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Chart of the WeekLower Oil Reliance Insulates World From 1970s-Style Crude Shock

13 days ago

By Nico Valckx
The war in Ukraine and sanctions on Russia are causing substantial economic spillovers, notably for energy.
Oil prices have climbed, but increases have largely been contained thanks to spare production capacity in some countries and strategic petroleum reserves in others.
Brent crude, the global oil benchmark, rose to a seven-year high around $100 before the invasion sent it surging to more than $130. It has since pared gains amid pandemic lockdowns in China, the biggest oil importer, that may weigh on economic growth there.
For some, rising oil prices may echo the 1970s, when geopolitical tensions also caused fossil fuel prices to spike.
Memories of the high inflation and slow growth that followed—known as stagflation—have fueled concerns about a possible repeat.

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Africa Faces New Shock as War Raises Food and Fuel Costs

20 days ago

By Abebe Aemro Selassie and Peter Kovacs
Français, Português
The effects of the war in Ukraine leave policymakers with little room to maneuver.

Sub-Saharan African countries find themselves facing another severe and exogenous shock. Russia’s invasion of Ukraine has prompted a surge in food and fuel prices that threatens the region’s economic outlook. This latest setback could not have come at a worse time—as growth was starting to recover and policymakers were beginning to address the social and economic legacy of COVID-19 pandemic and other development challenges. The effects of the war will be deeply consequential, eroding standards of living and aggravating macroeconomic imbalances.
We now expect growth to slow to 3.8 percent this year from last year’s better-than-expected 4.5

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Chart of the WeekInflation to be Elevated for Longer on War, Demand, Job Markets

21 days ago

By Jorge Alvarez and Philip Barrett
The war in Ukraine will quicken inflation, which we now expect to remain elevated for longer than previously forecast on higher commodity costs and broader price pressures.
As the Chart of the Week shows, our latest World Economic Outlook now projects faster consumer-price increases this year for advanced economies as well as in emerging market and developing economies. These forecasts also have a high degree of uncertainty.
Russia’s invasion of its neighbor will likely have a protracted impact on commodities, affecting oil and gas prices more severely this year and food prices well into next year.
Four main factors shape our outlook:

The war aggravated already surging commodity prices. Energy and food helped boost inflation last year, with oil

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Latin America Faces Unusually High Risks

22 days ago

By Santiago Acosta-Ormaechea, Ilan Goldfajn and Jorge Roldos
Español, Português
The War in Ukraine, higher inflation, tighter financial conditions, economic decelerations of key trading partners, and social discontent may dim growth prospects.
The war in Ukraine is shaking the global economy and raising uncertainty about the outlook for Latin America and the Caribbean.
The impact is being felt in Latin America through higher inflation that is affecting real incomes, especially of the most vulnerable. Policymakers are reacting to this challenge by tightening monetary policy and implementing measures to soften the blow on the most vulnerable and contain the risks of social unrest.
But there are other risks looming. A possible escalation of the war could eventually lead to global

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Asia Growth Slows on Commodities, Covid and Rising Interest Rates

23 days ago

By Anne-Marie Gulde-Wolf, Sanjaya Panth, and Shanaka J. Peiris
中文, 日本語
Region’s policymakers face difficult policy trade-offs and should protect the most vulnerable from rising fuel and food costs while enacting economic reforms to boost long-term growth.

Economic growth in Asia and the Pacific is poised to slow more than previously estimated this year amid headwinds from the war in Ukraine, a resurgent pandemic, and tightening global financial conditions.
 
Regional gross domestic product will expand by 4.9 percent, 0.5 percentage points less than we forecast in January and slower than last year’s 6.5 percent growth rate, according to our latest projections. We also estimate that inflation will rise faster in many countries, though from relatively low levels.
 
Slower growth and rising

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War in Ukraine is Serious Setback to Europe’s Economic Recovery

26 days ago

By Alfred Kammer
Español, Français, Português, Русский 
Ukraine and Russia face the sharpest economic contractions, but other countries could also fall into recession this year.
The humanitarian catastrophe in Ukraine is reverberating across Europe. Some 5 million refugees have already fled the fighting in the largest exodus the continent has seen since the Second World War and millions more are internally displaced. The greatest numbers have flowed across borders with Poland, Romania, Hungary and Moldova. The European Union swiftly embraced those displaced by Russia’s invasion, granting them permits to live and work and to receive social assistance for at least a year.
The war is a serious setback to Europe’s strong yet incomplete recovery from the pandemic, which left private consumption

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Governments Need Agile Fiscal Policies as Food and Fuel Prices Spike

28 days ago

By Jean-Marc Fournier, Vitor Gaspar, Paulo Medas and Roberto Accioly Perrelli
عربي, 中文, Español, Français, 日本語, Русский
Spending imperatives from pandemic and war meet high debt and tight budget constraints.
Just as increasing vaccinations offered hope, Russia’s invasion of Ukraine disrupted the global economic recovery. One of the most visible global effects has been the acceleration of energy and food prices, triggering concerns about episodes of food shortages and increasing the risks of malnutrition and social unrest. World food prices surged by 33.6 percent in March from a year earlier, according to the Food and Agriculture Organization of the United Nations.
Our latest Fiscal Monitor discusses how governments, faced with record debt and rising borrowing costs, can best respond

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Financial Stability Risks Grow as War Complicates Push to Contain Inflation

29 days ago

By Tobias Adrian
عربي, 中文, Español, Français, 日本語, Português, Русский 
While no systemic event has materialized, the balance of risks has tilted more firmly to the downside.

Russia’s invasion of Ukraine raises financial stability risks for the world and poses questions about the longer-term impact on economies and markets. The war, amid an already slowing recovery from the pandemic, is set to test the resilience of financial markets and poses a threat to financial stability as discussed in our latest Global Financial Stability Report.
 
Ukraine and Russia face the most pressing risks. Yet it is already clear that the severity of disruptions in commodity markets and to supply chains are creating downside risks by weighing adversely on macrofinancial stability, inflation, and the global

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War Dims Global Economic Outlook as Inflation Accelerates

29 days ago

By Pierre-Olivier Gourinchas
عربي, 中文, Español, Français, 日本語, Português, Русский
The effects of the war will propagate far and wide, adding to price pressures and exacerbating significant policy challenges.

Global economic prospects have been severely set back, largely because of Russia’s invasion of Ukraine.
This crisis unfolds even as the global economy has not yet fully recovered from the pandemic. Even before the war, inflation in many countries had been rising due to supply-demand imbalances and policy support during the pandemic, prompting a tightening of monetary policy. The latest lockdowns in China could cause new bottlenecks in global supply chains.
In this context, beyond its immediate and tragic humanitarian impact, the war will slow economic growth and increase inflation.

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Private Debt to Weigh on Global Economic Recovery

April 18, 2022

By Silvia Albrizio, Sonali Das, Christoffer Koch, Jean-Marc Natal, and Philippe Wingender
عربي, 中文, Français, 日本語, Português, Русский
A record rise in private debt could slow the economic recovery, but the drag on growth will vary across countries and within them.

Governments succeeded in lessening the economic pain of the pandemic by providing plenty of liquidity to stricken consumers and businesses through credit guarantees, concessional lending and moratoriums on interest payments.
But although these policies proved effective in supporting balance sheets, they also led to a spike in private debt, extending a steady increase in leverage spurred by supportive financial conditions since the global financial crisis of 2008.
Global private debt surged by 13 percent of the world’s gross

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Emerging-Market Banks’ Government Debt Holdings Pose Financial Stability Risks

April 18, 2022

By Andrea Deghi, Fabio Natalucci and Mahvash S. Qureshi
عربي, 中文, Español, Français, 日本語, Português, Русский
Banks’ holdings of sovereign debt rise to a record as governments spend to cushion pandemic impact.

The pandemic has left emerging-market banks holding record levels of government debt, increasing the odds that pressures on public-sector finances could threaten financial stability. Authorities should act quickly to minimize that risk.
Governments around the world have spent aggressively to help households and employers weather the economic impact of the pandemic. Public debt has mounted as governments have issued bonds to cover their budget deficits. The average ratio of public debt to gross domestic product—a key measure of a country’s fiscal health—rose to a record 67 percent

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Chart of the WeekGlobal Economic Uncertainty, Surging Amid War, May Slow Growth

April 15, 2022

By Hites Ahir, Nicholas Bloom and Davide Furceri
As the war in Ukraine unfolds, global uncertainty has surged, according to the latest reading of the World Uncertainty Index—a quarterly measure across 143 countries. This increase is a bad sign for growth. Our research finds that such increases foreshadow significant output declines. Based on our estimates, the rise in uncertainty in the first quarter could be enough to reduce full-year global growth by up to 0.35 percentage point.
While global uncertainty reached unprecedented levels with the initial coronavirus outbreak, it then fell sharply. However, the World Uncertainty Index rebounded in the first quarter, reaching levels close to what was seen around the Sept. 11, 2001, attacks in the United States and the United Kingdom’s 2016 vote

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The Right Labor Market Policies Can Ease the Green Jobs Transition

April 13, 2022

By John Bluedorn and Niels-Jakob Hansen
عربي, 中文, Español, Français, Русский
Measures include job training, tax credits for lower-income workers, green infrastructure and R&D investment push, and a carbon tax.
Consensus on the need to build a greener economy often founders on concern over potential job losses. It’s one thing to agree that a transition away from fossil fuels is needed. But how easily can a coal miner, say, shift to a job installing solar panels?
The answer shouldn’t be a surprise: for some workers, the change will be difficult. But there is good news. With the right mix of policies, countries should be able to achieve net-zero greenhouse-gas emissions by 2050—while easing the pain for workers in more emissions-intensive industries such as utilities. These policies include

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Fast-Moving FinTech Poses Challenge for Regulators

April 13, 2022

By Antonio Garcia Pascual and Fabio Natalucci
Emerging firms are quickly making inroads into critical financial services, and often taking on more risk than traditional banks.

Technology sometimes moves at a dizzying pace. When it comes to innovation in financial activities, often referred to as FinTech, the world is seeing major advances.
For banks, FinTech disrupts core financial services and pushes them to innovate to remain relevant. For consumers, it means potentially wider access to better services.
Such changes also raise the stakes for regulators and supervisors—while most individual FinTech firms are still small, they can scale up very rapidly across both riskier clients and business segments than traditional lenders.
This combination of fast growth and increasing importance of

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Tax Coordination Can Lead to a Fairer, Greener Global Economy

April 12, 2022

By Vitor Gaspar, Shafik Hebous, Paolo Mauro
عربي, 中文, Español, Français, 日本語, Português, Русский
Cooperation across countries can raise revenue, tackle inequality, and fight climate change.
Technology, globalization, and global warming have changed the world, and taxation must keep pace. With a mouse click, individuals can move money across borders and corporations can transact with their affiliates across global supply chains. Production depends on intangible know-how assets that can be located anywhere. Employers and their employees can work in different countries. As income and factors of production become more mobile, and with climate change threatening our planet, countries face tax challenges that know no national borders.
Tax evasion and avoidance cause the loss of revenue that

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Global Trade Needs More Supply Diversity, Not Less

April 12, 2022

By Davide Malacrino, Adil Mohommad, and Andrea Presbitero
عربي, 中文, Español, Français, 日本語, Português, Русский
Countries with trade partners that implemented more stringent lockdowns had a sharper drop in imports. Though trade flows have adjusted, more diversified global value chains could help lessen the impact of future shocks.
The demand and supply shocks unleashed by the pandemic were expected to lead to a dramatic collapse in trade, but international commerce has proven more resilient than during previous global crises.
While goods trade fell sharply in the second quarter of 2020, it bounced back to pre-pandemic levels later in the year. The decline for services in 2020 (such as tourism) was worse, and has recovered more slowly, given persistent restrictions to contain infection in

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Dangerous Global Debt Burden Requires Decisive Cooperation

April 11, 2022

By Vitor Gaspar and Ceyla Pazarbasioglu
With elevated risks to sovereign debt, a global cooperative approach is necessary to reach an orderly resolution of debt problems and prevent defaults.
We live in dangerous times. The world faces renewed uncertainty, as war comes on top of an ever-changing and persistent pandemic, now in its third year. Moreover, problems that predated COVID-19 have not gone away. When policymakers return to Washington in the coming days for the Spring Meetings of the IMF and World Bank, one of the central topics will be growing debt vulnerabilities in the world.
Debt was already very high before the first coronavirus lockdowns. As the pandemic hit, unprecedented peacetime economic support stabilized financial markets and gradually eased liquidity and credit

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Restructuring Debt of Poorer Nations Requires More Efficient Coordination

April 7, 2022

By Guillaume Chabert, Martin Cerisola, and Dalia Hakura
An improved common framework for debt treatment could clear a path through an increasingly complex creditor landscape.

Low-income countries face fewer debt challenges today than they did 25 years ago, thanks in particular to the Heavily Indebted Poor Countries initiative, which slashed unmanageable debt burdens across sub-Saharan Africa and other regions. But although debt ratios are lower than in the mid-1990s, debt has been creeping up for the past decade and the changing composition of creditors will make restructurings more complex.
 
Improvements to the Group of Twenty Common Framework for Debt Treatments—from which the 73 countries that were eligible for the G20 Debt Service Suspension Initiative (DSSI) in 2020-21 can now

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First Global Bank Stress Test Highlights Increased Financial Resilience

April 6, 2022

By Tobias Adrian, Vikram Haksar and Ivo Krznar
The world’s banking systems saw significant capital increases ahead of the pandemic and are resilient to very large shocks.

The Global Bank Stress Test is a major milestone in the IMF’s ability to gauge the impact of global shocks like the pandemic. Originally outlined in our October 2020 Global Financial Stability Report, it provides a first-of-its-kind assessment of potential shocks and spillovers to the world’s banks. And it’s also a useful new tool for central banks and financial regulators to consider the effects of global shocks on domestic systems.
The analysis in our new Departmental Paper on the global stress test includes a quarter century of bank-level data through 2020 for 257 of the largest lenders from across 24 advanced

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How Africa Can Navigate Growing Monetary Policy Challenges

April 4, 2022

By Tobias Adrian, Gaston Gelos, and David Hofman
Tools such as foreign exchange intervention can ease the effects of shocks but need to be carefully weighed against potential longer-term costs.
Sub-Saharan African countries face important monetary policy challenges. The pandemic dented economic growth, and even now the recovery is likely to leave output below the pre-crisis trend this year. Several countries in the region have also seen inflation increase, a challenge that is in some cases compounded by fiscal dominance emanating from high public debt levels.
Many of these economies may also face capital outflows as the major central banks in advanced economies withdraw policy stimulus and raise interest rates in the period ahead. The economic impact of the conflict raging in

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Tight Jobs Market Is a Boon for Workers But Could Add To Inflation Risks

March 31, 2022

By Romain Duval, Myrto Oikonomou and Marina M. Tavares
Labor shortages have pushed up wage growth, benefitting low-wage workers but adding to inflation risks. Bringing more workers back into the labor force would ease these pressures while making the recovery more inclusive.
By late 2021, there were 50 percent to 80 percent more unfilled jobs in Australia, Canada, the United Kingdom and the United States than there were prior to the pandemic. Open vacancies were at or above their 2019 levels in other advanced economies too, and have risen steadily across all sectors, including those that are more contact-intensive, such as hospitality and transportation. Increases in vacancies have been largest for low-skilled jobs.
The sharp rise in unfilled vacancies partly reflects how strong the

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Why the IMF is Updating its View on Capital Flows

March 30, 2022

By Tobias Adrian, Gita Gopinath, Pierre-Olivier Gourinchas, Ceyla Pazarbasioglu, and Rhoda Weeks-Brown
中文, Español, Français, Português, Русский
In some circumstances, countries should have the option of pre-emptively curbing debt inflows to safeguard macroeconomic and financial stability.
Capital flows can help countries to grow and to share risks. But economies with large external debts can be vulnerable to financial crises and deep recessions when capital flows out. External liabilities are riskiest when they generate currency mismatches—when external debt is in foreign currency and is not offset by foreign currency assets or hedges.
The dramatic capital outflows witnessed at the start of the global pandemic and recent turbulence in capital flows to some emerging markets following the

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Without Adaptation, Middle East and Central Asia Face Crippling Climate Losses

March 30, 2022

By Jihad Azour and Christoph Duenwald
عربي, Français, Русский
International cooperation is essential to manage the costs and maximize the benefits of adaptation, particularly for the most vulnerable countries.
Climate change is inflicting crippling losses in the Middle East and Central Asia, with poor and conflict-affected countries suffering the most from higher temperatures and extreme weather events.
In any given year since 2000, climate disasters have killed more than 2,600 people, affected 7 million others, and caused $2 billion in direct material damage.
A new IMF staff paper assesses the economic impact of climate change in the region and shows how adaptation policies have become a pressing priority. It underscores the need for international support to finance adaptation.

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Chart of the WeekHow Soaring Shipping Costs Raise Prices Around the World

March 28, 2022

By Yan Carrière-Swallow , Pragyan Deb, Davide Furceri , Daniel Jiménez and Jonathan D. Ostry
The sea carries more than 80 percent of the world’s traded goods, most of which sail inside 40-foot-long steel containers stacked by the thousands atop some of the largest vessels ever built.
The shock of the pandemic underscored just how crucial the maritime container trade is to the global economy. From Shanghai to Rotterdam to Los Angeles, the coronavirus upended supply chains. Ports lacked workers who were home sick. Truck drivers and ship crews couldn’t cross borders because of public health restrictions. Pent-up demand from huge stimulus programs during extended lockdowns overwhelmed the capacity of supply chains. Besides causing delays in getting goods to customers, the cost of getting

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Chart of the Week Special Purpose Entities Shed Light on the Drivers of Foreign Direct Investment

March 25, 2022

By Evrim Bese Goksu, Theo Bikoi, and Padma Hurree Gobin
Conventional wisdom on capital flows holds that foreign direct investment is for the long-term, while securities and other flows may be more volatile. However, as Olivier Blanchard and Julien Acalin conclude, a large proportion of measured foreign direct investment can be flows going in and out of a country on their way to a final destination. What explains this? The answer is special purpose entities (SPEs).
SPEs are legal entities set up to obtain specific advantages from a host economy, in which they have little to no employment, physical presence, or production. They are usually set up to benefit from low taxes but can be established for other reasons such as easier access to capital markets, financial services, and skilled

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Personal Income Tax Has Untapped Potential in Poorer Countries

March 24, 2022

By Dora Benedek, Juan Carlos Benítez, and Charles Vellutini
Developing countries have shown remarkable progress in using the personal income tax.
Many governments aiming to achieve a durable economic recovery from the pandemic must raise significant amounts of revenue in the fairest way possible. The personal income tax—levied on wages, salaries, and other income—is a suitable instrument for this challenge. In new research, we examine the scope for making greater use of this fiscal tool in developing countries, where many people earn a living at low incomes.
Still in its infancy, but growing
The personal income tax had become the predominant tax by the eve of World War II in many advanced economies, where it now raises approximately 9 percent of gross domestic product. In addition to

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Poor and Vulnerable Countries Need Support to Adapt to Climate Change

March 23, 2022

By Kristalina Georgieva, Vitor Gaspar and Ceyla Pazarbasioglu
عربي, Español, Português, Русский
The poorest countries face the greatest risks from climate change and require international support to finance adaptation.
All countries, rich and poor, must adapt to climate change. A recent report by the United Nations Intergovernmental Panel on Climate Change spelled out the dramatic consequences of failing to curb the rise in global temperature and adapting to a hotter planet. Adaptation should address risks from climate change and extreme weather, for example by safeguarding agriculture, managing the impact of rising seas, and making infrastructure more resilient.
The benefits of adaptation are sometimes difficult to estimate because they depend on specific factors such as how

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Pandemic’s E-commerce Surge Proves Less Persistent, More Varied

March 17, 2022

By Joel Alcedo, Alberto Cavallo, Bricklin Dwyer, Prachi Mishra, and Antonio Spilimbergo
Spikes in the share of online spending are dissipating overall, but there’s significant variation by industry
There’s no doubt that e-commerce helped many navigate the pandemic, from online shopping to curbside pickup to food delivery. But as we slowly emerge from lockdowns and other restrictions, it’s less clear how this shift to digital commerce may evolve across economies and industries.
This raises questions about how much digital consumption increased, whether the crisis widened the digital divide or spurred economies with little e-commerce to catch up, how permanent the shift to online sales will be, and what factors explain deviations between economies and sectors.
We investigated these questions

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Chart of the WeekWar-Fueled Surge in Food Prices to Hit Poorer Nations Hardest

March 16, 2022

By Christian Bogmans, Jeff Kearns, Andrea Pescatori and Ervin Prifti
Global food prices are poised to keep climbing even after jumping to a record in February, placing the heaviest burden on vulnerable populations while adding to headwinds for the global economic recovery.
Food commodity prices rose 23.1 percent last year, the fastest pace in more than a decade, according to inflation-adjusted figures from the United Nations Food and Agriculture Organization. February’s reading was the highest since 1961 for the gauge tracking prices for meat, dairy, cereals, oils, and sugar.
Now, the war in Ukraine and sanctions on Russia are upending shipments and possibly production for two of the world’s largest agricultural producers. The two countries account for nearly 30 percent of world wheat

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