean increased extinction risk for a large fraction of species, the spread of diseases, an undermining of food security, and reduced renewable surface water and groundwater resources.
The good news is that this urgent threat has inspired an

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Bank Profitability: Consider the Source

April 30, 2019

By Udaibir S. Das, Kun Hu, and TengTeng Xu
Español, Português
The global financial crisis of 2007–2009 and the ensuing period of low interest rates have renewed interest among policy makers in the relationship between bank profitability and financial stability. Despite the subsequent recovery, the return on equity of many banks remains below the cost of equity. Market valuations remain below the balance sheet value of banks, indicating the market’s assessment of banks’ ability to overcome profitability challenges is not optimistic.
In a recent IMF Working Paper, we look into how bank profitability affects financial stability from both theoretical and empirical perspectives. We developed a theoretical model of the relationship between bank profitability and financial stability by

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Chart of the WeekFalling Costs Make Wind, Solar More Affordable

April 26, 2019

By Christian Bogmans
Harnessing wind and solar energy for low-carbon electric power generation was once considered uneconomical. Now, rapidly falling costs for these technologies are boosting global renewable energy capacity. Renewable energy sources can help reduce carbon emissions substantially and the effects of global warming.
As the Chart of the Week from the April World Economic Outlook shows, solar and onshore wind turbines saw the biggest price declines among low-carbon energy sources between 2009 and 2017. Prices dropped 76 percent for solar panels and 34 percent for turbines during that time, making them competitive alternatives to fossil fuels and more traditional low-carbon energy sources such as hydropower and nuclear.
The numbers are based on the so-called levelized

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Every Day is Earth Day

April 24, 2019

By IMFBlog
IMF Managing Director Christine Lagarde had a one-on-one conversation with Sir David Attenborough, the preeminent global broadcaster, during the April IMF-World Bank Spring Meetings on the environment and life on earth.
The conversation explored more specifically the interplay and spillovers between the natural world and the economic and financial world. Attenborough recommended treating the natural world in a manner similar to the economic one—guarding nature’s capital, so profits from it could continue into the future.
See the clip below and the full video here.

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Chart of The WeekExpanding Trade Across The Maghreb

April 23, 2019

By Ramzy Al Amine, Jean-François Dauphin, and Alexei Kireyev
In 1989, the five Maghreb countries—Algeria, Libya, Mauritania, Morocco and Tunisia—established the Arab Maghreb Union to promote cooperation and economic integration. Thirty years later, there is still a largely untapped potential for regional trade among Maghreb countries.
This matters more than ever as all Maghreb countries need to create jobs for their young and growing populations.

Accelerating regional integration would raise growth, create jobs, and provide opportunities for nearly 100 million people.

Room for more trade
Currently, Maghreb countries only trade a few goods between each other. These include fuels and mineral oils exported from Algeria to Tunisia and Morocco, vegetable oils, machinery, iron and

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Financing for Sustainable Development: Tackling Big Challenges

April 18, 2019

By Chris Lane
Français (French)
Without adequate financing, the best intentions of the global community expressed in the Sustainable Development Goals (SDGs) will remain beyond reach.
Recent setbacks in financing for development should therefore focus policymakers’ attention on the need for decisive national strategies so these best intentions might be realized. Harnessing the necessary resources could be achieved through a combination of revenue mobilization, attracting private finance, and supporting financial sector development. Policy makers will need to engage in collective action and practice a new multilateralism in support of global goals.
A new UN study, prepared with significant contributions by the IMF, the World Bank Group, the World Trade Organization, the United Nations

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The IMF 30 Years After Brady

April 11, 2019

By Rhoda Weeks-Brown and Martin Mühleisen
Last month marked the 30th anniversary of the announcement of the “Brady plan”. In response to the 1980s Latin American debt crisis, this plan, named after then US Treasury Secretary Nicholas Brady, allowed countries to exchange their commercial bank loans for bonds backed by US Treasuries, bringing an end to a tumultuous period with possible systemic consequences for the global banking system at the time. In what was then a novel approach, banks agreed to provide much needed debt relief—the average write down was 35 percent—in exchange for risk-free tradable instruments.
The IMF played a crucial role, consistent with its mandate to help member countries resolve their balance of payments problems and regain external viability.
It not only

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High Debt Hampers Countries’ Response to a Fast-Changing Global Economy

April 10, 2019

By Vitor Gaspar, John Ralyea, and Elif Ture
عربي, 中文, Español, Français, 日本語, Português, Русский
Economic growth is slowing and public debt remains high across the world. Meanwhile, demographic changes and technological advances are reshaping the global economy.
Everyone’s opportunities for a good education, along with their job prospects, healthcare, and retirement income depend on the tax and spending choices governments make as they respond to these challenges.
What should policymakers do?
In the new Fiscal Monitor, we argue that they can take a long-term view to foster higher and more inclusive growth. This means getting their fiscal houses in order by gradually lowering debt to prepare for the next downturn and upgrading fiscal policy to invest in people’s futures. This requires

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Weak Spots in Global Financial System Could Amplify Shocks

April 10, 2019

By Tobias Adrian and Fabio Natalucci
عربي, 中文, Español, Français, 日本語, Português, Русский
In the United States, the ratio of corporate debt to GDP is at record-high levels. In several European countries, banks are overloaded with government bonds. In China, bank profitability is declining, and capital levels remain low at small and medium-size lenders.
Vulnerabilities like these are on the rise across advanced and emerging market economies, according to the IMF’s latest Global Financial Stability Report. They aren’t all setting off alarm bells just yet. But if they continue to build, especially with still-easy financial conditions, they could amplify shocks to the global economy, raising the odds of a severe economic downturn a few years down the road.

With the right mix of

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The Global Economy: A Delicate Moment

April 9, 2019

By Gita Gopinath
عربي, 中文, Español, Français, 日本語, Português, Русский
A year ago, economic activity was accelerating in almost all regions of the world. One year later, much has changed. The escalation of US–China trade tensions, needed credit tightening in China, macroeconomic stress in Argentina and Turkey, disruptions to the auto sector in Germany, and financial tightening alongside the normalization of monetary policy in the larger advanced economies have all contributed to a significantly weakened global expansion, especially in the second half of 2018.
With this weakness expected to persist into the first half of 2019, our new World Economic Outlook (WEO) projects a slowdown in growth in 2019 for 70 percent of the world economy. Global growth softened to 3.6 percent in 2018 and is

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Tackling Corruption in Government

April 4, 2019

By Vitor Gaspar, Paolo Mauro and Paulo Medas
عربي, Español, Français, Português, Русский
No country is immune to corruption. The abuse of public office for private gain erodes people’s trust in government and institutions, makes public policies less effective and fair, and siphons taxpayers’ money away from schools, roads, and hospitals.
While the wasted money is important, the cost is about much more. Corruption corrodes the government’s ability to help grow the economy in a way that benefits all citizens.
But the political will to build strong and transparent institutions can turn the tide against corruption. In our new Fiscal Monitor, we shine a light on fiscal institutions and policies, like tax administration or procurement practices, and show how they can fight corruption.

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Assessing the Risk of the Next Housing Bust

April 4, 2019

By Claudio Raddatz and Nico Valckx
عربي, 中文, Español, Français, Русский
There’s good news for people living in Las Vegas, Miami and Phoenix: the risk of a housing bust like the one they endured during the global financial crisis is fairly small. For folks in Toronto and Vancouver, however, the picture hasn’t improved since 2008, and the risk of a large decline in house prices remains elevated.
Those are among the insights generated by the IMF’s new tool for assessing the danger of a severe downturn in home prices. Homeowners, of course, are keenly interested in the value of what is probably their biggest asset. But there is also a strong link between home prices, the financial system, and the economy. The link is especially powerful when prices go down – as we explain in Chapter Two of

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How to Keep Corporate Power in Check

April 3, 2019

By Federico Díez and Romain Duval
عربي, 中文, Español,  Français, 日本語, Português, Русский
People are becoming concerned that the rising power of big successful companies may be behind some of the recent sluggish economic growth and rising income inequality.
Are these concerns justified? Our research in Chapter 2 of the April World Economic Outlook looks at this question using data for nearly 1 million companies from 27 advanced and emerging market economies since the early 2000s.
We find that rising corporate market power has had a fairly limited negative economic impact so far. But, if left unchecked, it could take a bigger toll on growth and people’s incomes in the future. Policymakers need different policies to keep market competition strong.

The overarching policy goal should be

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Why Investment May Come Under Threat

April 3, 2019

By Weicheng Lian, Natalija Novta, and Petia Topalova
عربي, 中文, Español, Français, 日本語, Português, Русский
It might be hard to imagine a time when a 512 kilobyte computer cost more than $28,000. That was in 1984. Today, you can buy a much more powerful computer for under $300.
Prices of machinery and equipment have been falling relative to overall prices for decades, thanks to rising trade and sweeping technological improvements that led to more efficient production of capital goods. This has helped countries around the world raise real investment and improve living standards.
But as our research in Chapter 3 of the April 2019 World Economic Outlook shows, this important driver of investment may be under threat. Trade tensions and sluggish productivity growth could slow the decline in

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Economic Forces, Not Tariffs, Drive Changes in Trade Balances

April 3, 2019

By Johannes Eugster, Florence Jaumotte, Margaux MacDonald, and Roberto Piazza
عربي, 中文, Español, 日本語, Português
New IMF research finds that macroeconomic factors, not tariffs, explain most of the changes in trade balances between two countries.
Bilateral trade balances (the difference in the value of exports and imports between two countries) have come under scrutiny recently. Some policymakers are concerned that their large and rising size are the result of uneven measures that distort international trade. But is a focus on bilateral trade balances the right one?
The short answer is no. Our research in Chapter 4 of the April 2019 World Economic Outlook finds that a tariff-induced change in a specific trade balance between two countries tends to be offset by changes in bilateral

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Quiz About the IMF

March 28, 2019

By IMFBlog
Christine Lagarde, IMF Managing Director, says the IMF is an institution with a brain, a wallet, and a heart. How much do you know about us? Take our new quiz to test your know-how of the ins and outs of what we do and how we do it.

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Chart of the WeekYoung and Disconnected from Work

March 26, 2019

By IMFBlog
Young people face tough labor markets and job shortages in countries all over the world. For example, about 20 percent of 15- to 24-year-olds in the average emerging market and developing economy are neither in work nor in school—this group includes countries such as Brazil, Ghana, and Malaysia, among others. This is double the share in the average advanced economy.
How can emerging markets close this gap? A recent IMF staff study points to a series of policies that can improve job prospects for everyone, but especially for young people not in school. The paper focuses on three policies in particular: greater gender equality in the workplace, better functioning labor markets, and more open and competitive product markets.
Our chart of the week shows that large and persistent

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