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  • IMF Lowering Expectations for Growth in China

    The IMF released its economic outlook for China this morning, and the big takeaway is that IMF economists have lowered their expectations for economic growth. The Chinese economy has, once again, shown its resilience in the midst of a difficult external environment, buoyed by robust corporate profitability and rising household incomes. However, net exports will prove to be a significant drag on growth in the coming two years, with the current account surplus remaining at 3–4 percent of GDP. As a result, growth is expected to fall to 81⁄4 percent this year (from 9.2 percent in 2011), gathering speed in the latter part of this year and rising to 83⁄4 percent in 2013. Here is a look at the IMF's GDP growth projections for China this year: And here is one look at the importance of exports to China's economy: While China weathered the Global Economic Recession of 2008-2009 relatively well, the big concern is that Europe's economic woes will hit China harder this time around. Read the IMF's China Economic Outlook here . (Hat tip Reuters )

  • IMF Chief Economist on Fiscal Measures for Europe

    Olivier Blanchard , Chief Economist at the IMF , sees a lot to be worried about in the global economy. But first and foremost are the troubles in Europe. He has his firm opinion on what needs to happen to mitigate greater crisis, and the key institution in his mind is the European Central Bank. Blanchard had Tea with the Economist and discussed his take on what measures should be taken, and also on the role of Wall Street today:

  • The IMF and Europe's Need for Capital

    The next few weeks are crucial for the state of the European Union economy. A lot needs to happen, and just about all of it requires an influx of euros, says University of Chicago Booth Business School professor of finance Raghuram Rajan . But where will the money come from? It is hard to see Germany or other solid economies putting up enough euros given the current political climate. So Rajan urges us to look toward his former employer, the IMF. From Ragan's commentary at Project Syndicate : Indeed, the eurozone’s problems might soon become too big for its members to address. The world has a stake in their resolution. And it has an institution that can channel help: the International Monetary Fund. The IMF could set up a special vehicle along the lines of its New Arrangements to Borrow (NAB), which would be capitalized by a first-loss layer from the EFSF with the IMF’s own capital comprising a second layer. This NAB-like vehicle could borrow as needed from countries, including the United States and China, as well as tap financial markets. It would offer large lines of credit to illiquid countries like Italy, with conditionality intended to help such countries resume borrowing from markets at reasonable cost. A special vehicle is required because the amounts that must be made available far exceed what IMF members can usually access, and it is only right that if the eurozone seeks such amounts for its members, it should bear a significant portion of any potential losses. At the same time, the Fund’s capital resources would back the vehicle if the first-loss buffer provided by the eurozone were eroded; that way, the market would understand that strength from outside the eurozone can be brought to bear. Read A Standby Program for the Eurozone here .

  • The IMF Growth Tracker Showing Moderating Growth Across Global Economy

    The IMF's World Economic Outlook shows a worrying global economic slowdown, led by Europe and the US. Among the many causes cited for slowing economic activity is the lack of demand in the private sector. The IMF's researchers suggest that they expected a quicker "handover from public to private demand." The tsunami and earthquake damage in Japan also bears some of the blame, as do disruption in oil supplies in North Africa this year. A lasting, and troubling factor is the lack of confidence on the part of consumers and businesses in developed economies of the West. The ripple effects of the dip in confidence are being felt around the globe. Note the impact on growth, as shown in the IMF's Growth Tracker : From the report: Worryingly, various consumer and business confidence indicators in advanced economies have retreated sharply, rather than strengthened as might have been expected in the presence of mostly temporary shocks that are unwinding. Accordingly, the IMF’s Growth Tracker (Figure 1.4, top panel) points to low growth over the near term. WEO projections assume that policymakers keep their commitments and the financial turmoil does not run beyond their control, allowing confidence to return as conditions stabilize. The return to stronger activity in advanced economies will then be delayed rather than derailed by the turmoil. Read the World Economic Outlook, and watch video of the IMF staff discussing their findings, here .

  • Latin American Economies Relatively Strong, but Still Exposed to Risk from Europe, US

    Luis Moreno , president of the Inter-American Development Bank , says Latin America now has a "pretty good macroeconomic picture." This helps protect the relatively healthy Latin American economies from the problems in Europe and the US--Moreno calls it a "buffer." But it does not mean that they are not affected. Ahead of this weekend's IMF Meetings , Moreno spoke with The Economist 's Matthew Bishop about potential danger to Latin American economies from Europe's debt crisis and reasons for optimism looking forward:

  • Lagarde: 'Global Risks Are Rising, But There Is a Path to Recovery'

    While those of us on the East Coast were watching the weather this weekend, top economists from around the globe were still at the Jackson Hole Economic Policy Symposium , listening to the new head of the IMF , Christine Lagarde give what Felix Salmon called "the most important speech of the meeting, by far." Lagarde gave her vision for what European and American leaders need to do to stave off a most damaging double-dip recession. From the speech: Two years ago, it became clear that resolving the crisis would require two key rebalancing acts—a domestic demand switch from the public to the private sector, and a global demand switch from external deficit to external surplus counties. On the first, the idea was that strengthened private sector finances would allow the engine of growth to switch back from the public to the private sector. On the second, the idea was that higher demand in surplus countries would make up for a lower spending path in deficit countries. But the actual progress on rebalancing has been timid at best, while the downside risks to the global economy are increasing. Those risks have been aggravated further by a deterioration in confidence and a growing sense that policymakers do not have the conviction, or simply are not willing, to take the decisions that are needed. Developments this summer have indicated that we are in a dangerous new phase. The stakes are clear: we risk seeing the fragile recovery derailed. So we must act now. It is a matter of vision, courage and timing. Decisive action will bolster the confidence that is required to restore and rebalance global growth. We are not without options. We know what needs to be done to support growth, reduce debt, and prevent further financial crises. But we need a new approach—based on bold political action, with a comprehensive plan across all policy levers, implemented in a coordinated global way. Read the speech here .

  • IMF Research Conference on Macro and Growth Policies

    Yesterday the IMF concluded a conference titled Macro and Growth Policies in the Wake of the Crisis . And now video is available from the sessions. IMF Managing Director Dominique Strauss-Kahn opened the conference by discussing "questions raised by the pre-crisis consensus on macroeconomic policy," and the need for international cooperation: There are several other sessions to watch. We have not been through all of the video yet, but based on what we have seen so far, we recommend yesterday's session titled "Growth Strategies." It features George Akerlof, Dani Rodrik, Paul Romer, Andrew L T Sheng, and Michael Spence . It is a timely talk. But also time consuming. We recommend you at least watch Dani Rodrik 's opening comments, in which the Harvard Kennedy School professor outlines some of the ways the crisis has reshaped what we know about growth policies globally (starts at 4:00): You can read more about the conference, and access all the video here .

  • Martin Baily on Why Ireland's Struggles Matter to US

    Dublin-based RTE reported yesterday that the EU and IMF bailout package for Ireland's ailing economy will total 85 billion euro. Standard and Poor's lowered Ireland's bond rating from AA to A . And now the euro has fallen to two-month low against the dollar. Bad news for Ireland and the Euro-zone. But also bad news for the US, says Brookings Senior Fellow Martin Baily , who sees instability in Europe as a real threat to US recovery: For more of Baily's analysis of the impact of European struggles on US recovery, click here .

  • Romer: It is Not Yet Time for Austerity Measures

    Christina Romer , chair of President Obama's Council of Economic Advisers until last month, is back at her post in the University of California-Berkeley's economics department. And she will be writing a column for the New York Times (in the Sunday Business section). Her first column hit newsstands (wherever there are still newsstands) yesterday. In it, Romer argues that, while cutting the federal deficit is important, "now is not the time." Some advocates of austerity argue that, contrary to the conventional view, fiscal tightening now would lower long-term interest rates and improve confidence so much that the impact could be positive. But an ambitious new study in the World Economic Outlook of the International Monetary Fund confirms that fiscal consolidations — that is, deliberate deficit reductions — typically reduce growth substantially. The study considers a wide range of advanced economies over the last three decades, so it doesn’t put too much weight on unusual episodes or focus on examples supporting particular conclusions. It also breaks new ground by looking specifically at times when governments changed taxes or spending with the aim of reducing deficits. Previous studies looked at summary measures of the budget situation, and likely included cases when strong economic performance caused lower deficits, not the other way around. The recent experience of countries already carrying out austerity measures is consistent with the central finding of the I.M.F. study. Ireland, Greece and Spain have all had rising unemployment after moving to cut deficits. Taking budget actions now that would further increase unemployment would be not only cruel, but also short-sighted. The longer unemployment remains high, the more likely it is to become permanent as workers’ skills deteriorate and they gradually drop out of the labor force. Such a situation would be terrible for both the affected workers and the long-run budget situation. Imagine a patient with a slow-growing tumor who is also recovering from pneumonia. The outcome is likely to be worse if the patient is not given time to recover before undergoing surgery. Read Now Isn’t the Time to Cut the Deficit here .

  • Roubini: Sovereign Debt, Lack of Significant Reform Mean Global Economy Remains at Risk

    Nouriel Roubini commends Congress for some of its recent reform efforts, but he does not believe that the federal government has done enough to avert financial crises in the future. The global economy remains highly vulnerable, and Roubini argues that not only the US government, but also the IMF, can do more to police systemic risk. He discussed his concerns about coming crises, during this Tea with The Economist :

  • IMF Economists Argue for Stimulus AND Austerity

    For much of the year, the public debate among economists and policymakers in Europe has been over whether it is time for austerity measures or more stimulus. Olivier Blanchard and Carlo Cottarelli --chief economist and head of fiscal affairs, respectively, at the IMF --write in today's Financial Times that both are necessary: The future goal is to achieve what the G20 terms “strong, sustainable, and balanced growth” . This surely requires a return to fiscal sustainability, which demands credible medium-term fiscal plans. The first goal should be to stabilise debt-to-GDP ratios. To do this over the next five years means an average improvement in structural budget deficits of 1 per cent a year in G20 countries. Continuing roughly at this rate for five more years and then stabilising would bring down average debt levels to 60 per cent of GDP by 2030. None of this should be controversial. Indeed, the divisions between fiscal tightening advocates and their opponents are often more apparent than real. The former are usually really talking about tightening in the 2011 budget cycle; from a fiscal standpoint, 2010 is already behind us. The latter are not always opposed to lower deficits in 2011, given the scale of the current stimulus that is now being withdrawn as planned. Still, some clearly prefer more front-loaded consolidation, others less. Front-loaders point to the need to maintain credible fiscal policy, which is hard to gain and easy to lose. They note that market perceptions of fiscal health can shift in a heartbeat, so countries must move pre-emptively. Read The great false choice, stimulus or austerity here .

  • EU/IMF Panel: Greece's Reform Effort Off to a 'Strong Start'

    Some rare good news out of Greece today, as a review panel made up of staffers from the IMF , the EU , and the European Central Bank gave a tentative thumbs-up to the country's economic reform efforts. As part of the IMF/EU relief program, Greece will be going through quarterly review processes. The panel's visit was the first such review, and, according to the IMF press release, "the overall assessment is that the program has made a strong start." In the fiscal area , the authorities have kept spending significantly below budget limits at the state level. This has offset slippages caused by problems in controlling expenditures at the sub-national level (local governments, hospitals, social security funds), and the overall deficit target for end-June was met. Going forward, to address potential risks to fiscal targets, it is critical to tighten expenditure control and monitoring, in particular at sub-national levels. Another key challenge is to further strengthen tax administration, including to reduce tax evasion by high-income and wealthy individuals. This is essential to secure tax revenues and to promote the overall fairness of the adjustment program. In the financial sector , there has been a moderate deterioration in capital adequacy as nonperforming loans have increased in line with expectations. Recently, the CEBS stress tests covered more than 90 percent of Greek banking system assets and all but one state-owned bank passed, thus helping to reduce market volatility. We welcome that the government has commissioned a strategic review for the banking sector and a due diligence for state banks. The Financial Stability Fund (FSF), which is soon to become operational, will provide an important backstop to deal with potential capital shortfalls. In our view, the 10 billion euro earmarked for the FSF under the program remains adequate. Continued close monitoring of the financial sector will be important in the period ahead. Impressive progress is being made on structural reforms . The mission welcomes Parliament's approval of the landmark pension reform, which is far-reaching by international standards. Substantive labor market reform is also well underway. Implementation of recent tax reform and budget reform is key in order to consolidate fiscal consolidation. Other reforms that are scheduled for early implementation are transportation, where important progress has already been made with liberalization of road haulage, and energy. Restoring competitiveness and boosting potential growth remains critical to the program's success. The challenge facing the government in this regard will be to overcome resistance from entrenched vested interests to opening-up of closed professions, deregulation, implementation of the services directive, and elimination of barriers to development of tourism and retail. Read the release here .

  • Simon Johnson Argues For Shrinking 'Too Big To Fail' Banks

    Simon Johnson--Professor of economics at MIT , a member of the Panel of Economic Advisers for the Congressional Budget Office , former chief economist for the IMF --and his co-conspirator at Baseline Scenario , James Kwak --formerly a McKinsey consultant and now a student at Yale Law School--came out with a new book this spring. 13 Bankers follows a theme that Johnson has been pushing for the last few years: the danger of concentrated financial power. He spoke about the book, and his argument that the 'too big to fail' banks need to be harnessed before financial crisis hits yet again, in this Thoughtcast interview: Simon Johnson Defies 13 Bankers "Too Big to Fail" from thoughtcast on Vimeo . For more on 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown , including an excerpt, click here .

  • IMF Managing Director Commends Greece's 'Ambitious Policy Package'

    The Greek government's plan for repairing its debt-ridden economy got the okay from the European Central Bank and the International Monetary Fund this weekend. As a result, Greece will be the recipient of a $146 billion financing package . While this has not exactly been cause for celebration in Greece or throughout the EU, IMF Managing Director Dominique Strauss-Kahn praised Greece's "ambitious policy package" yesterday. In an official IMF statement, he said the government recognized that reform needed to be based on the two strong "pillars" of "fiscal policy and pro-growth measures": A combination of spending cuts and revenue increases amounting to 11 percent of GDP—on top of the measures already taken earlier this year—are designed to achieve a turnaround in the public debt-to-GDP ratio beginning in 2013 and will reduce the fiscal deficit to below 3 percent of GDP by 2014. Measures for 2010 involve a reduction of public sector wages and pension outlays —which are unavoidable given that those two elements alone constitute some 75 percent of total (non-interest) public spending in Greece. “Pro-growth measures will be aimed at modernizing the economy and boosting its competitiveness so that it can emerge from the crisis as quickly as possible. Steps include strengthening income and labor markets policies; better managing and investing in state enterprises and improving the business environment. Reforms to fight waste and corruption—eliminating non-transparent procurement practices, for example--are also being undertaken. You can find several helpful resources for understanding the IMF's work with the Greek government here .

  • IMF's Blanchard on 'Multi-Speed Recovery'

    New reports from the International Monetary Fund paint a picture of steady global recovery. The latest World Economic Outlook projects 4.2% growth, globally, in 2010. That's abig jump from the 0.3% forecast in January. And the Global Financial Stability Report shows "risks to financial stability have subsided.," (though the report is clear that the global marketplace will continue to feel "short term strains"). Both reports point to many potholes in the road to recovery. IMF Director of Research Olivier Blanchard describes the growth as "weak," and "slow," but "healthy." And as he discusses in this short interview, the speed of recovery will be different from country-to-country: Read more from Blanchard here .
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