## december-finance-and-development ## Source details **Canonical URL:** [december-finance-and-development](https://www.imf.org/-/media/files/publications/fandd/article/2024/12/december-finance-and-development.pdf) ## Other formats - [Markdown version](/-/media/files/publications/fandd/article/2024/12/december-finance-and-development.pdf.md) - [Structured JSON version](/-/media/files/publications/fandd/article/2024/12/december-finance-and-development.pdf.json) --- ### Emerging markets: divergent fiscal paths and drivers - Finding: A two-way traffic has emerged in emerging markets between countries tightening fiscal policy and others loosening. - Mexico - Finding: President Claudia Sheinbaum inherited a 2024 budget deficit of some 6 percent of GDP, the largest since 1989. - Concern: Market participants fear a sustained period of fiscal loosening may be starting. - Brazil - Finding: Investors are worried President Luiz Inácio Lula da Silva’s tilt toward fiscal loosening may be incompatible with financial stability despite a sovereign upgrade by Moody’s. - Concern: A recent surge in GDP growth may be keeping the economy growing faster than potential; market participants worry government financial weaknesses will surface when growth slows. - Indonesia - Finding: President Prabowo Subianto has raised the prospect of a big hike in government debt to complete a new capital city, raise defense spending, and provide free school meals. - Policy stance: He says he has “no problem” letting the debt-to-GDP ratio rise to 50 percent, up from 39 percent at present. - Analysis: Divergence reflects differences in national balance sheets and memories of financial instability, and is linked to changes in the external environment—specifically weaker global trade and still-volatile global capital flows. - Scenario implications: - If fiscal easing is moderate, boosts productivity, and adds to potential growth, looser policy in some emerging markets may not alarm markets. - If global trade worsens (a steeper or more protracted collapse), public sector balance sheets will deteriorate, and market participants are likely to charge higher rates to supply credit. - Policy consideration: The future of global trade will be important in determining emerging market policy patterns and whether countries pursue market-friendly reform or the opposite. ### Globalization and external environment - Finding: Distinction highlighted between financial globalization (volatile capital flows) and real globalization (trade). - Trend: Over the past two years and much of the past decade, global trade growth has been markedly weak compared with GDP growth. - Implication: Weak external trade makes exports a less reliable growth path for emerging markets and may encourage countries with healthy balance sheets to spend more domestically to support demand; climate transition and national defense demands will amplify this trend. ### Housing costs mounting: cross-country trends and generational effects - OECD aggregate findings: - Finding: Over the past decade, the cost of a home across the OECD’s mostly high-income countries has risen by 37 percent in real terms. - Finding: Prices are up 16 percent relative to incomes, on average. - Generational concerns: - Finding: 60 percent of OECD survey respondents aged 18–39 said they worried about housing affordability, compared with 38 percent of those aged 55–64. - Countries with largest generation gaps: Ireland, Canada, and the United States. - Homeownership and tenure statistics: - Finding: Homeownership is highest in Eastern Europe’s former communist countries, with 94 percent of Romanians owning their home outright, versus just 5 percent of the Swiss. - Finding: On average, 16 percent of people rent from private landlords in the countries the OECD tracks. - Colombia: 82 percent of renters in the lowest income quintile hand over more than 40 percent of their income to private landlords. - Mortgage burden for owners: In Colombia and Luxembourg, more than half of the poorest owners spend at least 40 percent of their income on repayment. - Finding: Home prices have increased in every OECD country except three over the past decade, rising by more than a third on average and by over 50 percent in the US alone. ### The Economics of Housing: affordability, measurement, drivers - Measurement innovation: - Finding: A mortgage-based housing affordability index calculates the ratio of actual household income to the level of income required to qualify for a typical mortgage; a reading above 100 indicates more affordable housing. - Affordability changes (selected exact figures): - US: Affordability plunged from about 150 in 2021 to the mid-80s by 2024. - UK: Affordability fell from 105 in 2021 to the low 70s in 2024. - Drivers of affordability: nominal mortgage rates, household income, and house prices. - Historical patterns: - Finding: From the 1970s to the mid-1990s the median affordability index was below 100; in the late 1990s it improved consistently topping 100; deteriorated in the following decade; improved after the global financial crisis; then reversed sharply after the pandemic. - Quantitative contribution: - Finding: Over the half century of the study, changes in mortgage rates accounted for just over a quarter of movements in affordability. - Policy implications and recommendations: - Macroeconomic policy: Continue efforts to achieve a soft landing to reduce the risk of sharp affordability deterioration. - Structural reforms: Remove regulatory barriers to improve the elasticity of housing supply (building codes, land use restrictions, administrative requirements) while preserving legitimate health and safety standards. - Competition: Address lack of competition in resources, construction, or sales; break up oligopolies where present. - Targeted interventions: Consider targeted support for low-income households or those in informal housing; provide incentives for developers to supply affordable units (for example, extra development rights). - Comprehensive plan: Policymakers should adopt a comprehensive plan to make housing affordable on a sustainable basis, accounting for climate risks and migration pressures. ### Monetary transmission, consumer sentiment, and the cost of money - Finding: Rising interest rates and the “cost of money” are a major driver of consumer sentiment deterioration despite improving labor markets and falling official inflation. - Quantitative impacts: - Finding: In the US, the interest payment on a new 30-year mortgage for the average house is up almost threefold since the end of 2019; the payment on a new car loan has nearly doubled. - Finding: Households’ interest payments grew by about 30 percent in 2023, the fastest rate on record. - Measurement debates: - Finding: CPI no longer directly captures mortgage rates or car financing rates (removed in 1983 and 1998 respectively); alternative inflation measures that include homeownership and personal interest payments show much higher inflation in 2022–2023 than official CPI. - Result: Accounting for homeownership and personal interest payments closes more than two-thirds of the 2023 consumer sentiment gap after controlling for unemployment, official CPI inflation, and stock market growth. - Policy implication: Lower interest rates alone are not a panacea; to improve consumer sentiment sustainably, increased housing supply and better access to affordable financing are necessary. ### China’s real estate challenge - Scale and exposure: - Finding: Real estate and infrastructure accounted for 25 percent of China’s economy in 2021 (about 22 percent excluding imported content); the share rises to 31 percent if infrastructure is included. - Table 1 exact figures (real estate and infrastructure as a percent of GDP, including direct and indirect demand, in 2021): - Real estate construction: Direct value added 4.9; Total final demand 16.5 - Real estate services: Direct value added 6.8; Total final demand 5.0 - Imported component: n/a; 2.9 - Total real estate activity: Direct value added 11.6; Total final demand 24.4 - Infrastructure construction: Direct value added 2.1; Total final demand 7.3 - Real estate and infrastructure contribution to economy: Direct value added 13.7; Total final demand 31.7 - Household debt dynamics: - Finding: Household-debt-to-GDP ratio tripled from less than 20 percent in 2008 to more than 60 percent by 2023. - City- and sectoral heterogeneity: - Finding: Tier 3 cities (smaller cities, accounting for 60 percent of China’s GDP) have seen prices fall materially; tier 1 and some tier 2 cities show different dynamics. - Finding: Rising ratio of construction projects outstanding to completed projects suggests an increase in troubled projects or disputes. - Growth and transition implications: - Finding: A 20 percent fall in the size of China’s real estate sector would lead to a 5–10 percent fall in output, cumulatively over a number of years, even absent a financial crisis (lower-bound estimate). - Finding: Diminishing returns on real estate can account for perhaps 2 percent of the slowdown in China’s growth rate (estimate from city-level growth regressions). - Policy note: The large size of China’s real estate and related sectors (about 15 percent of employment) makes absorption of displaced resources difficult; geopolitical frictions constrain export-led offsets for reallocation to other sectors. *© Finance & Development, December 2024.* --- ### 11.5 million—has a shortage of 400,000 ### Overview: São Paulo’s housing deficit and national context - Finding: The city of São Paulo—part of a national urban surge that raised urban residency from 45 percent to 87 percent of the population since 1960—faces a housing deficit: "11.5 million—has a shortage of 400,000 housing units." - São Paulo metro: "20 million" population and "gained roughly 2 million new residents in the past decade." - Federal program history: The Lula administration relaunched and expanded the Minha Casa, Minha Vida (MCMV) program in 2023; the earlier federal program "succeeded in adding more than 8 million housing units" but "stumbled over complaints that it accentuated inequality and added to urban sprawl." ### MCMV program: lessons, changes, and eligibility - Original program issues: - Early projects were "located far from city centers," critics say this "exacerbated inequality." - A study in Rio de Janeiro found "more than half of lottery winners" ultimately opted out. - Depending on location, recipients were "less likely to be formally employed after moving" and spent "fewer months each year formally employed." - Relaunch design and eligibility: - Lowest income threshold eligibility: families earning "no more than $516 a month" are eligible for free housing through local lotteries. - The relaunch in 2023 included "expanded subsidies, lower interest rates, and higher maximum property values." - In one year after relaunch, MCMV "sold more than 1 million units, half the target set for the end of 2026." - The updated program "includes more incentives to improve access to jobs and services." ### Urban planning and downtown revitalization strategy - Master plan aims (approved in 2014): - "Increase population density along urban transportation corridors," allowing taller buildings in exchange for more smaller lower-cost units. - Double the number of priority regions for low-income housing and direct "a large share of the housing budget to acquiring land for low-income projects." - Downtown context: - "An estimated 20 percent of central area buildings are now empty." - Mayor Ricardo Nunes announced the "expropriation of five buildings" for conversion into low-income housing; "164 additional properties that meet the criteria for expropriation." - State Governor Tarcísio de Freitas pledged a share of "268,000 low-income housing units that Freitas promised to build by the end of his term" downtown. - Policy focus: Shift housing provision back toward central areas with access to jobs, services, and transit. ### Project examples, social movements, and lived outcomes - Dandara building (former federal labor court on Ipiranga Avenue): - "Occupied in 2009" by ULCM; resident since "2017." - Resident testimony: prior commute a "two-hour one-way commute" vs current "just 20 minutes" and "three subway stops within walking distance." - Activists participate centrally in renovation decision-making and project success. - Social-movement–led and government-retrofit projects are emphasized as suited for government-owned buildings because "the cost of purchasing private property for low-income housing is prohibitive." ### Private sector role and buyer needs - MCMV market impact: - Brazil posted "record new-home sales in the second quarter of this year." Of "more than 93,000 units sold," "almost half" were new MCMV housing. - Builder requirements (Magik LZ, Ricardo Zylberman): - "Access to public transport is fundamental" — developments should be within "10 minutes by foot from public transportation." - Projects need nearby basic services because most residents "do not own automobiles." - Amenities adapted for workforce trends: party rooms equipped with high-speed Internet and air-conditioning to serve as coworking spaces. - Industrialized construction approach: build "quickly" high-quality apartments with "limited maintenance." - Financing barriers and complementary policies: - "Coming up with the down payment is often the greatest challenge" because most families are "paying rent," limiting savings. - Recommended mix: "more partnerships between states, municipalities, and the federal government" and state/local programs that "offer subsidies to families to help them come up with the down payment for a new housing unit." ### Key statistics and figures (verbatim) - "11.5 million—has a shortage of 400,000 housing units." - Urbanization: "Since 1960, the nation’s city dwellers surged from 45 percent to 87 percent of the population." - São Paulo metro: "20 million" and "gained roughly 2 million new residents in the past decade." - Federal program scale: "succeeded in adding more than 8 million housing units." - MCMV sales: "sold more than 1 million units, half the target set for the end of 2026." - Lowest income threshold eligibility: "earning no more than $516 a month." - Central-area vacancy: "an estimated 20 percent of central area buildings are now empty." - Expropriation pipeline: "expropriation of five buildings" and "164 additional properties that meet the criteria for expropriation." - State housing promise: "268,000 low-income housing units that Freitas promised to build by the end of his term." - Dandara occupation year: "occupied in 2009"; resident since "2017." - Commute change example: prior "two-hour one-way commute" vs current "just 20 minutes" and "three subway stops within walking distance." - New-home sales: "more than 93,000 units sold" in Q2; "almost half" were new MCMV housing. - Transit access requirement for projects: "10 minutes by foot from public transportation." - Annual need estimate: "Brazil needs 1 million to 1.5 million new units per year to keep the housing deficit from increasing." - Djibouti guarantee fund provision: "DF 10 million ($56,000)." ### Policy implications and recommendations - Prioritize locating low-income housing near jobs, services, and public transportation to avoid past outcomes of sprawl and worsened employment outcomes. - Use urban planning instruments (density along transport corridors, incentives for developers to build smaller lower-cost units) to direct housing to centrally located areas. - Leverage public ownership and retrofitting of vacant government buildings for low-income housing, supported by social movements and participatory decision-making. - Address financing bottlenecks, particularly down payments, through targeted subsidies and partnerships across federal, state, and municipal levels. - Encourage private-sector adoption of industrialized, cost-efficient construction practices and design amenities aligned with residents’ needs (transit access, local services, flexible workspaces). *Source: DECEMBER 2024, Finance & Development (excerpt).* --- ### 10.6 years on average to save for a down payment ### Australia and foreign buyers - Context: Homeownership is central to retirement assumptions and wealth building in Australia. - Key statistics: - Australia’s population hit 27.1 million on March 31, 2024. - Annual population growth slowed from a peak of 2.6 percent in July–September 2023. - Net overseas migration was 510,000 in the year ending March 31, 2024, and 134,000 in January–March 2024. - More than 80 percent of new arrivals to Australia are renters, ANZ estimates. - Policy measures and market responses: - A cap on international student numbers imposed by the government in August was seen in part as an attempt to alleviate rental market pressure. - IMF recommendation: a comprehensive approach to address housing supply shortfalls, including more construction workers, relaxed zoning and planning restrictions, and revaluation of property taxes (including tax concessions to investors). - Luxury market: top-end foreign buyers remain focused on securing high-value assets; Australia remains the top choice for wealthy Chinese buyers according to Knight Frank. ### Golden visa programs and policy shifts - Golden visa programs: residency or citizenship in return for investment, often property. - Examples and changes: - Greece launched its golden visa program in 2013. - Portugal offers “non-habitual resident” tax arrangements taxed at lower rates. - Spain announced in April (this year) that it would wind down its program. - The European Commission considers citizenship-by-investment plans illegal under EU law and has taken Malta to the Court of Justice. - Global context: As 70 countries held elections in 2024, wealthy individuals faced a landscape of restrictions on foreign buyers, holiday rentals, planning regulations, and property taxes. ### Illicit finance and real estate (Hidden Fortunes) - Finding: Illicit actors use global real estate to park illicit wealth, contributing to price inflation in cities such as New York, Miami, London, and Dubai. - Concealment methods: shell companies, trusts, offshore accounts established by professional enablers. - Evidence and impacts: - In London, foreign companies held £73 billion worth of properties in 2018, with about 90 percent of these purchases made by entities registered in tax havens. - Speculative investments in African cities (Lagos, Nairobi, Johannesburg) create bubbles and push local buyers out. - Regulatory responses and recommendations: - Real estate agents should conduct due diligence and report suspicious transactions; enforcement remains weaker than for banks. - Countries such as Canada and the US are exploring requirements for property buyers to disclose the “beneficial owner.” - Public agencies should verify ownership information and make it accessible to authorities; if privacy laws allow, making beneficial ownership public would enhance transparency. - Risk: Without greater transparency and enforcement, real estate will continue to serve as a haven for illicit fortunes, further distorting housing markets. ### Detecting and monitoring housing bubbles (Exuberance methodology) - Concept: A bubble occurs when an asset’s price exceeds intrinsic value driven by expectations of continued appreciation; housing’s inelastic supply makes it susceptible. - Data and tools: - The Dallas Fed’s International House Price Database contains quarterly house prices and disposable incomes for 26 countries since 1975. - The International Housing Observatory uses these advances and user-friendly codes to monitor housing exuberance in real time. - Measures to monitor: - Express real house prices in real terms to avoid misreading inflation as exuberance. - Price-to-income ratio is a reliable proxy for debt-to-income dynamics. - Price-to-rent ratio functions like price-to-earnings for stocks and reflects investor willingness to pay relative to rental returns. - Empirical insights: - Housing exuberance has become more widespread and synchronous in the post–Bretton Woods era; a global wave of real house price exuberance occurred ahead of and accelerated by the pandemic. - During the pandemic-induced boom, exuberance in the price-to-income ratio was limited to Portugal, The Netherlands, Luxembourg, and Germany. - Credit growth and stock market volatility are key drivers of housing exuberance; international capital flows synchronize housing cycles and increase vulnerability to simultaneous downturns. - Financial spillovers from other asset classes and a steepening yield curve increase the likelihood that housing exuberance will be triggered and persist. ### Pandemic lessons and country examples - Finding: The International Housing Observatory’s breakdown of price-to-rent into expected returns and projected rent growth shows speculative pressures during the pandemic were limited after adjusting for interest rates and rents. - Country-specific outcomes: - Germany experienced a prolonged housing boom worsened during the pandemic, followed by a sharp overcorrection as the price-to-rent ratio fell below fundamentals. - The US largely avoided exuberance in the price-to-income ratio but showed signs in the price-to-rent ratio, leading to persistent inflationary pressures as rents caught up and prompting more aggressive monetary policy. - Policy takeaway: Macroprudential policies and stricter lending standards can curb credit and deflate bubbles early, preserving banking and financial stability. ### Policy implications and macroprudential recommendations - Detection and mitigation: - Early detection tools focusing on exuberance indicators are essential to identify and track housing bubbles in real time. - A comprehensive risk management approach should include monitoring, assessing impacts, and implementing mitigation strategies (including financial guidance). - Regulatory and coordination needs: - Stronger international coordination is needed, with attention to contagion, global capital flows, shadow banking, and off-balance-sheet funding. - Clear central bank communication and forward guidance are crucial for managing expectations and enhancing financial system resilience. - Countercyclical macroprudential tools should be better tailored to housing cycles rather than to business cycles. - Fiscal/tax considerations: - Revaluation of property taxes (including tax concessions to investors) is part of supply-side and demand-side policy mixes to improve affordability. ### Housing markets and monetary policy transmission - Context: Central banks in late 2021 initiated the steepest and most coordinated series of interest rate hikes in four decades to contain postpandemic inflation. - Transmission channels related to housing: - Cash-flow channel: policy rate changes affect monthly mortgage payments for adjustable-rate mortgages. - Expectations/risk-premium channel: interest rate changes alter discount rates and expectations about future returns. - Wealth and collateral channel: property price fluctuations affect homeowners’ wealth and borrowing capacity. - Cross-country heterogeneity and key statistics: - Share of fixed-rate mortgages outstanding varies widely: close to zero in South Africa to more than 95 percent in Mexico and the United States. - As of late 2024, the average rate for all outstanding mortgages in the United States was 3.9 percent; the average for new 30-year fixed loans was 6.7 percent. - Many outstanding mortgages are locked at historically low rates, so rates would need to decline by about 3 percentage points in the US for borrowers to have an incentive to refinance. - Effects of housing market characteristics: - Monetary policy has greater effects on economic activity where the share of fixed-rate mortgages is low, where households have higher debt levels, and where housing supply is constrained. - Housing supply constraints amplify the effect of lower rates on prices and consumption; conversely, expanded supply can dampen transmission. - Policy recommendation: Central banks should develop a deep, country-specific understanding of housing and mortgage markets to calibrate monetary policy effectively and identify early signs of over-tightening or under-stimulation. *Source: December Finance & Development (selected sections) — The Economics of Housing, December 2024.* --- ### 1.7 to nearly 15 percent, before shrinking as trade ### EV shock: scenario, impacts, and model findings - Scenario: "EV shock" represents a productivity increase in China combined with a preference shift in the EU leading to a 15 percentage point increase in China’s share of the EU car market over five years. - EU policy: The EU has imposed new tariffs on Chinese EVs, "up to 45 percent in some cases." - GDP impacts (selected countries): - Hungary: decline in real GDP of 1 percent over five years. - Czech Republic: decline in real GDP of 1.5 percent over five years. - Result for Germany, France, and Italy: income loss described as "modest." - Labor reallocation and employment impacts: - Dislocated workers could amount to as much as 2.6 percent of the workforce in the Slovak Republic. - Dislocated workers could amount to 1.7 percent in Hungary. - Reemployment: primarily in services, but with significant social, economic, political, and psychological costs. - Tariff simulations: - The model simulates effects of "a 25 percent and a 100 percent average tariff on Chinese automotive imports into the EU." - Finding: "Far from lessening the economic costs, we find that tariffs make the situation worse, both in the short and long run." - Tariff effects: protection of domestic auto production and limited revenue gains; higher consumer prices and higher production costs in sectors using Chinese vehicles as inputs; net effect "leaving all EU countries poorer." - Tariff protection will not make European carmakers more competitive in the global market. - Climate and emissions considerations: - Tariffs cause a price effect that leads some consumers to buy more traditional vehicles over the next decade, "which adds to emissions." - If the EU achieves "100 percent EV purchases by 2035," overall fallout for emissions is "minimal." - Risk: Higher price tags from tariffs may create pressure to delay EV adoption targets—which "would cause a much more severe impact on emissions." - Mitigation pathways (non-tariff levers): - Increased foreign direct investment (Chinese firms producing in Europe) could lessen adverse impacts. - Productivity gains in the European car sector could soften macroeconomic impacts on worst-affected EU economies. - Removal of remaining intra-EU barriers to trade and capital flows to exploit economies of scale and incentivize investment in R&D. - Middle-ground solution: encourage investment and productivity gains in the auto sector and assist job transitions, "while making room for BYDs, Nios, and Xpengs on European roads." ### Health financing and international coordination (Victoria Fan and Sanjeev Gupta) - Diagnosis: - Public spending on health in low- and middle-income countries "has stagnated at below 2 percent of GDP recently," about half what these countries spend on education. - Underspending in health is estimated to lead to a loss of "$4 per person, based on constant 2020 prices." - Tax revenue in some low-income countries is "less than 10 percent of GDP," below the "15 percent recommended by the IMF." - Some developing economies spend "over a third of the tax revenue they do collect servicing domestic and foreign debt." - Health aid "remained stuck at about 1 percent of low- and middle-income countries’ GDP" for roughly two decades before the pandemic, with only a small increase afterward. - Fragmentation: "Over the past 15 years, the number of donors of all types of aid has doubled, and the number of donor agencies has tripled," while donor financial flows "have grown only by 50 percent." - Recommended domestic actions: - Countries should rely progressively more on their own resources; IMF estimates they "could raise an additional 5–9 percent of GDP over time." - Strengthen domestic tax systems by broadening the tax base and improving tax compliance. - Short-term revenue measures (for example, higher taxes on tobacco) can provide additional revenue but are "not a long-term solution." - Improve budget execution in the health sector. - Recommended international actions and institutional approaches: - Align donor efforts with countries’ priority of universal health coverage to improve coordination of disease-specific vertical health funds. - Use the 2005 Paris Declaration on aid effectiveness and the 2023 Lusaka Agenda as frameworks for alignment. - Consider a permanent global health and finance coordinating body modeled on the Group of Twenty Joint Finance and Health Taskforce; such a body could include the World Bank and WHO. - Improve procurement through pooled systems for donor funds to reduce inefficiency and strengthen receiving countries’ public financial systems and procurement capacity; begin consolidation with organizations such as GAVI and the Global Fund. - Urgency and outcomes: - "Most low- and middle-income countries are well behind their health-related Sustainable Development Goals." - Maternal mortality: "over 287,000 women died from pregnancy and child-birth complications in 2020." - Child mortality failures: child mortality reductions are "too small to meet targets," and preventable causes (neonatal conditions, pneumonia, and diarrhea) "led to nearly 5 million deaths" (text cuts off). *Source: december-finance-and-development - 1.7 to nearly 15 percent, before shrinking as trade (PDF).* --- ### 2022. Despite available low-cost, effective technol- ### Child mortality and fragmented aid - Finding: "Despite available low-cost, effective technologies, 59 countries are expected to miss the target for under-five child mortality." - Observation: The global health community is urged to "ditch the status quo and chart a new course toward integrated, sustainable health systems aligned with broader economic and development goals." - Chart insight: The number of donors has risen even as the average size of official development grants and financial flows has fallen. - Policy implication: "Commitment and collaboration will build a healthier, more equitable world for all." ### The Longevity Economist — Anne Case (profile and research findings) - Historical context: - By the late 1960s, advances in vaccines and antibiotics helped extend the average American lifespan to nearly 70, "about 50 percent longer than at the start of the century." - By the 1980s, antihypertensive drugs reduced cardiovascular disease. - Key findings on US mortality and inequality: - Life expectancy gains stalled and reversed for some groups: "The life expectancy for adults without a college degree reached its peak around 2010 and has been falling ever since." - By 2021, people without a bachelor’s degree were living "roughly eight and a half years less than people with college degrees." - Rising causes of death identified: "suicide, alcohol use, liver disease, and drug overdoses." - Causes and mechanisms: - Long-term economic shifts (offshoring, weakening unions, deindustrialization) reduced job prospects and community cohesion. - The opioid epidemic: "the overprescribing of painkillers such as OxyContin in the late 1990s, followed by the availability of cheaper heroin and then synthetic opioids such as fentanyl, led to an unusual spike in overdose deaths." - Policy and social recommendations: - Reconsider skills and hiring practices: "About two-thirds of the US working population does not have an undergraduate degree." - Expand hiring pathways: over the past two years "more than 20 states have expanded access to state government jobs by dropping requirements for an undergraduate degree." - Health and economic policy linkage: Case believes that "capitalism needs to be put back on the rails," especially regarding "access and affordability of health care." ### Café Economics — Yuval Noah Harari on storytelling, information, and AI - Conceptual findings: - Human cooperation is grounded in shared "stories"; money is characterized as "a story, a fiction." - The information economy shifts power from money to information: transactions increasingly take the form of "information in exchange for information." - Risks of AI and uneven diffusion: - AI is described as "fundamentally different from everything we’ve invented so far. It’s the first technology in history that can make decisions and create new ideas by itself." - Concern: "a very small number of countries are leading the AI revolution. Most countries are very far behind." - Warning: "I think of AI as an acronym—not for artificial intelligence, but for alien intelligence." - Regulatory risk: AIs could invent financial devices "that no human being is capable of understanding, let alone regulating." - Institutional prescriptions: - Distinguish truth from desire: build institutions of experts to establish facts, while democratic processes determine priorities. - Control and governance: do not "release billions of alien agents into the world without having a way to control them and make sure they use their enormous power for our benefit." - Long-run concern: If AI diffusion is concentrated, "this will be a repeat of the Industrial Revolution, on steroids." ### Book reviews and regional notes - Money: A Story of Humanity (David McWilliams) — money as an "invented notion" key to institutions and social change. - Mapmatics: A Mathematician’s Guide to Navigating the World (Paulina Rowińska) — practical lessons on mathematical concepts with policy implications. - Technology and the Rise of Great Powers (Jeffrey Ding) — argument for broad adoption of general-purpose technologies driving long-term national success; policy takeaway: prioritize "GPT infrastructure." - Eastern Caribbean Central Bank $2 banknote: - ECCB issued a commemorative $2 banknote for its 40th anniversary in 2023. - The note is the ECCB’s "first note that doesn’t feature the British monarch" and won awards including the International Bank Note Society 2023 Bank Note of the Year. *Italic: Content summarized from "december-finance-and-development - 2022. Despite available low-cost, effective technol-" (Finance & Development, December 2024).* ### 0.5 percent of GDP next year. ### december-finance-and-development - 0.5 percent of GDP next year. ### Emerging markets: divergent fiscal paths and drivers - Finding: A two-way traffic has emerged in emerging markets between countries tightening fiscal policy and others loosening. - Mexico - Finding: President Claudia Sheinbaum inherited a 2024 budget deficit of some 6 percent of GDP, the largest since 1989. - Concern: Market participants fear a sustained period of fiscal loosening may be starting. - Brazil - Finding: Investors are worried President Luiz Inácio Lula da Silva’s tilt toward fiscal loosening may be incompatible with financial stability despite a sovereign upgrade by Moody’s. - Concern: A recent surge in GDP growth may be keeping the economy growing faster than potential; market participants worry government financial weaknesses will surface when growth slows. - Indonesia - Finding: President Prabowo Subianto has raised the prospect of a big hike in government debt to complete a new capital city, raise defense spending, and provide free school meals. - Policy stance: He says he has “no problem” letting the debt-to-GDP ratio rise to 50 percent, up from 39 percent at present. - Analysis: The divergence reflects differences in national balance sheets and memories of financial instability, and is linked to changes in the external environment—specifically weaker global trade and still-volatile global capital flows. - Scenario implications: - If fiscal easing is moderate, boosts productivity, and adds to potential growth, looser policy in some emerging markets may not alarm markets. - If global trade worsens (a steeper or more protracted collapse), public sector balance sheets will deteriorate, and market participants are likely to charge higher rates to supply credit. - Policy consideration: The future of global trade will be important in determining emerging market policy patterns and whether countries pursue market-friendly reform or the opposite. ### Globalization and external environment - Finding: Distinction highlighted between financial globalization (volatile capital flows) and real globalization (trade). - Trend: Over the past two years and much of the past decade, global trade growth has been markedly weak compared with GDP growth. - Implication: Weak external trade makes exports a less reliable growth path for emerging markets and may encourage countries with healthy balance sheets to spend more domestically to support demand; climate transition and national defense demands will amplify this trend. ### Housing costs mounting: cross-country trends and generational effects - OECD aggregate findings: - Finding: Over the past decade, the cost of a home across the OECD’s mostly high-income countries has risen by 37 percent in real terms. - Finding: Prices are up 16 percent relative to incomes, on average. - Generational concerns: - Finding: 60 percent of OECD survey respondents aged 18–39 said they worried about housing affordability, compared with 38 percent of those aged 55–64. - Countries with largest generation gaps: Ireland, Canada, and the United States. - Homeownership and tenure statistics: - Finding: Homeownership is highest in Eastern Europe’s former communist countries, with 94 percent of Romanians owning their home outright, versus just 5 percent of the Swiss. - Finding: On average, 16 percent of people rent from private landlords in the countries the OECD tracks. - Colombia: 82 percent of renters in the lowest income quintile hand over more than 40 percent of their income to private landlords. - Mortgage burden for owners: In Colombia and Luxembourg, more than half of the poorest owners spend at least 40 percent of their income on repayment. - Finding: Home prices have increased in every OECD country except three over the past decade, rising by more than a third on average and by over 50 percent in the US alone. ### The Economics of Housing: affordability, measurement, drivers - Measurement innovation: - Finding: A mortgage-based housing affordability index was developed that calculates the ratio of actual household income to the level of income required to qualify for a typical mortgage; a reading above 100 indicates more affordable housing. - Affordability changes (selected exact figures): - US: Affordability plunged from about 150 in 2021 to the mid-80s by 2024. - UK: Affordability fell from 105 in 2021 to the low 70s in 2024. - Drivers of affordability (components of the index): nominal mortgage rates, household income, and house prices. - Historical patterns: - Finding: From the 1970s to the mid-1990s the median affordability index was below 100; in the late 1990s it improved consistently topping 100; deteriorated in the following decade; improved after the global financial crisis; then reversed sharply after the pandemic. - Quantitative contribution of mortgage rates: - Finding: Over the half century of the study, changes in mortgage rates accounted for just over a quarter of movements in affordability. - Policy implications and recommendations: - Macroeconomic policy: Continue efforts to achieve a soft landing to reduce the risk of sharp affordability deterioration. - Structural reforms: Remove regulatory barriers to improve the elasticity of housing supply (building codes, land use restrictions, administrative requirements) while preserving legitimate health and safety standards. - Competition: Address lack of competition in resources, construction, or sales; break up oligopolies where present. - Targeted interventions: Consider targeted support for low-income households or those in informal housing; provide incentives for developers to supply affordable units (for example, extra development rights). - Comprehensive plan: Policymakers should adopt a comprehensive plan to make housing affordable on a sustainable basis, accounting for climate risks and migration pressures. ### Monetary transmission, consumer sentiment, and the cost of money - Finding: Rising interest rates and the “cost of money” are a major driver of consumer sentiment deterioration despite improving labor markets and falling official inflation. - Quantitative impacts: - Finding: In the US, the interest payment on a new 30-year mortgage for the average house is up almost threefold since the end of 2019; the payment on a new car loan has nearly doubled. - Finding: Households’ interest payments grew by about 30 percent in 2023, the fastest rate on record. - Measurement debates: - Finding: CPI no longer directly captures mortgage rates or car financing rates (removed in 1983 and 1998 respectively); alternative inflation measures that include homeownership and personal interest payments show much higher inflation in 2022–2023 than official CPI. - Result: Accounting for homeownership and personal interest payments closes more than two-thirds of the 2023 consumer sentiment gap after controlling for unemployment, official CPI inflation, and stock market growth. - Policy implication: Lower interest rates alone are not a panacea; to improve consumer sentiment sustainably, increased housing supply and better access to affordable financing are necessary. ### China’s real estate challenge - Scale and exposure: - Finding: Real estate and infrastructure accounted for 25 percent of China’s economy in 2021 (about 22 percent excluding imported content); the share rises to 31 percent if infrastructure is included. - Table 1 exact figures (real estate and infrastructure as a percent of GDP, including direct and indirect demand, in 2021): - Real estate construction: Direct value added 4.9; Total final demand 16.5 - Real estate services: Direct value added 6.8; Total final demand 5.0 - Imported component: n/a; 2.9 - Total real estate activity: Direct value added 11.6; Total final demand 24.4 - Infrastructure construction: Direct value added 2.1; Total final demand 7.3 - Real estate and infrastructure contribution to economy: Direct value added 13.7; Total final demand 31.7 - Household debt dynamics: - Finding: Household-debt-to-GDP ratio tripled from less than 20 percent in 2008 to more than 60 percent by 2023. - City- and sectoral heterogeneity: - Finding: Tier 3 cities (smaller cities, accounting for 60 percent of China’s GDP) have seen prices fall materially; tier 1 and some tier 2 cities show different dynamics. - Finding: Rising ratio of construction projects outstanding to completed projects suggests an increase in troubled projects or disputes. - Growth and transition implications: - Finding: A 20 percent fall in the size of China’s real estate sector would lead to a 5–10 percent fall in output, cumulatively over a number of years, even absent a financial crisis (lower-bound estimate). - Finding: Diminishing returns on real estate can account for perhaps 2 percent of the slowdown in China’s growth rate (estimate from city-level growth regressions). - Policy note: The large size of China’s real estate and related sectors (about 15 percent of employment) makes absorption of displaced resources difficult; geopolitical frictions constrain export-led offsets for reallocation to other sectors. _© Finance & Development, December 2024._ ### 11.5 million—has a shortage of 400,000 ### december-finance-and-development - 11.5 million—has a shortage of 400,000 ### Overview: São Paulo’s housing deficit and national context - The city of São Paulo—part of a national urban surge that raised urban residency from 45 percent to 87 percent of the population since 1960—faces a housing deficit: "11.5 million—has a shortage of 400,000 housing units." - The São Paulo metropolitan area has 20 million people and "gained roughly 2 million new residents in the past decade," according to IBGE. - The Lula administration relaunched and expanded the Minha Casa, Minha Vida (MCMV) program in 2023, building on a federal program that "succeeded in adding more than 8 million housing units" but earlier "stumbled over complaints that it accentuated inequality and added to urban sprawl." ### MCMV program: lessons, changes, and eligibility - Original program issues: - Early projects were "located far from city centers," which critics say "exacerbated inequality" by placing poor people in areas with limited public services and long commutes. - A study in Rio de Janeiro found "more than half of lottery winners" ultimately opted out of the program. - Depending on the location of a new home, recipients were "less likely to be formally employed after moving" and spent "fewer months each year formally employed." - Program design and eligibility changes under the relaunch: - Since its inception, families in the program’s lowest income threshold (earning "no more than $516 a month") are eligible for free housing through local lotteries. - The relaunch in 2023 included "expanded subsidies, lower interest rates, and higher maximum property values." - In one year after relaunch, MCMV "sold more than 1 million units, half the target set for the end of 2026." - The updated program "includes more incentives to improve access to jobs and services." ### Urban planning and downtown revitalization strategy - São Paulo’s "master plan" for urban development (approved in 2014) aims to: - "Increase population density along urban transportation corridors," allowing taller buildings in exchange for more smaller lower-cost units. - Double the number of priority regions for low-income housing, directing "a large share of the housing budget to acquiring land for low-income projects." - Downtown context: - The downtown area has declined since the late 1960s; an estimated "20 percent of central area buildings are now empty." - Mayor Ricardo Nunes announced the expropriation of five buildings for conversion into low-income housing; there are "164 additional properties that meet the criteria for expropriation." - State Governor Tarcísio de Freitas pledged that a share of the "268,000 low-income housing units that Freitas promised to build by the end of his term are downtown." - Policy focus: shifting housing provision back toward central areas with access to jobs, services, and transit. ### Project examples, social movements, and lived outcomes - Dandara building (former federal labor court on Ipiranga Avenue): - Occupied in 2009 by ULCM; Marli Baffini has "been an activist with ULCM for nearly two decades and a resident since 2017." - Resident testimony: previous commute required leaving at 5 a.m. for a "two-hour one-way commute"; after moving to Dandara, commute is "just 20 minutes" and "three subway stops within walking distance." - Activists participate centrally in renovation decision-making and project success, per Integra founding partner Adelcke Rossetto. - Social-movement–led and government-retrofit projects are emphasized as "best suited for government-owned buildings" because "the cost of purchasing private property for low-income housing is prohibitive." ### Private sector role and buyer needs - MCMV’s impact on housing market activity: - Brazil posted "record new-home sales in the second quarter of this year." Of "more than 93,000 units sold," "almost half" were new MCMV housing, per the Brazilian Construction Industry Chamber. - Builder requirements and adaptations (Magik LZ, Ricardo Zylberman): - "Access to public transport is fundamental" — developments should be within "10 minutes by foot from public transportation." - Projects need nearby basic services (supermarkets, pharmacies, bakeries) because most residents "do not own automobiles." - Amenities adapted for workforce trends: party rooms equipped with high-speed Internet and air-conditioning to serve as coworking spaces. - Industrialized construction approach: build "quickly" high-quality apartments with "limited maintenance." - Financing barriers and complementary policies: - Inês Magalhães (Caixa Econômica Federal) notes "coming up with the down payment is often the greatest challenge" because most families are "paying rent," limiting savings. - Recommended policy mix includes "more partnerships between states, municipalities, and the federal government" and state/local programs that "offer subsidies to families to help them come up with the down payment for a new housing unit." ### Key statistics and figures (verbatim) - "11.5 million—has a shortage of 400,000 housing units." - Urbanization: "Since 1960, the nation’s city dwellers surged from 45 percent to 87 percent of the population." - São Paulo metro population: "20 million" and "gained roughly 2 million new residents in the past decade." - Federal program scale: "succeeded in adding more than 8 million housing units." - MCMV sales: "sold more than 1 million units, half the target set for the end of 2026." - Lowest income threshold eligibility: "earning no more than $516 a month." - Central-area vacancy: "an estimated 20 percent of central area buildings are now empty." - Expropriation pipeline: "expropriation of five buildings" and "164 additional properties that meet the criteria for expropriation." - State housing promise: "268,000 low-income housing units that Freitas promised to build by the end of his term." - Dandara occupation year: "occupied in 2009"; resident since "2017." - Commute change example: prior "two-hour one-way commute" vs current "just 20 minutes" and "three subway stops within walking distance." - New-home sales: "more than 93,000 units sold" in Q2; "almost half" were new MCMV housing. - Transit access requirement for projects: "10 minutes by foot from public transportation." - Annual need estimate: "Brazil needs 1 million to 1.5 million new units per year to keep the housing deficit from increasing." - Djibouti guarantee fund provision: "DF 10 million ($56,000)." ### Policy implications and recommendations (from the text) - Prioritize locating low-income housing near jobs, services, and public transportation to avoid past outcomes of sprawl and worsened employment outcomes. - Use urban planning instruments (density along transport corridors, incentives for developers to build smaller lower-cost units) to direct housing to centrally located areas. - Leverage public ownership and retrofitting of vacant government buildings for low-income housing, supported by social movements and participatory decision-making. - Address financing bottlenecks, particularly down payments, through targeted subsidies and partnerships across federal, state, and municipal levels. - Encourage private-sector adoption of industrialized, cost-efficient construction practices and design amenities aligned with residents’ needs (transit access, local services, flexible workspaces). *Source: DECEMBER 2024, Finance & Development (excerpt).* ### 10.6 years on average to save for a down payment ### 10.6 years on average to save for a down payment ### Australia and foreign buyers - Homeownership is central to retirement assumptions and wealth building in Australia. - Public discourse highlights younger or vulnerable Australians struggling to buy or rent due to rising housing costs. - Key statistics: - Australia’s population hit 27.1 million on March 31, 2024. - Annual population growth slowed from a peak of 2.6 percent in July–September 2023. - Net overseas migration was 510,000 in the year ending March 31, 2024, and 134,000 in January–March 2024. - More than 80 percent of new arrivals to Australia are renters, ANZ estimates. - Policy measures and market responses: - A cap on international student numbers imposed by the government in August was seen in part as an attempt to alleviate rental market pressure. - The IMF recommends a comprehensive approach to address housing supply shortfalls, including more construction workers, relaxed zoning and planning restrictions, and revaluation of property taxes (including tax concessions to investors). - Luxury market sentiment: top-end foreign buyers remain focused on securing high-value assets; Australia remains the top choice for wealthy Chinese buyers according to Knight Frank. ### Golden visa programs and policy shifts - Golden visa programs (residency or citizenship in return for investment, often property) became more widespread as countries sought dollar inflows from international buyers. - Examples and policy changes: - Greece launched its golden visa program in 2013. - Portugal offers “non-habitual resident” tax arrangements taxed at lower rates. - Spain announced in April (this year) that it would wind down its program. - The European Commission considers citizenship-by-investment plans illegal under EU law and has taken Malta to the Court of Justice. - Global context: - As 70 countries held elections in 2024, wealthy individuals faced a global landscape of restrictions on foreign buyers, holiday rentals, planning regulations, and property taxes (Knight Frank, 2024 Wealth Report). - Quote: “As public debt escalates and housing affordability diminishes across advanced economies, policymakers are poised to scrutinize wealth and property even more..." — Kate Everett-Allen, Knight Frank. ### Illicit finance and real estate (Hidden Fortunes) - Illicit actors—criminal networks, corrupt politicians, tax evaders—use global real estate to park illicit wealth, contributing to price inflation in cities such as New York, Miami, London, and Dubai. - Typical concealment methods: shell companies, trusts, offshore accounts established by professional enablers; developers often do not question sources of funds. - Evidence and impacts: - In London, foreign companies held £73 billion worth of properties in 2018, with about 90 percent of these purchases made by entities registered in tax havens (Bomare and Le Guern Herry). - Speculative investments in African cities (Lagos, Nairobi, Johannesburg) similarly create bubbles and push local buyers out. - Regulatory responses and recommendations: - Real estate agents were recommended to conduct due diligence and report suspicious transactions; enforcement remains weaker than for banks. - Countries such as Canada and the US are exploring requirements for property buyers to disclose the “beneficial owner.” - Public agencies should verify ownership information and make it accessible to authorities; if privacy laws allow, making beneficial ownership public would enhance transparency. - Risk: Without greater transparency and enforcement, real estate will continue to serve as a haven for illicit fortunes, further distorting housing markets. ### Detecting and monitoring housing bubbles (Exuberance methodology) - Concept: - A bubble occurs when an asset’s price exceeds intrinsic value driven by expectations of continued appreciation; housing’s inelastic supply makes it susceptible. - Exuberance detection focuses on observable statistical patterns (explosive price growth) instead of attempting to model intrinsic value. - Data and tools: - The Dallas Fed’s International House Price Database contains quarterly house prices and disposable incomes for 26 countries since 1975. - The International Housing Observatory uses these advances and user-friendly codes to monitor housing exuberance in real time. - Measures to monitor: - Real house prices should be expressed in real terms to avoid misreading inflation as exuberance. - Price-to-income ratio is a reliable proxy for debt-to-income dynamics and crucial for distinguishing expectations-driven bubbles. - Price-to-rent ratio functions like price-to-earnings for stocks and reflects investor willingness to pay relative to rental returns. - Empirical insights (from Chart 1 and related analysis): - Housing exuberance has become more widespread and synchronous in the post–Bretton Woods era; a global wave of real house price exuberance occurred ahead of and accelerated by the pandemic. - During the pandemic-induced boom, exuberance in the price-to-income ratio was limited to just four countries: Portugal, The Netherlands, Luxembourg, and Germany. - Credit growth and stock market volatility are key drivers of housing exuberance; international capital flows synchronize housing cycles and increase vulnerability to simultaneous downturns. - Financial spillovers from other asset classes and a steepening yield curve increase the likelihood that housing exuberance will be triggered and persist. ### Pandemic lessons and country examples - The International Housing Observatory’s breakdown of price-to-rent into expected returns and projected rent growth shows speculative pressures during the pandemic were limited after adjusting for interest rates and rents. - Country-specific outcomes: - Germany experienced a prolonged housing boom worsened during the pandemic, followed by a sharp overcorrection as the price-to-rent ratio fell below fundamentals. - The US largely avoided exuberance in the price-to-income ratio but showed signs in the price-to-rent ratio, leading to persistent inflationary pressures as rents caught up and prompting more aggressive monetary policy. - Policy takeaway: Macroprudential policies and stricter lending standards can curb credit and deflate bubbles early, preserving banking and financial stability. ### Policy implications and macroprudential recommendations - Detection and mitigation: - Early detection tools focusing on exuberance indicators are essential to identify and track housing bubbles in real time. - A comprehensive risk management approach should include monitoring, assessing impacts, and implementing mitigation strategies (including financial guidance). - Regulatory and coordination needs: - Stronger international coordination is needed, with attention to contagion, global capital flows, shadow banking, and off-balance-sheet funding. - Clear central bank communication and forward guidance are crucial for managing expectations and enhancing financial system resilience. - Countercyclical macroprudential tools should be better tailored to housing cycles rather than to business cycles. - Fiscal/tax considerations: - Revaluation of property taxes (including tax concessions to investors) is part of supply-side and demand-side policy mixes to improve affordability. ### Housing markets and monetary policy transmission - Context: - Central banks in late 2021 initiated the steepest and most coordinated series of interest rate hikes in four decades to contain postpandemic inflation. - Housing and mortgage characteristics vary widely across countries and shape monetary policy transmission. - Transmission channels related to housing: - Cash-flow channel: policy rate changes affect monthly mortgage payments for adjustable-rate mortgages, influencing disposable income and consumption. - Expectations/risk-premium channel: interest rate changes alter discount rates and expectations about future returns, affecting borrowing and housing prices. - Wealth and collateral channel: property price fluctuations affect homeowners’ wealth and their ability to borrow against homes, influencing consumption. - Cross-country heterogeneity and key statistics: - Share of fixed-rate mortgages outstanding varies widely: close to zero in South Africa to more than 95 percent in Mexico and the United States. - High shares of fixed-rate mortgages reduce transmission of policy changes to household payments during tightening cycles; they can support a refinancing channel during loosening cycles. - As of late 2024, the average rate for all outstanding mortgages in the United States was 3.9 percent; the average for new 30-year fixed loans was 6.7 percent. - Many outstanding mortgages are locked at historically low rates, so rates would need to decline by about 3 percentage points in the US for borrowers to have an incentive to refinance. - Effects of housing market characteristics: - Monetary policy has greater effects on economic activity where the share of fixed-rate mortgages is low, where households have higher debt levels, and where housing supply is constrained. - Housing supply constraints amplify the effect of lower rates on prices and consumption; conversely, expanded supply can dampen transmission. - Policy recommendation: - Central banks should develop a deep, country-specific understanding of housing and mortgage markets to calibrate monetary policy effectively and identify early signs of over-tightening or under-stimulation. *Source: December Finance & Development (selected sections) — The Economics of Housing, December 2024.* ### 1.7 to nearly 15 percent, before shrinking as trade ### december-finance-and-development - 1.7 to nearly 15 percent, before shrinking as trade ### EV shock: scenario, impacts, and model findings - Scenario description: - "EV shock" represents a productivity increase in China combined with a preference shift in the EU leading to a 15 percentage point increase in China’s share of the EU car market over five years. - The EU has imposed new tariffs on Chinese EVs, "up to 45 percent in some cases." - Key quantitative impacts on GDP: - The GDP impact from an EV shock is "very small for the EU as a whole, but varies widely across its members." - Hungary: decline in real GDP of 1 percent over five years. - Czech Republic: decline in real GDP of 1.5 percent over five years. - The resulting income loss is described as "modest for Germany, France, and Italy." - Labor reallocation and employment impacts: - Dislocated workers could amount to as much as 2.6 percent of the workforce in the Slovak Republic. - Dislocated workers could amount to 1.7 percent in Hungary. - These workers would ultimately be reemployed primarily in services, but labor reallocation "may have significant social, economic, political, and psychological costs." - Tariff simulations and outcomes: - The model simulates effects of "a 25 percent and a 100 percent average tariff on Chinese automotive imports into the EU" in the face of the EV shock. - Findings: "Far from lessening the economic costs, we find that tariffs make the situation worse, both in the short and long run." - Tariff effects include: - Protection of domestic auto production and limited revenue gains. - Higher consumer prices and higher production costs in sectors using Chinese vehicles as inputs. - Net effect: "leaving all EU countries poorer," with especially adverse effects on economies without sizable domestic auto sectors. - "The tariff protection will also not make European carmakers more competitive in the global market." - Climate and emissions considerations: - Tariffs cause a price effect that leads some consumers to buy more traditional vehicles over the next decade, "which adds to emissions." - If the EU sticks to a path of policies that achieve its adoption target of "100 percent EV purchases by 2035," the overall fallout for emissions is "minimal." - However, a higher price tag from tariffs may create pressure to delay EV adoption targets—and "such a delay would cause a much more severe impact on emissions." - Mitigation pathways (non-tariff policy levers): - Increased foreign direct investment: higher EV demand met by Chinese firms producing directly in Europe could lessen adverse impacts (analogous to Japanese automakers serving the US market beginning in the 1980s). - Productivity gains in the European car sector could soften macroeconomic impacts on worst-affected EU economies. - Removal of remaining intra-EU barriers to trade and capital flows to exploit economies of scale and incentivize investment in research and development. - Middle-ground solution proposed: active policies to encourage investment and productivity gains in the auto sector and assist job transitions, "while making room for BYDs, Nios, and Xpengs on European roads." ### Health financing and international coordination (Victoria Fan and Sanjeev Gupta) - Diagnosis of current problems: - Public spending on health in low- and middle-income countries "has stagnated at below 2 percent of GDP recently," described as "about half what these countries spend on education." - Underspending in the health sector is estimated to lead to a loss of "$4 per person, based on constant 2020 prices." - Tax revenue in some low-income countries is "less than 10 percent of GDP," below the "15 percent recommended by the IMF." - Some developing economies spend "over a third of the tax revenue they do collect servicing domestic and foreign debt." - Health aid "remained stuck at about 1 percent of low- and middle-income countries’ GDP" for roughly two decades before the pandemic, with only a small increase afterward. - Fragmentation: "Over the past 15 years, the number of donors of all types of aid has doubled, and the number of donor agencies has tripled," while donor financial flows "have grown only by 50 percent." - Aid localization risks: channeling aid through local NGOs can "prolong dependence on foreign aid," draw essential health workers away from ministries, and create coordination challenges. - Recommended domestic actions: - Countries should rely progressively more on their own resources; IMF estimates they "could raise an additional 5–9 percent of GDP over time." - Strengthen domestic tax systems by broadening the tax base and improving tax compliance. - Short-term revenue measures (for example, higher taxes on tobacco) can provide additional revenue but are "not a long-term solution" because consumption will likely decline. - Finance and health ministries must address why existing health budgets are sometimes not fully spent; emphasis on better budget execution in the health sector is needed. - Recommended international actions and institutional approaches: - Align donor efforts with countries’ priority of universal health coverage to improve coordination of disease-specific vertical health funds and reduce inefficiency. - Use the 2005 Paris Declaration on aid effectiveness and the 2023 Lusaka Agenda as frameworks for greater alignment of global health initiatives with country health systems and primary health care. - Consider a permanent global health and finance coordinating body modeled on the Group of Twenty Joint Finance and Health Taskforce; such a body could include the World Bank and WHO to improve coordination and accountability. - Improve procurement through pooled systems for donor funds to reduce inefficiency and strengthen receiving countries’ public financial systems and procurement capacity; consolidation could begin with organizations such as GAVI and the Global Fund and later include UNICEF, WHO, and other procuring entities. - Urgency and outcomes: - "Most low- and middle-income countries are well behind their health-related Sustainable Development Goals." - Maternal mortality: "over 287,000 women died from pregnancy and child-birth complications in 2020." - Child mortality reductions are "too small to meet targets," and preventable causes (neonatal conditions, pneumonia, and diarrhea) "led to nearly 5 million deaths" (text cuts off here). _Source: december-finance-and-development - 1.7 to nearly 15 percent, before shrinking as trade (PDF), Canonical URL: https://www.imf.org/-/media/files/publications/fandd/article/2024/12/december-finance-and-development.pdf_ ### 2022. Despite available low-cost, effective technol- ### december-finance-and-development - 2022. Despite available low-cost, effective technol- ### Child mortality and fragmented aid - Finding: "Despite available low-cost, effective technologies, 59 countries are expected to miss the target for under-five child mortality." - Observation: The global health community is urged to "ditch the status quo and chart a new course toward integrated, sustainable health systems aligned with broader economic and development goals." - Chart insight (fragmentation of aid): The number of donors has risen even as the average size of official development grants and financial flows has fallen. (Chart source: Nishio, Akihiko. 2023. “Insights on the Proliferation and Fragmentation of Aid in the Health Sector.” Presentation at the World Bank, Washington, DC, June 29.) - Policy implication: "Commitment and collaboration will build a healthier, more equitable world for all." ### The Longevity Economist — Anne Case (profile and research findings) - Historical context cited: - By the late 1960s, advances in vaccines and antibiotics helped extend the average American lifespan to nearly 70, "about 50 percent longer than at the start of the century." - By the 1980s, antihypertensive drugs reduced cardiovascular disease. - Key findings on US mortality and inequality: - Life expectancy gains stalled and reversed for some groups: "The life expectancy for adults without a college degree reached its peak around 2010 and has been falling ever since." - By 2021, people without a bachelor’s degree were living "roughly eight and a half years less than people with college degrees." - Rising causes of death identified: "suicide, alcohol use, liver disease, and drug overdoses" — described as "deaths by one’s own hand" that signaled "a certain amount of despair." - Causes and mechanisms emphasized: - Long-term economic shifts (offshoring, weakening unions, deindustrialization) reduced job prospects and community cohesion. - The opioid epidemic amplified harms: "the overprescribing of painkillers such as OxyContin in the late 1990s, followed by the availability of cheaper heroin and then synthetic opioids such as fentanyl, led to an unusual spike in overdose deaths." - Case’s interpretation: pharmaceutical marketing targeted "areas where people were in pain, where people had lost jobs, where people were less well educated." - Policy and social recommendations: - Reconsider skills and hiring practices: "About two-thirds of the US working population does not have an undergraduate degree." - Expand hiring pathways: over the past two years "more than 20 states have expanded access to state government jobs by dropping requirements for an undergraduate degree" to include skills gained via "community college, the military, partial college, certification programs, and, most commonly, on-the-job training." - Health and economic policy linkage: Case believes that "capitalism needs to be put back on the rails," especially regarding "access and affordability of health care." - Broader implication: Case’s work "offers a stark and sobering assessment of the current state of US capitalism and the policies and investments that are needed to create a more equitable environment for workers, strengthen safety nets for those falling behind, and address the opioid epidemic." ### Café Economics — Yuval Noah Harari on storytelling, information, and AI - Conceptual findings: - Human cooperation is grounded in shared "stories"; money is characterized as "a story, a fiction" that enables large-scale trust and cooperation. - The information economy shifts power from money to information: transactions increasingly take the form of "information in exchange for information" (example: Google). - Risks of AI and uneven diffusion: - AI is described as "fundamentally different from everything we’ve invented so far. It’s the first technology in history that can make decisions and create new ideas by itself." - A central concern: "a very small number of countries are leading the AI revolution. Most countries are very far behind," risking a repeat of historical unequal development on a vastly accelerated scale. - Warning about alien intelligence: "I think of AI as an acronym—not for artificial intelligence, but for alien intelligence." - Regulatory risk: AIs could invent financial devices "that no human being is capable of understanding, let alone regulating." - Institutional prescriptions: - Distinguish truth from desire: build institutions of experts to establish facts (e.g., on climate change), while democratic processes determine priorities. - Control and governance: do not "release billions of alien agents into the world without having a way to control them and make sure they use their enormous power for our benefit." - Long-run socioeconomic concern: If AI diffusion is concentrated, "this will be a repeat of the Industrial Revolution, on steroids," with profound implications for global inequality and domination. ### Book reviews — implications for policy and understanding - Money: A Story of Humanity (David McWilliams) - Theme: Money as an "invented notion" that underpins human institutions and has facilitated both progress and division. Emphasis on storytelling and historical accounts linking monetary innovation to social change. - Mapmatics: A Mathematician’s Guide to Navigating the World (Paulina Rowińska) - Practical lesson: Mathematical concepts such as graph theory and fractals have real-world policy implications (e.g., logistics optimization, coastline measurement affecting law of the sea and funding for coastal areas). - Technology and the Rise of Great Powers (Jeffrey Ding) - Key argument: Broad adoption of general-purpose technologies (GPT infrastructure) across the economy—not just leadership in specific sectors—drives long-term national success. - Policy takeaway: Governments should prioritize "GPT infrastructure" including education and training for less-skilled workers to embed technologies widely, rather than focusing solely on research and development. ### Regional and cultural notes (selected) - Eastern Caribbean Central Bank $2 banknote: - The ECCB issued a commemorative $2 banknote for its 40th anniversary in 2023. - The note is the ECCB’s "first note that doesn’t feature the British monarch" and features marine life and Sir Viv Richards. - Recognition: the note won the International Bank Note Society 2023 Bank Note of the Year prize and additional awards. *Italic: Content summarized from "december-finance-and-development - 2022. Despite available low-cost, effective technol-" (Finance & Development, December 2024).* --- _Source: https://www.imf.org/-/media/files/publications/fandd/article/2024/12/december-finance-and-development.pdf_