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Dear Colleague,
In today's edition, we highlight:
- China's economy
- Georgieva on global economic cooperation
- AI and the Next Economic Downturn
- Energy security in Europe
- New F&D coming soon, and much more
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CHINA
(Credit: IMF Photo/Raul Ariano)
China's economic development over the past few decades has been remarkable, but these achievements have been accompanied by imbalances and headwinds to growth have emerged, said IMF First Deputy Managing Director Gita Gopinath in a press conference on China’s Article IV consultation.
“The authorities recognize these challenges and are focused on achieving high quality growth,” said Gopinath. “In our view, a more comprehensive policy approach would help China navigate the headwinds facing the economy.”
The Fund projects that China's economy will grow by 5 percent in 2024 and 4.5 percent in 2025. This reflects upward revisions of 0.4 percentage points for both years compared to the April World Economic Outlook projections, driven by a strong first quarter GDP growth in 2024 and recent policy measures.
The ongoing housing market correction, necessary for steering the sector towards a more sustainable path, must continue, said Gopinath, welcoming measures the authorities have implemented to guide the property market transition, including recent policy announcements regarding lending support for affordable housing.
Near-term macroeconomic policies should be geared to support domestic demand and mitigate downside risks, she said, and fiscal policy should prioritize providing one-off central government financial support for the real estate sector. The monetary policy easing implemented so far in 2024 is welcome but there is scope for further easing, Gopinath noted.
Achieving high quality growth will require structural reforms, with key priorities including rebalancing the economy towards consumption by strengthening the social safety net and liberalizing the services sector to enable it to boost growth and create jobs, said Gopinath.
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GLOBAL ECONOMY
(Credit: IMF Photo)
Global economic cooperation may face headwinds but is here to stay, said IMF Managing Director Kristalina Georgieva in a speech in Venice, Italy this week. Upon accepting the award as first recipient of the Ugo la Malfa Prize for International Cooperation from the UniversitĂ Ca Foscari Venezia, the Enciclopedia Treccani, and the Fondazione Ugo La Malfa, Georgieva underscored her unshakeable optimism for the road ahead.
She outlined four reasons for optimism, noting that first, international cooperation as conceived at Bretton Woods has delivered profound human progress; second, technological progress, including artificial intelligence, and wealth accumulation continue ever faster in an immeasurably more intertwined and co-dependent world than in 1947; third, diverse world leaders appear to pragmatically agree that they benefit from having safe places to talk, including at the Fund’s Spring and Annual Meetings; and fourth, the world is coming to grips with the universal threats of climate change and environmental destruction and must fact these threats together.
“I am deeply convinced that the zig zags of history take us up and forward. …As a graduate of Karl Marx University in then communist Bulgaria, and now the head of the IMF, I am evidence that anything is possible,” Georgieva concluded.
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ARTIFICIAL INTELLIGENCE
(Credit: ITU)
With AI’s promise come significant risks; most warnings to date have focused on security, privacy, misinformation, and ethical concerns. However, one risk has received much less attention: the risk that AI could exacerbate economic crises, IMF First Deputy Managing Director Gita Gopinath said this week.
Speaking at the AI for Good Global Summit in Geneva, Gopinath noted that widespread use of AI could turn an ordinary downturn into a deep and prolonged economic crisis by causing large-scale disruptions in labor markets, in financial markets, and in supply chains.
Gopinath described three actions that can help: making sure tax systems do not inefficiently favor automation over people; taking measures to help workers cope with the impacts of AI; and adopting measures to lower financial and supply-chain amplification risks.
Policymakers should be closely tracking how AI is being developed and adopted and should also create and analyze a wide range of potential scenarios on how AI might impact economies. Unless policymakers better understand how AI impacts the economy, they could be “flying blind” in the next recession, said Gopinath.
“As our research demonstrates, there is a lot that policymakers can do to mitigate the threat of an AI amplified economic crisis—while at the same time harnessing the technology’s enormous potential for good,” Gopinath concluded.
Watch the IMF’s Marina Mendes Tavares and Crystal Rugege, Managing Director of the Rwanda Centre for the Fourth Industrial Revolution on IMF Today during this year's Spring Meetings, where they dissected the dual nature of AI: its disruptive force across industries and its capacity to fuel economic growth.
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ENERGY
(Credit: dusanpetkovic/iStock by Getty Images)
Europe’s policymakers reacted swiftly when Russia’s invasion of Ukraine triggered the worst energy crisis since the 1970s by securing alternative gas supplies, improving energy efficiency and expanding renewables.
Skeptics said this approach would increase the cost of energy, phase out safe (albeit dirty) domestic coal more rapidly, and ultimately weaken the continent’s energy security.
Were they right? In a paper published this week, IMF European Department economists say that climate action delivers sizable energy security benefits.
An illustrative climate policy package that cuts emissions by 55 percent compared with 1990 levels would improve Europe’s energy security metrics by 8 percent by 2030, their research shows.
Doubling down on climate policies will ensure the continent remains a global leader on the path to net zero and will also secure abundant clean energy supplies to power economies into the future, the authors say.
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FINANCE & DEVELOPMENT
(Credit: IMF)
The world has changed markedly since the IMF was founded 80 years ago. In the forthcoming June issue of Finance & Development, we explore how the IMF can adapt to remain effective.
Authors include Kristalina Georgieva, Ceyla Pazarbasioglu, Raghuram Rajan, Mia Amor Mottley, William Ruto, Pablo GarcĂa-Silva, Harold James, Martin Wolf, Adam S. Posen, Edwin M. Truman, Masood Ahmed, Axel A. Weber, Anna Postelnyak, RĂ©ka Juhász, Nathan Lane, Mark Aguiar, James M. Boughton, Atish Rex Ghosh, Andrew Stanley, Adam Jakubik, Elizabeth Van Heuvelen, Henny Sender, Melinda Weir, Vivek Arora, Douglas A. Irwin, and Lisa Kolovich.
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While African countries have little to do with what’s causing the climate crisis, they are feeling the brunt of the extreme weather patterns and left footing a climate-mitigation bill they can’t afford. Michael Olabisi is an assistant professor at Michigan State University and studies sustainable development in low-income countries. In this podcast, Olabisi says climate change is a global challenge and it’s high time the world’s advanced economies start treating it as such.
Read Paying Africa’s Climate Bill in Finance & Development magazine.
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Weekly Roundup
GUINEA-BISSAU
On May 29, Prime Minister of Guinea-Bissau Rui Duarte de Barros, Minister of Finance IlĂdio Vieira TĂ©, and the IMF's Concha Verdugo-Yepes jointly launched a blockchain platform to strengthen wage bill management. This achievement, made possible through an IMF capacity development project supported by several partners, will enhance government operations in wage bill management, strengthen fiscal transparency, and tackle governance vulnerabilities in the country. Guinea-Bissau – a fragile state – is one of the first countries in sub-Saharan Africa to use this technology, which could help build trust in fiscal institutions and increase accountability.
CENTRAL BANKS
Central banks have come under increasing criticism for large balance sheet losses associated with quantitative easing (QE), and some observers have also argued that QE helped fuel the post-COVID-19 inflation boom. The IMF’s Tobias Adrian discussed some new perspectives on quantitative easing and central bank capital policies, as well as presented a framework for assessing QE, at the recent Reykjavik Economic Conference. Also of interest is the new IMF Working Paper, New Perspectives on QE and Central Bank Capital Policies.
STAFF PAPER
Approximately half of the world’s population suffers from reduced water availability for at least part of the year. And worsening drought conditions can intensify macroeconomic challenges in fragile and conflict-affected states (FCS). A new staff paper investigates the long-term effects of worsening drought conditions on macroeconomic outcomes in FCS. The results highlight the risks posed to FCS’ food security by worsening drought conditions. For example, food production in FCS is found to be twice as sensitive to drought conditions than in other countries, and inflation in FCS appears to be seven times more sensitive to droughts than other countries.
STAFF PAPER
The share of e-commerce in total credit-card spending boomed in Spain during the COVID-19 pandemic. A new staff paper notes that women, youth, and urban consumers in particular used e-commerce proportionally more during the pandemic, especially for services, and explores conjectures about consumers’ behavior (based on fear, hoarding, or learning) during this period. The paper finds that the use of e-commerce reverted to its pre-pandemic trend across all groups as the pandemic and attending containment measures waned, but the authors also observe that some consumers with lower pre-COVID usage have tended to permanently use more e-commerce.
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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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