By Tobias Adrian and Fabio Natalucci
During the pandemic, central banks in both advanced and emerging market economies took unprecedented measures to ease financial conditions and support the economic recovery, including interest-rate cuts and asset purchases.
With inflation at multi-decade highs in many countries and pressures broadening beyond food and energy prices, policymakers have pivoted toward tighter policy. As our Chart of the Week shows, central banks in many emerging markets proactively started to hike rates earlier last year, followed by their counterparts in advanced economies in the final months of 2021.
The monetary policy cycle is now increasingly synchronized around the world. Importantly, the pace of tightening is accelerating in several countries, particularly in advanced economies, in terms of both frequency and magnitude of rate hikes. Some central banks have begun to reduce the size of their balance sheets, moving further...
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Targeting programs during childhood is the best way to increase upward economic mobility
A defining feature of the American Dream is upward mobility—the ability of all children to have a chance at economic success, no matter their background. Unfortunately, children’s chances of earning more than their parents have declined in recent decades. Whereas 90 percent of children born in 1940 grew up to earn more than their parents, only half of today’s young adults earn more than their parents did at the same age. Our research group focuses on understanding which policies can help expand economic opportunity—both in the United States and elsewhere.
The key lesson from our work to date is the importance of targeting policy interventions during childhood. Childhood matters for two reasons. First, children’s environment growing up profoundly shapes their outcomes in adulthood. Second, policies that directly expand investment in...
By P. Bhanumati, Mark de Haan, and James William Tebrake
Emissions of carbon dioxide and other greenhouse gases plunged 4.6 percent in 2020, as lockdowns in the first half of the year restricted global mobility and hampered economic activity. Many hoped that this would mark the beginning of a more permanent shift downwards in emissions.
The latest data, however, dashed those hopes. As the Chart of the Week shows, annual global greenhouse gas emissions rebounded 6.4 percent last year to a new record, eclipsing the pre-pandemic peak as global economic activity resumed.
Emissions from the manufacturing and the energy sectors contributed the most to recent global increases based on updated information from the IMF’s Climate Change Indicators Dashboard—a joint effort among national and international statistical organizations to provide timely data to help monitor the transition to lower carbon use.
While total emissions have climbed significantly...
The International Monetary Fund (IMF) is reviewing the implementation of the 2018 Framework for Enhanced Engagement on Governance (“the Governance Framework”). The Governance Framework is designed to promote more systematic, effective and candid engagement with member countries regarding governance vulnerabilities, including corruption. The Review aims to assess the implementation of the Governance Framework over the past five years, based on the candidness, effectiveness and evenhandedness (i.e., equitable treatment of similarly-situated countries) of IMF engagement and policy advice. It also provides an opportunity to improve implementation. A report presenting the findings of the Review will be submitted to the IMF’s Executive Board in Spring 2023 for consideration.
A Background Note summarizes key elements of the 2018 Governance Framework, as well as the methodology and areas of focus for the upcoming Review.
The IMF values stakeholder engagement and...
A tentative recovery in 2021 has been followed by increasingly gloomy developments in 2022 as risks began to materialize. Global output contracted in the second quarter of this year, owing to downturns in China and Russia, while US consumer spending undershot expectations. Several shocks have hit a world economy already weakened by the pandemic: higher-than-expected inflation worldwide––especially in the United States and major European economies––triggering tighter financial conditions; a worse-than-anticipated slowdown in China, reflecting COVID- 19 outbreaks and lockdowns; and further negative spillovers from the war in Ukraine.
The baseline forecast is for growth to slow from 6.1 percent last year to 3.2 percent in 2022, 0.4 percentage point lower than in the April 2022 World Economic Outlook. Lower growth earlier this year, reduced household purchasing power, and tighter monetary policy drove a downward revision of 1.4 percentage points in the...
By Giovanni Ganelli, Pau Rabanal and Niamh Sheridan
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The war in Ukraine and resulting increase in commodity prices are expected to contribute to a further widening this year.
The lingering pandemic and Russia’s invasion of Ukraine are dealing a setback to the global economy. This is affecting trade, commodity prices, and financial flows, all of which are changing current account deficits and surpluses.
Global current account balances—the overall size of deficits and surpluses across countries—are widening for a second straight year, according to our latest External Sector Report. After years of narrowing, balances widened to 3 percent of global gross domestic product in 2020, grew further to 3.5 percent last year, and are expected to expand again this year.
Larger current account balances aren’t necessarily negative on their own. But global excess balances—the portion not...
By Tobias Adrian and Fabio Natalucci
During the pandemic, central banks in both advanced and emerging market economies took unprecedented measures to ease financial conditions and support the economic recovery, including interest-rate cuts and asset purchases.
With inflation at multi-decade highs in many countries and pressures broadening beyond food and energy prices, policymakers have pivoted toward tighter policy. As our Chart of the Week shows, central banks in many emerging markets proactively started to hike rates earlier last year, followed by their counterparts in advanced economies in the final months of 2021.
The monetary policy cycle is now increasingly synchronized around the world. Importantly, the pace of tightening is accelerating in several countries, particularly in advanced economies, in terms of both frequency and magnitude of rate hikes. Some central banks have begun to reduce the size of their balance sheets, moving further...
- The war aggravated already surging commodity prices. Energy and food helped boost inflation last year, with oil and gas supplies tight after years of subdued investment and geopolitical uncertainty. This was a main inflation driver in Europe and, to a lesser extent, the United States. Rising food prices also played a major role in most emerging market and developing economies, as extreme weather reduced harvests and mounting oil and gas prices drove up fertilizer costs. Demand surged last year amid policy support, while supply bottlenecks grew on factory closures, port restrictions, shipping congestion, container shortages and worker absences. Inflation rose as a result, especially where recoveries were strongest. Demand should soften this year as policy support is withdrawn and supply bottlenecks ease, but China’s recurrent lockdowns, war in Ukraine, and sanctions on Russia will likely prolong disruptions in some sectors into next year. Demand is also rebalancing from goods to...
Global current account balances—the overall size of current account deficits and surpluses—continued to widen in 2021 to 3.5 percent of world GDP, and are expected to widen again this year. The IMF’s multilateral approach suggests that global excess balances narrowed to 0.9 percent of world GDP in 2021 compared with 1.2 percent of world GDP in 2020.
The pandemic has continued to affect economies’ current account balances unevenly through the travel and transportation sectors as well as a shift from services to goods consumption. Commodity prices recovered from the COVID-19 shock and started rising in 2021 with opposite effects on the external position of exporters and importers, a trend that the war in Ukraine is exacerbating in 2022.
The medium-term outlook for global current account balances is a gradual narrowing as the impact of the pandemic fades away, commodity prices normalize, and fiscal consolidation in current account deficit economies progresses....
By Tobias Adrian, Patrick Bolton and Alissa M. Kleinnijenhuis
The world may gain an estimated $78 trillion over coming decades by making this energy transition.
International negotiators can’t agree on how to phase out coal, in part because of opposition to carbon taxes, and now even countries that had been able to abandon the fuel are reversing that progress as the war in Ukraine raises energy prices.
The most common concern about scrapping coal is that replacing it with renewable energy would be too expensive, but we show in new research that the economic benefits would far outweigh the costs.
We analyze this great carbon arbitrage, as we call it, in a recent working paper that calculates the cost of replacing coal with renewables, as well as the social benefits of this important transition. The benefits from ending coal use come from avoiding damage from climate change and harm to people’s health. Our estimate is that by doing so the...
By Simon Black, Ian Parry and Karlygash Zhunussova
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As the world gears up to avoid a climate catastrophe by limiting global warming to 1.5 to 2 degrees Celsius, more countries are putting carbon pricing at the center of their mitigation strategies. Yet designing ways to put a price on carbon can be complicated and countries face multiple choices.
The Chart of the Week shows the expansion of carbon pricing schemes. So far, 46 countries are pricing emissions through carbon taxes or emissions trading schemes (ETS) and others are considering it.
Globally, ETSs and carbon taxes cover 30 percent of emissions, with prices rising as high as $90 per ton (in the European Union).
Despite the proliferation of carbon pricing schemes, policymakers should do more. To limit global warming, coverage must expand while prices rise from a global average of $6 per ton of CO2 today to $75 by 2030.
Policymakers considering introducing or scaling up...
- Nowcasting, or forecasting of the present, is especially promising for developing economies where statistical authorities may not release indicators frequently. At the IMF, we have developed an approach that pairs high-frequency data with machine learning, a kind of artificial intelligence, to provide economic-growth nowcasts and help policymakers make better decisions.
By Pierre-Olivier Gourinchas
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The world’s three largest economies are stalling, with important consequences for the global outlook. Inflation is a major concern.
The global economy, still reeling from the pandemic and Russia’s invasion of Ukraine, is facing an increasingly gloomy and uncertain outlook. Many of the downside risks flagged in our April World Economic Outlook have begun to materialize.
Higher-than-expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions. China’s slowdown has been worse than anticipated amid COVID-19 outbreaks and lockdowns, and there have been further negative spillovers from the war in Ukraine. As a result, global output contracted in the second quarter of this year.
Under our baseline forecast, growth slows from last year’s 6.1 percent to 3.2 percent this year and 2.9 percent...
In many regions, internet-free access may be a make-or-break feature for central bank digital currencies
As the world’s central banks rush to develop digital currencies, almost all the research and trials focus on internet-based technology. What will happen when the web goes down in a war or a natural disaster? And what about the 75 percent of the world’s adult low-income population that doesn’t even have internet access (World Bank Findex Database)?
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