Read more about the article War in Ukraine and Risks of Stagflation

War in Ukraine and Risks of Stagflation

The war in Ukraine is bringing substantial financial, commodity price, and supply chain shocks to the global economy. Sanctions on Russia are already having a significant impact on its financial system and its economy. Price shocks will have a global impact. Energy and commodity prices—including wheat and other grains—have risen, intensifying inflationary pressures from supply chain disruptions and the recovery from the pandemic. The push toward relative deglobalization received from the pandemic will get stronger. One may expect an increasing weight of geopolitics in international payments and in the access to special commodities.

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Read more about the article Sanctions against Russia resemble boxing matches

Sanctions against Russia resemble boxing matches

The economic sanctions against Russia announced last week by the United States and Europe following the military invasion of Ukraine are having a profound impact on the Russian economy while also having repercussions at home. As in a boxing match, the expectation is that blows to the opponent can knock them out, despite the exposure on the punching side.

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Read more about the article Decarbonization and “Greenflation”

Decarbonization and “Greenflation”

Accelerating the transition toward low or net-zero carbon emissions is necessary to keep global warming at theoretically safe levels. That will likely bring price shocks associated with rising metal prices, energy costs, and carbon taxes – what has been called “greenflation”. Greening the economy will also require public spending and redistributive policies.

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Read more about the article Supply Chain Disruptions and Bottlenecks Dampen the Global Economic Recovery

Supply Chain Disruptions and Bottlenecks Dampen the Global Economic Recovery

Scarcity of inputs and goods has been felt all over the world because of disruptions to global value chains since the beginning of the pandemic. Higher inflation has been a global phenomenon, even if with different intensities and multiple determinants. A mismatch between demand and supply can also be found in the energy price shocks. The running of supply chains in the U.S. has also been affected by an unexpected shrinkage in the workforce because of acceleration in retirements caused by the pandemic. The Fed's ‘wait-and-see attitude’—moving on to the tapering this year and likely small rises at the end of next year—is opposed by those who think the Fed is already behind.

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Read more about the article Permanent Output Losses From the Pandemic

Permanent Output Losses From the Pandemic

Divergent recoveries  are leaving “lasting imprints”, with emerging and developing economies suffering deeper medium-term damage than advanced countries, on average. Most countries are now forecast to have lower GDP in 2024 than projected in January 2020 before the pandemic. This is different from crises associated with industrial or financial cycles common in history because, in those cases, in general, some period of above normal or trend growth will have occurred previously. In the pandemic there has been only the loss side.

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Read more about the article The Road to Decarbonization

The Road to Decarbonization

It will be necessary to accelerate the pace of global containment of carbon emissions if the expected increases in global average temperatures are to be kept below 2 or 1.5 degrees Celsius, with correspondingly less-dramatic climatic consequences. The transition to zero emissions will involve three simultaneous economic processes: change in the relative prices of goods and services, with prices starting to reflect the intensity of emissions of carbon; labor relocation; and asset value scrapping. The socioeconomic return from decarbonization must include preventing heatwaves, floods, hurricanes, droughts, floods, and storms like those of this year from becoming even more intense and frequent, the cost of which would involve even higher GDP losses for nations.

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Read more about the article Emerging market capital flows after Covid-19

Emerging market capital flows after Covid-19

With loose money supply and low returns in the developed world, emerging markets have become the destination of choice for investors looking for high yields. However, with much uncertainty remaining and inflation well above the Federal Reserve’s target rate, speculation of Fed tapering and market tantrums are gaining momentum. OMFIF is convening a panel to look at capital flows in emerging markets, addressing what happens when the cycle turns, the likelihood of capital flows reverting and asset and currency markets in the developing world.

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Read more about the article Helicopter Reserves to the Rescue

Helicopter Reserves to the Rescue

A new allocation of US$650 billion in Special Drawing Rights (SDRs) by the International Monetary Fund (IMF) to its member countries has entered into force last Monday. The extraordinary character of the allocation initiated this time is seen in the fact that its amount corresponds to more than double the sum of all allocations made to date. As allocations follow country IMF quotas, relief for those in need of reserves will come as an excess in other cases. The IMF set out to find ways in which countries with SDR surpluses can voluntarily channel them to those in need.

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Read more about the article China’s renminbi needs convertibility to internationalize

China’s renminbi needs convertibility to internationalize

Commercial transactions and reserves of central banks and other global public investors could strengthen the position of the Renminbi as an alternative currency to the dollar, euro, yen and pound sterling. However, the qualitative leap towards the internationalization of the Chinese currency as a full reserve currency will only happen when confidence in its convertibility is sufficient to convince unofficial (private) investors to hold much more reserves denominated in it.

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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 since the 2008 global financial crisis 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. This is something accentuated by the coronavirus pandemic crisis.

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Read more about the article The Global Economy and the Pandemic

The Global Economy and the Pandemic

There remains tremendous uncertainty and prospects of a post-pandemic recovery vary greatly across countries, as it is bound to happen at different paces. And the divergence of per capita incomes in the world is rising as an aftermath of the pandemic. The pandemic will leave scars in labor markets and income distribution, besides higher public debts as a legacy. A higher pace of automation of jobs, as well as a partial reversal of globalization are also to be expected.

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Read more about the article Are We on the Verge of a New Commodity Super-Cycle?

Are We on the Verge of a New Commodity Super-Cycle?

Some analysts have started to speak of the possibility of a new commodity price ‘super-cycle’ after the downturn since 2011. Although it is always possible to find moments of joint fluctuation, in which commodities remain for a long time above or below their long-term trends, differences among them matter. Copper is King! It is in metals, especially copper, lithium, and rare earth ones, that a strong bullish cycle is most evident.

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