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Dear Colleague,
In today's edition, we highlight:
- Europe's soft landing in sight
- Diversifying trade in the Middle East and Central Asia
- AI in Anguilla
- Japan's growth
- Kristalina Georgieva on AI, and much more
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EUROPE
(Credit: Monacoshots)
Europe has successfully navigated through a tumultuous period - Russia's invasion of Ukraine, a large energy shock, and the emergence of a more divided global economy - and a soft landing has now come within reach, said the IMF’s Alfred Kammer in a speech at the European Central Bank House of the Euro in Brussels, Belgium.
Europe's recovery, fueled by domestic demand, is firmly on track, he noted. However, this “puts the spotlight on what may be Europe’s more fundamental problem: to sustain the recovery and lift its still miserable-looking medium-term growth outlook,” Kammer said.
Europe’s critical weakness is low productivity, Kammer noted. “The way to higher growth may lead through the Single Market,” he said, citing a recent IMF study that finds that reducing remaining barriers to the Single Market for goods and services by 10 percent could raise European output by as much as 7 percentage points over the long term.
"Strengthening the Single Market along these dimensions will not only help growth—it is also the right answer to geoeconomic fragmentation as it strengthens resilience,” he said, noting that another benefit of a more deeply integrated Single Market is energy security. Kammer also called for advancement of the Capital Market Union to catalyze productivity growth, as well as stronger and more integrated labor markets.
“Europe has made immense progress in integration, economically and politically, yielding substantial benefits,” said Kammer. “The journey needs to continue without any further delay. A fully integrated Single Market would greatly enhance productivity and, as a result, the EU’s competitiveness. Undertaking the reforms to achieve a true Single Market would show once again how Europe can overcome even the most severe obstacles when acting decisively and together," he concluded.
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MIDDLE EAST AND CENTRAL ASIA
(Credit: donvictorio/iStock by Getty Images)
In the current uncertain landscape of international trade, strategic foresight and proactive policy reforms will be the key factors enabling Middle East and Central Asia countries to achieve trade and income gains, writes the IMF’s Jihad Azour in a new blog.
Building a more diversified trade profile—spanning partners, products, and routes—would significantly bolster the region’s ability to withstand disruptions. Shifting trade patterns also present a unique opportunity for countries to redefine their place in the global economic framework.
Countries in the Middle East and North Africa can mitigate ongoing shipping disruptions by improving their supply chain management, securing new suppliers in the most affected sectors, seeking alternate shipping routes, and assessing air freight capacity needs. Investing in transportation infrastrucÂture, including by developing innovative sea–land routes, would be important.
On the policy front, countries must tackle longstanding trade barriers arising from elevated nontariff restrictions, infrastructure inadequacies, and regulatory inefficiencies. Reducing nontariff trade barriers, boosting infrastructure investment, and enhancing regulatory quality could help increase trade by up to 17 percent on average over the medium term, Fund research shows, while economic output could be 3 percent higher.
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COUNTRY FOCUS
(Credit: DKosig/iStock by Getty Images)
Anguilla is receiving a fiscal boost from internet domain registrations, writes the IMF’s Flavien Moreau in a Country Focus article.
AI technologies like ChatGPT hold great promise to spur productivity growth and innovation globally. They have also generated an unusual boom in Anguilla, whose .ai country-code internet domain has become a favorite among technology companies across the world. Since the launch of ChatGPT in November 2022, registrations of .ai domain names have skyrocketed—surging from 144,000 registrations in 2022 to 354,000 in 2023, he writes.
Moreau also notes that, in 2023 alone, this surge in .ai domain registrations generated EC$87 million in revenue (approximately US$32 million)—just over 20 percent of the government's total revenue for the year. This marks a dramatic increase from previous years, when revenue from .ai domain registrations hovered around 5 percent. Looking ahead, the government expects revenue from .ai domain registrations to stabilize at around 15 percent of total government revenue, as the initial rush of registrations gradually slows.
Given that Anguilla is heavily dependent on tourism, with tourism activities accounting for 37 percent of GDP, the .ai domain registration boom is also playing an important role in diversifying the economy, thus making it more resilient to external shocks, Moreau adds.
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JAPAN
(Credit: IMF Photo/Noriko Hayashi)
The Japanese economy continues to grow after the pandemic, with broad-based price increases following three decades of low inflation, the IMF said in a statement marking the conclusion of the country’s Article IV consultation. Growth is expected to continue, with a pick-up in consumption later this year; however, growth is projected to decelerate to 0.9 percent in 2024, due to the fading of one-off factors supporting growth in 2023, including a surge in tourism. Risks to growth and inflation are broadly balanced, the statement noted.
In the statement, the Fund's Executive Directors emphasized the need for steadfast policy implementation against the longer‑term challenge of low productivity growth due to population aging and labor market rigidity. An aging and declining population will continue to be a major macroeconomic challenge in the medium to long term.
Directors also supported the key findings and policy recommendations of the 2024 Financial Sector Assessment Program. While welcoming the documentation of the resilience of Japan's financial system, they noted that market risks for financial institutions warrant close monitoring and potential vulnerabilities in parts of the real estate sector call for a macroprudential response.
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ARTIFICIAL INTELLIGENCE
(Credit: Vertigo3d/Getty Images Signature)
At an event in Zurich, Switzerland this week, IMF Managing Director Kristalina Georgieva emphasized the transformative impact of artificial intelligence (AI) hitting the labor market like a tsunami, Reuters reported. She noted that it could affect 60% of jobs in advanced economies and 40% globally within the next two years. Georgieva stressed the need for rapid preparation among individuals and businesses to maximize AI's potential benefits while mitigating its risks, such as misinformation and increased inequality.
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Conflict disrupts lives and economies everywhere, but recent IMF analytical work suggests the economic impact of conflict in the Middle East and Central Asia has proven larger and more persistent than in other regions. In this podcast, Ghassan Salamé (SciencesPo Paris), Mark Malloch-Brown (Open Society Foundations), and Rola Dashti (UNESCWA) discuss how the recent scourge of conflict and instability requires innovative thinking. The panel was held during the IMF-World Bank Spring Meetings and moderated by CNN International’s Julia Chatterley. |
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Weekly Roundup
STAFF PAPER
The bulk of African migration occurs within the continent: more than half of Africa’s migrants in 2017 lived in another African countries. The authors of this new staff paper examine the factors leading to this phenomenon. Their findings emphasize the significance of political (instability, ethnic tensions) and socio-demographic (human development, common language, population size and structure) factors, climate shocks, along with economic motivations, in driving intra-African migration.
STAFF PAPER
Technological innovation is a crucial catalyst for long-term economic growth and improved living standards, with labor productivity growth being a key determinant. However, the rapid advancement of automation raises concerns about its impact on labor markets. This new staff paper, which analyzes US commuting zones' exposure to automation from 2000-2007, shows that more generous unemployment insurance reduces the negative effect of automation on wages, particularly for workers without a college degree. Additionally, areas with high robot adoption see slight increases in poverty, alleviated by relatively more generous social assistance measures.
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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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