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Dear Colleague,

In today's edition, we highlight:

• World economic outlook
• Inflation risk to financial markets
• Tuvalu's resilience to rising seas
• West Indian cricket
• Exchange arrangements and restrictions

The Weekend Read will be on holiday in August but returns in September with more IMF analysis of the global economy and policy issues shaping the world.

WORLD ECONOMIC OUTLOOK

Global Economy on Track but Not Yet Out of the Woods

(Credit: Quietword/Adobe Stock)

The global economy continues to gradually recover from the pandemic and Russia’s invasion of Ukraine but many challenges cloud the outlook, the IMF’s chief economist writes in a blog on this week’s update to the World Economic Outlook.

Pierre-Olivier Gourinchas says that economic activity in the first quarter of the year proved resilient, as energy and food prices fell sharply from their war-induced peaks, allowing global inflation pressures to ease faster than expected. Financial instability following the March banking turmoil remains contained thanks to forceful action by the US and Swiss authorities, he adds.

Under the IMF’s baseline forecast, growth will slow from last year’s 3.5 percent to 3 percent this year and next, a 0.2 percentage points upgrade for 2023 from our April projections. Global inflation is projected to decline from 8.7 percent last year to 6.8 percent this year, a 0.2 percentage point downward revision, and 5.2 percent in 2024.

WORLD ECONOMIC OUTLOOK

Global growth losing momentum

Signs are growing that global activity is losing momentum, as tightening of monetary policy has brought policy rates into contractionary territory, the IMF's chief economist tells a press conference on the World Economic Outlook Update. Read the transcript.

FINANCIAL STABILITY

Inflation Remains Risk Confronting Financial Markets

(Credit: Blue Planet Studio/Adobe Stock)

Financial conditions have eased recently, creating a challenge for central banks in their efforts to get inflation back to their 2 percent targets, IMF Financial Counsellor Tobias Adrian writes in a blog.

Despite continued monetary policy tightening by the Federal Reserve and European Central Bank, financial conditions—as proxied by financing costs faced by firms and households in housing, credit, and equity markets—have eased notably in the United States and euro area in recent quarters in part reflecting investors’ relatively benign outlook for price pressures.

While financial conditions are currently tighter than the extremely loose levels seen in mid-2021, the recent easing may complicate the fight against inflation by preventing the slowdown in aggregate demand that may be needed to tamp down inflation pressures, Tobias Adrian says in the blog co-authored by Fabio Natalucci and Jason Wu.

TUVALU

Island Nation Needs to Build Resilience Amid Rising Seas

(Credit: Adobe Stock)

Tuvalu’s population of 11,000 is spread across nine Pacific islands that rise less than five meters above sea level, underscoring its extraordinary challenges from climate change.

In a Country Focus article, the IMF’s Diego Cerdeiro, Roman Merga and Chris Redl say that the nation’s long-term prospects depend on the world’s collective ability to prevent destructive global warming scenarios because it may become uninhabitable by the end of this century as a result of rising seas under a high global emissions scenario.

“Such scenarios pose an existential threat to Tuvalu, just as they do to hundreds of millions around the world also living close to sea level. Ultimately, Tuvalu’s climate change plight underscores the responsibility of the global community to urgently step-up efforts to reduce global emissions.”

CURRENCY NOTES

For The Love Of Cricket

(Credit: William Vanderson/Getty Images)

When the central bank of Barbados was thinking through which features to prioritize as part of a recent redesign of its banknotes, the top priority was that the notes be authentically Barbadian. “Each note talks about our history, geography, and culture,” says Octavia Gibson, director of the bank’s currency and payments oversight department.

And what could be more Barbadian than cricket? It’s a sport in which the country has traditionally excelled. So it’s fitting that the Barbadian $5 note features cricket legend Frank Worrell. Together with Everton Weekes and Clyde Walcott, Worrell was one of the famous “Three W’s”—the strongest middle-order batters in the world at the time.

Read Analisa Bala’s Currency Notes article from the December 2022 issue of Finance & Development Magazine on Barbados’ $5 banknote that pays tribute to the man who united West Indian cricket.

The European Central Bank could prevent inflation expectations from becoming unmoored and drifting upwards by continuing to raise its policy rate, IMF European Department Director Alfred Kammer wrote in a blog on Monday. As the Chart of the Week shows, the ECB Governing Council could prevent high inflation from becoming entrenched by raising rates further. Inflation would converge more rapidly towards the 2 percent target and interest rates could then fall at a faster pace.

Weekly Roundup

ANNUAL REPORT

Exchange Arrangements and Restrictions

Can foreigners own real estate in China? What imports and exports require special licenses in South Africa? Who can lend to whom in Iceland? The answers to these questions—and many others—are only a few clicks away in AREAER Online. This database provides the IMF’s survey of countries’ trade and exchange regimes.

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.