## WORLD ECONOMIC OUTLOOK: WAR SETS BACK THE GLOBAL RECOVERY (April 2022) — Preface, Assumptions, and Selected Chapters ## Source details **Canonical URL:** [WORLD ECONOMIC OUTLOOK: WAR SETS BACK THE GLOBAL RECOVERY (April 2022) — Preface, Assumptions, and Selected Chapters](https://www.imf.org/-/media/files/publications/weo/2022/april/english/text.pdf) ## Other formats - [Markdown version](/-/media/files/publications/weo/2022/april/english/text.pdf.md) - [Structured JSON version](/-/media/files/publications/weo/2022/april/english/text.pdf.json) --- ### Global outlook, risks, and baseline projections - Global growth projections: - Projected global growth at 3.6 percent in 2022 and 2023—0.8 and 0.2 percentage points lower than in the January forecast, respectively. - Global growth projected to decline to about 3.3 percent over the medium term. - Global growth: 2021 = "6.1", 2022 = "3.6", 2023 = "3.6". - Baseline assumptions: - Conflict remains confined to Ukraine. - Further sanctions on Russia exempt the energy sector (baseline factors in European decisions to wean off Russian energy and embargoes announced through March 31, 2022). - Pandemic health and economic impacts abate over the course of 2022. - Real effective exchange rates assumed constant at average levels during February 22, 2022 to March 22, 2022 (with ERM II exceptions). - Oil price assumptions: $106.83 a barrel in 2022; $92.63 a barrel in 2023. - Short-term government bond yield (three-month) averages: United States 0.9 percent in 2022 and 2.4 percent in 2023; Euro area –0.7 percent in 2022 and 0.0 percent in 2023; Japan 0.0 percent in 2022 and 0.1 percent in 2023. - Ten-year government bond yield averages: United States 2.6 percent in 2022 and 3.4 percent in 2023; Euro area 0.4 percent in 2022 and 0.6 percent in 2023; Japan 0.3 percent in 2022 and 0.4 percent in 2023. - Prominent baseline numeric highlights (Table 1.1 excerpts): - Advanced Economies: 2021 = "5.2", 2022 = "3.3", 2023 = "2.4". - Emerging Market and Developing Economies: 2021 = "6.8", 2022 = "3.8", 2023 = "4.4". - China: 2021 = "8.1", 2022 = "4.4", 2023 = "5.1". - India (fiscal-year basis): 2021 = "8.9", 2022 = "8.2", 2023 = "6.9". - Russia: 2021 = "4.7", 2022 = "–8.5", 2023 = "–2.3" (Difference from January: 2022 = "–11.3", 2023 = "–4.4"). - Consumer Prices (Advanced Economies): 2021 = "3.1", 2022 = "5.7", 2023 = "2.5". - World Trade Volume (goods and services): 2021 = "10.1", 2022 = "5.0", 2023 = "4.4". ### War-related transmission channels, impacts, and downside scenario - Principal transmission channels: - Commodity markets (energy, food, metals), trade linkages, financial channels, labor supply, humanitarian flows. - Russia and Ukraine account for close to 30 percent of global wheat exports. - Gas market rigidity (pipelines) raises prospect of higher prices for longer; fertilizer and potash disruptions amplify food-price pressures. - Specialized inputs from Russia and Ukraine (for example, neon gas, electronic wiring systems, metals such as palladium and nickel) create global production knock-on effects (e.g., European car plant shutdowns). - Observed and projected country impacts: - Ukraine: projected severe double-digit GDP drop in 2022; displacement of more than 4 million people to neighboring countries (UNHCR: over 4.5 million refugees since February 24; half in Poland). - Russia: baseline 2022 GDP fall about "8.5 percent"; further decline "about 2.3 percent in 2023"; adverse scenario deepens losses. - Emerging and Developing Europe (including Russia and Ukraine): projected to contract approximately "2.9 percent in 2022" and expand by "1.3 percent in 2023." - Euro area GDP growth 2022 revised down to "2.8 percent (1.1 percentage points lower than in January)." - United Kingdom: GDP growth for 2022 revised down 1 percentage point. - Downside sanctions scenario (key assumptions and impacts): - Assumptions: additional embargoes on oil and gas mid-2022; disconnection of Russia from much of global financial/trade system. - Commodity price relative-to-baseline shocks: oil +10 percent in 2022 and +15 percent in 2023; metals +5 percent in 2022 and +7.5 percent in 2023; broad food index +4 percent in 2022 and +6 percent in 2023; natural gas in Europe ~+20 percent in 2022. - Russia: GDP about 15 percent lower than baseline by 2027. - European Union: GDP about 3 percent below baseline by 2023. - Global GDP: decreases about 2 percent by 2023; remains about 1 percent lower than baseline by 2027 (more than half of decline from Russia). - Inflation: global headline inflation increases by more than 1 percentage point in both 2022 and 2023; global core inflation increases by 0.5 percentage point in 2023. - Short-run US one-year ahead inflation expectations under the scenario: around 70 basis points in 2023. ### Inflation, monetary policy, and financial conditions - Inflation projections: - 2022: advanced economies 5.7 percent; emerging market and developing economies 8.7 percent (1.8 and 2.8 percentage points higher than January WEO, respectively). - 2023: advanced economies 2.5 percent; emerging market and developing economies 6.5 percent (0.4 and 1.8 percentage points higher than January). - Food inflation expected about 14 percent in 2022 before declining modestly in 2023. - Futures markets indicate oil and gas prices grow quickly in 2022 (55 and 147 percent, respectively) then decline in 2023 as supply adjusts. - Monetary policy guidance: - Central banks should tighten policy more aggressively if medium- or long-term inflation expectations drift or core inflation remains persistently elevated; use clear communication and forward guidance. - In the United States, the rate-hiking cycle should continue given broadening inflation and tight labor markets. - Emerging market and developing economies may require capital flow management measures consistent with IMF Institutional View. - Financial market developments: - Rapid increases in nominal interest rates for advanced economy sovereign borrowers and expected unwinding of record-high central bank balance sheets. - Early March capital outflows from many emerging markets comparable to early pandemic outflows; since mid‑March slow-but-steady inflows reversed around one quarter of initial losses. - Sovereign and CDS spreads widened notably for Russia (over 2,500 basis points at peak); regional spillovers to neighboring emerging markets. ### Fiscal, debt, and public finance vulnerabilities - Fiscal context and vulnerabilities: - Median government debt-to-GDP in emerging market and developing economies reached 60 percent in 2021, up from about 40 percent at the 2013 taper tantrum. - Some 60 percent of low-income developing countries are in debt distress or at high risk of distress. - Public debt rose by almost 15 percent of GDP in 2020 (pandemic). - Rising interest rates will increase interest expenses and reduce fiscal space, particularly for oil- and food-importing emerging market and developing economies. - External buffers: - Emerging market foreign exchange reserves (ratio to imports) exceed levels during 2013 and 2018 tightening cycles; reserves-to-imports rose most for low-income developing countries partly due to 2021 SDR allocation. - Reserves have improved little for middle-income emerging markets and deteriorated for low-income developing countries when compared with external debt service needs. - Policy recommendations on fiscal stance: - Fiscal policy should prioritize well-targeted support for vulnerable households and refugees; use means testing and gradual phaseouts. - Where fiscal space permits and monetary policy is constrained, broader fiscal support may be warranted but must avoid exacerbating supply-demand imbalances. - Medium-term credible fiscal frameworks and revenue mobilization (including tax compliance and scaling back broad subsidies) recommended to stabilize public debt. ### Private-sector debt, leverage, and amplification effects (Chapter 2) - Key quantitative estimates: - Cross-country aggregates imply cumulative slowdown of 0.9 percent of GDP over three years for advanced economies and 1.3 percent of GDP for emerging markets due to current private leverage levels. - A surprise 100 basis point tightening is estimated to slow investment among highly leveraged firms by a cumulative 6½ percentage points over two years (4 percentage points more than low-leverage firms). - Excess private credit: a 1 percentage point change in excess-credit-to-GDP yields a persistent decline in private consumption of 0.5 percent in advanced economies and 2 percent in emerging market and developing economies five years later. - Household and firm heterogeneity: - Household debt rose unevenly: China largest increases (5.7 percent of annual income average across deciles); low-income households in the United States (below $15,000) experienced debt buildup >10 percent of income. - Firm-level: vulnerable firms defined as high leverage (>35 percent debt-to-asset), low profitability (return on assets <0.2 percent), and interest coverage <1; such firms reduced investment most and remain concentrated in worst-hit sectors. - Policy implications: - Calibrate fiscal consolidation pace to country circumstances; targeted support where private balance sheets are fragile. - Strengthen insolvency frameworks and promote restructuring (out-of-court mechanisms). - Use macroprudential tools to lean against debt build-up; extend debt-relief programs targeted to vulnerable households while minimizing moral hazard. - Consider temporary higher taxes on excess profits to claw back unwarranted public transfers. ### Labor markets, green transition, and policy packages (Chapter 3) - Empirical and model-based findings: - Sample of 34 countries (mainly advanced economies) covering 2005–19. - Average employment-weighted green intensity ~2–3 percent; pollution intensity ~2–6 percent. - Median individual-level emissions intensity ≈ eight tons of CO2 per worker in 2015; emissions intensity fell ~27 percent between 2005 and 2015 for the sample. - Green-intensive occupations carry an earnings premium of almost 7 percent versus pollution-intensive occupations (controlling for skills). - Workers with pollution-intensive or neutral job histories face sticky transitions to greener jobs; higher skills and targeted training ease transitions. - Model policy package to reach net zero by 2050 (illustrative): - Components: green infrastructure push, phased-in carbon pricing, targeted training from 2023, earned income tax credit (EITC) from 2029, cash transfers where informality is high. - Advanced-economy illustration: about 1 percent of employment shifts toward greener activities over 10 years; total employment rises about 0.5 percent; lower-skilled workers see income gains from training and EITC. - Emerging-market illustration: about 2.5 percent of employment shifts over 10 years; near-term employment effects vary, with cash transfers dampening labor supply incentives but improving inequality. - Policy recommendations: - Combine carbon pricing with green public investment, targeted training, and income support (EITC/cash transfers) to facilitate inclusive reallocation. - Avoid destructive sequencing that destroys polluting jobs before greener alternatives and reallocation supports are in place. ### Global trade, GVCs, and resilience (Chapter 4) - Pandemic-era trade dynamics: - At trough (Q2 2020) goods trade fell 12.2 percent, services trade fell 21.4 percent vs Q4 2019. - Goods trade recovered to pre-pandemic levels by October 2021; services lagged. - GVC‑intensive goods exports fell 30 percent between January and April 2020 vs 18 percent for other goods. - Spillovers and teleworkability: - Lockdowns in trade partners accounted for up to 60 percent of the observed decline in imports in the first half of 2020. - Spillovers larger in GVC-intensive and downstream industries; mitigated by partner-country teleworkability. - Resilience strategies: diversification and substitutability - Diversification: reallocating intermediate sourcing across countries reduces GDP loss and volatility; in a 25 percent labor supply contraction in a large supplier (China‑like), baseline average-country GDP loss = 0.8 percent; high‑diversification reduces decline by almost half. - Substitutability: raising elasticity of substitution between foreign inputs from 0.5 to 2.0 reduces non-source countries’ GDP losses by about four-fifths relative to baseline. - Policy recommendations to bolster resilience: - Invest in trade and digital infrastructure; reduce nontariff barriers; close information gaps via digitalization of firm filings to map supply chains; encourage supplier standardization and input substitutability. - Vaccinate widely to limit supply disruptions; avoid premature reshoring mandates that reduce diversification benefits. ### Special Feature: Market Developments and the Pace of Fossil Fuel Divestment - Commodity and energy developments: - Primary commodity prices rose 24 percent between August 2021 and February 2022; crude oil up 36 percent in same period. - Brent crude temporarily reached $140 in early March 2022 as markets shunned Russia’s Urals oil and some countries banned Russian imports. - Global oil demand in 2022 projected 99.7 million barrels a day (mb/d) (up 2.1 mb/d from 2021), per IEA; downward revision of 1.1 mb/d compared with pre-war demand. - Base metal prices expected to rise 9.9 percent in 2022; precious metals +5.8 percent in 2022; agricultural prices mixed (beverages +17.2 percent; cereals +21.8 percent). - Fossil fuel investment findings: - Anticipation of lower fossil-fuel demand and policy expectations reduced oil and gas capital expenditures by about 20 percent for publicly traded companies over the past three to four years. - A 10 percent increase in oil and gas prices typically raises global oil and gas investment 3 percent in the same year and 5 percent after two years cumulatively. - Two Net Zero illustrative hypotheses: demand-side policies alone could push oil prices to the $20s in 2030; supply-side policies alone could raise prices to roughly $190 a barrel in 2030. - Policy conclusion: - Coordinated climate action and a divestment pace aligned with renewable adoption reduce risk of high and volatile fossil-fuel prices; reduce policy uncertainty to facilitate orderly adjustments. ### Statistical Appendix, data conventions, and notable country coverage changes - Data cut-off: information available through April 8, 2022. - Conventions: - ". . . " indicates data not available; "–" spans; "/" indicates fiscal year; "Billion" = thousand million; "trillion" = thousand billion. - Calendar-year basis unless exceptions (see Table F). - Notable coverage and what’s new: - Ecuador: fiscal sector projections excluded for 2022–27. - Ethiopia: forecast data reintroduced. - Fiji: fiscal data now on a fiscal year basis. - Tunisia: projections excluded for 2023–27. - Ukraine: projections for 2022–27 except Real GDP omitted; Real GDP projected through 2022. - Venezuela: currency redenominated October 1, 2021 (1,000,000 VES → 1 VED). - Statistical aggregates and projection precision: - Figures for 2022–23 shown with same precision as historical figures for convenience; precision does not imply projection accuracy. ### Executive Board assessment and multilateral priorities - Executive Directors broadly agreed with staff’s outlook: war in Ukraine, lockdowns in China, and persistent inflation pressures downgrade the global outlook and raise risks. - Policy priorities emphasized: - Central banks to act decisively to prevent de-anchoring of inflation expectations. - Fiscal focus on well-targeted support for vulnerable populations and refugees while maintaining medium-term credibility. - Strengthen global financial safety net, liquidity lines, and timely debt restructuring (Common Framework needs acceleration). - Advance climate action, coordinated carbon pricing, and multilateral finance initiatives. - Ensure equitable global access to COVID-19 tools; close $23.4 billion funding gap for ACT Accelerator noted. - Systemic risks highlighted: - Geopolitical fragmentation threatening rules-based systems, potential financial and trade fragmentation, and climate agenda derailment. - Emerging risks: intensified war, expanded sanctions, sharper slowdown in China, novel pandemic variants. *Italic: Source — International Monetary Fund, World Economic Outlook: April 2022 — Preface, Assumptions and Conventions, Foreword, Chapters 1–4, Statistical Appendix, and selected annexes and boxes.* ### Preface ### Preface ### Overview - Document title: WORLD ECONOMIC OUTLOOK: WAR SETS BACK THE GLOBAL RECOVERY - Publication: International Monetary Fund | April 2022 - Major thematic chapters and sections (selected highlights from the Preface and contents): - Chapter 1. Global Prospects and Policies: "War Slows the Recovery"; "Fragmentation and Fragility Set to Slow Growth during 2022–23"; "Elevated Inflation Expected to Persist for Longer"; "Rising Interest Rates: Implications for Emerging Market and Developing Economies"; "Economic Slack to Narrow in the Medium Term; Significant Scarring Expected"; "Policies to Sustain the Recovery and Improve Medium-Term Prospects". - Chapter 2. Private Sector Debt and the Global Recovery: "Private Sector Leverage during the Pandemic"; "Private Debt and the Business Cycle"; "Countercyclical Policy Effects amid High Private Debt". - Chapter 3. A Greener Labor Market: Employment, Policies, and Economic Transformation: "Environmental Properties of Jobs"; "Labor Markets and Environmental Policies". - Chapter 4. Global Trade and Value Chains during the Pandemic: "Drivers of Trade during the Pandemic"; "Resilience in GVCs"; "Policy Implications". - Statistical and analytical annexes include: Statistical Appendix, Assumptions, Data and Conventions, Country Notes, Classification of Countries, Tables (Output, Inflation, Financial Policies, Foreign Trade, Current Account Transactions, Balance of Payments and External Financing, Flow of Funds, Medium-Term Baseline Scenario), Selected Topics, and IMF Executive Board Discussion of the Outlook, April 2022. ### Key projections and numeric assumptions (Assumptions and Conventions) - Real effective exchange rates assumed to remain constant at their average levels during February 22, 2022 to March 22, 2022, except for currencies participating in the European exchange rate mechanism II, which are assumed to have remained constant in nominal terms relative to the euro. - Established policies of national authorities are assumed to be maintained (see Box A1 in the Statistical Appendix for specific fiscal and monetary policy assumptions for selected economies). - Oil price assumptions: - Average price of oil: $106.83 a barrel in 2022 - Average price of oil: $92.63 a barrel in 2023 - Short-term government bond yield (three-month) averages: - United States: 0.9 percent in 2022 and 2.4 percent in 2023 - Euro area: –0.7 percent in 2022 and 0.0 percent in 2023 - Japan: 0.0 percent in 2022 and 0.1 percent in 2023 - Ten-year government bond yield averages: - United States: 2.6 percent in 2022 and 3.4 percent in 2023 - Euro area: 0.4 percent in 2022 and 0.6 percent in 2023 - Japan: (value truncated in source content) ### Structure and analytical tools referenced - Extensive use of figures, boxes, and tables across chapters, including but not limited to: - Figures tracking global activity indicators, inflation trends, monetary and financial conditions, fiscal stance, COVID-19 deaths, commodity and energy market indicators, trade exposures, and labor market metrics. - Boxes and scenario analysis such as "The Puzzle of Tight Labor Markets: US and UK Examples", "Determinants of Neutral Interest Rates and Uncertain Prospects", "Market Developments and the Pace of Fossil Fuel Divestment", and a downside scenario. - Statistical Appendix and online tables covering unemployment, real GDP, earnings, productivity, consumer prices, fiscal and financial indicators, external debt and debt service, and medium-term baseline scenarios. *Source: International Monetary Fund, World Economic Outlook: April 2022 — Preface and Assumptions and Conventions.* ### 0.3 percent in 2022 and 0.4 percent in 2023. These are, of course, working hypotheses rather than forecasts, ### Assumptions and Conventions (World Economic Outlook, April 2022) ### Projection assumptions and data conventions - Short-run working hypotheses for interest and other assumptions include "0.3 percent in 2022 and 0.4 percent in 2023." These are described as working hypotheses rather than forecasts. - The estimates and projections are based on statistical information available through April 8, 2022. - Conventions used throughout the WEO: - ". . . " indicates data are not available or not applicable. - "–" between years or months (for example, 2021–22 or January–June) indicates the years or months covered, including the beginning and ending years or months. - "/" between years or months (for example, 2021/22) indicates a fiscal or financial year. - "Billion" means a thousand million; "trillion" means a thousand billion. - "Basis points" refers to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point). - Data refer to calendar years, except in the case of a few countries that use fiscal years (see Table F in the Statistical Appendix for exceptions). - For some countries, figures for 2021 and earlier are based on estimates rather than actual outturns (see Table G in the Statistical Appendix for latest actual outturns). - In tables and figures: - If no source is listed, data are drawn from the WEO database. - When countries are not listed alphabetically, they are ordered on the basis of economic size. - Minor discrepancies between sums of constituent figures and totals reflect rounding. - Composite data are provided for various groups; unless noted, country group composites represent calculations based on 90 percent or more of the weighted group data. - Map boundaries, colors, denominations, and other map information do not imply IMF judgment on legal status or endorsement of boundaries. - Terminology: - The terms "country" and "economy" may cover territorial entities that are not states but for which statistical data are maintained separately. ### What is new in this publication (coverage and special cases) - Ecuador: fiscal sector projections are excluded from publication for 2022–27 because of ongoing program review discussions. - Ethiopia: forecast data, previously omitted due to an unusually high degree of uncertainty, are now included. - Fiji: fiscal data and forecasts are now presented on a fiscal year basis. - Tunisia: projections are excluded from publication for 2023–27 because of ongoing technical discussions pending potential program negotiations. - Ukraine: all projections for 2022–27 except Real GDP are omitted due to an unusually high degree of uncertainty. Real GDP is projected through 2022. - Venezuela: redenominated its currency on October 1, 2021, by replacing 1,000,000 bolívares soberano (VES) with 1 bolívar digital (VED). - Interest rate assumptions: beginning with the April 2022 WEO, interest rate assumptions are based on the three-month and 10-year government bond yields, which replace the London interbank offered rates. ### Data quality, revisions, and access - WEO data are compiled by IMF staff at the time of the WEO exercises; historical data and projections draw on country desk officer information from missions and ongoing analysis. - Historical data are updated continually; structural breaks are often adjusted using splicing and other techniques; IMF staff estimates may be used when complete information is unavailable. - WEO data can differ from official sources, including the IMF’s International Financial Statistics. - WEO data and metadata are provided "as is" and "as available"; corrections and revisions discovered after publication are incorporated into electronic editions on the IMF eLibrary and IMF website, with substantive changes listed in online tables of contents. - For terms and conditions for usage of the WEO database, refer to the IMF Copyright and Usage website. - Inquiries about WEO content should be sent to: - World Economic Studies Division, Research Department, International Monetary Fund, 700 19th Street, NW, Washington, DC 20431, USA - Fax: (202) 623-6343 - Online Forum: www.imf.org/weoforum ### Foreword — Global outlook, risks, and policy implications - Recent deterioration in global prospects largely reflects Russia’s invasion of Ukraine, wider lockdowns in China, and higher, broader, and more persistent price pressures prompting monetary tightening. - Global growth projections: - Projected global growth at 3.6 percent in 2022 and 2023—0.8 and 0.2 percentage points lower than in the January forecast, respectively. - Country-specific impacts: - Both Russia and Ukraine are projected to experience large GDP contractions in 2022. - Displacement of more than 4 million Ukrainian people to neighboring countries (especially Poland, Romania, Moldova, and Hungary) will add economic pressures in the region. - Transmission channels and sectoral impacts: - The war’s economic effects spread mainly through commodity markets, trade, and financial linkages. - Russia and Ukraine’s roles as suppliers of oil, gas, metals, wheat, and corn have driven sharp commodity price increases. - Supply shocks during the pandemic, amplified by the war, have increased shortages beyond energy and agriculture and may prolong bottlenecks into 2023. - Firms in Russia and Ukraine supply specialized inputs; shortfalls are affecting production elsewhere (for example, European car manufacturers). - Inflation and financial risks: - Inflation had surged prior to the war due to commodity prices and supply-demand imbalances; war-related supply shortages amplify these pressures. - Inflation is projected to remain elevated longer than in the previous forecast in both advanced and emerging market and developing economies. - Capital outflows increased markedly from emerging market and developing economies after the invasion, tightening financial conditions and depreciating currencies for exposed countries. - The April 2022 Global Financial Stability Report highlights several financial fragility risks; a wider range of emerging market economies could come under pressure if global monetary tightening accelerates or markets reprice more aggressively. - Fiscal and debt vulnerabilities: - Fiscal space had already been eroded by COVID-related spending; debt levels rose significantly. - The war and rising global interest rates will further reduce fiscal space, particularly for oil- and food-importing emerging market and developing economies. - Non-financial corporate and household leverage increased in many countries during the pandemic, potentially creating credit market vulnerabilities as interest rates and risk premia rise. - Some economies will require comprehensive sovereign debt restructuring to free up resources for health, social, and development spending. - Policy guidance and multilateral priorities: - Central banks should adjust monetary stances more aggressively if medium- or long-term inflation expectations drift or core inflation remains persistently elevated; clear communication and forward guidance are essential. - Emerging market and developing economies may need capital flow management measures in line with the IMF’s revised Institutional View on capital flows. - Governments should provide well-targeted support for refugees and households affected by higher food and fuel prices and prioritize social and health spending within a medium-term framework for public debt stabilization. - Long-term priorities include reskilling workers for digital transformation, facilitating labor-market shifts toward net zero emissions, combining carbon pricing with investment in renewables and compensation measures, and improving supply-chain resilience. - Multilateral cooperation is essential: an immediate priority is a peaceful resolution to the war; climate action requires an international carbon price floor differentiated by country income levels and multilateral finance initiatives; equitable worldwide access to COVID-19 tools remains imperative. - Ensure the global financial safety net operates effectively to help vulnerable economies adjust as interest rates rise; the G20’s Common Framework for Debt Treatments has yet to deliver, representing a fault line in the global financial system. - Uncertainty and scenarios: - The uncertainty around projections is considerable and well beyond the usual range. - Growth could slow significantly more and inflation could be higher if sanctions extend to a broader volume of Russian energy and other exports. - Continued spread of the virus could yield more lethal variants that escape vaccines or prompt new lockdowns and production disruptions. - Strategic warning: - Geopolitical fragmentation into blocks with distinct technology standards, cross-border payment systems, and reserve currencies could entail high adjustment costs, long-run efficiency losses, and challenges to the postwar rules-based international economic order. *International Monetary Fund | April 2022 — World Economic Outlook: War Sets Back the Global Recovery (extracted content)* ### FoReWoRd ### FoReWoRd ### Global growth outlook and immediate impact of the war in Ukraine - Global growth is projected to slow from an estimated 6.1 percent in 2021 to 3.6 percent in 2022 and 2023. - This projection is 0.8 and 0.2 percentage points lower for 2022 and 2023 than in the January World Economic Outlook Update. - Beyond 2023, global growth is forecast to decline to about 3.3 percent over the medium term. - Assumptions underlying the baseline forecast: - The conflict remains confined to Ukraine. - Further sanctions on Russia exempt the energy sector (although the impact of European countries’ decisions to wean themselves off Russian energy and embargoes announced through March 31, 2022, are factored into the baseline). - The pandemic’s health and economic impacts abate over the course of 2022. - Country-specific near-term impacts noted: - A severe double-digit drop in GDP for Ukraine is expected. - A large contraction in Russia is more than likely. - Spillover channels from the war include commodity markets, trade, financial channels, labor supply, and humanitarian impacts—particularly affecting Europe and low-income countries. ### Inflation, monetary policy, and financial conditions - Inflation projections for 2022: - 5.7 percent in advanced economies. - 8.7 percent in emerging market and developing economies. - These inflation projections are 1.8 and 2.8 percentage points higher (advanced economies and emerging market and developing economies, respectively) than projected in January. - Drivers of elevated inflation: - War-induced commodity price increases (notably fuel and food). - Broadening price pressures from supply-demand imbalances and pandemic-related disruptions. - Monetary policy implications: - Central banks are expected to tighten policy and interest rates are expected to rise. - A well-telegraphed, data-dependent approach to adjusting forward guidance—including unwinding of record-high central bank balance sheets and the path for policy rates—is recommended to maintain credibility. - Tighter monetary policy is appropriate in many cases to check the cycle of higher prices driving up wages and inflation expectations. - If inflation remains high over the medium term, central banks may be forced to react faster—raising interest rates and exposing debt vulnerabilities, particularly in emerging markets. - Financial market developments: - Nominal interest rates across advanced economy sovereign borrowers increased rapidly. - Record-high central bank balance sheets are expected to begin unwinding, most notably in advanced economies. - Emerging market economies experienced capital outflows in early March comparable in speed and size to early pandemic outflows, concentrated in a few economies; since mid-March slow-but-steady capital inflows reversed around one quarter of initial losses. - Sovereign and credit default swap spreads rose notably in Russia; sovereign spreads widened for neighboring emerging markets in the region as well as in Caucasus, Central Asia, and North Africa. ### Fiscal policy challenges and guidance - Fiscal context: - Following large pandemic-related fiscal expansion, debt levels are at all-time highs. - Policy space in many countries has been eroded by higher COVID-related spending and lower tax revenue in 2020–21. - Fiscal support is set to generally decline in 2022 and 2023—particularly in advanced economies—as emergency pandemic measures are wound down. - Fiscal policy trade-offs and recommendations: - Fiscal policies should depend on exposure to the war, the state of the pandemic, and the strength of the recovery. - Priority: well-targeted support for the vulnerable—including refugees, those struggling because of commodity price spikes, and those affected by the pandemic. - Where fiscal space permits and when monetary policy is constrained (for instance by the Effective Lower Bound or in a monetary union), broader fiscal support may be warranted depending on the severity of the decline in aggregate demand. - Support should be deployed in ways that avoid exacerbating ongoing supply-demand imbalances and price pressures. - Where fiscal space is limited, governments must balance fiscal consolidation with prioritizing essential expenditures. - Authorities should be vigilant regarding private sector vulnerabilities to rising interest rates (topic explored in Chapter 2). ### Structural and longer-term policy priorities - Prepare for structural change and the post-pandemic economy: - Harness productivity gains from novel ways of working and the digital transformation. - Retool and reskill workers to meet challenges of structural change; Chapter 3 examines policies to facilitate labor market transformation. - Implement carbon pricing and fossil fuel subsidy reform to aid transition to cleaner production and reduce exposure to fossil fuel price volatility. - Anticipate labor market reallocation across occupations and sectors due to the green energy transition. - Multilateral priorities: - Multilateral efforts are essential to respond to the humanitarian crisis, prevent further economic fragmentation, maintain global liquidity, manage debt distress, tackle climate change, and end the pandemic. - Multilateral institutions provide emergency liquidity and a safety net; where liquidity support is insufficient, orderly debt restructuring progress is essential. - Advanced economies must make real progress toward their COP26 pledges; emerging market and developing economies must extend ambition to reduce emissions. - Governments must continue to use all tools to combat the pandemic, meeting vaccination targets and ensuring equitable access to tests and treatment. ### Risks to the baseline and key downside scenarios - Prominent downside risks highlighted: - A possible worsening of the war or escalation of sanctions on Russia. - A sharper-than-anticipated deceleration in China as the strict zero-COVID strategy is tested by Omicron, or renewed lockdowns in key manufacturing and trade hubs in China. - A renewed flare-up of the pandemic if a new, more virulent virus strain emerges. - Worsening supply-demand imbalances and further increases in commodity prices could lead to persistently high inflation, rising inflation expectations, and stronger wage growth. - Wider social tensions driven by higher food and energy prices, which would further weigh on the outlook. - Expected medium-term scarring: - Employment and output will typically remain below pre-pandemic trends through 2026 in most countries. - Scarring effects are expected to be much larger in emerging market and developing economies than in advanced economies—reflecting more limited policy support and generally slower vaccination—with output expected to remain below the pre-pandemic trend throughout the forecast horizon. - Regional and systemic concerns: - Geopolitical tensions threaten rules-based international frameworks, potentially derailing climate agenda, debt resolution reforms, trade integration, and pandemic-prevention initiatives. *Source: FoReWoRd, World Economic Outlook: April 2022, International Monetary Fund* ### 1. AE Policy Rate ### AE Policy Rate ### Expectations and Monetary-Financial Conditions - Figure references in the source present: "Expectations", "EM Policy Rate", and "EMBIG Sovereign Spread Changes since February 23, 2022 (Difference in basis points)". - Figure 1.3 is titled "Monetary and Financial Conditions (Percent, unless noted otherwise)". - The text documents large financial market reactions to the war in Ukraine: the ruble "falling close to 60 percent, before return-ing to near pre-invasion levels in recent weeks", and sovereign spreads "widening more than 2,500 basis points". - Central bank responses noted: the central bank of Russia "has increased the interest rate and broad capital controls have been introduced" to stave off capital flight. - Higher global energy prices are identified as a main channel transmitting war-related shocks to advanced economies, translating to "lower output and higher inflation", with tighter financial conditions expected to cool investment. ### Forecast Revisions and Major Global Projections - Forecasts are "based on information up to 31 March 2022." - Ukraine: "For 2022, the Ukrainian economy is expected to contract by 35 percent." - Russia: baseline forecast for 2022 is GDP falling by "about 8.5 percent", and a further decline of "about 2.3 percent in 2023." - Emerging and Developing Europe, including Russia and Ukraine: GDP projected to "contract by approximately 2.9 percent in 2022, before expanding by 1.3 percent in 2023." - Euro area GDP growth in 2022 revised down to "2.8 percent (1.1 percentage points lower than in January)". - United Kingdom: "GDP growth for 2022 is revised down 1 percentage point." - Middle East and Central Asia (regional aggregate): "GDP in the Middle East and Central Asia is expected to grow by 4.6 percent in 2022." - Sub-Saharan Africa: "growth in sub-Saharan Africa is projected at 3.8 percent in 2022." - Asia: noted "a 0.4 percentage point forecast downgrade for 2022" for the region tied to China developments; Japan downgraded "0.9 percentage point" and India "0.8 percentage point" for 2022. - United States: additional markdown of "0.3 percentage point" for 2022 in the current round reflecting "faster withdrawal of monetary support"; Canada marked down "0.2 percentage point". - Latin America and the Caribbean: "Overall growth for the region is expected to moderate to 2.5 percent during 2022–23." ### Table 1.1 — Key Projection Highlights (percent change unless noted) - World Output: 2021 = "6.1", 2022 = "3.6", 2023 = "3.6"; Difference from January 2022 WEO Update: 2022 = "–0.8", 2023 = "–0.2". - Advanced Economies: 2021 = "5.2", 2022 = "3.3", 2023 = "2.4"; Difference from January: 2022 = "–0.6", 2023 = "–0.2". - United States: 2021 = "5.7", 2022 = "3.7", 2023 = "2.3"; Difference from January: 2022 = "–0.3", 2023 = "–0.3". - Euro Area: 2021 = "5.3", 2022 = "2.8", 2023 = "2.3"; Difference from January: 2022 = "–1.1", 2023 = "–0.2". - Emerging Market and Developing Economies: 2021 = "6.8", 2022 = "3.8", 2023 = "4.4"; Difference from January: 2022 = "–1.0", 2023 = "–0.3". - China: 2021 = "8.1", 2022 = "4.4", 2023 = "5.1"; Difference from January: 2022 = "–0.4", 2023 = "–0.1". - India (fiscal-year basis): 2021 = "8.9", 2022 = "8.2", 2023 = "6.9"; Difference from January: 2022 = "–0.8", 2023 = "–0.2". - Russia: 2021 = "4.7", 2022 = "–8.5", 2023 = "–2.3"; Difference from January: 2022 = "–11.3", 2023 = "–4.4". - Oil (US dollars): 2021 = "67.3", 2022 = "54.7"; Difference from January: 2022 = "–13.3". - Nonfuel (average): 2021 = "26.8", 2022 = "11.4", Difference from January 2022 = "–2.5". - Consumer Prices (Advanced Economies): 2021 = "3.1", 2022 = "5.7", 2023 = "2.5". ### Table 1.1 (continued) — Additional Year-over-Year and Q4-over-Q4 Notes - World Output Year-over-Year: 2020 = "–3.1", 2021 = "6.1", 2022 = "3.6", 2023 = "3.6". - Advanced Economies Year-over-Year: 2020 = "–4.5", 2021 = "5.2", 2022 = "3.3", 2023 = "2.4". - World Trade Volume (goods and services): 2021 = "10.1", 2022 = "5.0", 2023 = "4.4"; Difference from January: 2022 = "–1.0", 2023 = "–0.5". - Oil price assumptions/notes: "The average price of oil in US dollars a barrel was $69.07 in 2021; the assumed price, based on futures markets, is $106.83 in 2022 and $92.63 in 2023." ### Analysis of War-Related Transmission Channels and Risks - Five principal channels through which the war in Ukraine and sanctions on Russia generate spillovers are highlighted, with emphasis on: - Global commodity markets: disruptions to "energy and food" trade flows; Russia and Ukraine "account for close to 30 percent of global wheat exports." - Gas market rigidity: pipelines make gas supply less flexible than oil, "raising the prospect of higher prices for longer." - Agricultural commodity risk: "Prices of agricultural commodities are likely to rise further—particularly wheat ... and, to a lesser extent, corn." - Comparisons to the 1970s: "The sharp increases in commodity prices echo those in the 1970s," but the text notes differences such as a smaller oil shock so far and lower oil intensity in today's economy. - The text underscores elevated uncertainty: "The fluid international situation means that quantitative forecasts are even more uncertain than usual." ### Policy Implications and Noted Policy Actions - Vaccination and pandemic context: "most countries will not attain the target of 70 percent full vaccination in 2022." Forecast baseline accounts for "the possibility of renewed outbreaks" but assumes "their impact on activity is less than in earlier waves" due to "adaptation," "effective therapeutics," and increased immunity. - Fiscal offset and support: across the euro area, the hit to activity is "partially offset by increased fiscal support." - Monetary policy: tighter monetary conditions are noted as a response to rising inflation; the United States is expected to see "policy tightens to rein in inflation." - Capital flow management: Russia implemented "broad capital controls" alongside higher interest rates to stem capital flight. - Distributional and social-service pressures: the influx of refugees into neighboring countries is expected to "place significant immediate pressure on social services," with potential medium-term labor force and tax revenue effects. - Commodity windfalls and strains: disruptions to Russian exports "may be windfalls for other commodity exporters" while importers face negative terms-of-trade shocks and higher inflation. *Source: IMF staff estimates, World Economic Outlook, April 2022 (text provided).* ### CHAPTER 1 GLOBaL PROSPECTS aND POLICIES ### CHAPTER 1 GLOBaL PROSPECTS aND POLICIES ### Transmission channels of the war in Ukraine - Broadest global spillovers likely operate through commodity prices, particularly energy and food. - Direct trade and remittances linkages: - Countries with large export shares to Russia (e.g., Belarus, some Baltic states, Caucasus countries) will face reduced external demand. - Importers face higher import prices and possible shortages in specific markets: metals and minerals, noble gases, and agricultural exports (especially wheat). - Some Caucasus and Central Asia countries will also see remittances from Russia decline. - Cross-border production networks: - Integration of Russia and Ukraine into global value chains means upstream disruptions cascade beyond bilateral partners. - Example: neon gas production concentrated in Russia and Ukraine—interruptions compound silicon chip shortages, affecting automobiles and electronics. - Ukraine’s production of electronic wiring systems disruptions have contributed to automobile plant shutdowns in Germany. - Shortages of metals exported from Russia (palladium, nickel) raise costs for catalytic converters and batteries. - Disruptions of potash fertilizer exports from Belarus will affect food production and exacerbate food price increases. - Limited near-term scope for downstream producers to substitute alternative inputs, amplifying shock across sectors and borders. - Reputational risks and investor/customer disapproval may cause firms to avoid transactions with Russian counterparts, further severing cross-border production ties. - Financial market spillovers: - Sanctions have induced direct financial stress on firms with outstanding payments or assets abroad and increased market volatility. - Counterparty risk and sovereign default risk have increased. - Direct financial connections between Russia and other major economies are relatively small and concentrated in a few countries, mostly in Europe; Austrian and Italian banks are noted as most exposed. - A large share of European banks’ direct exposure is through locally funded Russian subsidiaries. - Wider geopolitical uncertainty could prompt severe repricing of risk, likely affecting emerging market and developing economies, especially those with large external debt. - Additional complications include removal of Russian assets from global equity and bond indices and potential longer-term financial market fragmentation. ### Humanitarian and social impacts - Refugee flows: - UNHCR reports that over 4.5 million refugees have left Ukraine since February 24; half have arrived in Poland. - Short-term: refugee arrivals strain local services (shelter, health care). - Long-term: dispersion across the European Union will increase labor supply but may exacerbate anti-immigrant sentiment. ### Policy responses shaping transmission - Decisions to increase oil and gas supply or release energy reserves could alleviate price pressures. - Expanded fiscal support in Europe could help compensate for shrinking demand. - Central bank responses in large advanced economies will shape the economic impact; many must weigh rising inflation against weakening activity. ### Elevated inflation: baseline projections and drivers - Inflation projections: - 2022: 5.7 percent in advanced economies and 8.7 percent in emerging market and developing economies—1.8 and 2.8 percentage points higher than in the January World Economic Outlook. - 2023: 2.5 percent for advanced economies and 6.5 percent for emerging market and developing economies—0.4 and 1.8 percentage points higher than in the January forecast. - Main factors shaping baseline inflation outlook: - The war has aggravated commodity price spikes; energy and food prices were major contributors to headline inflation in 2021. - Sharp spike in oil and gas prices driven by tight fossil fuel supply and geopolitical uncertainty. - In emerging market and developing economies, rising food prices played a significant role due to poor weather hitting harvests and higher fertilizer costs. - Low-income countries are especially exposed to staple cereal price changes; in many low-income countries food-driven inflation has been nearly the entire inflation increase. - Regional differences: falling rice prices in Asia mitigated cost-of-living increases for some low-income countries. - Commodity price trajectories and uncertainty: - Futures markets indicate oil and gas prices will grow quickly in 2022 (55 and 147 percent, respectively) and then decline in 2023 as supply adjusts. - Food inflation is expected to be robust (about 14 percent) in 2022 before declining modestly in 2023. - The war adds significant uncertainty; commodity prices likely to be volatile over 2022–23. - Aggregate demand–supply imbalances: - Rapid demand growth in 2021 (partly due to policy support) collided with bottlenecks: factory closures, port restrictions, congested shipping lanes, container shortfalls, worker shortages from quarantines and care responsibilities. - Core inflation (excluding food and energy) has surpassed pre-pandemic rates across most economies, rising most where recoveries have been strongest. - Supply bottlenecks are expected to ease as production responds to higher prices, but recurrent lockdowns in China, the war, and sanctions may prolong disruptions into 2023—affecting energy and key manufacturing inputs (rare metals and gases). - Demand rebalancing: - Spending shifted toward goods during the pandemic, pressuring goods prices. - Service inflation started to recover in 2021 but overall consumption patterns have not fully reset; goods inflation remains prominent. - If the pandemic eases, services demand should pick up and consumption baskets may return toward pre-pandemic configurations. - Labor market and wage dynamics: - Labor markets tightened significantly in some advanced economies (particularly the United States, to a lesser extent the United Kingdom). - Labor supply shortfalls—especially in contact-intensive sectors—have driven rapid nominal wage growth, though real wages have generally fallen because consumer price inflation outpaced nominal wage increases. - Labor force participation in advanced economies generally remains below pre-pandemic levels; factors include reluctance/inability to return while the pandemic continues and earlier-than-planned retirements. - Baseline assumes gradual labor supply improvement over 2022 as the health crisis abates, dependent care constraints ease, and savings run down; overall effect expected to be moderate and unlikely to significantly soften nominal wage increases. - Inflation expectations: - Near-term inflation expectations have risen significantly in advanced economies; longer-horizon expectations have remained more contained (with some recent increases). - A similar pattern existed in emerging markets before the war, with more cross-country variation. - Recent tightening stances and shifts in central bank communications were viewed as sufficient to tame medium-term inflation expectations in many cases. - If medium-term expectations remain anchored during the conflict, price- and wage-setting should adjust—helping ease inflationary pressure even as elevated inflation persists longer than previously anticipated. - Upside risks to inflation: - Prolonged supply disruptions from continued fighting or renewed pandemic flare-ups would raise intermediate input costs. - Sustained increases in commodity prices could push medium-term inflation expectations higher, particularly in emerging market and developing economies. - In tight labor markets, nominal wage growth could accelerate as workers seek higher wages to offset living costs, broadening inflation pressures. ### Rising interest rates: implications for emerging market and developing economies - Pre-war increases in core sovereign interest rates had already pressured some emerging market and developing economy borrowers. - Markets have differentiated between directly and indirectly implicated countries: - Sovereign and CDS spreads widened most for Belarus, Russia, and Ukraine; smaller extensions in Hungary and Poland. - Comparison with past tightening episodes: - Average spreads prior to the war looked similar to previous cycles (2018, 2013 taper tantrum); since then spreads have generally increased moderately. - Greater dispersion of spreads now versus 2013 or 2018 reflects heterogeneity in country circumstances, including private debt buildups and contingent liabilities. - Historical effects of U.S. surprise tightening: - Associated with capital flow reversals from emerging markets, widening spreads, currency depreciations, and tighter external financial conditions. - Effects depend on country debt exposures and trade linkages to advanced economies; higher debt and larger gross financing needs increase vulnerability. - In many cases, increases in domestic long-term yields reflect rising risk premia beyond domestic policy rate changes. - Countries with stronger trade ties to advanced economies may be less exposed if higher core rates reflect stronger nominal demand in trading partners. - Record sovereign debt levels from the pandemic heighten vulnerability to interest rate hikes. - The pandemic produced unprecedented increases in sovereign debt, increasing sensitivity to tighter external financing conditions. ### Key statistics and quantitative highlights (as presented) - Global oil intensity in earlier decades was about 3.5 times greater than today (comparison context provided). - UNHCR reports over 4.5 million refugees have left Ukraine since February 24; half have arrived in Poland. - Inflation projections: - 2022 advanced economies: 5.7 percent. - 2022 emerging market and developing economies: 8.7 percent. - Differences from January WEO: 1.8 and 2.8 percentage points higher for advanced economies and emerging markets, respectively. - 2023 advanced economies: 2.5 percent. - 2023 emerging market and developing economies: 6.5 percent. - Differences from January WEO for 2023: 0.4 and 1.8 percentage points higher for advanced economies and emerging markets, respectively. - Commodity price projections and volatility: - Futures indicate oil and gas prices will grow in 2022 by 55 and 147 percent, respectively; food inflation about 14 percent in 2022. - Core inflation exceeded pre-pandemic rates across most economies by end-2021 (see figures referenced for country-level deviations). - Bank exposures to Russia concentrated in a few European countries; immediate counterparty and guarantor basis measures reported in IMF staff calculations (percent of total assets; country labels provided in figures). *Source: CHAPTER 1 GLOBaL PROSPECTS aND POLICIES, text - CHAPTER 1 GLOBaL PROSPECTS aND POLICIES (PDF).* ### 1. Government Debt to GDP2. Government Debt Service ### 1. Government Debt to GDP2. Government Debt Service ### Emerging market and developing economy vulnerabilities - Median government debt-to-GDP in emerging market and developing economies reached 60 percent in 2021, up from about 40 percent at the time of the 2013 taper tantrum. - Some 60 percent of low-income developing countries are already in debt distress or at high risk of distress. - With borrowing costs set to increase, interest expenses could rise significantly, placing pressure on national budgets and making it increasingly difficult to service debt. ### External buffers and reserves - Emerging market foreign exchange reserves, when measured as a ratio of imports, exceed their levels in either the 2013 taper tantrum and the 2018 tightening cycle. - The reserves-to-imports ratio has risen the most in relative terms for low-income developing countries, in part reflecting the 2021 allocation of Special Drawing Rights. - When compared with external debt service: - Reserves have improved little for middle-income emerging market economies over the past decade. - Reserves have deteriorated for low-income developing countries. ### Scarring and medium-term output prospects - Economic slack is expected to narrow in the medium term, but significant scarring is expected to persist. - Ukraine: displacement of people and destruction of physical capital will mean activity in Ukraine will remain well below prewar projections for some time. - Russia: sanctions can induce permanent dismantling of trade and supply chain linkages; output in Russia is expected to remain below pre-war projections in the medium term. - Channels of scarring include corporate bankruptcies, productivity losses, lower capital accumulation, slower labor force growth, and human capital losses from school closures. - Advanced economies: - The United States is expected to reach its pre-pandemic trend output path by 2022. - In other advanced economies, the shortfall relative to the pre-pandemic trend will narrow (Figure 1.17). - Emerging market and developing economies: - Scarring effects are expected to be much larger because of relatively larger human capital and investment losses, more limited telework adaptability, more limited policy support, and generally slower vaccination. - Economic activity and employment are expected to remain below the pre-pandemic trend throughout the forecast horizon. - Public policy implications: - Limiting scarring will depend on public investment and health and education policy responses, as well as on the path of the war in Ukraine. - Upward revisions to potential output in advanced economies reflect expected impacts of public infrastructure investment programs (United States) and the European Union’s Next Generation EU funds. - Improvements in vaccination rates have been associated with upward revisions to output projections across the forecast horizon. ### Trade, current accounts, and external positions - Global trade growth projections: - Estimated 10.1 percent in 2021. - Projected 5 percent in 2022. - Projected 4.4 percent in 2023. - Over the medium term, trade growth is expected to decline to about 3.5 percent. - Drivers of 2021 current account widening: - High export volume of medical equipment and work-from-home electronics. - Bigger deficit in the United States, related in part to continued large fiscal support. - Higher surpluses among main U.S. trading partners, notably China and the euro area. - Strong oil price rebound in 2021 contributed to wider external surpluses for exporters and deficits for importers. - Global international investment position: - External assets and liabilities narrowed slightly in 2021 as a share of global GDP, returning close to 2019 levels. - External assets and liabilities are projected to remain close to all-time highs, posing risks to both debtor and creditor economies. ### Key downside risks - Worsening of the war in Ukraine: - Amplified humanitarian crisis and refugee influxes. - Tighter sanctions could rupture trade connections, including energy links between Russia and Europe, causing supply disruptions, global price rises, and volatility in commodity markets. - Potential default on obligations could impact balance sheets abroad and reveal indirect exposures in the financial system. - Increased risk of cybersecurity breaches with potential to cripple critical infrastructure and financial intermediation. - Increased social tensions: - Global fuel and food price rises could intensify commodity hoarding, export controls, and domestic restrictions, amplifying supply disruptions and social unrest—especially in emerging market and developing economies with limited fiscal space. - Large refugee inflows could overwhelm host nation support and exacerbate preexisting social tensions. - A resurgence of the pandemic: - New variants or subvariants with greater immune escape or lethality could reverse improvements and materially damage growth prospects. - A worsening slowdown in China: - Prolonged downturn could expose structural weaknesses (high local government liabilities, property developer leverage, household debt, fragile banking system). - Reduced demand for exports from many middle- and low-income countries in the region and potential disruptions to global goods supply if lockdowns are prolonged. *WORLD ECONOMIC OUTLOOK: WaR SETS BaCK ThE GLOBaL RECOvERy (International Monetary Fund | April 2022)* ### CHAPTER 1 GLOBaL PROSPECTS aND POLICIES ### CHAPTER 1 GLOBaL PROSPECTS aND POLICIES ### Key risks to the outlook - Supply disruptions and uncertainty from the war in Ukraine could affect global economic activity, including through port lockdowns and larger commercial disruptions. - Rising medium-term inflation expectations: - Inflation expectations remained reasonably well anchored in most economies during the pandemic but have recently risen. - Markets expect inflation to moderate over the medium term as central banks respond. - Inflation expectations have so far risen substantially in only a few emerging market and developing economies. - With already high inflation and rising energy and food prices, higher inflation expectations could become more widespread and lead to further increases in prices. - Nominal wage growth is still running behind price inflation in most countries; pent-up wage increases could materialize and add to overall price pressures, requiring more aggressive monetary policy responses. - Higher interest rates leading to widespread debt distress: - The pandemic led to record levels of public debt around the world. - Rising interest rates will strain public budgets and create tough medium-term fiscal consolidation choices amid pressures for social and defense spending. - Failure to credibly transition fiscal frameworks could trigger confidence crises, correlated capital outflows (particularly from emerging markets), and simultaneous debt crises. - Monetary policy that reacts more strongly to inflation would increase the probability of such outcomes and could trigger a disorderly correction of stretched asset prices, including housing. - A wider deterioration of the geopolitical environment: - The war in Ukraine risks destabilizing post–World War II rules-based international relations. - Increased international polarization or more widespread conflict could limit technological exchange, fragment production networks and technology standards, and reduce welfare gains from globalization through more protectionist policies. - Reorganization of the international monetary system is possible, including segmentation of global reserve assets and emergence of alternative cross-border payment systems. - Fractured international relationships could undermine cooperation on climate change, debt resolution, and trade barriers, producing financial volatility, commodity price fluctuations, and dislocation of production and trade. - The ongoing climate emergency: - On current trends, global emissions are very likely to overshoot the Paris Agreement temperature goals by the end of the century and lead to catastrophic climate change (with low-likelihood outcomes such as ice sheet collapse, abrupt ocean circulation changes, and some extreme events and warming that cannot be ruled out). - Effects of warming are already evident: more frequent and severe droughts, forest fires, floods, and major hurricanes, disproportionately harming those least able to cushion the blows. - Policies to speed the green transition could have near-term inflationary effects depending on implementation; overall inflation effects depend on whether carbon pricing is accompanied by lower labor taxation. - The war in Ukraine may increase short-term reliance on dirtier fossil fuels (such as coal) while potentially speeding longer-term investment in renewables due to strategic motives for energy independence. - Interconnectedness of risks: - Short-term risks (for example, inflation and interest rates) can cascade into longer-term effects (for example, undermining the climate agenda and harming fiscal solvency). - Efforts to support vulnerable groups and mitigate war fallout can limit space to insure against medium-term risks like catastrophic climate change. ### Fighting inflation and monetary policy guidance - Inflation partly reflects supply-demand imbalances intensified during recovery and by global supply shocks, including the war in Ukraine. - Central banks should: - Carefully monitor pass-through of rising international prices to domestic inflation expectations to calibrate responses. - Continue to clearly articulate the policy outlook and adjust the monetary stance in a data-dependent manner. - Recognize that the transmission of the war shock will vary across countries depending on trade and financial linkages, exposure to commodity price increases, and preexisting inflation surges. - In the United States, where inflationary pressure had broadened before the invasion, labor markets tighten and nominal wage growth has been robust—the rate-hiking cycle should continue. - In countries where growth effects from the war are more prominent and inflation is rising (particularly in Europe), pace of policy tightening should be calibrated to the severity of the war’s adverse impact on activity, with forward guidance signaling readiness to shift the monetary stance in a data-dependent way. - Inflation expectations: - The recent upward drift in inflation expectations is of concern though generally concentrated at relatively short horizons (Figure 1.14). - Expectations must remain well anchored over longer horizons to ensure credibility of policy frameworks. - Central banks in countries where expectations have risen sharply should communicate the importance of inflation stabilization and back this with policy action where necessary. - Emerging market central banks: some have taken aggressive action to get ahead of price pressures; others are only just getting started. - As advanced economy central banks tighten, resulting currency depreciations in emerging markets could cause higher inflation expectations and necessitate further policy rate increases. - Real interest rate outlook: - Short-term real interest rates at the end of 2022 are likely to be negative (Figure 1.22). - A crucial question is how high policy rates will have to rise to stabilize inflation; in past episodes lengthy periods of tighter policy were needed (for example, the 1980–82 disinflation in the United States). - Annual US headline consumer price inflation peaked at 14 percent in the first half of 1980, but the federal funds rate reached its peak of 19 percent only in the first half of 1981. - US inflation had declined to 3 percent by 1983, but the effective real federal funds rate remained positive long into the second half of the 1980s. - It is not yet clear whether and for how long the real rate will need to be positive (i.e., when the policy rate exceeds the rate of expected inflation). - How far interest rates will ultimately rise depends importantly on the post-pandemic neutral rate; central banks should communicate their perspective on that rate and readiness to maintain policy rates above it as needed. ### Financial stability and macroprudential policy - Regulators should take early action and tighten selected macroprudential tools to target pockets of elevated vulnerabilities (see the April 2022 Global Financial Stability Report). - Insolvency frameworks may need strengthening, including more reliance on out-of-court mechanisms to expedite processes. - Emerging market borrowers should: - Reduce near-term rollover risks by extending debt maturities where possible. - Contain buildup of currency mismatches. - Exchange rate flexibility generally helps absorb shocks; economies with shallow FX markets facing sudden capital flow reversals may require: - Foreign exchange intervention to address disorderly conditions. - Temporary capital flow management measures in imminent crisis circumstances—though not as substitutes for needed macroeconomic adjustment. ### Fiscal policy: supporting the vulnerable while maintaining soundness - Fiscal policy should depend on exposure to the war, the state of the pandemic, and recovery strength. - Following large pandemic-driven fiscal expansions, debt levels are at all-time highs. - Consolidation should not prevent prioritizing spending to protect vulnerable populations affected by the war and the pandemic. - Targeted income support is recommended in countries facing large price increases; design features: - Means testing and gradual phaseout above certain income thresholds to maximize relief to most vulnerable at lower cost. - In countries facing refugee inflows, integration support should be adequately funded with strong multilateral support. - Health funding priorities (to remain protected): - Vaccine production and distribution. - Campaigns to encourage take-up. - Testing and therapies. - Firms affected by war-related disruptions may require temporary, targeted support (credit guarantees or transfers) but only for firms with viable operations over the medium term to avoid hindering resource reallocation. - Labor market and income support should provide safety nets without hindering future employment growth: - Training programs, hiring subsidies, and programs matching workers and firms should remain priorities, along with limited and temporary public support for displaced workers. - To fund initiatives and recover fiscal space: - Revenue mobilization and expenditure measures can broaden the tax base, enhance compliance, scale back broad subsidies and recurrent expenditures, and strengthen public financial management. - Many countries need credible medium-term plans to stabilize finances (see Chapter 2 of the October 2021 Fiscal Monitor). - Fiscal frameworks with simple rules that promote debt sustainability but allow shock management (well-designed escape clauses) can help achieve consolidations. - Where fiscal space permits and monetary policy is constrained (for example by the Effective Lower Bound or in a monetary union), broader fiscal support may be warranted depending on demand decline severity—but should avoid exacerbating demand-supply imbalances and price pressures. ### Health policies and preparedness - COVID-19 could be around for the long term; equitable access to a comprehensive toolkit (vaccines, tests, and treatment) is the best defense. - Vaccination coverage and access remain unequal: - Over 100 countries are not on track to reach the IMF pandemic proposal’s mid-2022 vaccination target of 70 percent. - Inequality persists in access to tests and treatments. - With substantial recent supply increases for vaccines, in-country absorptive capacity is emerging as the key barrier. - Ongoing investments are needed in medical research, disease surveillance, and health systems that reach the last mile. ### Structural reforms and digital transformation - Structural change is essential for post-pandemic growth: - Improvements in digital communications will allow businesses—particularly in emerging market and developing economies—to reap benefits of new technologies. - Retooling and reskilling workers are crucial for participation in the digital economy. - Education losses from interrupted schooling, most critical in low-income countries where online alternatives are less available, risk reducing productivity, earnings, and growth for years without remedial action. - Short-term measures to ease supply bottlenecks and inflation: - Lower tariffs and fewer barriers to trade can allow more efficient allocation of resources and help ease supply bottlenecks and inflation pressure. - Such measures are especially essential given potential long-lasting trade disruptions and supply chain reconfigurations from the war in Ukraine. ### Tackling the climate emergency - Geopolitical events highlight the need for coordinated approaches to accelerate replacement of fossil fuels with renewables and low-carbon sources. - According to the International Energy Agency, a threefold increase in clean energy investment is needed by 2030 to accelerate decarbonization of the power sector and electrify end uses of energy. - In the medium term, fiscal policy needs a step change—particularly carbon pricing (or equivalent mechanisms) and fossil fuel subsidy reform to shift private investment. - Pricing should be supplemented with supportive policies: - Subsidies for renewables. - Public investment in enabling infrastructure such as smart grids. - Feebates to reinforce incentives without further raising energy costs and boosting inflation. - Some revenue could fund transition measures (for example, targeted compensation to those who are harmed) to ensure buy-in. - Reforms implemented when energy prices are high may be less popular, but the surge in global fossil fuel prices underscores the need to shift toward cleaner energy less dependent on international price fluctuations. - Permanent carbon and fuel subsidies (or tax relief) motivated by short-term price spikes must be avoided. ### Multilateral cooperation and humanitarian response - International cooperation and multilateral agencies are essential given the international and mutual nature of many policy challenges. - Main tasks include providing a coordinated response to the humanitarian crisis: - The magnitude of refugee flows from Ukraine calls for a coordinated response. - Given the greater burden on neighboring countries—particularly in the short-term—assistance must come from both national and international sources. *WORLD ECONOMIC OUTLOOK: WaR SETS BaCK ThE GLOBaL RECOvERy — CHAPTER 1 GLOBaL PROSPECTS aND POLICIES, International Monetary Fund | April 2022* ### CHAPTER 1 GLOBaL PROSPECTS aND POLICIES ### CHAPTER 1 GLOBaL PROSPECTS aND POLICIES ### International cooperation priorities and policy measures - Emergency assistance and budget support financing to facilitate integration of migrants and reconstruction in Ukraine once the war ends. - Maintaining liquidity in the global financial system: - International cooperation to manage the coming monetary tightening cycle. - Access to emergency liquidity as a crucial backstop against international financial spillovers. - Rapid financing instruments, credit facilities, and a new Special Drawing Rights allocation boosted reserves during the pandemic. - IMF facilities to address imbalances, help devise credible adjustment paths to macroeconomic stability, and create conditions for sustained, inclusive medium-term growth. - Central banks should be prepared to activate emergency swap lines as needed to reduce the risk of foreign currency liquidity hoarding and deposit withdrawals in overseas jurisdictions. - Guaranteeing an orderly system for resolving debt: - Timely and orderly debt resolution is necessary in some cases beyond liquidity support. - Complicated claims with many lenders can hinder resolution (Figure 1.23). - The Group of Twenty (G20) endorsed the Common Framework for Debt Treatments; its application must be stepped up. - The three countries that have requested relief under the terms of this agreement have experienced significant delays. - The expiration in 2021 of the G20’s Debt Service Suspension Initiative program makes orderly debt resolution even more pressing. - Climate policies: - Almost 140 countries have set long-term net zero emissions targets, but a large gap remains between global mitigation ambition and policy action. - Greenhouse gas emissions need to be cut by one-quarter to one-half by 2030 to be consistent with limiting warming to 1.5 to 2 degrees Celsius. - At COP26, almost 140 countries committed to net zero emissions sometime around midcentury. - Only a third of countries increased their near-term targets substantively, mostly advanced economies (Figure 1.24). - Policies equivalent to a global carbon price of at least $75 are required by 2030 to limit warming to 2C—and even more for 1.5C. - Scaling up ambition and action could be done equitably, with advanced economies delivering the deepest cuts and emerging market and developing economies increasing their commitments. - International coordination regimes, such as price floors among large emitters, and multilateral climate finance initiatives will likely be needed to address competitiveness and policy uncertainties that hinder unilateral action. - Providing global public health goods: - As the emergency pandemic response winds down, focus should return to other global health priorities. - Up-front financing from international donors remains an urgent priority. - Closing the $23.4 billion funding gap for the Access to COVID-19 Tools (ACT) Accelerator is an important first step. - Enhanced coordination between finance and health ministries is essential to increasing resilience to potential new SARS-CoV-2 variants and future pandemics that could pose systemic risk. - Cooperation on taxation and cross-border trade: - Continue cooperation on cross-border tax matters to support revenue and equity. - Avoid export controls and barriers to cross-border trade that will exacerbate supply disruptions. - Avoid adding new trade disputes that further imperil global economic prospects. ### Downside sanctions scenario: assumptions and propagation channels - Scenario overview: - Sanctions on Russia escalate further mid-2022 to include additional embargoes on oil and gas and the disconnection of Russia from much of the global financial and trade system. - Impact propagates through higher commodity prices, disruptions to supply chains, and tighter financial conditions. - Supply shock, at a time of already high commodity prices and inflationary pressures, leads to an upward shift in inflation expectations and requires greater monetary tightening, amplifying negative impact on global activity. - Most countries negatively impacted except oil and some commodity exporters; the European Union more affected than other advanced and emerging market economies given larger exposure. - Commodities, supply chain, and inflation assumptions: - Russian trade and productivity: - Under the adverse scenario oil and gas export volumes decrease by 10 percent in 2022 and 20 percent in 2023 relative to the current baseline, and remain at their lower 2023 levels through the rest of the forecast horizon. - Russia’s non-oil exports decline by 7 percent in 2022 and 15 percent in 2023 relative to the current baseline, and remain at their 2023 level through 2027. - Russia’s loss of access to foreign technology and investment is amplified, triggering a persistent decline in total factor productivity growth. - Commodity prices (relative to baseline): - Oil prices increase by 10 percent in 2022 and 15 percent in 2023. - Metal prices increase by 5 percent in 2022 and 7.5 percent in 2023. - A broad food index increases by 4 percent in 2022 and 6 percent in 2023; higher energy prices raise fertilizer costs and contribute to food price increases. - Natural gas prices in Europe are assumed to rise by roughly 20 percent above baseline in 2022; Asian countries experience a similar increase. - The increase in commodity prices is assumed to fade gradually beyond 2023 as supply responds and demand decreases. - Supply disruptions and confidence: - Shortages of several commodities lead to additional disruption of supply chains, most notably in Europe, adding to impact on inflation and activity. - Combination of supply disruptions and higher energy prices in Europe, and Asia to a lesser extent, leads to weakened confidence and further dampening of activity. - Inflation expectations: - The supply shock triggers an increase in short-run inflation expectations over 2022–23. - Increase more pronounced in countries where inflation is initially higher or where the supply shock is expected to be larger (for example, the US, some EMs, Europe, and developing countries). - For reference, the increase in one-year ahead inflation expectations in the US is around 70 bp in 2023. - The fading of the commodity shock, the endogenous monetary policy response, and the impact from lower demand bring short-term expectations back to target after 2023. - An increase in longer-term inflation expectations would amplify the negative macro impact but is not considered here. - Financial conditions: - Broadening of sanctions tightens domestic financial conditions in Russia further and sanctions are assumed to halve the value of Russia’s positive net foreign asset position, further dampening domestic demand. - In the rest of the world, a risk-off episode generates further tightening in financial conditions. - Emerging markets experience an increase in both corporate and sovereign spreads. - Advanced economies face higher corporate spreads, assumed larger in European countries. - Fiscal policy response: - Automatic stabilizers are assumed to operate but no additional discretionary response is included. - The economic impact would be lower should such a discretionary response take place. ### Global macroeconomic impacts from the scenario (cumulative deviations from baseline) - Russia: - GDP is about 15 percent lower than baseline by 2027, coming on top of the large decrease in GDP already in the baseline relative to pre-conflict projections. - European Union: - Level of GDP close to 3 percent below baseline by 2023, reflecting higher commodity prices and higher inflation expectations. - Advanced economies excluding the EU and emerging economies excluding Russia: - Impact on the level of activity of around –1.5 percent by 2023, with greater variation among emerging market economies as net oil exporters benefit. - Global GDP: - Decreases by about 2 percent by 2023; global activity remains about 1 percent lower than in the baseline by 2027, with more than half of that decline coming from the hit to activity in Russia. - Inflation: - Global headline inflation increases by more than 1 percentage point in both 2022 and 2023. - Global core inflation increases by half a percentage point in 2023, on top of high inflation in the baseline. - The disinflationary effect of the underlying decrease in global activity starts to dominate after that, and inflation eventually falls below baseline by 2024. ### Labor market puzzle in advanced economies: findings (US and UK examples) - Phenomenon: - Unfilled job vacancies have increased sharply even though employment has yet to fully recover in several advanced economies, including the United States and the United Kingdom. - Vacancies-to-unemployment ratios are significantly above pre–COVID-19 levels while employment rates are not. - Contributing factors: 1. Labor market mismatch: - Pandemic and lockdown measures hit sectors requiring in-person interaction (accommodation and food services, arts and entertainment) more than teleworkable jobs. - Mismatch receded gradually as hard-hit industries recovered through 2020 and 2021. - As of the third quarter of 2021, labor market mismatch accounted for at most one-fifth of the shortfall in the employment rate vis-à-vis the pre-COVID level in both the United Kingdom and the United States. 2. COVID-driven fall in labor force participation among specific demographic groups: - Inactivity rate of older workers rose markedly above its pre–COVID-19 trend after 2020 with no subsequent reversion. - Health concerns and, to a lesser extent in 2020–21, pension plan valuation gains contributed to this withdrawal. - By the fourth quarter of 2021 this accounted for a third of the employment gap in the United Kingdom and the United States relative to pre-pandemic levels. - Prolonged school closures and scarce childcare opportunities kept some women with young children home in the United States; this was not the case in the United Kingdom where nurseries largely remained open. 3. Changing worker preferences: - Voluntary job quit rates have reached historic highs in both countries. - Evidence suggests workers’ preferences may have shifted toward jobs offering not only higher pay but greater safety and flexibility. - Industries with the largest rises in quit rates tend to be contact-intensive, physically strenuous, less flexible, and low-paying (accommodation and food services, retail trade). - Wage implications: - Rising labor market tightness has spurred faster nominal wage growth, particularly for low-paying jobs. - Since the start of the pandemic, the increase in tightness alone is estimated to have directly increased overall nominal UK and US wage inflation by approximately 1.5 percentage points. - In low-pay industries, the impact has been much greater. - So far, overall implications of increased tightness for wage inflation have been muted because low-wage workers account for a relatively small share of firms’ total labor costs. - If tightness remains concentrated in low-pay jobs, pass-through from wage growth in those occupations to economy-wide price inflation is likely to remain limited. - However, with price inflation largely or (more than) fully outpacing wage increases so far, and given persistent labor markets, overall nominal wage growth is likely to remain solid; worker demands for pay raises and increased inflation expectations could intensify inflation pressure more than tight labor markets alone. *Source: IMF, World Economic Outlook: WaR SETS BaCK ThE GLOBaL RECOvERy (April 2022), Chapter 1.* ### 1. Older Workers ### 1. Older Workers ### Labor market notes and definitions - Older workers are aged 55–74. - Young children are aged 5 or younger. - Linear trends are estimated over 2015–19. - Wage growth is year-over-year quarterly nominal hourly wage inflation. - Tightness is measured as the vacancy-to-unemployment ratio and is lagged one quarter between 2003:Q1 and 2020:Q1. - Low-pay industries are accommodation and food services, retail trade, and arts and entertainment. ### United States: wage growth and tightness across sectors (figure highlights) - Wage growth (percent) plotted against labor market tightness (ratio). - Tightness axis range shown from 0.0 to 3.0 (vacancy-to-unemployment ratio). - Wage growth axis range shown from –3 to 6 (percent). - Figure distinguishes low-pay industries versus other industries. --- ### Box 1.2. Determinants of Neutral Interest Rates and Uncertain Prospects ### Key findings on neutral rates - The endpoint of the monetary tightening cycle in early 2022 is heavily contingent on the evolution of the neutral rate of interest—the real interest rate consistent with a closed output gap and stable inflation. - The fall in neutral interest rates has been a common phenomenon in many advanced economies since the 1980s and became more homogenous over the years, converging to very low values. - Determinants identified in the literature include: - Lower fertility rates and longer life expectancy increased the share of older people, boosting the supply of savings and depressing interest rates (Platzer and Peruffo 2022). - Slower productivity growth and decline in the price of capital goods slowed investment spending and reduced savings demand (Eggertsson, Mehrotra, and Robbins 2019; Sajedi and Thwaites 2016). - High income inequality has contributed to lower interest rates via higher saving rates at the top of the income distribution (Straub 2019; Mian, Straub, and Sufi 2021a). - Capital flows, increased demand for safe assets, and higher risk premiums have put downward pressure on rates (Bernanke 2005; Caballero and Farhi 2014; Kopecky and Taylor 2020). - Descriptive evidence generally supports these explanations (Figure 1.2.2). ### Uncertainty and opposing forces - Predicting neutral rates is challenging: neutral rates are unobservable and past estimates have uncertainty; determinants often exhibit similar time trends, complicating attribution. - Factors that could keep exerting downward pressure: - Continued improvements in life expectancy and the ongoing global demographic transition (Auclert and others 2021). - Persisting high inequality unless inequality increases revert (Mian, Straub, and Sufi 2021b). - Factors that could raise neutral rates: - A demographic reversal (Goodhart and Pradhan 2020). - China resuming consumption-led growth, reducing the global "savings glut". - Slower reserve accumulation by emerging and developing market economies. - Resolution of pandemic-related uncertainty, lowering precautionary saving. - Temporary demand increases (for example, stimulus packages in the United States) are unlikely to lead to long-lasting increases in neutral rates (Blanchard 2022). - Historical and structural considerations: - Borio and others (2017) find monetary regime changes impact neutral rates using data back to 1870. - Structural shifts in policy frameworks and financial intermediation can be relevant (Grigoli, Platzer, and Tietz, forthcoming). - The terminal size of central bank balance sheets could affect prospects for the neutral interest rate. - Forecasting neutral rates requires caution given structural transformation: rise of shadow banking, fintech, and the climate transition. ### Empirical displays (as presented) - Figure 1.2.1. Estimated Neutral Rates Since 1980 (Percent) — shows median, interquartile range, interdecile range for sample countries (AUS, BEL, CAN, CHE, DNK, ESP, FIN, FRA, GBR, ITA, JPN, NLD, NOR, SWE, USA). - Figure 1.2.2. Neutral Rate Factors (Percent) — panels illustrating relationships between neutral interest rate and: 1. Old-Age Dependency Ratio (x-axis range 10–50 percent). 2. Share of Income Held by Top 1 Percent (x-axis units percent). 3. Total Factor Productivity Growth (x-axis range –1.0 to 2.0 percent). - Note: Sample for Figure 1.2.2 comprises AUS, BEL, CAN, CHE, DEU, DNK, ESP, FIN, FRA, GBR, IRL, ITA, JPN, NLD, NOR, USA. --- ### Special Feature: Market Developments and the Pace of Fossil Fuel Divestment ### Commodity price developments (summary) - Primary commodity prices rose 24 percent between August 2021 and February 2022. - Energy commodities, especially natural gas, drove the increase; Omicron variant created short-term volatility in late 2021. - Base metal prices increased by 2 percent; precious metal prices rose by 3 percent; agricultural commodities increased by 11 percent. - Crude oil prices increased by 36 percent between August 2021 and February 2022. - Brent crude temporarily reached $140 in early March 2022 as markets shunned Russia’s Urals oil and several countries banned imports of Russian oil. - Global demand for oil in 2022 is projected to increase to 99.7 million barrels a day (mb/d) in 2022 (up 2.1 mb/d from 2021), per the International Energy Agency—a downward revision of 1.1 mb/d compared with demand before the war in Ukraine. - Futures markets suggest crude oil prices will increase 55 percent in 2022 and fall slightly thereafter; short- and medium-term upside risks remain elevated, with long-term downside risks from the energy transition. - Natural gas: prices increased globally except in North America; expected to remain high until mid-2023 amid supply and energy security concerns. - Coal prices rose 55 percent and reached historic highs in early March 2022. - Base metal prices: index fell from a 10-year high in July 2021 then recovered from December 2021; increased demand for electric vehicle batteries raised prices for cobalt, nickel, and lithium. - Base metal prices expected to rise by 9.9 percent in 2022 (compared with a decline of 6.5 percent in the October 2021 WEO), and to remain unchanged in 2023. - Precious metal prices expected to rise 5.8 percent in 2022 and 2.1 percent in 2023. - Agricultural prices: beverage prices up 17.2 percent, cereal prices up 21.8 percent, sugar down 5.3 percent, vegetable prices down 4.8 percent. - Wheat prices rose by 26.4 percent due to droughts in Canada and northern plains of the United States. - Risks: continuation of war in Ukraine and falling Russian exports could fuel additional surge in world cereal prices; adverse weather and fertilizer prices are upside risks for food prices. ### Pace of fossil fuel divestment and implications - Anticipation of lower fossil fuel demand has likely reduced capital expenditures in oil and gas globally over the past three to four years—especially for publicly traded companies—reducing their investment by about 20 percent. - Fossil fuels still account for more than 80 percent of primary energy consumption globally (IEA 2021a). - Three-quarters of the CO2 reductions from a globally efficient mitigation in the next decade would come from reduced use of coal rather than of oil and gas. - Concern noted that, relative to the speed of adoption of renewable energy, the pace of divestment from fossil fuels may be too fast, especially for oil and gas. --- ### Oil and Gas Investment Trends ### Recent investment patterns - About half of total energy investment in 2021 was in fossil fuels—half of which was oil and gas upstream investment (IEA 2021a). - Global upstream oil and gas investment peaked at 0.9 (3.6) percent of global GDP (investment) in 2014. - By 2019, it declined to less than 0.5 (1.5) percent of global GDP (investment), falling further during the pandemic. - The cyclical reversal disproportionately affected publicly traded companies, which cut oil and gas investment more than national oil companies. - Investment declines were more notable in the Americas and Africa, as opposed to the Middle East and Russia. - The oil and gas investment share of the Americas and Africa (Middle East and Russia) combined declined (increased) by 2 (4) percentage points from 2010–14 to 2015–21, on average. ### Drivers - After the shale revolution, swings in capital expenditure are not unusual; empirical analysis using data from 1970 to 2019 shows oil and gas prices are the main drivers of capital expenditure (analysis note appended). - Non-OPEC+ producers had been focused on cash generation rather than investment, partly because of the energy transition. --- *International Monetary Fund | April 2022* ### Annex 1.SF.1). A 10 percent increase in oil and gas ### Annex 1.SF.1). A 10 percent increase in oil and gas ### Oil and gas price shocks and investment response - A 10 percent increase in oil and gas prices typically raises global oil and gas investment 3 percent in the same year and 5 percent after two years, cumulatively. - National oil companies tend to be less reactive since their investment decisions are often driven by a broader set of considerations. - Fossil fuel investment followed a typical boom-bust cycle over the past decade: - Oil and gas prices declined 50 percent between 2014 and 2016 and then recovered partially. - Capital expenditure declined 40 percent between 2014 and 2019, deeper than the model’s prediction of a 20 to 25 percent decline. ### Channels through which the energy transition affects oil and gas investment - Three main channels: - Demand-side channel: existing demand-side climate policies (for example, carbon taxes on fossil fuel consumption). - Expectation channel: expectations about future fossil fuel demand driven by public awareness and announced policies (for example, solar and wind investment subsidies or announced bans on internal combustion engines). - Supply-side channel: top-down supply-side policies (regulatory restrictions and bans on fossil fuel production) and bottom-up shifts in public preferences (portfolio shifts related to sustainable investment) that increase the cost of capital for fossil fuel projects. - Text-based indicators capture public awareness of the energy transition, which increased sharply after 2018. - Demand-side indicators (CO2 prices and greenhouse gas emission coverage by emission trading systems) increased but their growth slowed in 2019. - Supply-side indicators (sustainable investing awareness and portfolio inflows into sustainable funds) increased sharply since 2018. ### Firm-level estimation approach - Regression specification (sample years 1971–2020 for price elasticity; firm-level panel 2012–2020 excluding the pandemic period for climate indicators): - y_ist = a + λ D_s + (β1 C_t + β2 P_oil,t) D_s + γ X_ist + ε_ist - y_ist is log capital expenditure in firm i, group s, year t. - D_s is treatment dummy = 1 for oil and gas companies, 0 otherwise. - P_oil,t is the oil and gas price. - X_ist includes log total assets, debt-to-equity ratio, asset turnover, Altman credit strength, region, industry, and year fixed effects. - C_t is either a dummy since the Paris Agreement in 2016 or a climate policy indicator. - Treatment group: energy companies deriving most revenue from upstream oil and gas with little ability to diversify into green energy. - Control group: non-energy companies. ### Estimation results and quantified impacts - After the Paris Agreement, capital expenditure of a typical oil and gas company was 35 percent lower than that of the control group, even when factoring in firm-level variables. - Part of the decline is explained by lower oil prices (related mostly to the shale boom-bust cycle), accounting for about half of the investment decline between 2014 and 2017. - Between 2018 and 2020, the expectation channel mattered: - If public awareness of the energy transition had been the same as in 2014, “brown” investment would have been 38 percent higher in 2020. - Sustainable funds inflows (supply-side channel) show a slightly smaller effect, though their coefficient is not significant. - The demand channel (CO2 prices and greenhouse gas coverage) is not significant—its effect is either small or already subsumed by oil prices. - The pandemic likely further penalized brown investment; 18 percent of the 2020 decline is not fully explained by the econometric model. ### Price scenarios in a Net Zero Emissions context - International Energy Agency (2021b) Net Zero Emissions Scenario: crude oil production declines from 85 mb/d in 2020 to 66 mb/d in 2030. - Two illustrative hypotheses: - Demand-side policies only: oil prices could decline to the $20s in 2030, with dire consequences for oil exporters (rents would diminish, and oil production would come under pressure in high-cost regions). - Supply-side policies only: reductions in oil production driven only by supply-side measures would exert strong upward pressure, taking prices to roughly $190 a barrel, benefiting producing countries at the expense of consuming countries (since production would be profitable for all producers, distribution of production and rents would depend on country restrictions, environmental regulations, and access to capital). - Key implication: It is incorrect to assume fossil fuel prices will necessarily decline because of the energy transition; supply-side policies could push prices up while demand-side policies push them down. The reality will be a mix, and uncoordinated country policies raise uncertainty about future prices. ### Conclusions and policy recommendations - Anticipation of lower fossil fuel demand and—possibly, but to a lesser extent—supply-side climate policies (including shifting public preferences for sustainable investing) have reduced capital expenditures in oil and gas globally over the past three to four years—especially for publicly traded companies, whose investment may have shrunk 20 percent during that time. - Consequences of reduced brown investment: - Can put persistent upward pressure on oil and other fossil fuel prices. - Can shift production to less regulated producers. - Adds substantial uncertainty to the outlook for oil and gas prices. - Recommended policy approach: - A coordinated climate effort among fossil fuel consumer and producer countries and divestment from fossil fuels at a pace commensurate with the speed of adoption of renewable energy would help reduce the risk of high and volatile energy prices. - Reducing policy uncertainty would help countries make necessary adjustments. *Source: IMF staff estimates and analysis as presented in Annex 1.SF.1 of the provided text.* ### Annex Table 1.1.4. Middle East and Central Asia Economies: Real GDP, Consumer Prices, Current Account Balance, and ### Annex Table 1.1.4. Middle East and Central Asia Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment ### Regional aggregates - Middle East and Central Asia (Real GDP; Consumer Prices; Current Account Balance; Unemployment) - Real GDP (2021, 2022, 2023): 5.7, 4.6, 3.7 - Consumer Prices (2021, 2022, 2023): 13.2, 12.8, 10.5 - Current Account Balance (percent of GDP) (2021, 2022, 2023): 3.0, 8.3, 5.6 - Unemployment (2021, 2022, 2023): . . .. . .. . . (not reported) - Oil Exporters (aggregate) - Real GDP (2021, 2022, 2023): 6.5, 5.0, 3.3 - Consumer Prices (2021, 2022, 2023): 11.6, 10.9, 8.8 - Current Account Balance (2021, 2022, 2023): 5.1, 12.0, 8.5 - Unemployment: . . .. . .. . . (not reported) ### Selected oil-exporting economies (key indicators) - Saudi Arabia - Real GDP (2021, 2022, 2023): 3.2, 7.6, 3.6 - Consumer Prices (2021, 2022, 2023): 3.1, 2.5, 2.0 - Current Account Balance (2021, 2022, 2023): 6.6, 19.5, 14.8 - Unemployment: 6.7 . . .. . .. . . (single value listed) - Iran - Real GDP (2021, 2022, 2023): 4.0, 3.0, 2.0 - Consumer Prices (2021, 2022, 2023): 40.1, 32.3, 27.5 - Current Account Balance (2021, 2022, 2023): 2.0, 3.5, 2.0 - Unemployment (2021, 2022, 2023): 9.8, 10.2, 10.5 - United Arab Emirates - Real GDP (2021, 2022, 2023): 2.3, 4.2, 3.8 - Consumer Prices (2021, 2022, 2023): 0.2, 3.7, 2.8 - Current Account Balance (2021, 2022, 2023): 11.7, 18.5, 14.0 - Unemployment: . . .. . .. . . (not reported) - Kazakhstan - Real GDP (2021, 2022, 2023): 4.0, 2.3, 4.4 - Consumer Prices (2021, 2022, 2023): 8.0, 8.5, 7.1 - Current Account Balance (2021, 2022, 2023): –3.0, 3.0, 0.3 - Unemployment (2021, 2022, 2023): 4.9, 4.9, 4.8 - Algeria - Real GDP (2021, 2022, 2023): 4.0, 2.4, 2.4 - Consumer Prices (2021, 2022, 2023): 7.2, 8.7, 8.2 - Current Account Balance (2021, 2022, 2023): –2.8, 2.9, –0.2 - Unemployment (2021, 2022, 2023): 13.4, 11.1, 9.8 - Iraq - Real GDP (2021, 2022, 2023): 5.9, 9.5, 5.7 - Consumer Prices (2021, 2022, 2023): 6.0, 6.9, 4.7 - Current Account Balance (2021, 2022, 2023): 5.9, 15.8, 10.1 - Unemployment: . . .. . .. . . (not reported) - Qatar - Real GDP (2021, 2022, 2023): 1.5, 3.4, 2.5 - Consumer Prices (2021, 2022, 2023): 2.3, 3.5, 3.2 - Current Account Balance (2021, 2022, 2023): 14.7, 19.9, 15.1 - Unemployment: . . .. . .. . . (not reported) - Kuwait - Real GDP (2021, 2022, 2023): 1.3, 8.2, 2.6 - Consumer Prices (2021, 2022, 2023): 3.4, 4.8, 2.3 - Current Account Balance (2021, 2022, 2023): 16.1, 31.3, 27.2 - Unemployment (2021, 2022, 2023): 1.3 . . .. . .. . . (single value listed) - Azerbaijan - Real GDP (2021, 2022, 2023): 5.6, 2.8, 2.6 - Consumer Prices (2021, 2022, 2023): 6.7, 12.3, 8.7 - Current Account Balance (2021, 2022, 2023): 15.2, 37.2, 28.5 - Unemployment (2021, 2022, 2023): 6.0, 5.9, 5.8 - Oman - Real GDP (2021, 2022, 2023): 2.0, 5.6, 2.7 - Consumer Prices (2021, 2022, 2023): 1.5, 3.7, 2.2 - Current Account Balance (2021, 2022, 2023): –3.7, 5.9, 5.6 - Unemployment: . . .. . .. . . (not reported) - Turkmenistan - Real GDP (2021, 2022, 2023): 4.9, 1.6, 2.5 - Consumer Prices (2021, 2022, 2023): 15.0, 17.5, 10.5 - Current Account Balance (2021, 2022, 2023): 2.0, 5.8, 5.9 - Unemployment: . . .. . .. . . (not reported) ### Oil importers (aggregate) - Oil Importers (includes Djibouti, Lebanon, Somalia; excludes Afghanistan and Syria) - Real GDP (2021, 2022, 2023): 4.5, 3.9, 4.4 - Consumer Prices (2021, 2022, 2023): 16.0, 15.9, 13.3 - Current Account Balance (2021, 2022, 2023): –4.0, –6.0, –5.2 - Unemployment: . . .. . .. . . (not reported) ### Selected oil-importing economies (key indicators) - Egypt - Real GDP (2021, 2022, 2023): 3.3, 5.9, 5.0 - Consumer Prices (2021, 2022, 2023): 4.5, 7.5, 11.0 - Current Account Balance (2021, 2022, 2023): –4.6, –4.3, –4.6 - Unemployment (2021, 2022, 2023): 7.3, 6.9, 6.9 - Pakistan - Real GDP (2021, 2022, 2023): 5.6, 4.0, 4.2 - Consumer Prices (2021, 2022, 2023): 8.9, 11.2, 10.5 - Current Account Balance (2021, 2022, 2023): –0.6, –5.3, –4.1 - Unemployment (2021, 2022, 2023): 7.4, 7.0, 6.7 - Morocco - Real GDP (2021, 2022, 2023): 7.2, 1.1, 4.6 - Consumer Prices (2021, 2022, 2023): 1.4, 4.4, 2.3 - Current Account Balance (2021, 2022, 2023): –2.9, –6.0, –4.0 - Unemployment (2021, 2022, 2023): 11.9, 11.7, 11.1 - Uzbekistan - Real GDP (2021, 2022, 2023): 7.4, 3.4, 5.0 - Consumer Prices (2021, 2022, 2023): 10.8, 11.8, 11.3 - Current Account Balance (2021, 2022, 2023): –7.0, –9.5, –7.4 - Unemployment (2021, 2022, 2023): 9.5, 10.0, 9.5 - Sudan - Real GDP (2021, 2022, 2023): 0.5, 0.3, 3.9 - Consumer Prices (2021, 2022, 2023): 359.1, 245.1, 111.4 - Current Account Balance (2021, 2022, 2023): –5.9, –6.6, –7.0 - Unemployment (2021, 2022, 2023): 28.3, 30.2, 29.3 - Tunisia - Real GDP (2021, 2022): 3.1, 2.2 (2023: not reported) - Consumer Prices (2021, 2022): 5.7, 7.7 (2023: not reported) - Current Account Balance (2021, 2022): –6.2, –10.1 (2023: not reported) - Unemployment: . . .. . .. . . (not reported) - Jordan - Real GDP (2021, 2022, 2023): 2.0, 2.4, 3.1 - Consumer Prices (2021, 2022, 2023): 1.3, 2.8, 2.5 - Current Account Balance (2021, 2022, 2023): –10.1, –5.9, –4.6 - Unemployment (2021, 2022, 2023): 24.4 . . .. . .. . . (single value listed) - Georgia - Real GDP (2021, 2022, 2023): 10.4, 3.2, 5.8 - Consumer Prices (2021, 2022, 2023): 9.6, 9.9, 5.1 - Current Account Balance (2021, 2022, 2023): –9.8, –11.4, –7.5 - Unemployment (2021, 2022, 2023): 20.3, 18.5, 19.2 - Armenia - Real GDP (2021, 2022, 2023): 5.7, 1.5, 4.0 - Consumer Prices (2021, 2022, 2023): 7.2, 7.6, 6.0 - Current Account Balance (2021, 2022, 2023): –2.4, –6.2, –5.9 - Unemployment (2021, 2022, 2023): 18.5, 19.5, 19.0 - Tajikistan - Real GDP (2021, 2022, 2023): 9.2, 2.5, 3.5 - Consumer Prices (2021, 2022, 2023): 8.7, 10.0, 10.5 - Current Account Balance (2021, 2022, 2023): 2.8, –1.4, –2.2 - Unemployment: . . .. . .. . . (not reported) - Kyrgyz Republic - Real GDP (2021, 2022, 2023): 3.7, 0.9, 5.0 - Consumer Prices (2021, 2022, 2023): 11.9, 13.2, 10.1 - Current Account Balance (2021, 2022, 2023): –5.2, –12.2, –9.3 - Unemployment (2021, 2022, 2023): 6.6, 6.6, 6.6 - West Bank and Gaza - Real GDP (2021, 2022, 2023): 6.0, 4.0, 3.5 - Consumer Prices (2021, 2022, 2023): 1.2, 2.8, 2.4 - Current Account Balance (2021, 2022, 2023): –12.7, –12.8, –12.4 - Unemployment (2021, 2022, 2023): 26.4, 25.7, 25.0 - Mauritania - Real GDP (2021, 2022, 2023): 3.0, 5.0, 4.4 - Consumer Prices (2021, 2022, 2023): 3.8, 4.9, 4.0 - Current Account Balance (2021, 2022, 2023): –2.2, –14.0, –13.4 - Unemployment: . . .. . .. . . (not reported) ### Memoranda and regional groupings - Caucasus and Central Asia (aggregate) - Real GDP (2021, 2022, 2023): 5.6, 2.6, 4.2 - Consumer Prices (2021, 2022, 2023): 9.2, 10.7, 8.6 - Current Account Balance (2021, 2022, 2023): –0.8, 5.6, 3.2 - Unemployment: . . .. . .. . . (not reported) - Middle East, North Africa, Afghanistan, and Pakistan (aggregate) - Real GDP (2021, 2022, 2023): 5.7, 4.8, 3.7 - Consumer Prices (2021, 2022, 2023): 13.8, 13.1, 10.8 - Current Account Balance (2021, 2022, 2023): 3.3, 8.5, 5.8 - Unemployment: . . .. . .. . . (not reported) - Middle East and North Africa (aggregate) - Real GDP (2021, 2022, 2023): 5.8, 5.0, 3.6 - Consumer Prices (2021, 2022, 2023): 14.6, 13.4, 10.8 - Current Account Balance (2021, 2022, 2023): 3.6, 9.5, 6.6 - Unemployment: . . .. . .. . . (not reported) - Israel (shown for geographic reasons; not included in regional aggregates) - Real GDP (2021, 2022, 2023): 8.2, 5.0, 3.5 - Consumer Prices (2021, 2022, 2023): 1.5, 3.5, 2.0 - Current Account Balance (2021, 2022, 2023): 4.6, 3.2, 3.1 - Unemployment (2021, 2022, 2023): 5.0, 3.9, 3.8 Notes (as presented in the table) - Source: IMF staff estimates. - Data for some countries are based on fiscal years. Please refer to Table F in the Statistical Appendix for a list of economies with exceptional reporting periods. - Movements in consumer prices are shown as annual averages. Year-end to year-end changes can be found in Tables A5 and A6 in the Statistical Appendix. - Current Account Balance is percent of GDP. - Unemployment is percent. National definitions of unemployment may differ. - Regional and country group definitions and inclusions are indicated in the table footnotes (e.g., Oil Exporters includes Bahrain, Libya, and Yemen; Oil Importers includes Djibouti, Lebanon, and Somalia; Afghanistan and Syria excluded from some aggregates because of uncertain political situations). *Source: IMF staff estimates.* ### 2. Change in Debt-to-GDP Ratio between 2019 and 2020 ### 2. Change in Debt-to-GDP Ratio between 2019 and 2020 ### Leverage cycles, macroeconomic impact, and scenarios - Cross-country aggregate estimates point to a cumulative 0.9 percent slowdown over three years for advanced economies and a cumulative 1.3 percent slowdown for emerging markets due to current levels of private leverage. - A surprise tightening of 100 basis points is estimated to slow investment among highly leveraged firms by a cumulative 6½ percentage points over two years, which is 4 percentage points more than among those with little leverage. - The negative effect of private-sector leverage on growth could be much larger where: - indebtedness is concentrated among financially constrained households and vulnerable firms; - the insolvency regime is inefficient; - fiscal space is limited; - monetary policy needs to be tightened rapidly. - The effect of higher interest rates could be amplified if it leads to financial instability (April 2021 GFSR). ### Policy implications and recommendations - Emphasize distributional considerations in macroeconomic forecasting and policymaking. - Where recovery is well underway and private balance sheets are in good shape—mainly in advanced economies that benefited from generous government support during the pandemic—fiscal support can be reduced faster to facilitate central bank work. - Where the recovery is weaker and private balance sheets fragile: - targeted fiscal support could help lessen risks of disruptions and scarring within credible medium-term fiscal frameworks (April 2022 Fiscal Monitor); - where targeting is difficult and fiscal space limited, consider revenue-enhancing measures to fund priorities, including increasing tax compliance and reforms to modernize business taxation; - temporary increases in corporate income tax designed to capture pandemic-related excess profits are a possible avenue (IMF 2021a). ### Household balance sheets: historical cycle and 2020 developments - Global average net household wealth increased from 225 percent of GDP in 1995 to more than 360 percent of GDP in 2020 (purchasing-power-parity-weighted terms). - Household debt passed through two distinct phases over the past two decades: - Pre-global financial crisis: household leverage increased steadily in advanced economies, largely financing housing investment, with assets growing in tandem with liabilities. - Post-global financial crisis decade: households gradually reduced debt relative to income and housing assets fell relative to income. - Household debt jumped in 2020 because of increased borrowing and lower income due to the pandemic-induced recession; this rise in debt was accompanied by a large increase in financial assets. - Looking ahead, net wealth could contract again as governments’ cash transfers to households stop, and tighter financial conditions may increase debt-service costs and lead to declines in asset prices (see the April 2022 GFSR). ### Household debt across the income distribution (nowcasting findings) - Nowcasting approach used macro and financial variables to extrapolate microdata and match published aggregate household income and debt for 2020 for a subset of countries. - Country-level and distributional findings: - China: largest and broadest increases in debt ratios—5.7 percent of annual income on average across income deciles; lower-income households saw larger increases in China (except those in the bottom decile). - South Africa: increase of 4.5 percent of annual income on average across income deciles; the richest households saw the largest relative surge in debt, amounting to 15 percent of their annual incomes. - United States: despite an aggregate decline, households with incomes below $15,000 experienced a debt buildup that exceeded 10 percent of income. - United Kingdom: debt increased by about 7.5 percent of income for households in the lowest tercile. - France and Italy: declines in debt ratios in both countries for the bottom 50 percent of incomes, indicating support for low- and middle-income households’ balance sheets. - Nowcasting and joint-distribution method: DiNardo, Fortin, and Lemieux (1996) approach (reweighting kernel densities and regression adjustment) was employed for China, France, Germany, Hungary, Italy, South Africa, and the United Kingdom; the United States used Consumer Expenditure Survey microdata. ### Firms’ balance sheets: sectoral heterogeneity and vulnerabilities - Sectoral revenue growth in 2020 (listed firms, 71 countries) shows a clear divergence: - Worst-hit sectors: consumer services, transportation, automobiles and components, with largest losses due to lockdowns or material shortages. - Best-performing sectors: semiconductors, software and IT services, pharmaceuticals and biotechnology, health care equipment and services. - A substantial part of the increase in leverage during the pandemic was covered by government guarantees. - The share of guarantees in total credit varies widely, ranging from about 20 percent of all new credit in Germany to 100 percent (up to a certain limit) in Japan. - Because Standard & Poor’s Capital IQ covers listed firms only (about 7 percent of total employment), reported shares of firms in worst-hit sectors are likely a lower bound; small and medium enterprises are underrepresented. ### Leverage and vulnerability metrics for firms - Sector grouping for analysis: - Worst-hit industries: the five sectors with the strongest drop in 2020 revenue growth. - Least-hit industries: the five sectors with the highest revenue growth. - Middle industries: residual category. - Leverage (debt-to-asset ratio) increased during the pandemic in worst-hit industries and remained well above precrisis levels as of 2021:Q2. - Net debt (gross debt net of cash holdings) increased substantially in vulnerable firms in worst-hit sectors, especially in emerging markets. - Profitability and interest coverage: - Profitability dropped in worst-hit industries to levels comparable to the global financial crisis and has not yet completely recovered. - The share of firms in worst-hit sectors with an interest coverage ratio of less than 1 has yet to revert to its pre-pandemic level. - Definition of vulnerable firms: - high leverage: above the average threshold of the top tercile across industries (35 percent); - low profitability: below the average of the bottom tercile of return on assets (0.2 percent); - interest coverage ratio less than 1. - Eighteen months into the pandemic, the share of vulnerable firms remained higher than in the global financial crisis and was concentrated in worst-hit sectors; the share has declined since its peak at end-2020, reflecting higher returns, better cash flows, and lower debt. ### Macro relevance and concentration of vulnerabilities - Worst-hit industries accounted for 18 percent of value added and a quarter of the labor force. - Consumer services (including tourism, recreation, entertainment, and education) accounted for almost 10 percent of value added and comprised about 30 percent of vulnerable firms. - Government credit guarantees and regulatory forbearance prevented widespread corporate failures and protected bank balance sheets; however, whether extra leverage will affect investment depends on: - the strength of the recovery, especially in worst-hit sectors; - the tightness of future financial conditions as monetary policy is normalized. ### Exposure to contingent liabilities and guarantee scenarios - Figure analysis uses a scenario where it is assumed that 50 percent of announced guarantees are contracted. - In that 50 Percent Scenario, exposure to contingent liabilities associated with credit guarantees shows a concentration in advanced economies where guarantees and vulnerable firms overlap. *International Monetary Fund | April 2022* ### 1. Debt-to-Asset Ratio, Weighted Median ### 1. Debt-to-Asset Ratio, Weighted Median ### Key findings - Excess private credit buildup is followed by deleveraging that slows output growth. - A 1 percentage point change in the excess-credit-to-GDP ratio results in a persistent decline in private consumption of 0.5 percent in advanced economies and 2 percent in emerging market and developing economies five years later. - Cross-country averages imply a slower recovery by: - 0.9 percent of GDP over the next three years for advanced economies. - 1.3 percent of GDP over the next three years for emerging market economies (excluding China). - The rise in private debt during the COVID-19 pandemic coincided with public debt rising by almost 15 percent of GDP in 2020. - For emerging market economies with the weakest fiscal positions, deleveraging can imply a drag on growth of up to 9 percent cumulative over three years. ### Cross-country empirical evidence - Empirical framework: - Panel of macroeconomic data for 43 countries (27 advanced economies and 16 emerging market and developing economies) over 52 years from 1969 to 2020. - Excess credit defined as the three-year trailing average of the cyclical component of the Hamilton (2018) filter of private-debt-to-GDP ratios. - Local projections (Jordà 2005) used to depict dynamic responses of output. - Heterogeneous responses: - Consumption responses to excess household credit and investment responses to excess nonfinancial corporate credit decline substantially more in emerging market and developing economies than in advanced economies. - The total effect on output is moderated because investment’s share in output is smaller and investment typically uses a larger share of imported inputs. ### Private and public debt interactions - Public-debt rise: - Public debt rose by almost 15 percent of GDP in 2020. - Fiscal space matters: - Excess credit and subsequent deleveraging have larger negative effects on output where governments have limited fiscal space. - Comparison across within-year quartiles of a fiscal position indicator shows dynamic responses of aggregate output to private debt buildup are substantially more negative in countries with weak fiscal positions versus strong ones; differences are larger in emerging market and developing economies. ### Borrower heterogeneity — Households - Wealth inequality amplifies deleveraging effects: - Countries with greater wealth inequality (proxied by more dissaving among the bottom 50 percent) tend to see a larger drag on future output following excess credit buildup. - The analysis ranks countries by dissaving among the bottom 50 percent using a three-year trailing average and contrasts top and bottom quartiles. ### Borrower heterogeneity — Firms and vulnerable firms - Definition of vulnerable firms: - Interest coverage ratio of less than 1 and in the top tercile of the debt-to-asset ratio distribution and the bottom tercile of the return on assets distribution. - Micro-level firm evidence: - Leverage buildup defined as the lagged three-year cumulative change in the debt-to-asset ratio. - Firm-level panel from Bureau van Dijk Orbis covering 2.5 million listed and unlisted firms from 1998 to 2018 used for local projections. - Following leverage buildup, vulnerable firms reduce investment the most, generating permanent losses to the stock of tangible assets. - The maximum investment-reduction effect is reached after four years. - Sectoral concentration: - Vulnerable firms hold a higher share of debt and are concentrated in hard-hit industries (list of industries provided in source). - Insolvency framework role: - Effective, well-prepared insolvency regimes prevent most of the long-term decline in the stock of tangible capital following firms’ leverage buildup. - Well-prepared insolvency regimes are defined as those in the top quartile of the IMF Strategy, Policy, and Review and Legal Departments’ indicator of crisis preparedness in 2020. ### Countercyclical policy transmission amid high private debt - Policy shock effects (taken from cross-country studies and local-projection estimates): - A fiscal consolidation of 1 percent of GDP leads to a ¾ percent decline in output. - A monetary policy tightening of 100 basis points leads to a ½ percent decline in output after two years. - Private debt amplifies policy tightening: - Fiscal consolidation is more contractionary when the private-debt-to-GDP ratio is in the top quartile for a country. - Heterogeneous transmission across households and firms: - The effects of fiscal and monetary policy depend on household income, debt, and balance-sheet positions and on firms’ financial constraints; more-leveraged households and firms have greater sensitivity to tightening. *Source: IMF World Economic Outlook, Chapter 2 — Private Sector Debt and the Global Recovery (April 2022).* ### CHAPTER 2 PRIvaTE SECTOR DEBT aND ThE GLOBaL RECOvERy ### CHAPTER 2 PRIvaTE SECTOR DEBT aND ThE GLOBaL RECOvERy ### Amplification channels and heterogeneity - Households without liquid assets, particularly indebted households, have a higher propensity to consume out of disposable income than savers. - Indirect effects of an unexpected change in interest rates—operating through general equilibrium changes in labor demand and housing wealth—far outweigh the standard direct intertemporal substitution effect. - Indirect effects are particularly large for the lowest-income households, which experience the largest changes in income after a monetary policy shock. - Firms’ leverage and liquidity affect responsiveness to monetary policy; changes in firms’ net worth amplify monetary and credit-condition shocks (financial accelerator). ### Empirical effects of policy tightening on heterogeneous agents - Fiscal consolidation: - The impact of consolidation is negative for all income groups. - After two years, the consumption drop among the lowest-income quintile is twice as large as the consumption decline among the highest-income quintile. - Figure 2.15 panel 1 reports effects on each income quintile two years after a fiscal consolidation shock of 1 percent of GDP (bars represent estimated effects; error bars denote 90 percent confidence intervals). - Monetary tightening: - The impact of tightening is largest for the most leveraged quintile of firms. - After two years, investment by the most leveraged quintile is a cumulative 6½ percent lower in response to a surprise 100 basis point rise in the policy rate. - This 6½ percent decline is 4 percentage points lower than the decline in investment by the least leveraged quintile. - Effects are persistent over horizons shown (two years and medium term). ### Role of private debt concentration and macroprudential policy - Output sensitivity to fiscal consolidation increases when private sector debt is high (Figure 2.14). - Countries with private debt concentrated in vulnerable households and firms face potential amplification of output costs. - Stringent macroprudential measures in place before the COVID-19 recession may lessen this concern: - Measures that “lean against the wind,” such as loan-to-value restrictions and debt-to-income caps, may have limited the buildup of debt among vulnerable households and helped create buffers for banks. - Online Annex 2.5, Figure 2.5.4: The medium-term (two years) effect of monetary tightening is reduced by half in countries where the macroprudential regime is the most stringent. ### Pandemic balance sheet effects and projected slowing of recovery - Sectoral composition produced unequal balance-sheet impacts across and within countries (contact-intensive services contracted; production and exports of goods and services substitutes thrived). - The war in Ukraine has disrupted global supply chains and raised energy and food prices, likely affecting low-income households—especially in emerging markets and developing economies. - Quantitative estimate: recent leverage buildup could slow the recovery by a cumulative 0.9 percent of GDP in advanced economies and 1.3 percent in emerging markets over the next three years (estimates are average effects based on cross-country aggregate data; estimates predate the war in Ukraine). ### Policy conclusions and recommendations - Calibrate the pace of fiscal consolidation to country circumstances to avoid large disruptions and potential scarring, as monetary policies are normalized amid rising inflationary pressures. - Where the recovery is well underway and balance sheets are in good shape, fiscal support can be reduced faster to facilitate central bank policy. - Elsewhere, targeted support can be considered within credible medium-term fiscal frameworks. - Government support to firms: - Limit support to circumstances with clear market failure. - Where sectoral bankruptcies could spill over, provide incentives for restructuring over liquidation; consider solvency support where necessary. - Debt relief in the form of quasi-equity injections into small and medium enterprises (for example, through profit participation loans) could be considered in countries with adequate fiscal space, transparency, and accountability. - To lessen the burden on public finances, temporary higher taxes on excess profits could be envisaged to claw back transfers to firms that did not need them. - Restructuring and insolvency: - Enhance restructuring and insolvency mechanisms (for example, dedicated out-of-court restructuring) to promote rapid reallocation of capital and labor to the most productive firms. - Prioritize weakest aspects of regimes for near-term impact while working on long-term comprehensive reforms. - Household debt interventions: - Consider cost-effective debt-restructuring programs aimed at transferring resources to relatively vulnerable individuals with high propensity to consume; design programs to minimize moral hazard. - Tax and structural reforms: - Eliminate the debt bias in corporate and personal taxation to avoid incentives for excessive debt buildup, resource misallocation, and recurrent boom-bust cycles. - Data and distributional considerations: - Improve macroeconomic forecasting and policymaking by collecting more detailed and real-time data on firms’ and household balance sheets. ### Inequality, public debt sustainability, and the saving glut of the rich (Box 2.1 and related analysis) - A calibrated model (based on Mian, Straub, and Sufi 2021c) depicts sustainable combinations of primary deficit and debt (percent of GDP) given long-term growth (G) and interest rate forces (R). - The peak of the deficit-debt diagram shows the maximum sustainable debt-deficit level; to the left of the peak is a “free-lunch” zone where primary deficits can be increased without an unsustainable debt path. - As debt increases, the sustainable primary deficit starts shrinking; when (R – G) becomes positive, a primary surplus is required for a stable debt-to-GDP ratio. - Differences between advanced economies and emerging markets: - Sustainable level of debt is larger in advanced economies because higher convenience premiums for liquidity and safety push R down. - Rising income inequality over the past four decades may have helped increase sustainable deficit-debt pairs; reasonable calibration suggests an increase in sustainable deficit of almost a full percentage point in advanced economies (this is a higher-bound estimate). - Calibration parameters reported: - Baseline calibration: top 10 percent earning a 40 percent share of income in advanced economies and a 48 percent share of income in emerging markets. - Advanced economies calibrated with initial level of debt of 105 percent of GDP, initial nominal interest rate of 1 percent, and nominal long-term trend growth of 3.2 percent. - Emerging markets calibrated with initial level of debt of 55 percent of GDP, initial nominal interest rate of 4.7 percent, and nominal long-term trend growth of 6.2 percent. - Debt-to-GDP ratio elasticity of interest rates is 0.017, implying that a 10 percent increase in the debt-to-GDP ratio leads the interest rate to increase by 17 basis points. - Debt denomination and depreciation scenario: - Model assumes an exchange rate depreciation of 30 percent in the event of a negative shock. - Case comparisons: all debt in foreign currency (blue line) versus all debt in local currency (red line); mixed-denomination economies lie between these cases. - Global saving glut of the rich: - Cross-country evidence combining multiple sources for 41 advanced and emerging market economies indicates that saving is distributed highly unequally. - In advanced economies, the richest 10 percent of households account for most of aggregate saving, about twice that of middle-class households (sixth to eighth decile). - The poorest 50 percent typically dissave at a rate ranging from 4 percent to 7 percent of national income a year (consistently more in the United States than in Europe). - Emerging market economies show broadly similar saving levels by the rich but slightly smaller dissaving by the bottom 50 percent. - China: middle-class saving reaches 20 percent of national income, and saving by the bottom 50 is positive. - The “saving glut of the rich” may have contributed to the secular decline of the natural rate of interest by increasing the net supply of savings and putting downward pressure on the natural interest rate. *International Monetary Fund | April 2022 — CHAPTER 2 PRIvaTE SECTOR DEBT aND ThE GLOBaL RECOvERy* ### 1. Advanced Economies ### 1. Advanced Economies ### Box 2.2 — Rising Household Indebtedness, the Global Saving Glut of the Rich, and the Natural Interest Rate - Key insight: Rich households across the world may have been important contributors to the global saving glut. - Interaction with natural interest rate: - The global saving glut is a potential driver of the secular decline in the global natural interest rate (references: Bernanke 2005; Caballero, Farhi, and Gourinchas 2008). - In the largest emerging markets (China, India, Mexico, South Africa), saving by the rich has increased steadily since the 2000s, exporting savings (along with public savings) and feeding the global saving glut via current account surpluses. - In the United States, saving by the rich has been associated with financing large dissaving by the nonrich and the government (Mian, Straub, and Sufi 2021d); foreign saving has also contributed, resulting in a current account deficit. - Evidence presented: - Figure 2.2.2 (“Absorption of Accumulated Saving”) shows accumulated differences for variables over 1996–2019 for the United States and 1996–2015 for EMEs, relative to average levels in 1994 and 1995, expressed in percent of national income. - Labels in the figure: CA = current account; Top 10; Mid 40; Bottom 50; Gov Sav = government saving. - Implication: Cross-country patterns of rich-household saving and public saving help explain cross-border capital flows that influence the global natural interest rate. ### Chapter 2 — Private Sector Debt and the Global Recovery (selected points) - The chapter situates rising household indebtedness and distributional saving patterns within global macro dynamics and debt-related risks. - The chapter cites literature linking credit booms, leverage, and macrofinancial instability, and highlights concerns about record global debt levels (reference: Gaspar, Medas, and Perrelli 2021: “Global Debt Reaches a Record $226 Trillion”). ### Chapter 3 — A Greener Labor Market: Employment, Policies, and Economic Transformation - Objective: Examine labor market implications of the green economic transformation needed to achieve net zero emissions by 2050, using empirical and model-based analyses for a sample of largely advanced economies. - Central framing: - Net emissions must decline to zero by 2050 to meet the Paris Agreement objective of limiting average global temperature increase to well below 2°C and preferably no more than 1.5°C above preindustrial levels. - The green transformation will entail major changes in capital infrastructure and a transformation of the labor market—reallocating workers across occupations and sectors. - New contributions: - A new cross-country, harmonized set of indicators of the environmental properties of jobs (green intensity, pollution intensity, emissions intensity). - A new model-based analysis of labor reallocation in the green transition with an expanded set of policy instruments. - Measurement lenses: - Green intensity: extent to which workers undertake tasks that improve environmental sustainability. - Pollution intensity: degree to which work involves activities exacerbating pollution. - Emissions intensity: level of emissions generated per worker (carbon/CO2 emissions used as the measure). - Empirical findings: - Between 2005 and 2015, average total carbon emissions per worker in the sample of advanced economies declined by 27 percent (Figure 3.1). - The bulk of that decrease was attributable to improved sectoral efficiency (including within-sector labor reallocation and changes in capital and technology). - Almost a quarter of the decline was related to workers moving from higher- to lower-emissions-intensive sectors. - Key research questions the chapter addresses: - How green is the labor market? How do environmental properties of jobs vary across economies and sectors, and how are they associated with education, urbanicity, and earnings? - How easily do workers transition into greener jobs? What worker characteristics (employment history, education/skills) facilitate transitions? Do workers have needed skills? - How do environmental policies affect reallocation of workers into greener jobs? Can policies help make the labor market greener? How does policy effectiveness depend on labor market features? What are employment and distributional consequences? - Model-based simulation results (representative economies): - For a representative advanced economy, about 1 percent of employment would shift toward greener activities over a 10-year period under the policy package considered. - For a representative emerging market economy, about 2.5 percent of employment would shift toward greener activities over a 10-year period, reflecting differences in workforce skills and greater reliance on higher-emissions-intensive production. - Delays in policy actions will require sharper labor market adjustments to achieve net zero emissions. - Policy package discussed (high-level components): - Green infrastructure push. - Phased-in carbon prices. - Targeted training. - An earned income tax credit to provide income support and incentivize labor supply. - Purpose: put an economy on a path to net zero emissions by 2050 with an inclusive transition. - Additional empirical points: - Greener and more polluting jobs are concentrated among small subsets of workers. - Individual workers face tough challenges moving from more pollution-intensive jobs to greener jobs; higher skills make job transitions easier, underscoring importance of training. - Stronger environmental policies help green the labor market and are more effective when reallocation incentives are not blunted. *International Monetary Fund | April 2022* ### CHAPTER 3 a GREENER LaBOR MaRKET: EMPLOyMENT, POLICIES, aND ECONOMIC TRaNSFORMaTION ### CHAPTER 3 a GREENER LaBOR MaRKET: EMPLOyMENT, POLICIES, aND ECONOMIC TRaNSFORMaTION ### Main findings - Empirical analysis uses a limited sample of 34 countries (mainly the United States and advanced economies in Europe) covering 2005–19. - More green- and pollution-intensive jobs appear concentrated among a subset of the workforce, leading to low average green and pollution intensities of jobs. - Green- and pollution-intensity measures: - Range continuously from 0 to 100 (expressed as a percent). - Many occupations are neutral (both measures are zero) and account for the bulk of jobs. - Average employment-weighted indices: - Green intensity ranges from about 2 to 3 percent for most economies in the sample. - Pollution intensity is between about 2 and 6 percent. - Emissions outcomes: - Emissions intensity of employment has fallen noticeably over the sample period. - Average share of employment in higher-emissions-intensive sectors (mining, manufacturing, and utilities) fell from about 18 percent in 2005 to 15 percent in 2015. - Median individual-level emissions intensity for the average country in the sample stood at about eight tons of carbon dioxide per worker in 2015. - Emissions intensity has fallen about one-third, on average, over the same period for economies in the sample. - Earnings and occupational transitions: - Green-intensive occupations exhibit an average earnings premium of almost 7 percent compared with pollution-intensive occupations, even controlling for skills and other characteristics. - Environmental properties of jobs are sticky in transitions; the probability that a worker transitions into greener work from pollution-intensive work when changing jobs is comparatively low and not statistically significantly different from transitions from neutral jobs. - Higher skills make it easier to transition into more green-intensive work. - Model-based scenario results: - With an appropriate policy package, an economy can get on the path to net zero emissions by 2050 while improving average economic conditions of lower-skilled workers. - In an illustration with a representative advanced (emerging market) economy, about 1 (2.5) percent of employment will shift from higher- to lower-emissions-intensive work over the next 10 years to get on the net zero emissions path. - For advanced economies, the required labor shift is smaller than the almost 4 percent of employment per decade shift from industry to services work since the mid-1980s. - Overall assessment: - Employment changes required by the green transformation are moderate in a historical, macroeconomic context, reflecting small initial shares of employment that are more pollution-intensive and in higher-emissions-intensive sectors. - Modest technological and productivity improvements—spurred by policies in the model scenarios—are essential to maintain or grow employment while lowering emissions. - Important caveats: - Occupation-level green and pollution intensities are invariant over time in the empirical analysis; technological change could green occupations without occupational reallocation. - Empirical sample is composed largely of advanced economies, limiting applicability to typical emerging market or developing economies with large informal sectors. - Empirical policy-related results are associational rather than causal due to potential omitted variables. - The model does not incorporate involuntary unemployment and uses a closed economy framework (no international spillovers). - Scenario-based analysis assumes policies are fully credible, transparently announced, and implemented in a timely manner; policy uncertainty or partial/poorly sequenced implementation could worsen outcomes and exacerbate inequality. ### Environmental properties of jobs: definitions and stylized facts - Two lenses used: - Occupation-level measures: - Green intensity: share of green tasks in total tasks in the work (taxonomy from Dierdorff and others (2009) and O*NET Center (2021); similar to Vona and others (2018)). - Pollution intensity: based on classification that identifies polluting occupations predominant in high-GHG-emitting and high-polluting sectors (building on Vona and others (2018)). - Sector-level measures: - Emissions intensity: total tons of carbon dioxide emitted per worker by sector and country. - Empirical relationships: - Green and pollution intensities show a negative relationship within the sample of employed workers. - Pollution-intensive jobs are positively related to jobs in more emissions-intensive sectors. - Distributional patterns: - Many jobs have very low green and pollution intensities; most are neutral. - Green intensity has risen slowly over recent years; pollution intensity has declined marginally. - Within-sector dispersion of green and pollution intensities is wide, indicating scope for reallocation both across and within sectors. ### Labor reallocation potential, skills, and geography - Sectoral patterns: - Industrial sectors have higher average green intensity, but sectoral averages are generally low. - Industrial sectors are typically more pollution-intensive, with notably higher averages in mining, manufacturing, and energy production. - For a given sector, emissions intensity varies substantially across countries, reflecting differences in technology and efficiency. - Skills and demographics: - Higher-skilled workers tend to have occupations with higher green and lower pollution intensities than lower-skilled workers. - Urban workers tend to have occupations with higher green and lower pollution intensities than rural workers. - There is no statistically significant difference between the average emissions intensities of urban and rural workers. - General green skills are relatively evenly distributed across sectors, suggesting further greening may be possible without massive macro-level skill changes. ### Policy implications and recommended package - Policy effectiveness and interactions: - Environmental policies tend to be more effective when labor market policies and structural features do not inhibit incentives for reallocation. - More stringent environmental policies are associated with more green- and less pollution-intensive employment. - Labor market policies and structural features may need realignment to avoid diminishing incentives for labor reallocation induced by greener policies. - With a strong recovery from the COVID-19 pandemic recession underway, it is important to reduce job retention support measures to help provide incentives for reallocation (in line with country-specific circumstances). - Recommended policy package (similar to earlier IMF advice): - A green infrastructure push. - A gradual phase-in of carbon taxes. - A training program targeted toward lower-skilled workers to boost their productivity in lower-emissions-intensive work. - An earned income tax credit, providing income support and incentivizing labor supply. - Both targeted training and an earned income tax credit would help encourage labor reallocation while ameliorating inequality. - Transition risks: - If there is a mismatch in timing between destruction of polluting jobs and creation of greener jobs, near-term unemployment could rise. - Policy uncertainties, delays, partial implementation, or poor sequencing could make the transition more challenging, require sharper adjustment, and potentially exacerbate income inequality and net employment losses. ### Quantified shifts and historical context - Sample and time coverage: - Empirical analysis sample: 34 countries, covering 2005–19. - Key numeric magnitudes: - Green and pollution intensities: range 0 to 100 (percent). - Average employment-weighted green intensity: about 2 to 3 percent for most economies in sample. - Average employment-weighted pollution intensity: between about 2 and 6 percent. - Utilities sector employment: about 1 percent of employment (example average for advanced economies). - Share of employment in mining, manufacturing, and utilities: fell from about 18 percent in 2005 to 15 percent in 2015. - Median emissions intensity (average country in sample) in 2015: about eight tons of carbon dioxide per worker. - Model illustration of required employment shift to follow net zero by 2050: - Representative advanced economy: about 1 percent of employment shifts from higher- to lower-emissions-intensive work over the next 10 years. - Representative emerging market economy: about 2.5 percent of employment shifts over the next 10 years. - Historical benchmark: - Industry-to-services shift since mid-1980s: almost 4 percent of employment per decade for the group of advanced economies. *International Monetary Fund | April 2022* ### CHAPTER 3 a GREENER LaBOR MaRKET: EMPLOyMENT, POLICIES, aND ECONOMIC TRaNSFORMaTION ### CHAPTER 3 a GREENER LaBOR MaRKET: EMPLOyMENT, POLICIES, aND ECONOMIC TRaNSFORMaTION ### Environmental properties of job transitions - Benchmarks: - About 8 percent of workers a year switch to a new job while employed or “on-the-job.” - About 52 percent of those who were out of work the previous year find new jobs in the current year. - About 6 percent of workers separate from (leave) their job each year. - Earnings: - The average green-intensive job commands a small earnings premium relative to the average pollution-intensive job; this premium has trended slightly upward in recent years. - Job stickiness: - Environmental properties of jobs are sticky: workers tend to transition into jobs with similar green/pollution characteristics to their previous jobs. - Switching occupations is generally difficult and contributes to the persistence of job environmental properties. ### Patterns of job churn and transition probabilities - Churn: - Both green- and pollution-intensive jobs exhibit less churning—fewer transitions—than neutral jobs. - Workers with more green- or pollution-intensive past jobs have lower on-the-job transition rates than those with neutral past jobs. - Workers who previously held more green- or pollution-intensive jobs are less likely to separate from their jobs than those from neutral jobs; workers with more green-intensive jobs display the greatest stability. - Transition probabilities into green-intensive jobs (among job switchers): - Workers already employed in green-intensive jobs find similar green-intensive work in transitions with probabilities of 41 percent (from unemployment) and 54 percent (on-the-job). - Moving from a pollution- to a green-intensive job when transitioning is between 4 and 7 percent. - Moving from a neutral job to a green-intensive job ranges from 9 to 11 percent. - Moving from pollution-intensive jobs into neutral jobs occurs at rates around 11 percent. - Interpretation: - These simple probabilities do not control for other worker characteristics; robustness checks accounting for demographics and skills (Online Annex 3.2) confirm stickiness and difficulty of transitions. ### Empirical estimates: environmental policy stringency and labor market greening - Policy indicator: - The policy variable is the Organisation for Economic Co-operation and Development’s composite index of the stringency of environmental policies. - Main associational findings (statistically significant results): - A country moving from the 25th to the 75th percentile in environmental policy stringency: - Sees a 2 percent increase in its average green intensity of employment. - Sees average pollution intensity decline by about 4 percent. - Sees average emissions intensity decline by about 6 percent. - Among workers who switch jobs while on the job, a move from the 25th to the 75th percentile in policy stringency is associated with: - Destination jobs having about 4 percent higher average green intensity. - Destination jobs having about 2 percent lower average emissions intensity. - Mediation by labor market policies and features: - Higher spending on job retention support is associated with declining effectiveness of environmental policies in spurring greater green intensity of jobs. - More generous unemployment insurance is associated with declining effectiveness of environmental policies in reducing pollution intensity of jobs. - Worker reallocation support (including spending on training programs) is not found to statistically significantly alter the effectiveness of environmental policies, suggesting it historically has not been designed to support labor market greening. - Environmental policies are more effective in reducing pollution intensity in countries with more coordinated labor market and collective bargaining arrangements, potentially because social partners can coordinate actions to support a green transformation. - Caveats: - Estimates are associational, not causal. - Results rely on a composite policy index and may suffer from endogeneity and lack of instrument granularity. - Findings should be interpreted with caution given the unprecedented nature of climate change mitigation. ### Model-based analysis and policy package for a greener labor market - Model overview: - Uses a newly developed task-based, closed economy model where production occurs through execution of fixed sets of tasks; tasks vary by good and sector. - Tasks are completed by lower-skilled labor, higher-skilled labor, or capital with varying cost and productivity. - A sector’s greenness depends on the kind and intensity of inputs used; inputs and tasks vary in green and pollution intensities. - The model considers two goods in two sectors that differ in ultimate emissions intensity (higher/lower). - Capital can substitute for lower- or higher-skilled labor in task execution depending on relative productivity; capital investment requires output from the higher-emissions-intensive sector. - Purpose: - To evaluate the content and shape of a policy package that can guide the economy through the green transition. - To vary calibration to assess how country characteristics affect policy effectiveness and transition paths. - Link to empirical findings: - The model is used to address concerns about causality and to analyze granular policy instruments given the empirical associational evidence that stricter environmental policy stringency is linked to greener employment but that labor market policies and features mediate effectiveness. *Italic: Source — CHAPTER 3 a GREENER LaBOR MaRKET: EMPLOyMENT, POLICIES, aND ECONOMIC TRaNSFORMaTION, text - CHAPTER 3 a GREENER LaBOR MaRKET: EMPLOyMENT, POLICIES, aND ECONOMIC TRaNSFORMaTION (PDF).* ### 1. On Green Intensity of Employment ### 1. On Green Intensity of Employment ### Key findings - Green- and pollution-intense jobs are concentrated among subsets of workers; economy-wide average green and pollution intensities are relatively low, with wide dispersion across and within sectors. - Industrial sectors tend to be simultaneously more green-, pollution-, and emissions-intensive than services. - More green-intensive occupations tend to have higher-skilled and more urban workers; more pollution-intensive jobs have the opposite profile. - After controlling for skills, green-intensive jobs exhibit an earnings premium of almost 7 percent compared with pollution-intensive jobs on average. - A worker with a history of more pollution-intensive or neutral jobs is less likely to move into a more green-intensive job than to remain in pollution-intensive or neutral work. - Higher skills ease transitions to green-intensive jobs, highlighting the importance of human capital and targeted training for lower-skilled workers. - Labor reallocation contributes about one-seventh of the emissions decline in the model policy scenario; historically, sectoral labor reallocation accounted for one-fourth of emissions decline for the average sample country over the 2005–15 period. - Greener employment was relatively more resilient during the COVID-19 recession. ### Model and policy package (design to achieve net zero emissions by 2050) - Model calibrated to a representative advanced economy and a representative emerging market economy; key differences: - Emerging market economy: larger share of output from higher-emissions-intensive sector. - Emerging market economy: larger difference in the use of labor across sectors; higher-emissions-intensive sector more reliant on labor. - Two established elements: - Initial green infrastructure and research and development investment push deployed in 2023 to support a modest productivity increase in the lower-emissions-intensive sector; spending is slowly reduced after 2028. - Ad valorem tax on carbon emissions gradually phased in, starting at about 0.1 percentage point per year in 2023 and then rising by 1 percentage point per year from 2029 onward. - Two additional policy instruments: - Training program implemented from 2023 to raise productivity of lower-skilled workers in lower-emissions-intensive work. - Earned income tax credit (EITC) program starts in 2029, coincident with the carbon tax phase-in, to boost lower-skilled workers’ incomes and stimulate their labor supply. - For economies with high informality, the EITC should be supplemented with cash transfers targeted to low-income (on average, lower-skilled) workers; cash transfers implemented from 2029 alongside the carbon tax and EITC in the emerging market scenario. ### Advanced economy case (model results) - The policy package generates a labor reallocation of about 1 percent of employment over the next 10 years, shrinking the higher-emissions-intensive sector and growing the lower-emissions-intensive sector. - The pace of this labor shift is smaller than the average shift of almost 4 percent per decade from industry to services sector employment since the mid-1980s. - Capital investment increases in the lower-emissions-intensive sector and falls sharply in the higher-emissions-intensive sector. - Policy element roles: - Green investment push initially postpones worker reallocation because it requires capital goods produced by the higher-emissions-intensive sector. - Carbon tax acts as a price signal promoting labor reallocation from higher- to lower-emissions-intensive sector. - Training raises productivity of lower-skilled workers in lower-emissions-intensive work, encouraging hiring and boosting earnings of switchers. - EITC increases labor supply economy-wide among lower-skilled workers. - Overall net effects: - Increase in total employment of about 0.5 percent. - Both lower- and higher-skilled workers see higher employment in the lower-emissions-intensive sector; lower-skilled workers see the largest boost. - Training and EITC increase after-tax income for lower-skilled workers, reducing inequality. ### Emerging market economy case (model results) - Larger reallocation than advanced economy: about 2.5 percent of employment shifts from higher- to lower-emissions-intensive sectors over 10 years. - Near-term net employment effect is positive from the investment push but then declines to a 0.5 percent decline in employment by 2032. - Package boosts income of lower-skilled workers through EITC, training, and cash transfers. - Reliance on cash transfers (due to informality) reduces labor supply incentives relative to EITC, dampening long-term employment gains. - Package still improves income inequality despite the employment decline by 2032. ### Policy conclusions and recommendations - Environmental policies are effective in shifting employment toward greener jobs, especially where incentives for reallocation are not inhibited; moving from job retention to measures that support worker reallocation is important as COVID-19 shifts from pandemic to endemic. - A comprehensive policy package to achieve net zero emissions by 2050 can involve: - A green infrastructure push and carbon tax to spur reallocation and productivity improvements. - Targeted training programs (from 2023) to boost productivity of lower-skilled workers in lower-emissions-intensive work. - An earned income tax credit (from 2029) to offset consumption shocks from carbon taxes for lower-income workers and incentivize labor supply. - Cash transfers (from 2029) supplementing EITC where informality is high, targeted toward those most likely to be working informally. - Modest policy-induced technological and productivity improvements are critical to achieve net zero emissions without large output drops and large-scale labor shifts. - The green energy transition will likely require extensive new capital investments that could be costly in the near term. - Regional concentrations of pollution-intensive occupations could create uneven geographic burdens; effective implementation of training and reallocation support is crucial. - Limitations and open issues: agricultural sector impacts (data limitations), international dimensions including potential leakages and cross-country spillovers, and financing shifts needed for adaptation and transition. *Source: IMF staff estimates, Chapter 3, "A Greener Labor Market: Employment, Policies, and Economic Transformation," World Economic Outlook, April 2022.* ### Chapter 3 of the October 2021 GFSR. ### Chapter 3 — A Greener Labor Market: Employment, Policies, and Economic Transformation ### Transition challenges and labor-market implications - Workers with pollution-intensive or neutral job backgrounds find it harder to move into more green-intensive jobs; transition policies should aim to ease these frictions. - Recommended policy elements to ease worker transitions: - Well-designed training programs to enhance employability. - Measures to boost workers' ability to find new job matches. - Policies that ensure the path to a greener labor market is smooth and inclusive. ### Geography of green- and pollution-intensive jobs (Box 3.1 — Evidence from the United States) - Spatial patterns: - On average, jobs are more green-intensive in the US West and Southwest, with pockets of intensity in the Midwest. - Jobs have higher pollution-intensity in the Southeast and Southwest; notable pollution-intensive subsectors include extractive industries, electric power (generation, transmission, and distribution), and wood and textile industries. - Overlap and proximity: - Areas with more green- and pollution-intensive jobs tend to overlap or border each other. - Of 173 US commuting zones rich in pollution-intensive jobs (above the 75th percentile), 125 either are also rich in green-intensive jobs (above the 75th percentile) or border a commuting zone rich in such jobs. - Proximity of green and pollution-intensive jobs does not guarantee an easy transition; effective training programs remain important. - Regional and socioeconomic correlations: - More green-intensive jobs tend to be more urban; more pollution-intensive jobs tend to be more rural. - Counties with a higher share of more green-intensive jobs also tend to have higher incomes, younger populations, a greater proportion of people with a college degree or more education, and lower unemployment. - Unionization is negatively related to the share of pollution-intensive jobs but shows no relationship to green intensity. - Data and methods referenced: - Definitions of green/polluting occupations (Vona and others 2018), Occupational Employment and Wage Statistics, County Business Patterns (harmonized by Eckert and others 2021). ### Short-term evidence on hiring and job postings (Box 3.2 — A Greener Post-COVID Job Market?) - High-frequency platform data provide timelier insights than official labor force surveys, which are published with lags. - LinkedIn-based green hiring findings: - LinkedIn identified green skills and categorized workers according to “green talents.” - Hiring rates for green talent workers were better than for all jobs in the early months of the pandemic and ticked up over 2021 as the recovery strengthened. - Panel 1 in the source standardizes cross-country percentiles to the median observed in January 2019. - The green hiring rate is computed considering members classified as green talent; workers are considered green talent if they have explicitly added at least one green skill to their profile, are occupied in a green occupation, or both. - Indeed-based job-posting findings: - Indeed job postings matched to sectors categorized as above- or below-average green intensities show that world average green job postings declined less than nongreen postings during the pandemic. - This resilience was broad-based: green sector postings experienced smaller declines in 28 of the 34 countries in the sample. - Bounce-backs in job postings have been similar in both green and nongreen sectors during the recovery; overall, some labor market greening early in the post-COVID recovery has now stalled. - Panel 2 in the source shows a cross-country 12-month average job postings index, standardized to January 2019. ### Trade, supply chains, and policy implications (summary from chapter closing paragraphs) - Pandemic trade rotation and resilience: - When COVID-19 hit, the combined supply and demand shock was expected to lead to a dramatic collapse in trade; trade in services remained sluggish, but trade in goods bounced back surprisingly quickly. - Imports of goods fell by less and imports of services by more than can be explained by demand and relative prices. - The rotation from services to goods was more pronounced in countries where the pandemic—and associated containment policies—were more severe. - Drivers and dynamics: - Granular bilateral trade data show that international spillovers from lockdown-induced supply disruptions were a key driver of the decline in trade early in the pandemic. - These negative spillover effects tended to be short-lived and were mitigated to the extent that telework was possible. - Spillover effects diminished over subsequent waves of the pandemic, suggesting adaptability and resilience in global value chains (GVCs). - Differences in timing of pandemic outbreaks and containment policies allowed some regions with significant participation in GVCs to increase their share in the imports of other regions; these changes appear to be unwinding over time. - Policy guidance on supply chains: - Policies such as reshoring are likely misguided given the overall resilience of global trade and value chains during the pandemic. - Better approaches to increase supply chain resilience: - Increasing diversification away from domestic sourcing of inputs. - Greater substitutability in input sourcing (easier switching of input supplies between countries). - Government roles to support resilience (complementing firm-led actions): - Filling information gaps in supply chains. - Investing in trade and digital infrastructure. - Reducing trade costs. - Minimizing policy uncertainty. - Wide-spread vaccination is crucial to mitigating spillovers from future shocks related to the spread of COVID-19. - Increasing supply chain resilience is important for dealing with health emergencies like the pandemic and other shocks such as the war in Ukraine, cyberattacks, and extreme weather events related to climate change. *Chapter 3 of the October 2021 Global Financial Stability Report (excerpted).* ### Introduction ### Introduction ### Overview: pandemic shock to trade - At its trough in the second quarter of 2020, the volume of global trade in goods fell 12.2 percent, and trade in services fell 21.4 percent, compared with the last quarter of 2019. - Trade in goods had recovered to pre-pandemic levels by October 2021, while trade in services remained sluggish, driven mainly by the collapse of travel. - The aggregate trends mask considerable heterogeneity, and further disruptions are likely, owing to the war in Ukraine. - Trade in GVC-intensive goods was more volatile than other goods: between January and April 2020, exports of GVC-intensive goods fell 30 percent, while exports of other goods fell by about 18 percent. - GVC-intensive goods in this chapter are defined to include inputs and finished goods in: automobiles, electronics, textiles and garments, and medical goods. Together these goods account for about a quarter of global goods trade (in 2019). ### Key empirical questions and data - The chapter examines three questions: - How well can trade patterns be accounted for by a standard model of demand and prices, compared with previous large recessions? - What pandemic-specific factors determined trade patterns? - What international spillover effects were generated by mobility restrictions? - Empirical framework: - Uses a standard import demand model estimated for a sample of 127 countries over 1985–2019. - Uses granular bilateral monthly trade data and a gravity model with fixed effects for spillover analysis (six-digit product level, Trade Data Monitor). ### Main conclusions (summary) - Pandemic-specific factors had an important role in determining trade patterns: - Goods imports were larger, and services imports were smaller, in 2020 than predicted by a model of import demand. - Deviations from model predictions were much larger in 2020 than in previous recessions. - “Excess” goods imports were larger in countries with more severe pandemic outbreaks, more stringent containment policies, and larger declines in mobility; “deficit” services imports were larger where the pandemic was more severe. - Lockdown policies produced substantial international spillovers: - Lockdowns in a country’s trade partners on average accounted for up to 60 percent of the observed decline in imports in the first half of 2020. - Spillovers were larger in GVC-intensive industries than in non-GVC-intensive industries, and larger in downstream industries than in upstream industries. - Teleworkability in partner countries mitigated spillovers, and spillover effects diminished over time. - GVCs adjusted to asynchronous pandemic developments: - Changes in market shares among GVC regions occurred during the pandemic. - Resilience gains are possible via (1) increasing geographic diversification of input sourcing across countries and (2) increasing substitutability of inputs across sources. - Diversification substantially reduces global GDP losses from shocks in key upstream suppliers and reduces GDP volatility following correlated productivity shocks; reducing diversification increases volatility. - Greater input substitutability across source countries reduces GDP losses from shocks in individual countries. ### Drivers of trade during the pandemic: demand, prices, and model performance - A standard import demand model links real import growth of goods and services to growth in import-adjusted demand and changes in relative prices (model estimated over 1985–2019). - Estimated coefficients: - Coefficients on import-adjusted demand are positive for most countries and greater than 1. - Coefficients on relative price are mostly negative and average between –0.2 and –0.3. - Model performance in 2020: - For services, the model predicted a growth rate of about –8 percent, while services trade actually fell by 25 percent. - For goods, the model predicted a 10 percent decline, against the 6 percent observed fall. - The forecast errors in 2020 are unprecedented in size relative to the sample starting in 1985. ### Pandemic-specific factors explaining forecast errors - Countries with more severe pandemic experiences (more COVID-19 cases, more stringent containment measures, or less mobility) showed “excess import demand” for goods — the fall in goods imports was smaller than predicted. - The forecast error for goods imports was 3 percentage points more positive for countries in the third quartile of the distribution of the number of COVID-19 cases than for those in the first quartile. - For services, the overprediction of imports is most pronounced where travel services account for a large share of total service imports. - Possible mechanisms for the goods‑services shift: - Reallocation of consumer spending away from services toward goods (for example, remote‑working equipment and medical goods). - Reallocation of income toward goods because some services were unavailable. - Import substitution when domestic production contracted due to lockdowns. ### International spillovers from containment policies - Lockdown stringency in exporting partners is correlated with the decline in imports at the trough in mid‑2020: - Containment policies in trade partners accounted for up to 60 percent of the observed decline in imports between January and May 2020 under a counterfactual without containment policies in partners. - The spillover impact began in February 2020, strengthened in March and April, and started declining in May; by June 2020 the spillover effects were indistinguishable from zero. - Empirical estimate: weighted regression of percent change in imports (2020:Q2 versus 2019:Q4) on partner countries’ Oxford COVID-19 Government Response Stringency Index yields an estimated coefficient equal to –0.015 (t-stat = –2.44). - Spillover estimates are robust to controls for exporter health crisis severity (new COVID-19 cases and deaths per capita, contemporaneous and lagged), export restrictions, and fiscal policy responses in partners. ### Heterogeneity in spillovers and role of teleworkability - Spillovers are heterogeneous: - Spillover effect of lockdowns is more than twice as strong when exporting partners are less able to rely on remote working. - Spillovers are larger within GVC-intensive industries and in downstream industries than in upstream industries. - Teleworkability in partner countries mitigated spillovers. - Spillovers declined over time, indicating that global supply chains were able to adjust. *Source: Introduction, Chapter 4, "GLOBAL TRADE AND VALUE CHAINS DURING THE PANDEMIC", World Economic Outlook, April 2022.* ### CHAPTER 4 GLOBaL TRaDE aND vaLUE ChaINS DURING ThE PaNDEMIC ### CHAPTER 4 GLOBaL TRaDE aND vaLUE ChaINS DURING ThE PaNDEMIC ### Spillover effects of lockdowns on bilateral trade - After controlling for demand in importing countries, there were statistically significant negative spillovers from lockdowns in partner countries. - Spillovers were larger in GVC-intensive industries and in downstream industries (such as transportation and textiles) than in upstream industries (such as metals and minerals). - A one-standard-deviation increase in the upstreamness index reduces the spillover supply effect of the lockdown by almost one-third. - Spillovers were mitigated when partner countries were more able to use telework; teleworkability is measured using cross-country data computed by Dingel and Neiman (2020). - Spillover effects waned over time: imports fell by much less in response to lockdowns in partner countries in 2021 than in 2020. - Evidence sources cited: Espitia and others (2021); Berthou and Stumpner (2022); Pei, de Vries, and Zhang (2021). ### Heterogeneity by teleworkability and industry (Figure 4.8) - Teleworkability: - Trade partner countries with low teleworkability exhibited larger negative spillovers than those with high teleworkability. - Figure 4.8 panel 1 semielasticities range approximately between –0.15 and 0.00 (axis labels: –0.15 –0.05 –0.10 0.00). - Type of industry: - Spillovers were stronger in GVC-intensive industries, especially electronics, and weaker in non-GVC-intensive industries. - Figure 4.8 panel 2 semielasticities show values roughly between –0.40 and 0.00 (axis labels: –0.30 –0.10 –0.40 –0.20 0.00). - Data and measures referenced: Dingel and Neiman (2020); Hale and others (2021); Trade Data Monitor; IMF staff calculations. - Note: GVC-intensive industry product codes compiled from Frederick and Lee (2017) (electronics), Sturgeon and others (2016) (automobiles), and Frederick (2019) (textiles, medical devices). ### Resilience in GVCs and market-share shifts - Goods trade showed overall resilience, including in GVC-intensive goods, aided by adaptability of GVC networks and rotation in demand toward goods. - Asynchronous lockdowns produced sizable changes in trade market shares between regions with significant GVC participation; regions that exited lockdowns earlier gained market share. - By June 2020, "Factory Asia" countries increased their market share in GVC-intensive industries by: - 4.6 percentage points in "Factory Europe" - 2.3 percentage points in "Factory North America" - Panel findings (Figure 4.9): - Panel 1 (2020:H2 versus 2019) shows Factory Asia gains and Factory Europe losses; axis entries include values such as –1.0 –0.8 1.8 0.0 and –0.9 –1.9 4.6 –1.9 (percentage-point scales). - Panel 2 (2021:H1 versus 2019) indicates initial gains for Factory Asia and initial losses for Factory Europe were pared back during recovery; Factory North America continued to lose market share, predominantly within its own domestic markets. - Panel 3 plots market share (%) of Factory Asia and China with respect to Factory Europe from 2000 through 2021:H1; axis tick labels include 0 5 10 15 20 25 30 and periods 2000 05 10 15 20:H1 20:H2 21:H1. - The rapid gains in Asia’s market share by mid-2020 were large relative to historical changes but appear to be reversing rapidly. - Note: Factory Asia comprises Australia, China, India, Indonesia, Japan, the Republic of Korea, and Taiwan Province of China. Factory Europe comprises France, Germany, Italy, the Netherlands, Spain, Switzerland, Turkey, and the United Kingdom. Factory North America comprises Canada, Mexico, and the United States. ### Ongoing frictions and industry-specific disruptions - Some industries such as automobiles faced large supply disruptions despite overall resilience. - Shipping costs remained elevated along some routes despite declining from peak levels, and some ports remained congested, contributing to ongoing supply chain disruptions. - Other potential shocks that could challenge GVCs include international or civil conflicts, cyberattacks, and extreme weather events associated with climate change (Baumgartner, Malik, and Padhi 2020; McKinsey Global Institute 2020). ### Policies to boost resilience: model-based analysis overview - The chapter extends the general equilibrium model of global production networks and trade proposed by Bonadio and others (2021) to analyze resilience policies. - Model features: - Includes trade in intermediate goods and services to capture global value chains. - Each sector in each country has a representative firm with constant returns to scale. - Calibrated to 64 countries and 33 sectors (see Online Annex 4.4). - Does not feature endogenous input–output linkages and cannot address trade-offs between diversification and efficiency. - Does not include inventory management; cannot analyze inventory-based risk mitigation. - Scenarios analyzed: - Supply disruption in a single large input supplier country. - Supply shocks to multiple countries. - Comparison of outcomes under high levels of diversification or substitutability with levels actually observed. ### Definitions of the two resilience strategies analyzed - Diversification: - Defined specifically as (1) across countries (not across products), (2) of intermediate goods and services (not final goods and services), and (3) of the use of intermediate inputs (not the production or export thereof). - Operationalized in the model by taking a simple average of: (1) a distribution that sources from each country with equal weight and (2) the actual data—effectively halving the domestically sourced share relative to observed data. - Empirical context: On average, firms in the Western Hemisphere source 82 percent of their intermediates domestically, compared with a benchmark of 31 percent that reflects concentration of world production—indicating substantial home bias. - Implication: Reshoring would lower diversification and increase concentration risk; fuller analyses find increased concentration would result in more volatile economic activity (OECD 2021; Bonadio and others 2021). - Sectors with greatest room to diversify are services industries such as hospitality, finance, and health care (Online Annex 4.4). - Substitutability: - Refers to how easy it is for a producer to switch inputs from a supplier in one country to those from another country; can reflect greater flexibility in production technologies or international standardization of inputs. - Modeled as an increase in the elasticity of substitution between intermediate inputs from different countries from 0.5 to 2.0, in line with ranges found in Feenstra and others (2018). - Examples: Tesla rewrote software to use alternative semiconductors; General Motors is working to reduce the number of unique semiconductor chips by 95 percent, down to three families of microcontrollers. ### Room to diversify and empirical indicators (Figure 4.10) - Significant home bias in sourcing intermediates suggests room for international diversification away from domestic sourcing: - Western Hemisphere: domestically sourced share of intermediates averages 82 percent. - Benchmark for domestic share across country-sector pairs averages 31 percent. - Import-side diversification: - There is limited room to diversify further among inputs already sourced from abroad, except in the Western Hemisphere. - Figure 4.10 variables and indicators: - Blue bars: share of intermediates sourced domestically. - Yellow squares: benchmark concentration in world production. - Red bars: extent of import concentration (Herfindahl concentration index) across foreign countries within the imported intermediates share. - Green squares: world exports concentration benchmark. - Data sources and calculations: Organisation for Economic Co-operation and Development, Inter-country Input-Output Tables; IMF staff calculations. See Online Annex 4.2 for details. *International Monetary Fund | April 2022 — WORLD ECONOMIC OUTLOOK: WaR SETS BaCK ThE GLOBaL RECOvERy — CHAPTER 4* ### CHAPTER 4 GLOBaL TRaDE aND vaLUE ChaINS DURING ThE PaNDEMIC ### CHAPTER 4 GLOBaL TRaDE aND vaLUE ChaINS DURING ThE PaNDEMIC ### Diversification and substitutability — key simulation findings - Scenario: 25 percent labor supply contraction in a single large global supplier of intermediate inputs (calibrated to closely match China). - Under baseline levels of diversification: - The average economy’s GDP falls by 0.8 percent. - GDP-weighted average across countries: loss of 3.2 percent (with China contributing 2.7 percentage points of that loss). - Under a high-diversification scenario: - The decline in GDP is reduced by almost half (simple country averages). - GDP-weighted average across countries: 2.6 percent (with China contributing 2.4 percentage points). - Diversification effects on volatility: - Drawing multicountry shock scenarios from bootstrapped Penn World Table data (1995–2019) with average pairwise correlation between shocks of 25 percent, greater diversification reduces the volatility of GDP growth in the average country by 5 percent. - Diversification offers little protection against exceptionally highly correlated shocks (for example, the scenario calibrated to the first four months of the COVID-19 pandemic). - Substitutability effects: - With greater substitutability, non–source countries’ GDP losses are reduced by about four-fifths relative to the baseline. - Model elasticities: baseline elasticity of substitution = 0.5; higher elasticity of substitution = 2.0 (long-term elasticity range reported in related literature: 1.75 to 2.25). ### Trade costs, diversification, and policy levers - A one-quarter reduction in the costs of trading in intermediates: - Lowers the Herfindahl index of geographic concentration in the sourcing of intermediates by 4 percentage points from 60 percent as observed in actual data. - Scope for reducing trade costs: - Tariff barriers have declined globally to low levels, leaving scope to reduce nontariff barriers, particularly in emerging markets and low-income developing countries. - Firm-level frictions and informational gaps: - Automobile manufacturers on average have about 250 Tier 1 suppliers, rising to 18,000 suppliers in the full value chain. - Firms face fixed costs of establishing new supply relationships, costs of holding larger inventories, and efficiency gains from dealing with a smaller number of suppliers. - Governments can help by filling informational gaps (for example, through digitalization of firms’ document filings) to improve visibility over supply chains and support stress-testing exercises. ### Policy implications and recommendations - Overarching message: - Resilience to cross-border supply shocks can be increased with greater input source diversification (using more foreign inputs) and greater input substitutability (across suppliers), though benefits are smaller if shocks are widespread and correlated across countries. - Specific recommendations: - Enhancing Infrastructure: - Invest in infrastructure critical for mitigating trade logistics disruptions (for example, upgrading and modernizing port infrastructure on key global shipping routes). - Closing Information Gaps: - Governments can resolve informational externalities by advancing digitalization of firms’ document filings to map interfirm transactions and supply chain networks, aiding stress-testing to identify supply chain weaknesses. - Reducing Trade Costs: - Reduce nontariff barriers, especially in emerging markets and low-income developing countries, and lower trade policy uncertainty to support greater diversification in inputs. - Additional policy notes: - Vaccinating widely across countries is important to minimize supply disruption spillovers; strengthening health systems and investing in digital infrastructure would help mitigate transmission of shocks in future scenarios. - The chapter cautions that proposals to reduce dependence on foreign suppliers (especially in strategic sectors) may be premature given trade’s resilience through the pandemic; firm-level measures (diversification, substitutability, inventory practices, standardization, supplier databases, regionalization) provide practical paths to enhance resilience. Examples from Toyota’s post‑Tohoku adaptations are noted. ### Supply chain pressures, trade flows, and sectoral impacts - Overall pattern: - Supply chain pressures increased to unprecedented levels at the onset of the COVID-19 pandemic, eased in the second half of 2020, and accelerated again to reach a new peak by the end of 2021. - Shipping costs steadily increased until September 2021, when they started a moderate decline. - Delivery times lengthened in 2021; indices of future delivery times indicate persistent supply chain disruptions. - Trade flows closely mimicked the evolution of supply chain disruptions in the first phase of the crisis; flat import volumes and rising unit values in 2021 suggest supply disruptions contributed to inflationary pressures. - Firm-level indicators (United States, high-frequency data): - Share of firms reporting foreign supplier delays increased from 9 percent in October 2020 to 20 percent in December 2021. - Share of firms reporting difficulties locating alternative foreign suppliers increased (period tracked through December 2021). - Share reporting production delays reached 14 percent in December 2021. - Share reporting delivery/shipping delays to customers reached 26 percent in December 2021. - Data are as of January 20, 2022. - Sectoral example — automotive industry: - Trade in and sales of automobiles collapsed during spring 2020 and then began rebounding in the second half of 2020, without reaching pre-pandemic levels. - The shortage of automotive chips was a key factor behind the drop; early pandemic shifts in semiconductor demand (rise for remote-work goods, fall for cars) contributed to allocation and production disruptions. *Source: IMF staff calculations and chapter text.* ### Box 4.1. Effects of Global Supply Disruptions during the Pandemic ### Box 4.1. Effects of Global Supply Disruptions during the Pandemic ### Overview - Examines how global supply disruptions during the COVID-19 pandemic affected trade, with a focus on semiconductors and the automotive sector. - Highlights semiconductor shortages that constrained automotive recovery despite strong demand and led to higher prices. - Notes broader consequences: vulnerabilities of global value chains and calls for reshoring and increased supply chain resilience. ### Empirical approach (daily bilateral seaborne trade) - Uses a unique data set of daily bilateral seaborne trade volumes and estimates an import equation at a daily frequency to measure the effect of exporter lockdowns on bilateral import growth. - Bilateral import growth (ˆMij,t) is measured as the seven-day moving average of year-over-year growth rates with respect to pre-pandemic (2017–19) averages. - Lockdown stringency of the exporter (LSjt) is measured on a 0–100 scale (Hale and others 2020) and lagged to account for delivery lags in shipping. - Specification controls for: - importer-time fixed effects, γit, - bilateral pair fixed effects, αij, - a vector of control variables Xjtʼ (ratio of new COVID-19 cases to the population and an aggregate measure of exporters’ exposure to foreign lockdowns), - seven lags of bilateral import growth (∑k=1^7 ˆMij,t−k). ### Key empirical findings - Over the full 2020–21 sample, exporter lockdowns have a large and statistically significant impact on bilateral trade volumes. - As the stringency variable has a range of 0–100, the point estimates of around 5 imply that less than a full lockdown (a change in stringency of just 20 points) can temporarily halt bilateral trade. - Lockdowns have no statistically significant effect on trade volumes in 2021, indicating that activity became less susceptible to lockdowns as economies adapted and underscoring resilience of global value chains. - Figures referenced: - Figure 4.1.3: Trade in Automobiles and Semiconductors (Index, January 2018 = 100) — shows divergence in trade patterns for automobiles and semiconductors. - Figure 4.2.1: Response of Bilateral Import Growth to Exporter Lockdowns (Percent) — panel 1 (Full Sample) and panel 2 (2021 Sample) with 95 percent confidence bands. ### Sectoral and firm-level evidence (France and firm heterogeneity) - Adjustment mainly occurred along the intensive margin (volumes); the extensive margin (varieties dropping out) contributed marginally, indicating the temporary nature of the shock. - Downstream vs upstream: - The average impact of importing-country lockdowns on exports of firms selling final consumer goods (downstream firms) was nearly nine times larger than that for firms selling intermediate inputs (upstream firms). - Automation: - The impact of lockdowns and COVID-19 deaths on exports was almost 67 percent larger for firms that are less automated. - Inventories: - Imports of firms in industries holding the lowest stocks of inventories fell more than twice as much as those among firms in industries with average inventory intensity. - Firms in industries with the highest inventory intensity increased imports. - Exporters in more inventory-intensive industries experienced a smaller drop in sales, suggesting inventories play a shock-absorbing role. - Notes on measures: - A variety is defined as a trade-partner-specific product using the eight-digit Combined Nomenclature classification. - Heterogeneous effects evaluated by interacting stringency and deaths with: industry-level upstreamness, firm-level imports of industrial robots (proxy for automation), and industry-level inventory intensity (ratio of inventory to sales). - Results on inventory intensity are sensitive to the measure of industry-average inventory-to-sales ratios. - Figures referenced: - Figure 4.3.1: Impact of Supply Chain Upstreamness, Automation, and Inventories on Trade Adjustment (Percent) — panel 1 (Effect on Export Growth) and panel 2 (Effect on Import Growth). ### Implications and interpretation - Semiconductor shortages during 2020 were driven by demand shifts (automakers curtailed semiconductor orders early, then pent-up demand accelerated in H2 2020) and constrained by semiconductor industry production reallocation to other sectors and by trade tensions and domestic shocks (for example, a drought in Taiwan Province of China). - Shortages constrained automotive sector recovery despite strong demand and led to higher prices. - The bilateral empirical specification captures lockdown-induced trade disruptions at the bilateral level but does not rule out substitution (sourcing from different countries); an aggregate approach addressing substitution is noted as an alternative. - Findings point to: - Resilience of global value chains as economies adapted in 2021. - Heterogeneous firm vulnerabilities linked to product position in value chains (downstream vs upstream), automation intensity, and inventory holdings. - Policy and firm-level considerations around inventory management, automation, and diversification/reshoring to increase supply chain resilience. *Box authors: Andras Komaromi, Diego Cerdeiro, and Yang Liu. Source: Box 4.1, World Economic Outlook: WaR SETS BaCK ThE GLOBaL RECOvERy, April 2022.* ### CHAPTER 4 GLOBaL TRaDE aND vaLUE ChaINS DURING ThE PaNDEMIC ### CHAPTER 4 GLOBaL TRaDE aND vaLUE ChaINS DURING ThE PaNDEMIC ### Statistical Appendix — scope and structure - The Statistical Appendix presents historical data and projections and comprises seven sections: Assumptions, What’s New, Data and Conventions, Country Notes, General Features and Composition of Groups in the World Economic Outlook (WEO), Key Data Documentation, and Statistical Tables. - The last and main section comprises the statistical tables. (Statistical Appendix A is included with the main WEO report; Statistical Appendix B is available in a separate online document at www.imf.org/en/Publications/WEO.) - Data in these tables have been compiled on the basis of information available through April 8, 2022. - The figures for 2022–23 are shown with the same degree of precision as the historical figures solely for convenience; because they are projections, the same degree of accuracy is not to be inferred. ### Assumptions underlying 2022–23 estimates and projections - Real effective exchange rates for the advanced economies are assumed to remain constant at their average levels measured during February 22, 2022–March 22, 2022. - For 2022 and 2023 these assumptions imply average conversion rates: - US dollar–special drawing right (SDR) conversion rates of 1.394 and 1.409. - US dollar–euro conversion rates of 1.114 and 1.130. - Yen–US dollar conversion rates of 114.7 and 109.5. - Oil price assumption: - It is assumed that the price of oil will average $106.83 a barrel in 2022 and $92.63 a barrel in 2023. - Interest rate assumptions (three-month government bond yield averages): - United States: 0.9 percent in 2022 and 2.4 percent in 2023. - Euro area: –0.7 percent in 2022 and 0.0 percent in 2023. - Japan: 0.0 percent in 2022 and 0.1 percent in 2023. - Interest rate assumptions (10-year government bond yield averages): - United States: 2.6 percent in 2022 and 3.4 percent in 2023. - Euro area: 0.4 percent in 2022 and 0.6 percent in 2023. - Japan: 0.3 percent in 2022 and 0.4 percent in 2023. - National authorities’ established policies are assumed to be maintained. - Box A1 (referenced) describes more specific policy assumptions for selected economies. - Beginning with the April 2022 WEO, the interest rate assumptions are based on the three-month and 10-year government bond yields, which replace the London interbank offered rates. ### What’s new (database and publication changes) - For Ecuador, fiscal sector projections are excluded from publication for 2022–27 because of ongoing program review discussions. - Ethiopia’s forecast data, which were previously omitted due to an unusually high degree of uncertainty, are now included. - Fiji’s fiscal data and forecasts are now presented on a fiscal year basis. - For Tunisia, projections are excluded from publication for 2023–27 because of ongoing technical discussions pending potential program negotiations. - For Ukraine, all projections for 2022–27 except Real GDP are omitted due to an unusually high degree of uncertainty. Real GDP is projected through 2022. - Venezuela redenominated its currency on October 1, 2021, by replacing 1,000,000 bolívares soberanos (VES) with 1 bolívar digital (VED). ### Data and conventions (coverage, standards, and aggregation) - Data and projections for 196 economies form the statistical basis of the WEO database. - The data are maintained jointly by the IMF’s Research Department and regional departments, with the latter regularly updating country projections based on consistent global assumptions. - Most countries’ macroeconomic data as presented in the WEO conform broadly to the 2008 version of the System of National Accounts (2008 SNA). - The IMF’s sector statistical standards aligned with the SNA 2008 include: - Balance of Payments and International Investment Position Manual (BPM6), sixth edition. - Monetary and Financial Statistics Manual and Compilation Guide (MFSMCG). - Government Finance Statistics Manual 2014 (GFSM 2014). - The fiscal gross and net debt data reported in the WEO are drawn from official data sources and IMF staff estimates; attempts are made to align these with GFSM definitions, but deviations can occur due to data limitations or specific country circumstances. - Composite data and aggregation conventions: - Country group composites are either sums or weighted averages of individual country data. - Unless noted otherwise, multiyear averages of growth rates are expressed as compound annual rates of change. - Arithmetically weighted averages are used for all data for the emerging market and developing economies group—except data on inflation and money growth, for which geometric averages are used. - Country group composites for exchange rates, interest rates, and growth rates of monetary aggregates are weighted by GDP converted to US dollars at market exchange rates (averaged over the preceding three years) as a share of group GDP. - Composites for other domestic-economy data are weighted by GDP valued at purchasing power parity as a share of total world or group GDP. - For aggregation of world and advanced economies (and subgroups) inflation, annual rates are simple percentage changes from the previous years. - For aggregation of emerging market and developing economies (and subgroups) inflation, annual rates are based on logarithmic differences. - Composites for real GDP per capita in purchasing-power-parity terms are sums of individual country data after conversion to the international dollar in the years indicated. - Unless noted otherwise, composites for all sectors for the euro area are corrected for reporting discrepancies in intra-area transactions. - Unadjusted annual GDP data are used for the euro area and for the majority of individual countries, except for Cyprus, Ireland, Portugal, and Spain, which report calendar-adjusted data. - For data prior to 1999, data aggregations apply 1995 European currency unit exchange rates. - Composites for fiscal data are sums of individual country data after conversion to US dollars at the average market exchange rates in the years indicated. - Composite unemployment rates and employment growth are weighted by labor force as a share of group labor force. - Composites relating to external sector statistics are sums of individual country data after conversion to US dollars at the average market exchange rates in the years indicated for balance of payments data and at end-of-year market exchange rates for debt denominated in currencies other than US dollars. - Composites of changes in foreign trade volumes and prices are arithmetic averages of percent changes for individual countries weighted by the US dollar value of exports or imports as a share of total world or group exports or imports (in the preceding year). - Unless noted otherwise, group composites are computed if 90 percent or more of the share of group weights is represented. - Data refer to calendar years, except for a few countries that use fiscal years; Table F lists the economies with exceptional reporting periods. - For some countries, the figures for 2021 and earlier are based on estimates rather than actual outturns; Table G lists the latest actual outturns for the indicators. ### Country notes (selected omissions and special cases) - Afghanistan: data and projections for 2021–27 are omitted because of an unusually high degree of uncertainty given that the IMF has paused its engagement with the country due to lack of clarity within the international community regarding recognition of a government in Afghanistan. - Argentina: the official national consumer price index (CPI) for Argentina starts in December (text cut off in source). *Source: CHAPTER 4 GLOBaL TRaDE aND vaLUE ChaINS DURING ThE PaNDEMIC, text - CHAPTER 4 GLOBaL TRaDE aND vaLUE ChaINS DURING ThE PaNDEMIC, April 2022.* ### 2016. For earlier periods, CPI data for Argentina ### 2016. For earlier periods, CPI data for Argentina ### Argentina: CPI and labor data coverage and comparability - CPI series used for 2016 and earlier periods: - Greater Buenos Aires Area CPI (prior to December 2013) - national CPI (IPCNu, December 2013 to October 2015) - City of Buenos Aires CPI (November 2015 to April 2016) - Greater Buenos Aires Area CPI (May 2016 to December 2016) - Given limited comparability across these series on account of differences in geographical coverage, weights, sampling, and methodology: - "the average CPI inflation for 2014–16 and end-of-period inflation for 2015–16 are not reported in the WEO." - Inflation projections: - "reflect the upper bound of the program range given recent world commodity price developments." - Labor market data: - "Argentina discontinued the publication of labor market data starting in the fourth quarter of 2015, and new series became available starting in the second quarter of 2016." ### Country-specific data and publication exceptions (selected) - Bangladesh: - "Data and forecasts for Bangladesh are presented on a fiscal year basis. However, country group aggregates that include Bangladesh use calendar year estimates of real GDP and purchasing-power-parity GDP." - Costa Rica: - "central government definition has been expanded as of January 1, 2021, to include 51 public entities as per Law 9524. Data are adjusted back to 2019 for comparability." - Dominican Republic: - fiscal series coverage: "public debt, debt service, and the cyclically adjusted/structural balances are for the consolidated public sector ... the remaining fiscal series are for the central government." - Ecuador: - "fiscal sector projections are excluded from publication for 2022–27 because of ongoing program review discussions. The authorities are undertaking revisions of the historical fiscal data with technical support from the IMF." - India: - "real GDP growth rates are calculated as per national accounts: for 1998 to 2011 with base year 2004/05 and, thereafter, with base year 2011/12." - Lebanon: - "data and projections for 2021–27 are omitted due to an unusually high degree of uncertainty. At the time of preparation of the WEO database, official GDP numbers were available only through 2019." - Libya: - "the reliability of Libya’s data, especially regarding national accounts and medium-term projections, is low." - Syria: - "data for Syria are excluded from 2011 onward because of the uncertain political situation." - Tunisia: - "projections are excluded from publication for 2023–27 because of ongoing technical discussions pending potential program negotiations." - Turkmenistan: - "real GDP data are IMF staff estimates compiled in line with international methodologies (SNA) ... Estimates and projections of the fiscal balance exclude receipts from domestic bond issuances as well as privatization operations, in line with GFSM 2014." - Ukraine: - "all projections for 2022–27 except real GDP are omitted due to an unusually high degree of uncertainty. Real GDP is projected through 2022. Revised national accounts data are available beginning in 2000 and exclude Crimea and Sevastopol from 2010 onward." - Uruguay: - national accounts reporting according to SNA 2008 with base year 2016 began in December 2020; "new series begin in 2016. Data prior to 2016 reflect the IMF staff’s best effort to preserve previously reported data and avoid structural breaks." - public pension transfers recorded as revenues affecting data and projections for 2018–21: - "1.2 percent of GDP in 2018, 1.1 percent of GDP in 2019, and 0.6 percent of GDP in 2020, and are projected to be 0.3 percent of GDP in 2021, and zero percent thereafter." - coverage change: "The coverage of the fiscal data for Uruguay was changed from consolidated public sector to nonfinancial public sector with the October 2019 WEO." - Venezuela: - projecting the outlook is complicated by lack of discussions with authorities, incomplete understanding of reported data, and interpretive difficulties; fiscal accounts include a sample of public enterprises including PDVSA; "data for 2018–21 are IMF staff estimates." - "Venezuela’s consumer prices are excluded from all WEO group composites." ### Zimbabwe and currency regime notes - "In 2019 Zimbabwe authorities introduced the Real Time Gross Settlement dollar, later renamed the Zimbabwe dollar, and are in the process of redenominating their national accounts statistics. Current data are subject to revision." - Historical note: "The Zimbabwe dollar previously ceased circulating in 2009, and during 2009–19, Zimbabwe operated under a multicurrency regime with the US dollar as the unit of account." ### Classification of countries in the WEO - Major grouping: - "the world into two major groups: advanced economies and emerging market and developing economies." - Advanced Economies: 40 - Emerging Market and Developing Economies: 156 - Regional breakdown for emerging market and developing economies: - emerging and developing Asia; emerging and developing Europe; Latin America and the Caribbean; Middle East and Central Asia; sub-Saharan Africa. - Analytical classifications: - by source of export earnings (fuel vs nonfuel, focus on nonfuel primary products using SITC categories) - by financial and income criteria (net creditor vs net debtor economies, HIPCs, LIDCs, EMMIEs) - Net debtor criterion: "economies are categorized as net debtors when their latest net international investment position, where available, was less than zero or their current account balance accumulations from 1972 (or earliest available data) to 2020 were negative." - HIPC definition: "countries that are or have been considered by the IMF and the World Bank for participation in their debt initiative known as the HIPC Initiative." - LIDC threshold: "per capita income levels below a certain threshold (set at $2,700 in 2016 as measured by the World Bank’s Atlas method)." ### Table and classification highlights (selected) - Table A: "Classification by World Economic Outlook Groups and Their Shares in Aggregate GDP, Exports of Goods and Services, and Population, 2021" — group counts: - Advanced Economies: 40 - Emerging Market and Developing Economies: 156 - Table B: lists 40 advanced economies and subgroups (Major Advanced Economies and Other Advanced Economies). - Table F: "Economies with Exceptional Reporting Periods" lists countries with non-calendar-year national accounts or government finance reporting (examples include Bangladesh Jul/Jun, India Apr/Mar, Pakistan Jul/Jun). - Table G: "Key Data Documentation" provides country-level metadata on currency, national accounts, prices (CPI), government finance, and balance of payments sources and latest actual annual data. ### Fiscal policy assumptions and selected country notes - General approach: - Short-term fiscal policy assumptions: "normally based on officially announced budgets, adjusted for differences between the national authorities and the IMF staff regarding macroeconomic assumptions and projected fiscal outturns." - When no official budget is announced: "projections incorporate policy measures judged likely to be implemented." - Medium-term projections: "based on a judgment about policies’ most likely path." - If insufficient information: "an unchanged structural primary balance is assumed unless indicated otherwise." - Selected country-specific assumptions (summaries): - Argentina: "based on the available information regarding budget outturn and budget plans for the federal government, on fiscal measures announced by the authorities, and on IMF staff macroeconomic projections." - Australia: "based on data from the Australian Bureau of Statistics, the FY2022/23 budget published by the Commonwealth Government in March 2022, the FY2021/22 budget published by each state/territory government, the FY2021/22 budget published by some state governments, and the IMF staff’s estimates and projections." - Austria: "based on the 2022 budget, the Austria Stability Programme, the Austria National Reform Programme 2021, the new EU recovery funds, and the latest announcement on fiscal measures." - China: "After a significant tightening in 2021, the pace of fiscal tightening is projected to slow in 2022 based on Article IV consultation findings and public statements by the authorities." - India: "based on available information on the authorities’ fiscal plans, with adjustments for the IMF staff’s assumptions. Subnational data are incorporated with a lag of up to one year." - Puerto Rico: fiscal projections based on the Puerto Rico Fiscal and Economic Growth Plans (FEGPs) prepared in January 2022; note that the FEGP scenario implies "over 100 percent of Puerto Rico’s gross national product" in fiscal support and methodological differences (accrual vs cash) produce differing projections. - Russia: "the fiscal rule has been suspended by the government in response to the sanctions imposed after the invasion of Ukraine. The projection assumes an increase in discretionary spending equal to the amount that would otherwise have been saved according to the fiscal rule and a decline in revenues due to the projected deep recession." - Saudi Arabia: baseline projections "primarily based on its understanding of government policies as outlined in the 2022 budget. Export oil revenues are based on WEO baseline oil price assumptions and the IMF staff’s understanding of current oil policy under the OPEC+ agreement." - Others: country-by-country assumptions reference specific national budgets, stability programs, medium-term fiscal plans, and IMF staff adjustments (see country notes for France, Germany, Greece, Hong Kong SAR, Hungary, Indonesia, Ireland, Israel, Italy, Japan, Korea, Mexico, Netherlands, New Zealand, Portugal, Russia, Singapore, and others). *WORLD ECONOMIC OUTLOOK: WAR SETS BACK THE GLOBAL RECOVERY — Statistical Appendix. International Monetary Fund | April 2022* ### 2021. FY2022 projections are based on the initial ### text - 2021. FY2022 projections are based on the initial ### Fiscal assumptions and country-specific fiscal measures - FY2022 projections are based on the initial FY2022 budget of February 18, 2022. - IMF staff assumes gradual withdrawal of remaining pandemic-related measures and implementation of various revenue measures announced in the FY2022 budget for the remainder of the projection period, including: - Increase of the Good and Services Tax (GST) from 7 percent to 8 percent on 1 January 2023, and to 9 percent on 1 January 2024. - Increase of the property tax in 2023: - non-owner-occupied properties: from 10–20 percent to 12–36 percent; - owner-occupied properties with an annual value in excess of $30,000: from 4–16 percent to 6–32 percent. - Increase of the carbon tax from S$5 per tonne of CO2 emissions to S$25 per tonne in 2024 and 2025 and $45 per tonne in 2026 and 2027. - Country-specific fiscal notes: - South Africa: Fiscal assumptions draw on the 2022 Budget Review. Nontax revenue excludes transactions in financial assets and liabilities (exchange rate valuation gains from foreign currency deposits, sale of assets, and conceptually similar items). - Spain: Fiscal projections for 2021 include COVID-19–related support measures, the legislated increase in pensions, and the legislated revenue measures. Fiscal projections from 2022 onward assume no policy changes. Disbursements under the EU Recovery and Resilience Facility are reflected in the projections for 2021–24. - Sweden: Fiscal estimates for 2021 are based on preliminary information on the fall 2020 budget bill. The impact of cyclical developments on the fiscal accounts is calculated using the 2014 Organisation for Economic Co-operation and Development elasticity to take into account output and employment gaps. - Switzerland: Authorities’ announced discretionary stimulus—as reflected in the fiscal projections for 2021 and 2022—is permitted within the context of the debt brake rule in the event of “exceptional circumstances.” - Turkey: Projections use the IMF-defined fiscal balance, which excludes some revenue and expenditure items included in the authorities’ headline balance. - United Kingdom: Fiscal projections are based on GDP data published by the Office of National Statistics on February 11, 2022, and forecasts by the Office for Budget Responsibility from October 27, 2021. Projections adjust revenue for differences between IMF staff forecasts and authorities’ fiscal projections. Projections assume some additional fiscal consolidation relative to policies announced to date starting in FY2023/24 to comply with new fiscal rules announced at the Spending Review on October 27, 2021. IMF staff data exclude public sector banks and the effect of transferring assets from the Royal Mail Pension Plan to the public sector in April 2012. Real government consumption and investment are part of the real GDP path; data are presented on a calendar year basis. - United States: Fiscal projections are based on the July 2021 Congressional Budget Office baseline, adjusted for IMF staff policy and macroeconomic assumptions. Projections incorporate the effects of: - the proposed American Jobs Plan; - the American Families Plan; - the Bipartisan Infrastructure Plan; - the legislated American Rescue Plan; - the Coronavirus Preparedness and Response Supplemental Appropriations Act; - the Families First Coronavirus Response Act; - the Coronavirus Aid, Relief, and Economic Security Act; - the Paycheck Protection Program and Health Care Enhancement Act. - Fiscal projections are adjusted for IMF staff forecasts of macroeconomic and financial variables, different accounting treatment of financial sector support and defined-benefit pension plans, and converted to a general government basis. ### Monetary policy assumptions (framework and specific rate assumptions) - General assumption: monetary policy assumptions are based on the established policy framework in each country, typically implying a nonaccommodative stance over the business cycle (official interest rates increase when inflation is expected to rise above acceptable range; decrease when inflation is not expected to exceed acceptable range, output growth is below potential, and slack is significant). - Assumed average three-month government bond yields: - United States: 0.9 percent in 2022 and 2.4 percent in 2023. - Euro area: –0.7 percent in 2022 and 0.0 in 2023. - Japan: 0.0 percent in 2022 and 0.1 percent in 2023. - Assumed average 10-year government bond yields: - United States: 2.6 percent in 2022 and 3.4 percent in 2023. - Euro area: 0.4 percent in 2022 and 0.6 percent in 2023. - Japan: 0.3 percent in 2022 and 0.4 percent in 2023. - Country-specific monetary policy notes: - Argentina: Monetary projections consistent with overall macroeconomic framework, fiscal and financing plans, and monetary and foreign exchange policies under the crawling peg regime. - Australia: Assumptions based on IMF staff analysis and expected inflation path. - Austria: Monetary growth projections proportional to nominal GDP growth. - Brazil: Assumptions consistent with convergence of inflation toward the middle of the target range by the end of 2023. - Canada: Assumptions reflect the Bank of Canada’s latest decision and updated forecast; Bank of Canada has started raising interest rates and confirmed the increasing rate path; policy response muted due to forward-looking nature reacting mostly to core inflation at the monetary policy horizon. - Chile: Assumptions consistent with attaining the inflation target. - China: Overall monetary policy stance was moderately tight in 2021, expected to be moderately accommodative in 2022. - Denmark: Maintain the peg to the euro. - Euro area: Assumptions in line with market expectations. - Hong Kong SAR: IMF staff assumes the currency board system will remain intact. - India: Projections consistent with achieving the Reserve Bank of India’s inflation target over the medium term. - Indonesia: Assumptions in line with inflation within the central bank’s target band over the medium term. - Israel: Assumptions based on gradual normalization of monetary policy. - Italy: Estimates informed by the Bank of Italy outturn and European Central Bank monetary policy stance forecast from the IMF’s euro area team. - Japan: Assumptions in line with market expectations. - Korea: Policy rate evolves in line with market expectations. - Mexico: Assumptions consistent with attaining the inflation target. - The Netherlands: Projections based on IMF staff estimated six-month euro London interbank offered rate projections. - New Zealand: Based on IMF staff analysis and expected inflation path. - Russia: Projections assume the Central Bank of the Russian Federation is adopting a tight monetary policy stance. - Saudi Arabia: Projections based on continuation of the exchange rate peg to the US dollar. - Singapore: Broad money projected to grow in line with projected growth in nominal GDP. - South Africa: Assumptions consistent with maintaining inflation within the 3–6 percent target band. - Spain: Monetary growth projections proportionate to nominal GDP growth. - Sweden: Projections in line with Riksbank projections. - Switzerland: The projections assume no change in the policy rate in 2022–23. - Turkey: Baseline assumes monetary policy stance remains in line with market expectations. - United Kingdom: Short-term interest rate path based on market interest rate expectations. - United States: IMF staff expects the Federal Open Market Committee to continue to adjust the federal funds target rate in line with the broader macroeconomic outlook. ### Key projection highlights and numerical statistics (selected) - World output (Table A1, Real GDP, annual percent change): - World historical and projected series: 4.1 (2004–13), 3.5 (2014), 3.4 (2015), 3.3 (2016), 3.7 (2017), 3.6 (2018), 2.9 (2019), –3.1 (2020), 6.1 (2021), 3.6 (2022), 3.6 (2023), 3.3 (2027). - Advanced Economies (Real GDP, annual percent change): - 1.6 (2004–13), 2.0 (2014), 2.3 (2015), 1.8 (2016), 2.5 (2017), 2.3 (2018), 1.7 (2019), –4.5 (2020), 5.2 (2021), 3.3 (2022), 2.4 (2023), 1.6 (2027). - Emerging Market and Developing Economies (Real GDP, annual percent change): - 6.4 (2004–13), 4.7 (2014), 4.3 (2015), 4.4 (2016), 4.7 (2017), 4.6 (2018), 3.7 (2019), –2.0 (2020), 6.8 (2021), 3.8 (2022), 4.4 (2023), 4.3 (2027). - Selected monetary rate assumptions (exact): - Three-month government bond yields: United States 0.9 percent in 2022 and 2.4 percent in 2023; euro area –0.7 percent in 2022 and 0.0 in 2023; Japan 0.0 percent in 2022 and 0.1 percent in 2023. - 10-year government bond yields: United States 2.6 percent in 2022 and 3.4 percent in 2023; euro area 0.4 percent in 2022 and 0.6 percent in 2023; Japan 0.3 percent in 2022 and 0.4 percent in 2023. ### Tables and aggregates referenced (selection) - Table A1: Summary of World Output (real GDP growth rates and projections as listed above). - Table A5: Summary of Inflation (Consumer Prices): - Advanced Economies: 2.0 (2004–13), 1.4 (2014), 0.3 (2015), 0.7 (2016), 1.7 (2017), 2.0 (2018), 1.4 (2019), 0.7 (2020), 3.1 (2021), 5.7 (2022), 2.5 (2023), 1.9 (2027). - Emerging Market and Developing Economies: 6.3 (2004–13), 4.7 (2014), 4.7 (2015), 4.3 (2016), 4.4 (2017), 4.9 (2018), 5.1 (2019), 5.2 (2020), 5.9 (2021), 8.7 (2022), 6.5 (2023), 4.1 (2027). - Table A9: Summary of World Trade Volumes and Prices (selected): - World trade (volume) growth: 5.4 (2004–13), 3.0 (2014), –7.9 (2020), 10.1 (2021), 5.0 (2022), 4.4 (2023). - Average oil price percent changes and related notes are reported in Table A9. *International Monetary Fund | April 2022 — Excerpt from Statistical Appendix (World Economic Outlook: War Sets Back the Global Recovery)* ### Appendix 1.1 ### Appendix 1.1 ### Commodity Markets and Special Features - Financial Investment, Speculation, and Commodity Prices September 2011, Box 1.4 - Target What You Can Hit: Commodity Price Swings and Monetary Policy September 2011, Chapter 3 - Commodity Market Review April 2012, Chapter 1, Special Feature - Commodity Price Swings and Commodity Exporters April 2012, Chapter 4 - Macroeconomic Effects of Commodity Price Shocks on Low-Income Countries April 2012, Box 4.1 - Volatile Commodity Prices and the Development Challenge in Low-Income Countries April 2012, Box 4.2 - Commodity Market Review October 2012, Chapter 1, Special Feature - Unconventional Energy in the United States October 2012, Box 1.4 - Food Supply Crunch: Who Is Most Vulnerable? October 2012, Box 1.5 - Commodity Market Review April 2013, Chapter 1, Special Feature - The Dog That Didn’t Bark: Has Inflation Been Muzzled or Was It Just Sleeping? April 2013, Chapter 3 - Does Inflation Targeting Still Make Sense with a Flatter Phillips Curve? April 2013, Box 3.1 - Commodity Market Review October 2013, Chapter 1, Special Feature - Energy Booms and the Current Account: Cross-Country Experience October 2013, Box 1.SF.1 - Oil Price Drivers and the Narrowing WTI-Brent Spread October 2013, Box 1.SF.2 - Anchoring Inflation Expectations When Inflation Is Undershooting April 2014, Box 1.3 - Commodity Prices and Forecasts April 2014, Chapter 1, Special Feature - Commodity Market Developments and Forecasts, with a Focus on Natural Gas October 2014, Chapter 1, Special Feature - Commodity Market Developments and Forecasts, with a Focus on Investment April 2015, Chapter 1, Special Feature in an Era of Low Oil Prices - The Oil Price Collapse: Demand or Supply? April 2015, Box 1.1 - Commodity Market Developments and Forecasts, with a Focus on Metals in the World Economy October 2015, Chapter 1, Special Feature - The New Frontiers of Metal Extraction: The North-to-South Shift October 2015, Chapter 1, Special Feature Box 1.SF.1 - Commodity Market Developments and Forecasts, with a Focus on the Energy Transition in an Era of Low Fossil Fuel Prices April 2016, Chapter 1, Special Feature - Commodity Market Developments and Forecasts, with a Focus on Food Security and Markets in the World Economy October 2016, Chapter 1, Special Feature - How Much Do Global Prices Matter for Food Inflation? October 2016, Box 3.3 - Commodity Market Developments and Forecasts, with a Focus on the Role of Technology and Unconventional Sources in the Global Oil Market April 2017, Chapter 1, Special Feature - Commodity Market Developments and Forecasts October 2017, Chapter 1, Special Feature - Commodity Market Developments and Forecasts April 2018, Chapter 1, Special Feature - What Has Held Core Inflation Back in Advanced Economies? April 2018, Box 1.2 - The Role of Metals in the Economics of Electric Vehicles April 2018, Box 1.SF.1 - Commodity Market Developments and Forecasts, with a Focus on Recent Trends in Energy Demand October 2018, Chapter 1, Special Feature - The Demand and Supply of Renewable Energy October 2018, Box 1.SF.1 - Commodity Special Feature April 2019, Chapter 1, Special Feature - Commodity Market Developments and Forecasts October 2019, Chapter 1, Special Feature - Commodity Market Developments and Forecasts April 2020, Chapter 1, Special Feature - Commodity Market Developments and Forecasts October 2020, Chapter 1, Special Feature - What Is Happening with Global Carbon Emissions in 2019? October 2020, Chapter 1, Special Feature Box 1.SF.1 - Commodity Market Developments and Forecasts April 2021, Chapter 1, Special Feature - Commodity Market Developments and Forecasts October 2021, Chapter 1, Special Feature - Market Developments and the Pace of Fossil Fuel Divestment April 2022, Special Feature ### Fiscal Policy (selected entries) - Separated at Birth? The Twin Budget and Trade Balances September 2011, Chapter 4 - Are We Underestimating Short-Term Fiscal Multipliers? October 2012, Box 1.1 - The Implications of High Public Debt in Advanced Economies October 2012, Box 1.2 - The Good, the Bad, and the Ugly: 100 Years of Dealing with Public Debt Overhangs October 2012, Chapter 3 - The Great Divergence of Policies April 2013, Box 1.1 - Public Debt Overhang and Private Sector Performance April 2013, Box 1.2 - Is It Time for an Infrastructure Push? The Macroeconomic Effects of Public Investment October 2014, Chapter 3 - Improving the Efficiency of Public Investment October 2014, Box 3.2 - The Macroeconomic Effects of Scaling Up Public Investment in Developing Economies October 2014, Box 3.4 - Fiscal Institutions, Rules, and Public Investment October 2014, Box 3.5 - Commodity Booms and Public Investment October 2015, Box 2.2 - Cross-Border Impacts of Fiscal Policy: Still Relevant October 2017, Chapter 4 - The Spillover Impact of U.S. Government Spending Shocks on External Positions October 2017, Box 4.1 - Macroeconomic Impact of Corporate Tax Policy Changes April 2018, Box 1.5 - Place-Based Policies: Rethinking Fiscal Policies to Tackle Inequalities within Countries October 2019, Box 2.4 ### Monetary Policy, Financial Markets, and Flows of Funds (selected entries) - Financial Conditions Indices April 2011, Appendix 1.1 - House Price Busts in Advanced Economies: Repercussions for Global Financial Markets April 2011, Box 1.1 - International Spillovers and Macroeconomic Policymaking April 2011, Box 1.3 - Credit Boom-Bust Cycles: Their Triggers and Policy Implications September 2011, Box 1.2 - Are Equity Price Drops Harbingers of Recession? September 2011, Box 1.3 - Cross-Border Spillovers from Euro Area Bank Deleveraging April 2012, Chapter 2, Spillover Feature - The Financial Transmission of Stress in the Global Economy October 2012, Chapter 2, Spillover Feature - The Great Divergence of Policies April 2013, Box 1.1 - Taper Talks: What to Expect When the United States Is Tightening October 2013, Box 1.1 - Credit Supply and Economic Growth April 2014, Box 1.1 - Should Advanced Economies Worry about Growth Shocks in Emerging Market Economies? April 2014, Chapter 2, Spillover Feature - Perspectives on Global Real Interest Rates April 2014, Chapter 3 - Housing Markets across the Globe: An Update October 2014, Box 1.1 - U.S. Monetary Policy and Capital Flows to Emerging Markets April 2016, Box 2.2 - A Transparent Risk-Management Approach to Monetary Policy October 2016, Box 3.5 - Will the Revival in Capital Flows to Emerging Markets Be Sustained? October 2017, Box 1.2 - The Role of Financial Sector Repair in the Speed of the Recovery October 2018, Box 2.3 - Clarity of Central Bank Communications and the Extent of Anchoring of Inflation Expectations October 2018, Box 3.2 - Can Negative Policy Rates Stimulate the Economy? April 2020, Box 2.1 - Dampening Global Financial Shocks in Emerging Markets: Can Macroprudential Regulation Help? April 2020, Chapter 3 - Macroprudential Policies and Credit: A Meta-Analysis of the Empirical Findings April 2020, Box 3.1 - Do Emerging Markets Adjust Macroprudential Regulation in Response to Global Financial Shocks? April 2020, Box 3.2 - Rising Small and Medium-Sized Enterprise Bankruptcy and Insolvency Risks: Assessment and Policy Options April 2020, Box 1.3 - Shifting Gears: Monetary Policy Spillovers during the Recovery from COVID-19 April 2021, Chapter 4 - Emerging Market Asset Purchase Programs: Rationale and Effectiveness April 2021, Box 4.1 - Monetary Expansions and Inflationary Risks October 2021, Box 1.3 - Policy Responses and Expectations in Inflation Acceleration Episodes October 2021, Box 2.3 - Determinants of Neutral Interest Rates and Uncertain Prospects April 2022, Box 1.2 - Private Sector Debt and the Global Recovery April 2022, Chapter 2 - Rising Household Indebtedness, the Global Saving Glut of the Rich, and the Natural Interest Rate April 2022, Box 2.2 ### Labor Markets, Poverty, and Inequality (selected entries) - Slow Recovery to Nowhere? A Sectoral View of Labor Markets in Advanced Economies September 2011, Box 1.1 - The Labor Share in Europe and the United States during and after the Great Recession April 2012, Box 1.1 - Jobs and Growth: Can’t Have One without the Other? October 2012, Box 4.1 - Reforming Collective-Bargaining Systems to Achieve High and Stable Employment April 2016, Box 3.2 - Understanding the Downward Trend in Labor Shares April 2017, Chapter 3 - Labor Force Participation Rates in Advanced Economies October 2017, Box 1.1 - Recent Wage Dynamics in Advanced Economies: Drivers and Implications October 2017, Chapter 2 - Labor Market Dynamics by Skill Level October 2017, Box 2.1 - Worker Contracts and Nominal Wage Rigidities in Europe: Firm-Level Evidence October 2017, Box 2.2 - Wage and Employment Adjustment after the Global Financial Crisis: Firm-Level Evidence October 2017, Box 2.3 - Labor Force Participation in Advanced Economies: Drivers and Prospects April 2018, Chapter 2 - Youth Labor Force Participation in Emerging Market and Developing Economies versus Advanced Economies April 2018, Box 2.1 - Storm Clouds Ahead? Migration and Labor Force Participation Rates April 2018, Box 2.4 - Are Manufacturing Jobs Better Paid? Worker-Level Evidence from Brazil April 2018, Box 3.3 - The Global Financial Crisis, Migration, and Fertility October 2018, Box 2.1 - The Employment Impact of Automation Following the Global Financial Crisis: The Case of Industrial Robots October 2018, Box 2.2 - Labor Market Dynamics in Select Advanced Economies April 2019, Box 1.1 - Worlds Apart? Within-Country Regional Disparities April 2019, Box 1.3 - Closer Together or Further Apart? Within-Country Regional Disparities and Adjustment in Advanced Economies October 2019, Chapter 2 - Climate Change and Subnational Regional Disparities October 2019, Box 2.2 - The Macroeconomic Effects of Global Migration April 2020, Chapter 4 - Immigration: Labor Market Effects and the Role of Automation April 2020, Box 4.1 - Inclusiveness in Emerging Market and Developing Economies and the Impact of COVID-19 October 2020, Box 1.2 - Recessions and Recoveries in Labor Markets: Patterns, Policies, and Responses to the COVID-19 Shock April 2021, Chapter 3 - Jobs and the Green Economy October 2021, Box 1.2 - The Puzzle of Tight Labor Markets: US and UK Examples April 2022, Box 1.1 - Inequality and Public Debt Sustainability April 2022, Box 2.1 - A Greener Labor Market: Employment, Policies, and Economic Transformation April 2022, Chapter 3 - The Geography of Green- and Pollution-Intensive Jobs: Evidence from the United States April 2022, Box 3.1 - A Greener Post-COVID Job Market? April 2022, Box 3.2 ### Exchange Rates, Trade, External Accounts, and Other Thematic Selections - Exchange Rate Regimes and Crisis Susceptibility in Emerging Markets April 2014, Box 1.4 - Exchange Rates and Trade Flows: Disconnected? October 2015, Chapter 3 - The Relationship between Exchange Rates and Global-Value-Chain-Related Trade October 2015, Box 3.1 - Measuring Real Effective Exchange Rates and Competitiveness: The Role of Global Value Chains October 2015, Box 3.2 - Unwinding External Imbalances in the European Union Periphery April 2011, Box 2.1 - International Capital Flows: Reliable or Fickle? April 2011, Chapter 4 - External Liabilities and Crisis Tipping Points September 2011, Box 1.5 - The Evolution of Current Account Deficits in the Euro Area April 2013, Box 1.3 - External Rebalancing in the Euro Area October 2013, Box 1.3 - The Yin and Yang of Capital Flow Management: Balancing Capital Inflows with Capital Outflows October 2013, Chapter 4 - Simulating Vulnerability to International Capital Market Conditions October 2013, Box 4.1 - The Trade Implications of the U.S. Shale Gas Boom October 2014, Box 1.SF.1 - Are Global Imbalances at a Turning Point? October 2014, Chapter 4 - The Potential Productivity Gains from Further Trade and Foreign Direct Investment Liberalization April 2016, Box 3.3 - Global Trade: What’s behind the Slowdown? October 2016, Chapter 2 - The Evolution of Emerging Market and Developing Economies’ Trade Integration with China’s Final Demand April 2017, Box 2.3 - Shifts in the Global Allocation of Capital: Implications for Emerging Market and Developing Economies April 2017, Box 2.4 - Macroeconomic Adjustment in Emerging Market Commodity Exporters October 2017, Box 1.4 - Remittances and Consumption Smoothing October 2017, Box 1.5 - The Rise of Services Trade April 2018, Box 3.2 - Role of Foreign Aid in Improving Productivity in Low-Income Developing Countries April 2018, Box 4.3 - Global Trade Tensions October 2018, Scenario Box - The Price of Capital Goods: A Driver of Investment under Threat? April 2019, Chapter 3 - Evidence from Big Data: Capital Goods Prices across Countries April 2019, Box 3.2 - Capital Goods Tariffs and Investment: Firm-Level Evidence from Colombia April 2019, Box 3.4 - The Drivers of Bilateral Trade and the Spillovers from Tariffs April 2019, Chapter 4 - Gross versus Value-Added Trade April 2019, Box 4.1 - Bilateral and Aggregate Trade Balances April 2019, Box 4.2 - Understanding Trade Deficit Adjustments: Does Bilateral Trade Play a Special Role? April 2019, Box 4.3 - The Global Macro and Micro Effects of a U.S.–China Trade Dispute: Insights from Three Models April 2019, Box 4.4 - A No-Deal Brexit April 2019, Scenario Box - Implications of Advanced Economies Reshoring Some Production October 2019, Scenario Box 1.1 - Trade Tensions: Updated Scenario October 2019, Scenario Box 1.2 - The Decline in World Foreign Direct Investment in 2018 October 2019, Box 1.2 - Global Trade and Value Chains in the Pandemic April 2022, Chapter 4 - Effects of Global Supply Disruptions during the Pandemic April 2022, Box 4.1 - The Impact of Lockdowns on Trade: Evidence from Shipping Data April 2022, Box 4.2 - Firm-Level Trade Adjustment to the COVID-19 Pandemic in France April 2022, Box 4.3 ### Regional, Country-Specific, Climate, and Special Topics (selected entries) - East-West Linkages and Spillovers in Europe April 2012, Box 2.1 - Did the Plaza Accord Cause Japan’s Lost Decades? April 2011, Box 1.4 - Where Is China’s External Surplus Headed? April 2012, Box 1.3 - The U.S. Home Owners’ Loan Corporation April 2012, Box 3.1 - Household Debt Restructuring in Iceland April 2012, Box 3.2 - Abenomics: Risks after Early Success? October 2013, Box 1.4 - Is China’s Spending Pattern Shifting (away from Commodities)? April 2014, Box 1.2 - Public Investment in Japan during the Lost Decade October 2014, Box 3.1 - Japanese Exports: What’s the Holdup? October 2015, Box 3.3 - The Japanese Experience with Deflation October 2016, Box 3.2 - Permanently Displaced? Labor Force Participation in U.S. States and Metropolitan Areas April 2018, Box 2.2 - Immigration and Wages in Germany April 2020, Box 4.2 - The Impact of Migration from Venezuela on Latin America and the Caribbean April 2020, Box 4.3 - The Effects of Weather Shocks on Economic Activity: How Can Low-Income Countries Cope? October 2017, Chapter 3 - The Growth Impact of Tropical Cyclones October 2017, Box 3.1 - The Role of Policies in Coping with Weather Shocks: A Model-Based Analysis October 2017, Box 3.2 - Strategies for Coping with Weather Shocks and Climate Change: Selected Case Studies October 2017, Box 3.3 - Coping with Weather Shocks: The Role of Financial Markets October 2017, Box 3.4 - Historical Climate, Economic Development, and the World Income Distribution October 2017, Box 3.5 - Mitigating Climate Change October 2017, Box 3.6 - The Price of Manufactured Low-Carbon Energy Technologies April 2019, Box 3.1 - What’s Happening with Global Carbon Emissions? October 2019, Box 1.SF.1 - Mitigating Climate Change—Growth and Distribution-Friendly Strategies October 2020, Chapter 3 - Glossary October 2020, Box 3.1 - Zooming in on the Electricity Sector: The First Step toward Decarbonization October 2020, Box 3.2 - Who Suffers Most from Climate Change? The Case of Natural Disasters April 2021, Box 1.2 - Jobs and the Green Economy October 2021, Box 1.2 - Clean Tech and the Role of Basic Scientific Research October 2021, Box 3.2 - Commodity Market Developments and Forecasts October 2021, Chapter 1 Special Feature - A Greener Labor Market: Employment, Policies, and Economic Transformation April 2022, Chapter 3 - The Geography of Green- and Pollution-Intensive Jobs: Evidence from the United States April 2022, Box 3.1 - A Greener Post-COVID Job Market? April 2022, Box 3.2 - Getting By with a Little Help from a Boom: Do Commodity Windfalls Speed Up Human Development? October 2015, Box 2.3 - Breaking the Deadlock: Identifying the Political Economy Drivers of Structural Reforms April 2016, Box 3.1 - Can Reform Waves Turn the Tide? Some Case Studies Using the Synthetic Control Method April 2016, Box 3.4 - A Global Rush for Land October 2016, Box 1.SF.1 - Conflict, Growth, and Migration April 2017, Box 1.1 - Tackling Measurement Challenges of Irish Economic Activity April 2017, Box 1.2 - Within-Country Trends in Income per Capita: The Cases of Brazil, Russia, India, China, and South Africa April 2017, Box 2.1 - Technological Progress and Labor Shares: A Historical Overview April 2017, Box 3.1 - The Elasticity of Substitution between Capital and Labor: Concept and Estimation April 2017, Box 3.2 - Routine Tasks, Automation, and Economic Dislocation around the World April 2017, Box 3.3 - Adjustments to the Labor Share of Income April 2017, Box 3.4 - Smartphones and Global Trade April 2018, Box 1.1 - Has Mismeasurement of the Digital Economy Affected Productivity Statistics? April 2018, Box 1.4 - The Changing Service Content of Manufactures April 2018, Box 3.1 - Patent Data and Concepts April 2018, Box 4.1 - International Technology Sourcing and Knowledge Spillovers April 2018, Box 4.2 - Relationship between Competition, Concentration, and Innovation April 2018, Box 4.4 - Increasing Market Power October 2018, Box 1.1 - Sharp GDP Declines: Some Stylized Facts October 2018, Box 1.5 - Predicting Recessions and Slowdowns: A Daunting Task October 2018, Box 1.6 - The Rise of Corporate Market Power and Its Macroeconomic Effects April 2019, Chapter 2 - The Comovement between Industry Concentration and Corporate Saving April 2019, Box 2.1 - Effects of Mergers and Acquisitions on Market Power April 2019, Box 2.2 - The Global Automobile Industry: Recent Developments, and Implications for the Global Outlook October 2019, Box 1.1 - Measuring Subnational Regional Economic Activity and Welfare October 2019, Box 2.1 - The Persistent Effects of Local Shocks: The Case of Automotive Manufacturing Plant Closures October 2019, Box 2.3 - The Political Effects of Structural Reforms October 2019, Box 3.1 - The Impact of Crises on Structural Reforms October 2019, Box 3.2 - The Persistence and Drivers of the Common Component of Interest Rate–Growth Differentials in Advanced Economies April 2020, Box 2.2 - Social Unrest during COVID-19 October 2020, Box 1.4 - The Role of Information Technology Adoption during the Pandemic: Evidence from the United States October 2020, Box 2.2 - Education Losses during the Pandemic and the Role of Infrastructure April 2021, Box 2.2 - Food Insecurity and the Business Cycle April 2021, Chapter 1 *International Monetary Fund | April 2022 — WORLD ECONOMIC OUTLOOK: WaR SETS BaCK ThE GLOBaL RECOvERy — Appendix 1.1* ### Annex 1.SF.1 ### Annex 1.SF.1 ### Executive Board assessment of the global outlook - Executive Directors broadly agreed with staff’s assessment of the global economic outlook, risks, and policy priorities. - The war in Ukraine has led to a costly humanitarian crisis with economic and financial repercussions and spillovers—through commodity markets, confidence, trade, and financial channels—that have prompted a downgrade to the global economic outlook and increased inflationary pressures at a time when the global economy has not yet recovered from the COVID-19 crisis. - The sharp increase in uncertainty could make economic projections especially volatile. - Emerging risks that further tilt the balance to the downside include: - an intensification of the war, - further sanctions on Russia, - fragmentation in financial and trade markets, - a sharper-than-expected slowdown in China due to COVID-19 outbreaks, - continued risk of new, more virulent COVID-19 strains. - Directors noted heightened likelihood of food shortages and wider social tensions given higher food and energy prices. ### Policy priorities and differentiation across countries - Policy priorities differ across countries, reflecting local circumstances and differences in trade and financial exposures. - The layering of strains—slowing economic growth, persistent and rising inflation pressures, increased food and energy insecurity, continued supply chain disruptions, and COVID-19 flare-ups—complicates national policy choices, particularly where policy space shrank after the COVID-19 pandemic response. - At the global level, multilateral cooperation and dialogue are essential to: - defuse geopolitical tensions and avoid fragmentation, - end the pandemic, - respond to interconnected challenges, particularly climate change. ### Fiscal policy guidance - Directors noted fiscal policy is operating in a highly uncertain environment of elevated inflation, slowdown in growth, high debt, and tightening borrowing conditions. - Guidance: - For countries with tighter budget constraints, fiscal support should focus on priority areas and target the most vulnerable. - In countries where economic growth is strong and inflation is elevated, fiscal policy should phase out pandemic-related exceptional support, moving toward normalization. - Many emerging markets and low-income countries face difficult choices given limited fiscal space and higher demands from energy disruptions and food security needs. - A sound and credible medium-term fiscal framework, including spending prioritization and measures to raise revenues, can help manage urgent needs while ensuring debt sustainability. - Short-term measures to mitigate high food and energy prices should not undermine investments in health, food, and cleaner energy sources. ### Monetary policy, financial-stability measures, and capital flows - Directors concurred monetary authorities should act decisively to prevent inflationary pressures from becoming entrenched and avoid a de-anchoring of inflation expectations. - Central banks in many advanced and emerging market economies need to continue tightening the monetary policy stance to bring inflation credibly back to target and preserve policy credibility. - Transparent, data-driven, and clearly communicated monetary policy is critical to avoid financial instability. - Should global financial conditions tighten suddenly, emerging and developing economies could face capital outflows and should be ready to use all available tools, including foreign exchange interventions and capital flow management measures, when needed and in line with the Fund’s Institutional View on the Liberalization and Management of Capital Flows and without substituting for exchange rate flexibility and warranted macroeconomic adjustments. - Directors recommended tightening selected macroprudential tools to tackle pockets of elevated vulnerabilities while avoiding procyclicality and a disorderly tightening of financial conditions. ### Financial system resilience and new risks - The war in Ukraine will test the resiliency of the financial system; while no systemic event has materialized so far, financial stability risks have risen and global financial conditions have tightened significantly. - Areas of concern: - sovereign-bank nexus vulnerabilities in some emerging markets, - risks of fragmentation of capital markets and payment systems, - creation of blocks of central bank digital currencies, - a more widespread use of crypto assets, - more frequent cyberattacks. - Policy recommendations: - Monitor sovereign-bank linkages closely. - Implement comprehensive global standards and a multifaceted strategy for crypto assets. - Strengthen oversight of fintech firms and decentralized finance platforms. ### Multilateral cooperation, debt, climate, and pandemic response - Strong multilateral cooperation is essential to: - respond to humanitarian crises, - safeguard global liquidity, - manage debt distress, - ensure food security, - mitigate and adapt to climate change, - end the pandemic. - Directors called on the Fund and other multilateral institutions to stand ready to provide financial support given higher volatility, increased spending from the pandemic and humanitarian crises, and tightening financial conditions. - Where liquidity support is insufficient, prompt and orderly debt restructuring—particularly by improving the G20 Common Framework—will be necessary. - Directors emphasized urgency in advancing the green economic transformation and implementing the COP26 roadmap, while addressing energy security concerns. - International cooperation in corporate taxation and carbon pricing could help mobilize resources to promote necessary investments and reduce inequality. - Prompt, equitable, and wider access to vaccinations, testing, and treatments remains a key priority. - Measures to address pandemic scars are crucial to boost long-term prospects and create a more resilient and inclusive global economy. - Above all, Directors called for a peaceful resolution of the war in Ukraine, an end to the resulting humanitarian crisis, and a return to the rules-based international order. *The following remarks were made by the Chair at the conclusion of the Executive Board’s discussion of the Fiscal Monitor, Global Financial Stability Report, and World Economic Outlook on April 11, 2022.* --- _Source: https://www.imf.org/-/media/files/publications/weo/2022/april/english/text.pdf_