• China's economy grew 4.7% in Q2, with a target set at 5% for 2024. • Challenges include real estate sector exhaustion, local government debt, domestic demand, and external resistance to exports. • The Third Plenum highlights reforms for housing, fiscal policy, and addressing challenges, but lacks focus on stimulating consumption.
IMF projects China's economic growth at 4.6% and 4.1% for this year and next. China's official target is 5%. Six challenges to China's economic growth include the real estate sector, local government debt, domestic demand, external resistance to China's exports, change in foreign investor sentiment, and demographic decline. Despite challenges, China's economic growth remained steady in Q1 2024, with exports and manufacturing investment compensating for the drag from the property sector.
When countries face external financial shocks, they must rely on financial buffers to counter such shocks. The global financial safety net is the set of institutions and arrangements that provide lines of defense for economies against such shocks. From any individual country standpoint, there are three lines of defense in their external financial safety nets: international reserves, pooled resources (swap lines and plurilateral financing arrangements), and the International Monetary Fund. We argue here that there is a need to extend and facilitate access to the ultimate global financial safety net layer: the IMF. We illustrate that by pointing out how Morocco and Mexico have boosted their defensive power by having access to IMF precautionary lines of credit.
Pairs of countries have agreed to settle commercial and financial transactions with each other in their local currencies, usually facilitated through bilateral agreements between their central banks. China has been able to use its currency to settle half of its foreign trade and investment transactions. The growing use of local currencies in external payments will be part of what we have already called a “slow and bounded de-dollarization”. A partial fragmentation of the global payments system is underway.
The economic factors that have propelled global prosperity over the past three decades are losing their grip. The aging and slow growth of the global workforce are highlighted as downward factors, explaining half of the expected slowdown in potential GDP growth through 2030. What should countries do in the face of this prospect of a “lost decade”?
Q&A on emerging markets and the multiple shocks faced by them in 2022
Latin America's recovery after the perfect storm should not be limited to a simple return to pre-pandemic "mediocre" levels of output growth. Investments in green infrastructure, exploring areas of digital connectivity opened by the pandemic, and improving the business environment and education can lead to more resilient, inclusive, and dynamic growth patterns.
Chinese economic figures released since August’s beginning have shown a slowdown in its growth. New Omicron coronavirus outbreaks in the context of the Covid-zero policy, the housing slump and heat waves have been decelerating the economy’s pace. China’s current growth slowdown is an additional step in the trajectory of gradually declining rates that has accompanied the “great rebalancing” since the beginning of the 2010s. One major difference now is the perception of exhaustion of waves of overinvestment in real estate and infrastructure as a lever, as compared to three previous moments since the beginning of the last decade.
1. Emerging Markets: Economic and Geopolitical Fragmentation 2. LatAm in Focus: How Latin America Is Fighting Inflation 3. Sustainability (Soaring Fertilizer Prices; Brazil's Commitment to Sustainability; UN sustainability goals and developing countries) 4. Slowbalization, Reshoring, Nearshoring, & Friendshoring
In addition to hikes in basic interest rates, liquidity conditions in the US economy will also be affected by the shrinking of the Fed's balance sheet starting this month. The "quantitative easing" (QE) that resumed strongly in March 2020, in response to the financial shock at the beginning of the pandemic, will now give way to a "quantitative tightening". How complementary - or substitute - will be those movements in interest rates and balance sheet downsizing? What are their likely consequences on capital flows to emerging markets?
(A) OECD Economics Department Webinar: Policy Challenges for Emerging Market Economies (B) A Perfect Storm for the Global Economy? (C) Otaviano Canuto discusses the May Day marches in Latin America
The world food price index collected for the last 60 years by the United Nations Food and Agriculture Organization (FAO) hit its highest record in March, declining gently in April. Pandemic, war and death in Ukraine, and droughts in the last 2 years… Such a combination looks apocalyptical. Now it is adding global hunger risks, because of the food price crisis. The fiscal fragility inherited from the pandemic limits public programs to deal with issues in many developing countries.
Commodity prices stabilized in April. However, the previous commodity price shock, intensifying trends that have been present since mid-2020, have already led to significantly higher price levels in 2022. The new jumps made the increase in energy prices in the last two years the biggest in the last fifty years, since the oil shock in 1973. The war in Ukraine and the shock of energy commodity prices have not been favorable to the energy transition, as seen in the race for coal.
The "World Economic Outlook" report released by the International Monetary Fund (IMF) on April 19 depicted a worsening in the global economic scenario for 2022: lower economic growth and higher inflation than the January projections. As the Director-General Kristalina Georgieva said in the previous week, the war in Ukraine represented a "substantial setback" for the global economic recovery. Emerging market and developing economies (EMDE) face a common set of external shocks: rising energy and food prices; tightening in global financial conditions caused by the prospect of sharper interest rate hikes and anticipation of "quantitative tightening"; and return of restrictions on mobility in China, on account of the Covid zero policy, leading to slumping in growth and weakening one of the primary growth drivers for the other EMDE. However, the impacts of those common shocks on EMDE have been heterogeneous.
The Covid-19 crisis has led to major disruptions in Global Value Chains. In this episode, Otaviano Canuto answers questions about the impact on the design of post-covid industrial policies and underlines the components that should be considered by policymakers to ensure a quick and sound economic recovery along with a regional integration that plays a role in this new industrial organization scheme.