Read more about the article China’s economic rebalancing

China’s economic rebalancing

China’s growth trajectory in the second decade of the century has been one of a rebalancing toward a new growth pattern, one in which domestic consumption is to rise relative to investments and exports, while a drive toward consolidating local insertion up the ladder of value added in global value chains also takes place. Services should also keep rising relative to manufacturing. Declining GDP growth rates from two digits in previous decades to 6% in 2019 - and likely lower ahead – would be the counterpart to rising wages and domestic mass-consumption, and to the transition toward higher weights of services and high tech. We point out two major challenges in the rebalancing. First, the transition toward a less investment- and export-dependent growth model has been taking place from a starting point of exceptionally low consumption-to-GDP ratios. Besides high profit-to-wages ratios, low levels of public social protection and spending lead to high household savings. An additional challenge comes from the lack of progress in rebalancing between private- and state-owned enterprises, something that is taking a toll on productivity.

Continue ReadingChina’s economic rebalancing
Read more about the article Trade globalization

Trade globalization

In the 1990s and 2000s, the world manufacturing production to a substantial extent moved from advanced countries to some developing countries. This was the result of the combination of an increase of the labor supply in the global market economy, trade opening, and technological transformations that allowed for fragmentation of production processes. As a result, foreign trade expanded, and world poverty diminished. Such trade globalization process stabilized in the 2010s and tends to be partially reversed by the new wave of technological changes.

Continue ReadingTrade globalization
Read more about the article Climbing a High Ladder – Development in the Global Economy

Climbing a High Ladder – Development in the Global Economy

This book approaches the opportunities and challenges faced by developing countries to raise their per capita income levels during the recent phase of globalization. After dealing with the post-global financial crisis economic landscape in advanced economies, it deals with the windows of opportunity opened by trade and financial globalization for developing countries to climb the income ladder. Domestic preconditions for a developing country to benefit from those windows are then pointed out. China, Brazil, and Sub-Saharan Africa are presented as case studies. The book ends with an assessment of the impact of the coronavirus crisis on the global economy.

Continue ReadingClimbing a High Ladder – Development in the Global Economy
Read more about the article Why a Weaker Dollar Might Be Good for Emerging Markets?

Why a Weaker Dollar Might Be Good for Emerging Markets?

There is currently a convergence of views that, gradually or not, US current account deficits and insufficient domestic savings tend to slide down the relative value of the dollar. Four “channels of dollar transmission” explain why there is a negative correlation between the dollar's strength and economic growth of emerging market economies. A dollar depreciation against a wide basket of currencies in 2021 would likely be welcome by emerging economies.

Continue ReadingWhy a Weaker Dollar Might Be Good for Emerging Markets?
Read more about the article Global Economy and Coronavirus: 2 videos

Global Economy and Coronavirus: 2 videos

The global economic activity has climbed up since June but there are signs that the recovery may be losing momentum. Instead of a V, U, W, or L, a square root as a recovery shape looks more likely, as we approached before in this series. And the crisis is likely to leave deep, unequal scars on segments of the labor market, while a reallocation of resources among sectors is already taking place

Continue ReadingGlobal Economy and Coronavirus: 2 videos
Read more about the article Quantitative easing in emerging market economies

Quantitative easing in emerging market economies

The pandemic global financial shock has sparked the inclusion of QE as a policy tool also available for central banks of EME. Nonetheless: - QE targets are on the yield structures of interest rates. If there are fragilities leading to high basic, short-term interest rates, QE will not get much in terms of results. - QE should not raise concerns about “fiscal dominance”, because otherwise it will be self-defeating. Capital outflow pressures may exacerbate. - A prolonged stay of central banks as buyers in local currency bond markets may distort market dynamics. A permanent role of the central bank as a market maker, especially in primary markets, will impair the development of the domestic financial market. Consideration should also be given to the effect of asset purchase programs on possible overvaluation of assets, as well as on collateral availability in the banking system and its impact on the policy rate transmission

Continue ReadingQuantitative easing in emerging market economies
Read more about the article Whither Interest Rates in Advanced Economies: Low for Long?

Whither Interest Rates in Advanced Economies: Low for Long?

The action of central banks has been more reactive than proactive, more reflex than cause, and in their absence, macroeconomic performance would have been even more mediocre than it has been. There is a mismatch between the trend of increasing stocks of financial wealth, occasionally cut by shocks and crises, and the creation and incorporation of new assets accompanying economic expansion. COVID-19 is helping reinforce such trends.

Continue ReadingWhither Interest Rates in Advanced Economies: Low for Long?
Read more about the article Global imbalances, coronavirus, and safe assets

Global imbalances, coronavirus, and safe assets

The International Monetary Fund (IMF) released, on August 4th, its ninth annual External Sector Report, where current account imbalances and asset-liability stocks of 30 systemically large economies are approached. This time the report went beyond looking the previous year and tried to anticipate what will be some of the impacts of the still on-going COVID-19 crisis. The report shows that the global economy entered the COVID-19 crisis with a configuration of external imbalances that has persisted since 2013, with a corresponding elevation of stocks of foreign assets and liabilities. While the outbreak of COVID-19 has brought a deep contraction to world trade and a substantial realignment of exchange rates, the IMF does not expect dramatic changes in the picture of global imbalances, differently from the aftermath of the Global Financial Crisis (GFC) of 2018-19. Additionally, we should take note of how country-level mismatches between demand and supply of safe assets, leading to cross-border flows and imbalances, may also be affected.

Continue ReadingGlobal imbalances, coronavirus, and safe assets
Read more about the article The economic recovery from coronavirus may look like a square root

The economic recovery from coronavirus may look like a square root

(text + video) Success in crossing the coronavirus crisis will be measured by the proximity - but not return - to the previous GDP trajectory. Thereafter, the task will be to deal with structural unemployment created by changing consumption patterns, increased levels of poverty in much of the world, the concentration of income, the challenges posed by digitalization and the tendency towards relative deglobalization. One should add the need to move toward a “green recovery”. The calculation of the square root will depend on the policies applied in each country.

Continue ReadingThe economic recovery from coronavirus may look like a square root
Read more about the article The Impact of Coronavirus on the Global Economy

The Impact of Coronavirus on the Global Economy

COVID-19 brought the global economy to a sudden stop, causing shocks to supply and demand. Starting in January 2020, country after country suffered outbreaks of the new coronavirus, with each facing epidemiological shocks that led to economic and financial shocks as a consequence. How quickly and to what extent will national economies recover after the pandemic has passed? This will depend on success in containing the coronavirus and on exit strategies, as well as on the effectiveness of policies designed to deal with the negative economic effects of the coronavirus. The impact of coronavirus on the global economy will extend beyond 2020. According to forecasts from the International Monetary Fund and World Bank, GDP per capita at the end of 2021 is still expected to be lower than December 2019 in most countries. Emerging markets and other developing countries, in addition to facing difficulties in dealing with their own coronavirus outbreaks, have suffered additional shocks from abroad. In their cases, the new coronavirus brought a perfect storm. One can foresee a post-coronavirus global economy marked by higher levels of public and private debt, acceleration in digitization processes, and less globalization.

Continue ReadingThe Impact of Coronavirus on the Global Economy
Read more about the article Shapes of post-coronavirus economic recovery

Shapes of post-coronavirus economic recovery

Data recently released on the first-quarter global domestic product (GDP) performance of major economies have showed how significant the impact of COVID-19 has been on economic activity and jobs, with large contractions across the board. The ongoing global recession is poised to be worse than the “great recession” after the 2008-09 global financial crisis, especially from the standpoint of emerging market and developing economies. The depth and speed of the GDP decline will rival that of the Great Depression of the 1930s. But how swiftly will national economies recover once the pandemic has passed? And when will that happen? That will depend on how successful the containment of coronavirus and exit strategies will be, as well as on how cost-effective will be the policies designed to deal with the negative economic effects of coronavirus.

Continue ReadingShapes of post-coronavirus economic recovery
Read more about the article More than one coronavirus curve to manage: infection, recession and external finance

More than one coronavirus curve to manage: infection, recession and external finance

The global reach of COVID-19 is now clear. In a short time, country after country has suffered outbreaks of the new coronavirus, with each facing a three-fold shock: epidemiologic, economic, and financial. In addition to dealing with their own local coronavirus outbreaks, emerging market and developing countries have faced additional shocks from abroad.

Continue ReadingMore than one coronavirus curve to manage: infection, recession and external finance
Read more about the article Lost in Transition – Developing Countries in the Global Economy

Lost in Transition – Developing Countries in the Global Economy

The growth and productivity performance of emerging market and developing economies (EMDEs) in the last 10 years failed to repeat the achievements of the previous decade. Besides frustrating expectations that they might become the new growth pole in the global economy, their convergence to per capita incomes of advanced economies has suffered a setback. Nonetheless, the path of policies and reforms to be pursued in that direction remains the same.

Continue ReadingLost in Transition – Developing Countries in the Global Economy