Weekend Read: To Restore Global Growth, Ease Barriers for Entrepreneurs: Georgieva | World Economic Outlook | C?te d’Ivoire | Spotting Housing Bubbles

Happy New Year from the IMF Weekend Read! In today's edition, we highlight:

• To restore global growth, ease barriers for entrepreneurs: Georgieva
• IMF’s economic counsellor warns on diverging growth prospects
• C?te d’Ivoire's economic and climate challenges
• Enrique Martinez Garcia on how to spot housing bubbles
• Chart of the Week, Elizabeth Johnson on S?o Paulo's housing deficit, and much more

ECONOMIC GROWTH

To Restore Global Growth, Ease Barriers for Entrepreneurs: Georgieva

If there is one economic challenge that cuts across most of the globe, it is growth. Or rather the shortage of it, writes IMF Managing Director Kristalina Georgieva in an article in the Washington Post.

“With the ups and downs of the global economy over the past three decades, our five-years-ahead projection for world growth has dropped to its lowest level since the early 1990s, at a modest annual average rate of roughly 3 percent,” says Georgieva, noting most of this slowdown is because of slowing productivity growth.

“This is a huge concern. Growth fuels economic life—it gives people their jobs and incomes, societies their vibrancy, and governments their financial strength. In a tightly interconnected world, slow growth in one place can easily turn into a problem elsewhere,” she continues. “The challenge requires us to double down on economic policies that we know can durably enhance growth prospects.”

To help combat these challenges, the IMF is setting up a new IMF Advisory Council on Entrepreneurship and Growth, with representatives from global business, policymaking and academia, she says. The council will help by contributing ideas on how to ease regulatory barriers to entrepreneurship, incentivize and channel long-term savings to productivity-enhancing innovation, adapt tax systems and bankruptcy codes to support a dynamic business environment, and more.

“Better productivity growth will mean better prospects for people and ultimately a more stable, peaceful world. This is why the IMF was created—and why we resolutely confront the jobs-and-growth challenge the world faces today,” Georgieva concludes.

WORLD ECONOMIC OUTLOOK

Divergences in Global Economy May Widen Amid Policy Shifts

Global growth will remain steady at 3.3 percent this year and next, broadly aligned with potential growth that has substantially weakened since before the pandemic, according to Pierre-Olivier Gourinchas, the IMF’s economic counsellor and director of research.

In a blog on the IMF’s latest global economic projections, Gourinchas said inflation would decline, to 4.2 percent this year and 3.5 percent next year, in a return to central bank targets that will allow further normalization of monetary policy.

“This will help draw to a close the global disruptions of recent years, including the pandemic and Russia’s invasion of Ukraine, which precipitated the largest inflation surge in four decades.”

But Gourinchas pointed to risks from the diverging prospects of some of the world’s largest economies, notably between the United States’ fast-growing economy on one hand and Europe and China on the other.

“In the near term, a constellation of risks could further exacerbate these divergences,” he warned, pointing to contrasting policy responses in different countries.

COUNTRY FOCUS

C?te d’Ivoire: Fostering Economic Transformation and Adapting to Climate Change

C?te d’Ivoire has become a pillar of growth and stability for the region, thanks to its impressive economic resilience and commitment to reform. The Ivoirien economy has performed strongly over the past decade, with GDP growth averaging 6.4 percent, inflation hovering around 2.2 percent, and a declining proportion of the population living below the national poverty line. The country has maintained macroeconomic stability despite the major shocks that have buffeted the world in recent years.

Nonetheless, structural obstacles persist, including the informal nature of employment, which has diminished but remains pervasive, thereby complicating the country’s mission to achieve stronger and more inclusive growth, broaden the tax base, and deepen the ongoing economic transformation. At the same time, the relative predominance of the cocoa sector and the concentration of industry and services in coastal zones make C?te d’Ivoire vulnerable to the effects of climate change.?

As the country continues to make progress toward joining the ranks of upper middle-income countries and in tackling climate change, the IMF Country Focus?editorial team spoke with C?te d’Ivoire’s Minister of Finance and Budget,?Adama Coulibaly, and IMF Mission Chief Olaf Unteroberdoerster .

As urbanization continues to grow worldwide, affordable housing is a rare commodity in many cities. S?o Paulo, South America’s biggest city, has gained over 2 million new residents in the past decade alone. Elizabeth Johnson heads Brazil research at TS Lombard and has been studying S?o Paulo’s latest attempt at strengthening its housing strategy. In this podcast, Johnson says the city looked to its largely abandoned downtown core to address its housing woes.?

F&D MAGAZINE

How to Spot Housing Bubbles

The global financial crisis of 2008–09 came amid the collapse of a housing bubble that few saw coming. Today, housing bubbles remain poorly understood, even though they have drawn increased attention for their effects on financial stability and monetary policy transmission. But with real-time monitoring tools policymakers can help mitigate unsustainable booms, the Federal Reserve Bank of Dallas’s Enrique Martínez García writes in F&D.

“Recent advances in time series and panel techniques—designed to analyze data over time and across groups or locations—make it possible to detect bubbles in real time by focusing on statistical patterns that indicate bubbles,” he says.??

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CHART OF THE WEEK

Asia-Pacific’s economies are likely to experience labor market shifts because of artificial intelligence, with advanced economies being affected more. About half of all jobs in the region’s advanced economies are exposed to AI, compared to only about a quarter in emerging market and developing economies.

However, as shown in the Fund’s latest Asia-Pacific?Regional Economic Outlook, there are also more jobs in the region’s advanced economies that can be?complemented?by AI, meaning that the technology will likely enhance productivity rather than replace these roles altogether.

The concentration of such jobs in Asia’s advanced economies could worsen inequality between countries over time. AI could also increase inequality within countries.?

As the?Chart of the Week shows, IMF research also finds that women are more likely to be at risk of disruption from AI because they are more often in service, sales, and clerical roles. Men, by contrast, are more represented in occupations that are unlikely to be impacted by AI at this stage, like farm workers, machine operators, and low-skill elementary workers.

WEEKLY ROUNDUP

STAFF PAPER

Effects of Residence and Citizenship by Investment

This new IMF staff paper?discusses under what circumstances residence and citizenship by investment (RBI or CBI) schemes could be used by individuals engaging in tax avoidance or evasion. It describes the market for CBI and RBI and how features of the offered programs might reveal the underlying motivations of governments offering them. The authors then present empirical evidence on the conditions under which such schemes are offered. Finally, the authors estimate the impact of such schemes on investment, house prices, and public revenues.

STAFF PAPER

Drivers of Inflation in the Caucasus and Central Asia

In parallel with global developments, inflation in the Central Asia and Caucasus (CCA) has exhibited large swings in recent years. A new IMF staff paper investigates inflation dynamics in the CCA and its main drivers. The authors also assess the role of monetary policy in steering inflation outcomes. They find that external factors play a major role in determining CCA inflation dynamics, although domestic factors (e.g., demand conditions, expectations) also contribute. Monetary policy is found to have a statistically significant effect on inflation, including by moderating the impact of external drivers. The findings point to the need to continue strengthening policy frameworks to steer expectations and improve the effectiveness of monetary policy, while establishing adequate social safety nets to cushion the impact from global shocks.

DEPARTMENTAL PAPER

Corporate Vulnerabilities and Interest Rates

A new IMF departmental paper provides a comprehensive overview of corporate sector vulnerabilities that have emerged post-pandemic, with a focus on the financial stability implications from corporate sector vulnerabilities in a new environment of high interest rates. Although several central banks have recently started cutting interest rates, the expectation is that high interest rates, above pre-pandemic levels, are here to stay. It is then especially important to design and deploy appropriate policies that may prevent and mitigate risks from the corporate sector.?

Thank you very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.

Miriam Van Dyck

Editor, IMF Weekend Read