Friday, July 17, 2020

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New Phase of the Crisis | Challenges to Monetary Policy | Global Economic Updates | Sustainable Food Systems | COVID-19


IMF Weekend Read
Dear Charles,
In today's edition we focus on the next phase of the crisis, challenges to monetary policy during a pandemic, economic and recovery updates for the Middle East, Asia, Latin America and Europe, building a sustainable global food system, COVID-19 and corruption, and summer reading for economic enthusiasts. On that note, let's dive right in.
A NEW PHASE OF THE CRISIS
When the Group of Twenty industrialized and emerging market economies (G-20) finance ministers and central bank governors last met in April, the world was in the midst of the Great Lockdown forced by the outbreak of COVID-19. As they meet virtually this week, many countries are gradually reopening, even as the pandemic remains with us. Clearly, we have entered a new phase of the crisis—one that will require further policy agility and action to secure a durable and shared recovery, writes Managing Director Kristalina Georgieva in a new blog.
But we are not out of the woods yet. A second major global wave of the disease could lead to further disruptions in economic activity. Other risks include stretched asset valuations, volatile commodity prices, rising protectionism, and political instability. On the positive side, medical breakthroughs on vaccines and treatments could lift confidence and economic activity. These alternative scenarios highlight that uncertainty remains exceptionally high.
Emerging from the crisis, we must keep our eyes trained on the larger picture of building a world that is more resilient, more efficient, more inclusive, and more sustainable. One of the ways we can do that is by focusing our efforts on tackling climate change.
Speaking to EU Environment Ministers earlier this week, MD Georgieva talked about the need to accelerate green investments, to ensure that high-emitting businesses that benefit from public support undertake efforts to reduce their emissions, and how we must pay attention to supporting job-rich activities that are climate positive—for example sustainable agriculture, reforestation, or reducing energy intensity through building insulation. She also discussed how we must price carbon and learn to price climate risk.
MONETARY POLICY IN THE TIME OF COVID-19
Chairman of the Governing Board of the Swiss National Bank Thomas Jordan delivered (virtually) the 2020 Michel Camdessus Lecture—our signature series on the role of central banks. His speech focused on current monetary policy challenges in the low interest rate environment and the experience of a small, open economy. Read his full remarks here (PDF).
In her opening remarks, Managing Director Georgieva put forth a number of key questions up for debate: How can central banks best support the economy once they have exhausted conventional policy space—and how can they avoid unintended consequences, such as asset markets that may become detached from economic fundamentals? And how will higher debt levels and weaker balance sheets affect demand for credit, the natural rate of interest, and the conduct of monetary policy going forward? Watch the lecture and discussion here.
At the opening of the inaugural edition of our "Advances in Monetary Economics" conference (PDF), which took place just before the Camdessus Lecture, Financial Counsellor and Director of the Monetary and Capital Markets Department Tobias Adrian talked about how we are making an ongoing and concerted effort to build our analytical capacity in monetary policy. "Going forward, the Fund intends to remain at the forefront on this topic, including through work on the macroeconomic policy mix under lower-for-longer interest rates; financial stability risks; spillovers; and potential distributional effects," said Adrian. "Most pertinently, a new Monetary Policy Modeling Unit has been formed to allow a deeper dive into these issues and to strengthen our technical dialogue with central banks around the world."
MIDDLE EAST AND CENTRAL ASIA
In an update published this week to the Middle East and Central Asia Regional Economic Outlook, the IMF warned that while several countries in the region are beginning to reopen, rising infection numbers may pose risks. A sharp decline in oil prices together with production cuts among oil exporters, and disruptions in trade and tourism, add further headwinds to recovery efforts. As a result, growth in the region is now projected at –4.7 percent in 2020, 2 percentage points lower than in April 2020. Read the full report and watch the press conference here.
For an in-depth discussion based on the outlook, watch this new 90-min panel discussion featuring Jihad Azour of the IMF, Minouche Shafiq of LSE, Marwan Muasher of the Carnegie Endowment for International Peace and Monica Malek of Abu Dhabi Commercial Bank.
If you only have a few minutes, check out these five charts that illustrate COVID-19’s impact on the Middle East and Central Asia.
ASIA, LATIN AMERICA AND EUROPE
Deputy Managing Director Tao Zhang recently spoke to the Greater Bay Area Chief Economist Forum and outlined the latest global economic outlook with a focus on Asia. "The current picture of virus cases differs across the region. Some countries are experiencing rapidly rising cases each week. Others are trying to flatten their curves. And yet others have been relatively successful in getting the virus under control. The main impact of lockdowns on the real economy is in the second quarter of 2020 for most Asian economies excluding China," said DMD Zhang. "For the first time in recent memory, Asia’s output is expected to contract by 1.6 percent—a further downgrade from our April projection of zero growth."
Also earlier this week, Chief Economist Gita Gopinath participated in a 60-min presentation and discussion with Marcela Eslava, Dean of the Economics Department at Universidad de los Andes in Colombia about the global recovery with a focus on Latin America.
And Europe, like the rest of the world, faces an extended crisis. An element of social distancing—mandatory or voluntary—will be with us for as long as this pandemic persists. This, coupled with continued supply chain disruptions and other problems, is prolonging an already difficult situation. Based on updated IMF projections released last month, we now expect real GDP in the European Union to contract by 9.3 percent in 2020 and then grow by 5.7 percent in 2021, returning to its 2019 level only in 2022. If an effective treatment or vaccine for COVID-19 is found, the recovery could be faster—but the opposite would hold true if there are large new waves of infection. Read more in a new blog from outgoing European Department Director Poul Thomsen.
REINVENTING JUST-IN-TIME FOOD SUPPLY CHAINS
2020 will be a year of reckoning for the world’s food systems. In just months, COVID-19 shut down half the globe. Images of panic buying, empty grocery shelves and miles-long queues at food banks have suddenly reminded us how important food systems are in our lives and how imbalanced they have become.
Pandemic-induced runs on food, however, do not merely reflect human behavior during emergencies. They are evidence that the global food supply chain—highly centralized and operating on a just-in-time supply basis—is prone to falter in the face of shocks. In many countries, for example, it became impossible to harvest or package food as workers were blocked at borders or fell sick. Elsewhere, stocks piled up and avalanches of food went to waste because restaurants and bars were closed. In developing countries, the United Nation’s Food and Agriculture Organization and the World Food Program expect that a “hunger pandemic” and a doubling of people starving may soon eclipse the coronavirus, unless action is taken.
Authors Nicoletta Batini, James Lomax, and Divya Mehra suggest four broad shifts to the global food system: resilient food supply chains, healthy diets, regenerative farming, and conservation. There's also a strong connection here to climate change, for the agri-food sector is expected to produce half of all greenhouse gas emissions by 2050. Learn more in their new blog.
COVID-19 AND CORRUPTION
This week, Legal Counsel and Director of the Legal Department Rhoda Weeks-Brown participated in a 90-min discussion titled "The Business Case for Accountability"—hosted by the Anti-Corruption and Governance Center of CIPE. The discussion focused on a range of measures put into place by the IMF and the World Bank to ensure that COVID-19 emergency financing resources are solely used to protect lives and livelihoods.
For more, check out our latest fact sheet on the topic and read Managing Director Georgieva's recent in-depth interview with Transparency International.
SUMMER READING FOR THE ECONOMIC ENTHUSIAST
In our latest issue of F&D magazine, we published three new book reviews to help you decide what to read under lockdown—or while you're social distancing.
IMF Fiscal Affairs Department Deputy Director Paolo Mauro reviewed The Economics of Belonging by Martin Sandbu. "The premise of the book is that behind today’s political illiberalism and rejection of globalization is a widespread feeling that economic opportunities are reserved for an elite to which 'normal people' do not belong," writes Mauro.
Harvard University Professor of Public Policy and Professor of Economics Kenneth Rogoff reviewed Deaths of Despair and the Future of Capitalism by Anne Case and Angus Deaton. "The real villain in the book is the US health care system. The authors argue that hospitals, insurance companies, pharmaceutical companies, doctors, and device makers are all wildly overpaid by international standards, often because of the curious US tolerance for monopoly in recent decades," writes Rogoff.
Financial Times Associate Editor and Chief Economics Commentator Martin Wolf reviewed Backstage: The Story Behind India’s High Growth Years by Montek Singh Ahluwalia. "The author provides an invaluable insider’s account of the making of India’s economic policy between 1979, when he returned to his home country from the World Bank, where we worked briefly together and became good friends, and 2014. It is the story of a substantial success," writes Wolf.
Speaking of new books, IMF Podcast host Bruce Edwards recently spoke with Nobel Laureate Paul Krugman about how zombie ideas–the topic of his latest book–might hinder the economic recovery.
IMF AND COVID-19
We just updated our global policy tracker to help our member countries be more aware of the experiences of others in combating COVID-19, and we are regularly updating our lending tracker, which visualizes the latest emergency financial assistance and debt relief to member countries approved by the IMF’s Executive Board.
To date, 72 countries will have been approved for emergency financing, totaling about US$25.3 billion. Looking for our latest Q&A about the IMF's response to COVID-19? 
Click here. We are also continually producing a special series of notes—around 50 to date—by IMF experts to help members address the economic effects of COVID-19 on a range of topics including fiscal, legal, statistical, tax and more. The most recent additions include a focus on reforming fuel product pricing under low oil prices, and restriction of banks' capital distribution during the COVID-19 pandemic.

"The bottom line is that the pandemic is likely to increase poverty and inequality. We need a more inclusive and resilient recovery."

Kristalina Georgieva


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