The IMF has reviewed the global growth downward, highlighting the impacts of Trump's tariff war and warning about financial and economic risks. Although the negative effects of tariffs have already been “somewhat priced in,” according to Tobias Adrian (IMF), equity and bond prices could “certainly” fall further if negotiations fail. So, it’s either successful negotiations or further stress and downgrades.
Kamala and Trump have different proposals regarding tariffs, taxes, energy and immigration. If you believe that the ongoing global warming is due to carbon emissions and desire a transition to renewable energy worldwide, and if you believe that trade between countries is not a “zero-sum game”, you already know who you will be rooting for.
When countries face external financial shocks, they must rely on financial buffers to counter such shocks. The global financial safety net is the set of institutions and arrangements that provide lines of defense for economies against such shocks. From any individual country standpoint, there are three lines of defense in their external financial safety nets: international reserves, pooled resources (swap lines and plurilateral financing arrangements), and the International Monetary Fund. We argue here that there is a need to extend and facilitate access to the ultimate global financial safety net layer: the IMF. We illustrate that by pointing out how Morocco and Mexico have boosted their defensive power by having access to IMF precautionary lines of credit.
The global economic environment has changed as the U.S.—and to a less confrontational degree, the European Union—have clearly established a context of technological rivalry with China. Hindering China’s progress in the sophistication of semiconductor production has become a centerpiece of current U.S. foreign policy. While the U.S. is clearly winning the semiconductor war, the picture is different when it comes to clean-energy technology. Both technology wars overlap with access to and refinement of critical raw materials (CRM), which are key upstream components of the corresponding value chains, encompassing mineral-rich emerging markets and developing economies. The way in which the U.S. and the European Union approach the goal of self-sufficiency, as well as access to and refinement of CRMs, will make a big difference to their stakes in the technology wars.
The nominal debt ceiling is a crude and rudimentary barrier against excess public debt in the United States. Hope remains that the White House and Republicans will reach a deal on raising the debt ceiling in time to avoid what Secretary Yellen called "unthinkable" and "catastrophic". Some framework to deal with fiscal matters is needed, instead of nominal spending caps. But this transition need not happen via financial shocks and a possible default on public debt.
• Notwithstanding the ongoing drive by countries for a higher plurality of main currencies, raising the use of the renminbi, “de-dollarization” looks bound to be partial and limited. • Higher speed and depth of such a transformation would require a metamorphosis of China’s regulatory and policy regime for which the country will not have the desire to implement. • While the euro has remained mostly a regional reserve currency, the U.S. may retain its “exorbitant privilege” through the provision of U.S. dollar safe assets for longer.
This chapter examines the impacts and durable consequences of Europe’s war (in Ukraine), overlapping with the effects of other components of the ‘perfect storm’ (pandemic, severe weather phenomenon, hunger, global inflation) for Latin America. First, we deal with the global tectonic shifts that have conditioned the region’s economic performance since the 1990s. Second, we outline the range of effects stemming from the ‘perfect storm’. The third section discusses how economic relations between China and Latin America have evolved. Finally, we frame the U.S.-China rivalry in a Latin American context.
Three significant changes to the macroeconomic policy regime in advanced economies, compared to the post-global financial crisis period, have unfolded in the last two years. First, fears of a chronic insufficiency of aggregate demand as a growth deterrent prevailing after the 2008 global financial crisis, have been superseded by supply-side shocks and inflation. Second, as a result of the first change, the era of abundant and cheap liquidity provided by central banks has given way to higher interest rates and liquidity squeezes. Finally, because of the previous changes, there was a strong devaluation of financial assets in 2022. There are now fears about multiple possibilities of financial shocks ahead.
Interview with Otaviano Canuto, Senior Fellow at the Policy Center for the New South December 14, 2022
Monetary tightening is aimed at slowing demand growth relative to aggregate supply, which will require a sustained period of below-trend US economic growth. It is in the labor market that the Fed's monetary policy script will be written. Judging by Powell's presentation last week at Brookings, and given the outstanding fears of price-wage spirals.
There are reasons to consider the US recession call as currently premature , even recognizing clear and undeniable signs of an economic growth slowdown at the margin. As suggested by the resilience of private consumption in the second quarter, the labor market remained tight. Markets have come to assign a high probability that the Fed will “pivot”, and reverse its tightening direction, given signs of an economic slowdown. It seems premature to bet on such a "pivot" by the Fed, and the recent refreshment of stock and bond markets tends to be reversed. Two points remain unclear: if the economy does indeed fall into a recession, how shallow or deep will it be? How rigid downward will the inflation rate measured by its core turn out to be?
The heavy financial sanctions on Russia after the invasion of Ukraine sparked speculations that the weaponization of access to reserves in dollars, euros, pounds, and yen would spark a division in the international monetary order. There has been a reduction in the degree of "dollar dominance” with the dollar's share of central bank reserves falling since the beginning of the century. The relative dominance of the dollar appears to be declining but at a very gradual pace.
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.
Macroeconomic dynamics in the U.S. economy has increasingly become associated with asset price fluctuations in the past few decades. Financial conditions have increasingly become an influential factor shaping the cyclical pace of the macroeconomy. There has been a mismatch between rising financial wealth and the pace of creation and incorporation of new assets. Several secular stagnation hypotheses offer explanations for the insufficient creation of new assets. Public debt—and its partial monetization by central banks—has played a stabilizing role by boosting the net supply of assets available to accommodate the demand for financial assets. The U.S. big balance sheet economy has been on a growth path highly dependent on the continuity of low real interest rates, as well as stretched price-earnings ratios of stocks and high corporate debt. Periodic episodes of downward adjustment of asset prices have been countervailed with lax monetary policies.
The International Monetary Fund’s tenth annual External Sector Report (ESR) shows how current account deficits in the global economy widened in 2020 during the pandemic. On the other hand, the ESR also argues that overall, the misalignment between fundamentals and current account balances has not been exacerbated.