Mind The Gap: Policies To Jump Start Growth in the U.K.

By Ajai Chopra

The U.K. economy has been flat for nearly two years. This stagnation has left output per capita a staggering 14 percent below its precrisis trend and 6 percent below its pre-crisis level.

Weak growth has kept unemployment high at 8.1 percent, with youth unemployment an alarming 22 percent.

The effects of a persistently weak economy and high long-term unemployment can reverberate through a country’s economy long into the future—commonly referred to by economists as hysteresis.

Our analysis of such hysteresis effects shows that the large and sustained output gap, the difference between what an economy could produce and what it is producing, raises the danger that a downturn reduces the economy’s productive capacity and permanently depresses potential GDP. 

Global Financial Stability: What’s Still To Be Done?

By José Viñals

(Versions in Español, عربي)

The quest for lasting financial stability is still fraught with risks. The latest Global Financial Stability Report has two key messages: policy actions have brought gains to global financial stability since our September report; but current policy efforts are not enough to achieve lasting stability, both in Europe and some other advanced economies, in particular the United States and Japan.

Much has been done

In recent months, important and unprecedented policy steps have been taken to quell the crisis in the euro area. At the national level, stronger policies are being put in place in Italy and Spain; a new agreement has been reached on Greece; and Ireland and Portugal are making good progress in implementing their respective programs. Importantly, the European Central Bank’s decisive actions have supported bank liquidity and eased funding strains, while banks are reinforcing their capital positions under the guidance of the European Banking Authority. Finally, steps have been taken to enhance economic governance, promote fiscal discipline, and buttress the “firewall” at the euro area level.

Mideast Braces Itself for a Multi-Year Transition

By Masood Ahmed

(Version in عربي)

This week I’ve been traveling extensively across the region, both listening and learning. I am writing this from Dubai, where we have just launched our Regional Economic Outlook. And earlier this week, I had the opportunity to participate in the GCC Ministerial Meeting in Abu Dhabi and the World Economic Forum’s special meeting on Economic Growth and Job Creation in the Arab World in Jordan.

My core takeaway from all these events is that the underlying sense of optimism in the promise of the Arab Spring is very much there, but there is also a growing recognition that managing the short-term transition will be even more difficult with the persistence of economic pressures and rising social expectations.

Not an easy year

2011 has not been an easy year for many countries in the Middle East and North Africa. The combination of domestic unrest and external uncertainty has resulted in a marked downturn in economic activity, and this is expected to pick up only gradually over the coming year.

Weak Global Economy Tops Agenda at IMF-World Bank Gathering

By iMFdirect

Recent turbulence in financial markets and increased risks in the global economy mean that the 2011 Annual Meetings of the IMF and World Bank are taking place at a critical time for the global economy.

Economic leaders will come together to assess the state of the world economy and discuss the policy actions needed to deal with today’s global economic challenges. The IMF’s updated forecast for the world economy will be published September 20.

About 10,000 policymakers, private sector and civil society representatives, journalists, and academics are expected to attend the Annual Meetings, which are set to take place on September 23–24.

In an interview, Reza Moghadam, Director of the IMF’s Strategy, Policy, and Review Department, discusses the issues that are likely to receive most attention at the meetings.

Interest Rates and Investor Decisions: The Long and Short of It

By Erik Oppers

What drives the investment decisions of investors with a longer time horizon? Our research found these investors generally do not look at differences in interest rates among countries when deciding where to invest.

It turns out the factors they do consider in making these decisions are good and stable growth prospects, low country risks—including political and economic stability—and a stable exchange rate. This all makes good sense for long-term investors such as pension funds and insurance companies.

So why all this talk about how low interest rates in advanced economies are “pushing” investment flows to emerging countries, where interest rates are generally higher—is this story wrong?

Connecting the Dots Between Global Risks

By iMFdirect

Finance ministers and central bank governors from around the world, gathering at the Spring Meetings of the IMF and World Bank in Washington last week, identified a slew of continued and emerging risks to the global economy, including higher food and fuel prices, the disaster in Japan, unrest in the Middle East, lingering unemployment in parts of the world, and the risk of overheating in some dynamic emerging markets.

With the recovery solidifying but still fragile, ministers put the spotlight on how to strengthen the IMF’s surveillance—its economic assessment and analysis—to help countries take the action needed to address risks and avoid future crises.