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