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Showing posts with label International Monetary Fund. Show all posts
Showing posts with label International Monetary Fund. Show all posts

Tuesday 17 October 2023

IMF sees China remains biggest contributor driving global growth of economy

 

Robot arms make automobiles in a factory in Qingdao, East China's Shandong province on Dec 20, 2022. [Photo/Xinhua]

Country to remain biggest contributor to global growth 

Economic engine: Cargo ships at Qingdao port in China. — AFP

China will likely remain the biggest contributor to global growth this year and next despite recent economic headwinds from the real estate sector, the International Monetary Fund said on Friday.

Steven Barnett, senior resident representative of the IMF in China, said although the fund has revised down its GDP growth forecast for China, the country is expected to contribute roughly one-third of global growth this year and next.

According to the IMF's World Economic Outlook in October, global economic output is forecast to expand by 3 percent this year, to which China is expected to contribute 0.9 percentage point, Barnett said.


He made the remarks at a launch of the publication in Beijing on Friday. The event was organized by the IMF Resident Representative Office in China and the International Monetary Institute at the Renmin University of China.

By comparison, the United States is forecast to contribute 0.3 percentage point while India's contribution might be 0.5 percentage point, Barnett told China Daily on the sidelines of the event.

In 2024, China is forecast to contribute 0.8 percentage point of the 2.9 percent global growth, just under one-third and still higher than 0.2 percentage point of the US and 0.5 percentage point of India, he said.

The WEO, published on Tuesday, has lowered the 2023 economic growth forecast for China to 5 percent from 5.2 percent, citing the pressures brought by the weakness in the real estate sector.

According to Zou Lan, head of the People's Bank of China's monetary policy department, the country's real estate market has recently seen positive changes, with reviving housing market transaction activity in key cities and marginal improvements in home sales and market expectations.

In terms of credit, real estate development loans and personal mortgages issued by major banks increased by more than 100 billion yuan ($13.68 billion) in September compared with August, Zou said at a news conference on Friday.

Zou also said the central bank's efforts to reduce the interest burden of existing mortgages have made rapid progress as 49.73 million in mortgages — representing 98.5 percent of the mortgages eligible for interest rate reduction and worth 21.7 trillion yuan in total — had interest rates reduced during the week starting Sept 25.

The weighted average interest rate of those mortgages decreased by 0.73 percentage point on average to a weighted average of 4.27 percent, Zou said, adding the alleviated interest rate burden will help boost investment and consumption.

While China faces real estate headwinds, it has the scope to boost the economy by reorienting fiscal stimulus to consumer spending and implementing further monetary accommodation given the lack of inflationary pressure, Barnett said.

To boost medium-term growth, it is critical for China to accelerate structural reforms, without which China's growth could slow to 3.4 percent in 2028, resulting in a slightly lower contribution to global growth of less than a quarter, Barnett said.

Ruan Jianhong, a PBOC spokeswoman, said China's central bank will continue to implement a sound monetary policy in a targeted and effective manner, aiming for overall and lasting improvements in economic performance.

Ruan said the country's macroeconomic leverage ratio came in at 291 percent for the second quarter of the year, up 9.4 percentage points compared with the end of last year and up 1.5 percentage points from the end of the first quarter.

Adding to signs that China's economic recovery is gaining momentum, financing activity picked up in September as the increment in aggregate social financing — the total amount of financing to the real economy — amounted to 4.12 trillion yuan, up by 563.8 billion yuan from a year earlier, the PBOC said on Friday.

The amount was also up from 3.12 trillion yuan in August and beat the market expectations of about 3.7 trillion yuan.


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Sunday 22 July 2012

Economic Slowdown in developing nations

Emerging economies are being affected adversely by the European and US economic situations. 

DEVELOPING countries are increasingly being affected adversely by the economic recession in Europe and the slowdown in the United States.

The hope that major emerging economies like China, India and Brazil would continue to have robust growth, decoupling from Western economies and becoming an alternative engine of global growth, has been dashed by recent data showing that they are themselves weakening.

Just as during the 2008-2010 global crisis, a decline in exports caused by falling Western demand is the main way in which the developing countries are being hit.

Inflows of capital into developing countries have also slowed down, and a reversal to a new outflow situation may well take place. The lending conditions of banks in emerging economies have also deteriorated, according to a banking industry survey.

Recent reports confirm the slowdown in many major developing economies.

In China, growth of the gross domestic product fell to 7.6% in the second quarter of this year, denoting a continuous deceleration from 10.4% in 2010, 9.2% in 2011 and 8.1% in first-quarter 2012.

The IMF has lowered its growth projection for India to 6.1% for this year. This compares to 6.5% last year and 8.4% in the previous two years.

The Singapore economy contracted 1.1% in the second quarter over the previous quarter at an annualised rate, mainly due to manufacturing output falling by 6%.

For Malaysia, the growth rate for this year is projected to be 4.2% by the Malaysian Institute of Economic Research. This is lower than last year’s 5.1%, which had also slowed to 4.7% in the first quarter.

In Indonesia, the Central Bank said growth was slowing and projected this year’s rate to be 6.2%, compared with 6.5% last year (and 6.3% in the first quarter).

In South America, two of the largest economies are also facing decelerating growth prospects.

For Brazil, the government has lowered its growth projection for this year to 3% (from 4.5% earlier), but the IMF’s latest growth estimate is even lower at 2.5%. Growth last year was 2.7%; industrial production declined by 4.3% in the 12 months to May.

Argentina had one of the fastest growing economies in the world. Growth was 8.9% in 2011, and the average annual growth was 7.6% in 2003-2010.

But the economy contracted by 0.5% in the 12 months to May. Industrial production in June fell 4.4% on the year due mainly to a 31% decline in the auto sector.

In South Africa, growth in the first quarter was 2.7% over the previous quarter, which was down from the 3.2% growth of fourth-quarter 2011.

Last Friday, new World Bank President Jim Yong Kim warned that the debt crisis in Europe would hurt most regions in the world. He predicted that if a major European crisis developed, growth in developing countries could be cut by 4% or more.

Even if the eurozone crisis is contained, it could still reduce growth in most of the world’s regions by as much as 1.5%.

Also last week, the International Monetary Fund in its latest world economic outlook gave a downbeat picture of how developing countries were being affected adversely by the European and US economic situations.

It warned that the ability of governments worldwide to respond to the new slowdown had become limited. And while the withdrawal of capital from developing countries was not at critical levels, there could be problems for some if conditions deteriorated.

The prevailing view of prospects for developing economies has almost suddenly changed from their being emerging leaders of the global economy to being victims of the Western slowdown.

A paper by Yilmaz Akyuz, chief economist of the South Centre, shows that the theory of the “staggering rise of the South” had vastly exaggerated the developing countries’ decoupling from the economic fortunes or misfortunes of the developed countries.

Much of the high growth in developing countries in the past decade had been due to the favourable external conditions generated by Western countries.

High consumption growth in the US was a main basis for the high growth of manufactured exports from China and other East Asian countries, and these together enabled the boom in commodity prices that lifted growth in Africa and South America.

The boom in capital flows into major developing countries also helped to fuel their growth and covered the current deficits of several of them.

The 2008-09 global crisis slowed down developing countries’ export growth and reversed capital flows, but the strong anti-recession actions (fiscal stimulus, low interest rates and expansion of liquidity) in developed countries resulted in the resumption of export growth and capital inflows in developing countries.

However, with the developed countries ending their reflationary policies and switching to austerity budgets, with their low interest rates having little effect, recessionary conditions in Europe are now impacting adversely on developing countries.

With the positive conditions that supported the South’s rise no longer in place but instead turning negative, developing countries’ prospects have dimmed, prompting the need for a change in development strategy.

Meanwhile the Wall Street Journal of July 19 reported that lending conditions in emerging economies deteriorated in recent months due to the eurozone crisis.

According to a report of the Institute of International Finance, credit standards grew tighter in emerging-market banks around the world, while bad loans increased in the second quarter.

The results suggest trouble ahead for emerging economies, with banks in Asia and Latin America showing deeper caution, which can lead to weaker lending.

GLOBAL TRENDS 
By MARTIN KHOR newsdesk@thestar.com.my 

Saturday 21 April 2012

Europe: 'Dark clouds on the horizon'

euro-flags.gi.top.jpg
Michael Klein, is the William L. Clayton Professor of International Economic Affairs at the Fletcher School, Tufts University, and a nonresident Senior Fellow in Economic Studies at the Brookings Institution

This weekend's meetings of the International Monetary Fund and the World Bank are overshadowed by "dark clouds on the horizon" that threaten the "light recovery blowing in a spring wind," according to Christine Lagarde, the managing director of the IMF.

The main source of the dark clouds is Europe, where recovery remains weak.

More than three years into the crisis, policy options in Europe are limited; fiscal stimulus is out of reach for many countries, and recent efforts by the European Central Bank provided only a temporary respite. In this environment, strong and sustained recovery depends upon rebalancing within Europe, whereby countries' trade imbalances are reduced.

But rebalancing is a two-sided affair. We have all heard the ongoing calls for some European countries to rebalance deficits through painful austerity measures.

 
These calls need to be balanced with demands that countries with surpluses also move to rebalance.

In particular, Germany must take advantage of its scope for fiscal expansion to bolster European recovery and to forestall its own slippage towards an economic slowdown.

There are those who argue that the German surplus reflects its productivity growth and labor market reform. These people argue that Germany could only rebalance by stifling its own economic dynamism.
There are three responses to this argument:

Shared rewards: Reforms have made labor markets more flexible in Germany. Innovative policies, such as the Kurzbeit, the short-time working policy, limited the unemployment effects of the crisis.

German unemployment briefly peaked at 8% in July 2009 while the U.S. unempoloyment rate spiked to 10% in October of that year. Despite the soft landing, workers have not fully shared in the benefits of the recovery, and trade unions have been demanding higher wages.

Higher wages for workers would raise their demand for consumer goods, including the products from other euro-area nations.

Shared consequences: German exporters, and German producers of import-competing goods, have benefited from the weak euro.

Since 2008, the German real exchange rate has depreciated by almost 9%, even while its economy recovered relatively strongly from the crisis and its economy was strongly in surplus.

In contrast, over this same period the Swiss franc appreciated 16% -- estimates suggest that had the German real exchange rate tracked the Swiss real exchange rates, German export growth would have been cut in half.

Another major surplus country, China, saw an appreciation of its real exchange rate by more than 10% over this period.

If Germany had a free-floating currency of its own, rather than one whose value is determined by the fate of the full set of euro members, it would have seen an appreciation that would have brought down its current surplus.

Shared experiences: Another surplus country offers a striking recent example of rebalancing: China. In 2007, China's surplus exceeded 10% of its GDP.

The IMF projects that the debt to GDP ratio will fall to 2.3% in 2012, well below the 6.3% forecast published in its World Economic Outlook last year. In contrast, the most recent IMF forecast of the 2012 German debt to GDP ratio, of 5.2%, exceeds last year's forecast of 4.6%.

As a member of the euro area, Germany will not see the natural forces of a currency revaluation bring about a reduction in its current surplus.

But the government has the tools available to rebalance, and foster growth both domestically and more widely in Europe, through a stimulative fiscal expansion.

 
There are other tools available as well, such as policies to promote female labor force participation (which is low relative to other industrial countries) and liberalizing retailing (which could help promote domestic demand), to raise growth and to widen its benefits among its citizens.

Rebalancing needs to occur for both deficit and surplus countries to support and sustain growth during these challenging times.


@CNNMoneyMarketsApril 21, 2012: 10:50 AM ET

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Unemployment Fuels Debt Crisis

Friday 16 December 2011

The new Euro deal – not the whole bazooka


What Are We To Do by LIN SEE-YAN

 Link between joint liability of debts and good behaviour is missing

AP Photo logo AP Photo  A beggar sits in Via Montenapoleone shopping street in downtown Milan, Italy, Tuesday, Dec.13, 2011. Further signs of stress emerged Tuesday to indicate that Europe's most recent summit agreement to get the euro countries to bind their economies much closer together has only made limited progress in pulling the continent out of its debt crisis. While figures showed that Europe's banks parked more money at the European Central Bank than they have at any other time this year, Italy's borrowing rates in the markets ratcheted even higher and back towards the levels that forced Greece, Ireland and Portugal into seeking financial bailouts.

The euro “Merkozy” deal agreed last weekend targeting deeper euro-integration was a step in the right direction but did not offer the big bazooka that could really ease market tension. It's only part of the solution Europe badly needed: it's not even the solution markets are waiting for.

So far, wanting “more Europe” has come slowly, and grudgingly; but crucially, lacked proper leadership to deal with a truly systemic crisis. What's paralyzing the euro-zone is a flaw buried deep within the monetary union's structure what one writer identified as “the unresolved conflict between the needs of the euro and the independence of its members.” Put differently, the link between joint liability of debts and good behaviour is missing.

Looking back, all those wasted years of skirting the underlying problems, causing rising budget deficits and building massive debt exploded in late 2009 when Greece first toppled into crisis. The euro-zone tried to stanch the problem with a bailout in May '10 to no avail because Greece is bankrupt; and did nothing to squelch contagion. By this summer, Ireland and Portugal had collapsed into bailouts as well; with Italy and Spain now at risk of default.

Leaders had pressured countries into gut-wrenching austerity and reform arrangements to stabilise their debt and cut deficits in the hope of rebuilding investor confidence. That strategy failed. Other agreements have also drifted. The 2nd Greece bailout in July came to naught, while the plan to boost the firepower of EFSF (European Financial Stability Facility) has since faltered.

Frustration is building. It culminated in last week's summit, with high hopes to marshal the might of the entire euro-zone a US$13bil economy to provide an extinguisher powerful enough to put out the debt fire. But all it did was inject more painkillers; not a cure.

The new deal bears the hallmark of yet another in the series of half-measures that doesn't address increasingly vulnerable banks; or go far enough to instil confidence in the euro-zone's battered debt markets; and certainly didn't convince S&P from putting the debt of 15 European economies, including Germany, on negative credit watch, and Moody from cutting the credit ratings on France's top three banks. Sure, there has been progress but not enough to provide a defining resolution. Leaders are flirting with risk as Europe is going into recession. We have seen this movie before. The deal involves a promise by everyone to be a little more German about their spending and debt. The consensus now is that the 17-nation euro-zone bloc's GDP growth will contract by up to 1% in 2012, sharply below this year's already poor growth of 1%.

There was little in the deal to address the drastic loss of investor confidence. Euro-zone borrowing costs have resumed rising this week. Stock markets have retreated after an initial relief rally as optimism faded. The euro had since sunk below US$1.30, some 12% from its peak in May. The new “comprehensive” set of measures making-up the euro-zone's “fiscal compact” failed to calm markets; it included the following:-

  •  Constitutional amendment to balance the fiscal budget. The European Union's (EU) Court of Justice would verify that each country had a compliant debt brake in its laws, but with no oversight from Brussels.
  •  The new “stability union” will adopt a “golden rule” to ensure structural deficits (i.e. adjusted for boom and bust of economic cycles) below 0.5% of GDP. For breaching the 3% of GDP deficit limit, nations will suffer “automatic consequences,” unless member states vote to block them.
  •  The 500-billion-euro European Stability Mechanism (ESM) to replace the existing bailout fund (EFSF) will be set up in March '12 (instead of 2013).
  •  A 200-billion-euro contribution to the IMF (International Monetary Fund) for on-lending to enhance the firepower of ESM to help Europe.
  •  No more “hair-cuts” for private holders of dodgy euro-zone sovereign debts.
  •  New treaty to change EU's foundational pacts. With UK's rejection, 17 euro countries and up to 9 of 10 EU nations not using the euro will form a separate pact outside the EU structure.
Prior to the summit, ECB took two decisive steps to shore up the euro-zone: cutting interest rate to a record low of 1% to soften the looming recession, and crucially extending longer-term liquidity to Europe's cash-starved banks. Reserve ratios were also lowered. But ECB managed to avoid mounting pressure to buy more troubled states' bonds.



As I see it, on the moral hazard side, there is no multi-trillion bail-out funds and no promise by ECB to become lender of last resort to monetise everyone's debt, at least for now. However, the use of the European Court of Justice as final arbiter of rectitude is far from persuasive. Much of the new deal is reflective of the failed “stability and growth pact” that was around when the euro was launched, and which both Germany and France breached shortly thereafter.

Such rules will inevitably be broken because when it comes to fundamental rights to tax and spend, governments will always follow the dictates of national electorates rather than Brussels. No court has the political legitimacy to confront Italian or French unions when there is social unrest in the streets over budget cuts; the court won't have the stomach to enforce its decisions. When German rectitude faces Italian or Spanish politics, we know who will get the upper hand.

Yet, for me, the irony is that EU had already agreed less than three months ago to rules that do much of what the new deal is now seeking to accomplish. They did so without having to endure the ordeal of changing EU treaties. The “six pack” arrangements were approved after nearly a year of tortuous negotiations. In broad strokes, they would have already established the framework of a more integrated EU.

How to revive confidence? The big problem lies in economic growth, or the lack of it. Most Europeans still believe in the direct linkage between spending and economic growth. So, the balanced budget requirement will work only with tax increases eternally matching higher spending. This implies a “long-term austerity gap.” As of now, Europe needs major spending cuts and fiscal reform. But politicians outside Germany are hoping ECB will eventually come to the rescue. At present, the ECB stands firm and won't play ball. So the political pressure mounts.

The new deal simply means continued austerity in the euro-zone's periphery without any offsetting impact of devaluation or stimulus at the core. Unemployment already at 10.3% will continue to rise, placing pressure on households (and youths in Spain, youth unemployment approaches 50%), governments and banks. Anti-European sentiment will continue to grow, and populist parties will prosper. Violence and social unrest will prevail.

Unfortunately, the new deal has no place for institutional changes to avert such a scenario. I am afraid if such changes are politically not possible, then the euro is doomed. It's a matter of time. As post '08 record shows, the biggest deficit in Europe these days is in ideas to spur growth and in the lack of political will to enact them. Already, in France, its Socialist Party presidential candidate is picking up on this undue emphasis on austerity; stressing Europe's need for growth to get out of the crisis: “if there is no growth, none of the objectives will be reached.” Alas, Europe's present leadership seems to have no stomach for this option. So I am afraid we are stuck with more summit sequels and the certainty of more uncertainty. Investors' confidence will not return.

Looks like the euro-zone firewall still looks inadequate. As of now, plans to leverage the EFSF are mired in technical details. The combined size of EFSF and ESM is capped at an insufficient 500 billion euro. An infusion of 200 billion euro through the IMF is not game changing. Even so this measure is controversial.

ECB has indicated that earmarking is illegal. Moreover, IMF's shareholders aren't uniformly keen about directing cash to rich Europe. The US has parliamentary problems; so do Germany, Austria, Czech, Poland and Ireland, not to mention Holland and Finland. Pressure by S&P to downgrade and by Moody's, including denying the likes of France AAA rating, has been priced-in to some markets. Nevertheless, there is still potential to shake prices. Further definite downgrades will take another leg down. Moreover, euro-zone is facing significant risk of a recession next year and a credit crunch. Another shock may be needed to get European politicians to all read from the same page.

Already, euro-zone also faces imminent acute funding problems. Member states need to repay over US$1.2 trillion of debt in 2012, mostly due in first half-year. In addition, European banks, heavily dependent on state largesse, have US$665bil of debt coming due by June '12.

On Germany's insistence, ECB won't be allowed to unleash US-style quantitative easing or heavily buy up bonds or even issue euro-zone bonds which I consider critical. Many believe Germany will eventually relent. Its Chancellor has political problems. So, euro-zone's big test still lies ahead. One thing is clear. The market is weighing in. So long as Spanish/Italian bonds cost more than 6%, the crisis is not fixed; confidence has not yet returned. The refinancing calendar of Europe's sovereigns is onerous. Pressure will continue to be daunting as long as ECB is not lender of last resort.

The real problem is Europe's banks remain locked-out of traditional funding markets, leaving them reliant on ECB which is playing it cool. Faced with funding freeze, banks will shrink their balance sheets and strangle growth by not lending. The situation is serious. Euro-zone banks can't raise cash and won't lend to each other because of counter-party risk. On top of it all, last week's “stress tests” suggested Europe's banks are short of 115 billion euro (up from 106 billion euro in October). No one knows who is really solvent anymore.

For Asia, the growing uncertainty is killing. The series of sequels following each European summit leaves a trail of deals, but not the cure. Investors are growing more nervous in the face of rising risk of recession. As the economic outlook for Europe worsens, Asia's exporters will experience and expect continued weakening demand. Most exposed will be trading hubs like South Korea, Hong Kong, Taiwan & Singapore. In 2010, Korea's exports were equal to 45% of GDP, with Europe as its second largest importer. But regional powerhouses, China, Japan and India, are also taking a hit. China is most exposed. Exports accounted for 36% of GDP in 2010 and Europe is its biggest destination (19%). So far, their huge domestic market has shielded them from Europe's lack of growth, more than their smaller neighbours.

Export focus also matters. European slowdown is already affecting services exports from Hong Kong and Singapore. More cautious consumers in Europe undermine demand for Korean and Taiwanese consumer electronics. China's dominance at the lower end of the value chain is largely immune to shifts in the economic cycle. But what's worrisome is the continuing kick-the-can-down-the-road attitude of Europeans which works to prolong the crisis, and translates into reduced investment and employment in manufacturing capacity. The longer the crisis is left unresolved, the worse the impact on Asia.

Lord Keynes wrote in 1921: “about these matters the prospect of a European War, the price of copper 20 years hence there is no scientific basis on which to form any calculable probability whatever. We simply do not know.” And Keynes is right. While the euro enjoys widespread support, spending more money to save it doesn't.

Germans resent seeing their hard earned cash diverted to rescue Greeks, perceived to be irresponsible. Recent polls show that more than 50% of Germans reject euro-bonds, and 59% oppose further bailouts. We are now stuck with the classic dilemma with austerity politics bringing no growth and no framework for common financing, continuing political intransigence has left politicians with the option to continue kicking-the-can-down-the-road. Like Keynes, we just don't know how and how far euro-zone politicians will go towards assuming joint liability for debts (euro bonds). At some point, Europeans have to make the fateful choice between national sovereignty and the euro's well being. Time is of the essence for a real breakthrough. In his recent book, Harvard's psychologist Steven Pinker argues that mankind is becoming steadily less warlike and predicted that “today we may be living in the most peaceable era in human history.” For now, Pinker offers comfort that we won't go to war over it he is right.

> Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who now spends time writing, teaching & promoting the public interest. Feedback is most welcome; email: starbizweek@thestar.com.my