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Dear Colleague,
In today's edition, we highlight:
- Africa’s economic losses from fragmentation
- Asia's contribution to global growth
- Kristalina Georgieva on financial stability risks
- The DRC's natural wealth and energy transition
- Climate shocks and economic performance
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SUB-SAHARAN AFRICA
(Credit: IMF Photo/Andrew Caballero-Reynolds)
Sub-Saharan Africa stands to lose the most if the world splits into two isolated trading blocs centered around China or the United States and the European Union, IMF economists Qianqian Zhang and Ivanova Reyes write in a Country Focus article.
Sub-Saharan African economies could experience a permanent decline of up to 4 percent of gross domestic product after 10 years in this severe scenario, larger than the losses many countries experienced during the global financial crisis, according to the authors’ estimates in the IMF’s latest regional outlook.
These losses could be compounded if geopolitical tensions cut off capital flows between trade blocs, with the region losing about $10 billion in foreign direct investment and official development assistance, they add.
“Economic and trade alliances with new economic partners, predominantly China, have benefited the region but have also made countries reliant on imports of food and energy more susceptible to global shocks.
“If geopolitical tensions were to escalate, countries could be hit by higher import prices or even lose access to key export markets—about half of the region’s value of international trade could be impacted.”
IMF Managing Director Kristalina Georgieva discussed Africa's Continental Free Trade Area in Nairobi on Friday, alongside World Trade Organization chief Ngozi Okonjo-Iweala and senior officials from Kenya and Morocco. Watch here.
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MANAGING DIRECTOR AT MILKEN INSTITUTE
Financial stability risks
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Kristalina Georgieva spoke to Bloomberg’s Stephanie Flanders about rising interest rates, excessive deregulation, digital currencies and risks to financial stability at the Milken Institute’s Global Conference in Los Angeles. The managing director also discussed China’s increasing clout in debt restructuring negotiations and the importance of strengthening developing economies’ representation at the IMF. |
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ASIA AND PACIFIC
(Credit: Vijay/Adobe Stock)
Global banking stress has so far had only a limited impact on Asian markets, Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department, told a press conference in Hong Kong.
Speaking at a launch of the department’s Regional Economic Outlook, Srinivasan said that Asian banks and investors had minimal exposure to Silicon Valley Bank and their equity prices have made up most of the losses following the global selloff caused by the failure of the California-based lender.
But Srinivasan said pockets of private-sector financial stress may be emerging due to increased leverage and risks from the real-estate sector.
“Asian financial systems should be able to withstand these stresses, being well capitalized and with strong liquidity buffers, but financial supervisors will need to remain alert.”
Srinivasan also spoke to Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, about the economic outlook for Asia and the Pacific. Watch here.
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Asia and the Pacific is a relative bright spot amid the more context of the global economy’s rocky recovery. As the Chart of the Week shows, the region will contribute about 70 percent of global growth this year—a much greater share than in recent years. Growth in Asia and the Pacific is forecast to accelerate to 4.6 percent from 3.8 percent last year, according to our latest regional outlook. The main development has been the reopening of China, where surging consumption is boosting growth across the region despite weaker demand from the rest of the world.
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MIDDLE EAST AND CENTRAL ASIA
(Credit: IMF Photo)
Despite a series of global shocks, the economies of the Middle East and Central Asia proved resilient in 2022. But growth is expected to slow this year—and potentially next—amid tight policies to fight inflation which is projected to remain persistent.
Authorities will need to calibrate the policy mix carefully to reduce core inflation without triggering financial stress, Jihad Azour, Director of the IMF’s Middle East and Central Asia Department, told a press conference in Dubai to launch the latest regional economic outlook.
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The Democratic Republic of the Congo faces many development challenges, but the country’s natural wealth has the potential to lift more people out of poverty and help the world make the transition to renewable energy. In a podcast, IMF African Department head Abebe Aemro Selassie sits down with DRC’s Minister of Finance Nicolas Kazadi to discuss the country’s pivotal role in the fight for climate preservation and sustainable development. Their conversation took place as part of the Governor Talks series during the IMF’s Spring Meetings. |
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FINANCE & DEVELOPMENT MAGAZINE
(Credit: IMF/Pete Reynolds)
The latest edition of F&D Magazine focuses on New Directions for Monetary Policy. Authors include Gita Gopinath, Raghuram Rajan, Markus Brunnermeier, Masaaki Shirakawa, Christoffer Koch, Greg Kaplan, Giancarlo Corsetti, Michael Weber, Claudio Borio, and many more.
Want to get a print copy delivered to your home or office?
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Weekly Roundup
FRAGMENTATION
Reviving multilateral cooperation is essential for long-term growth everywhere, Kristalina Georgieva told the Brussels Economic Forum on Thursday. The IMF managing director said that recent supply-chain disruptions and Russia’s invasion of Ukraine had added to national security concerns and prompted countries to try to reduce vulnerabilities by reshoring production. But these trends are creating a more fragmented world with real economic costs, she said. “While the domestic gains can be alluring, in the long term, everybody loses from global fragmentation.”
CAPACITY DEVELOPMENT
The IMF on Thursday held the first climate capacity development forum with its partners, dedicated to helping countries address climate-related economic policy challenges. Deputy Managing Director Bo Li highlighted ways the Fund has stepped up climate-related technical assistance and training since the adoption of its climate strategy in 2021 and invited partners to share their capacity-development priorities. “Capacity development helps ensure countries deliver on their climate policy goals,” he said.
STAFF PAPER
Inflation and growth respond significantly but also differently to climate shocks, according to a recent IMF staff paper. Temperature shocks result in lower inflation, but droughts and storms lead to higher inflation. All types of climate shocks have a negative impact on economic growth, but the magnitude and pattern of response show variation over the long run. Looking forward, it is important for policymakers to consider how the green transition away from fossil fuels, as an important part of climate change mitigation efforts, will affect inflation and growth dynamics.
STAFF PAPER
The rise or fall of a country’s currency has a greater impact on domestic prices during periods of high inflation and elevated uncertainty. That’s the finding of a new staff paper which analyzes the experience of a large sample of advanced and emerging-market economies over the past 30 years. This “pass-through” effect is also higher when exchange-rate fluctuations are driven by US monetary policy, the authors conclude.
STAFF PAPER
Analysis from a recent IMF staff paper shows that revenues from mining can be crucial for long-run development. Focusing on gold-rich Guinea but drawing implications for other countries, the paper also finds that education and infrastructure policies are complementary: without education, infrastructure policy has a small and mixed impact on poverty and inequality; yet without infrastructure, more education erodes the returns from education even leading to more informality in rural areas. Policymakers must consider the balance between investing in “hard” infrastructure such as roads and other social infrastructure that builds human capital.
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MAY 11, 5:00 AM ET
Subir Lall, the IMF’s Deputy Director of the Middle East and Central Asia Department, will launch the latest Regional Economic Outlook for the Caucasus and Central Asia at the National Bank of Kazakhstan.
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Thank you again very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar. |
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