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Dear Colleague,
In this special edition of the Weekend Read, we conclude our coverage of the Spring Meetings with a statement by the IMFC, a seminar on capital flows, regional outlooks for Europe, Africa and Latin America, plus a conversation with Türkiye’s finance minister. The Weekend Read’s regular analysis of global economics, finance, development and policy issues shaping the world will resume in a fortnight’s time.
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(Credit: IMF Photo/Lewis Joly)
Economic activity has proved more resilient than expected in many parts of the world, but medium-term global growth prospects remain weak, Saudi Arabia’s finance minister Mohammed Aljadaan said in his chair’s statement following the 49th meeting of the International Monetary and Financial Committee (IMFC).
Unveiled at a press conference, Aljadaan’s statement stressed the need to achieve price stability, strengthen fiscal sustainability, and safeguard financial stability, while promoting inclusive and sustainable growth.
“Ongoing wars and conflicts continue to impose a heavy burden on the global economy,” the statement said.
It underscored the importance of international cooperation to improve the resilience of the global economy and the international monetary system.
“We will act collectively, as appropriate, to support climate and digital transitions, including artificial intelligence, while accounting for country-specific circumstances.”
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(Credit: IMF Photo/ Tom Brenner)
The global environment continues to be beset by large shocks and this is causing large swings in capital flows. But Gita Gopinath told a seminar on Friday that the disruptive effects of these swings on economies are much more muted than in earlier episodes.
“There hasn’t been a major crisis in the emerging markets….because emerging and developing countries have developed much stronger macro policy frameworks to be able to deal with shocks,” the IMF’s first deputy managing director said.
Even so, emerging markets’ share of global capital flows has fallen, from about 25 percent before the pandemic to 20 percent today. The share of flows going to the United States, meanwhile, has risen to 33 percent from 18 percent.
Gopinath was joined on stage by Brazilian central bank governor Roberto Campos Neto, South African central bank governor Lesetja Kganyago, the Bank of England’s Catherine Mann, and Şebnem Kalemli-Ozkan of the University of Maryland.
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(Credit: IMF Photo/Sarah Silbiger)
European Department director Alfred Kammer said a “soft landing” for the region is in sight but not assured, and reforms are needed to close a large productivity gap with the United States.
The department’s latest outlook projects growth for the region as a whole of 1.6 percent this year and 2 percent in 2025, with growth in the euro area strengthening from 0.8 percent to 1.5 percent.
The European Central Bank is expected to start cutting interest rates in June as euro-area inflation slows from 2.4 percent in 2024 to 2.1 percent in 2025.
At a press conference on Friday, Kammer called on European policymakers to focus on productivity, a key reason for a relative decline in the continent’s per-capita income, which is now one-third lower than in the US.
The Fund’s recommendation is to deepen the single market, which was a “growth booster” in the 1990s, Kammer said.
This should extend beyond proposals for banking and capital market union to a “whole host” of other issues, including border friction, labor mobility and the portability of education certificates, he added.
A 10-percentage-point reduction in these internal barriers could lift the level of GDP by seven percent, Kammer said of the payoff from reforms to strengthen the single market.
“This needs to be done and it needs to be done with urgency.”
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Expectations for inflation in major economies over the next year or two—implied by the difference between nominal and inflation-linked government bond yields—have been climbing again. Importantly, they remain above central bank target levels in several important economies.
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(Credit: IMF Photo/Kate Brooks)
TĂĽrkiye’s most pressing economic priority is to restore price stability, but the country also faces challenges from conflict in the region, the finance minister said on Thursday. Â
Mehmet Şimşek told a Governor Talk that the country’s reforms had won back the confidence of international investors, as evidenced by a narrowing of its bond spreads.
But he added that the government must also tighten its fiscal stance to provide more support to central bank in curbing inflation, which is currently running at more than 60 percent.
“Bringing inflation back to single digit is our top priority,” Şimşek said.
The finance minister also discussed geopolitics and their impact on the outlook. Conflict creates uncertainty and can affect the whole region through more expensive energy imports and higher risk premiums, he said.
While Türkiye had seen some benefits from “friend-shoring” policies, Şimşek stressed the importance of returning to a rules-based international order in which free trade could once again drive economic prosperity.
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(Credit: IMF Photo/Valerie Plesch)
After four challenging years and multiple shocks, sub-Saharan Africa’s economy appears to be on the mend, African Department director Abebe Selassie said at a briefing on the regional outlook.
The department expects the region’s economic growth to rise to 3.8 percent in 2023, from 3.4 percent last year. After peaking at almost 10 percent in late 2022, inflation has nearly halved to around 6 percent in the early part of the year.
Yet far too many countries still face a funding squeeze, with government interest payments now accounting for about 12 percent of revenues, more than double the level a decade ago, Selassie said.
As well as stressing the important of international support, he highlighted three policy priorities for governments in the region: improve public finances, with an emphasis on domestic revenue mobilization; sustain the focus on reducing inflation wherever inflation remains well above target; and implement reforms that enhance skill development, spur innovation, improve the business environment, and promote trade integration.
“With the right policy choices today, I am confident that this moment could set the stage for this century to be the African century.”
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(Credit: IMF Photo/Tom Brenner)
Western Hemisphere director Rodrigo Valdés said strengthened macroeconomic frameworks had propelled the region’s rebound from the pandemic but pointed to policy challenges to come.
In its latest regional outlook, the department said growth in Latin America and the Caribbean would weaken to 2.0 percent this year from 2.3 percent in 2023, before strengthening to 2.5 percent next year. Inflation is receding but remains a concern, projected at 12.7 percent this year and 6.5 percent next year.
“It will be important to carefully calibrate the pace of easing to strike a balance between durably bringing inflation back to target in the final stretch and avoiding an undue economic contraction,” Valdés told reporters at a press conference.
To address high public debt, fiscal policy should focus on rebuilding policy space and timely consolidation. Urgent action is needed to raise potential growth, requiring structural reforms, governance enhancement, and climate change strategies, Valdés said.
He also noted that addressing crime and violence is crucial for social and economic advancement.
“Maintaining social cohesion should be a centerpiece of fiscal consolidation plans given the region’s still high levels of poverty and inequality.”
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IMF Today
Ceyla Pazarbasioglu, Director of the Strategy, Policy, and Review Department, and Julie Kozack, Director of the Communications Department, offer a comprehensive analysis of the developments that unfolded during the meetings.
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