The global economy continues to expand at a moderate pace with a persistent divergence between weak performance in mature economies and solid performance in emerging economies. Growth in most mature economies is held back by headwinds coming from fiscal consolidation, high unemployment and household balance sheet adjustments. Also, bank de-leveraging remains a key constraint, especially as banks respond to tougher regulatory guidelines. The European sovereign debt crisis continues to pose downside risks. Emerging markets, by contrast, are in a much more favorable position and continue to lend support to global growth, notably in Emerging Asia. This is contributing to increased capital flows into these economies. However, the emerging world remains vulnerable to shocks emanating from mature economies, for example from the Euro Area. Such shocks are often transmitted through the international banking system and affect lending conditions in emerging markets.
Given the large output gaps, inflation pressures will remain subdued in mature economies and they have recently subsided somewhat in many emerging economies. Policy rates in mature economies are firmly held close to the zero lower bound, while emerging economies have considerable leeway to accommodate a deceleration in economic activity if necessary.
Global Macroeconomics Publications
December 12, 2013
- Eyes on potential for December Fed taper, ECB comments
- Stronger U.S. data flow and budget deal put taper back in focus
- Mexico pushes a sweeping energy reform
- Chinese November data provide a mixed picture
- Volcker Rule approved – extra-territoriality a key focus
- Corporate bond issuance surges in 2013; amid low returns, bond funds see record withdrawals
December 09, 2013
This presentation by IIF Managing Director and Chief Economist Charles Collyns at the International Finance Forum hosted by the George Washington University Elliot School of International Affairs discusses the swings in foreign capital inflows to emerging markets over the past twenty years. While access to foreign capital has important benefits for recipient economies, boom-bust cycles in capital inflows have often amplified economic volatility and elicited a variety of policy responses, including resort to capital controls. The presentation analyzes the different approaches that have been taken, and argues that increasing financial market depth should over time increase resilience to capital flow shocks and reduce the need for unorthodox measures.Read More
December 05, 2013
The December edition of the Global Economic Chartbook summarizes our current views on the global economy, including sections on capital flows and challenges for emerging economies. This Chartbook is also available in PowerPoint format—you are encouraged to use the charts and data in your own work.Read More
December 05, 2013
- Bonds suffer as U.S. data come in strong, ECB signals no rate move
- Manufacturing PMIs continue their rise
- U.S. Q3 GDP revised up to 3.6%, Q4 looks closer to 1%
- Mature economy central banks on hold amid tepid inflation
- Investor demand for securitized products remains weak despite a pickup in CMBS market
December 04, 2013
We present evidence suggesting that the Fed’s impact on portfolio inflows to emerging markets may be more nuanced than widely assumed. We estimate a simple econometric model indicating that the recent retrenchment episode was primarily driven by a shift in market expectations towards an earlier tightening of Fed policy, rather than a markdown in expectations about EM economic performance. Looking ahead, our model suggests that the Fed’s impact on EM portfolio inflows depends on the pace of Fed exit relative to market expectations and the volatility of market expectations over time. A slower than expected Fed exit and stable market expectations would tend to boost portfolio inflows, while a more rapid exit than anticipated could result in renewed retrenchment, particularly if market expectations were to fluctuate widely.Read More
November 21, 2013
- Will higher bond yields dent the risk rally?
- China’s third plenum blueprint beats expectations
- Chinese domestic bond market—ready to open up?
- Slow but steady manufacturing expansion in China and the Euro Area
- Fed to markets: “tapering is not tightening!”
- Strong IPO activity in mature markets, but not in emerging markets
November 16, 2013
The growth recovery in the Euro Area is proceeding slowly but there are increasing signs that it is becoming more broad-based and balanced across countries. Trade balances continue to improve in the periphery, and a strong export performance pulled Spain out of its two-year recession in Q3. Meanwhile, domestic demand remained a key growth driver in Germany.Read More