Climate Change

Press briefing for the World Economic Outlook Update on Monday, January 19 at 10:30 AM CET (4:30 AM ET), hosted at the Auditorium of the National Bank of Belgium in Brussels.

This paper examines how productivity dynamics and, as a consequence, potential output, are affected by energy price shocks. We do this through the lens of a model of endogenous technical change where firms adjust their investment in non-energy productivity and energy productivity in reaction to the economic environment. Higher energy prices prompt a shift in investment from enhancing non-energy (capital and labor) productivity to improving energy efficiency. The resulting gains in energy efficiency act as an important macroeconomic buffer, but cannot fully offset the adverse input price effect and the transitional cost of shifting investment away from non-energy productivity. We thus find that the change in European energy prices following the 2022 shock reduces the level of euro area potential GDP by 0.8 percent by 2027. The impact on potential growth is temporary, and will have dissipated by that time. Energy efficiency itself is projected to rise by about three percent, offering a silver lining to the crisis. We estimate that the output effect would have been around two-thirds larger had energy efficiency not cushioned the impact of the price shock.

Strong growth has continued during 2025 as large financial inflows have contributed to robust domestic demand, but the medium-term outlook remains vulnerable to a less favorable external environment in the context of regional and global uncertainty. Tajikistan’s favorable economic performance creates an opportunity to deepen reforms to address structural vulnerabilities and support domestic job creation.

We investigate the role of government credit in monetary policy transmission, using detailed credit registry data from Brazil. We find that government direct credit can effectively support small and medium-sized enterprises (SMEs) in a tight monetary policy environment, aligning with developmental objectives. But it comes at the cost of diminishing the overall effectiveness of monetary policy transmission. We also uncover complexities introduced by government-subsidized lending, where the impact of monetary policy transmission is influenced by factors such as credit market segments, lending relationships, and prevailing monetary policy conditions. These insights provide valuable guidance for policymakers on the transmission of monetary policy and the trade-offs involved in government credit programs.

This paper examines the economic effects of the global energy transition and the large uncertainty surrounding future fossil fuel demand on countries in the Asia-Pacific region. Under the paper’s baseline, coal demand is expected to shrink by 15 percent by 2035, although depending on global policy ambition and technological uptake, the decline could be as large as 45 percent. Model simulations indicate that one-third of global coal capital stock and one-quarter of Asia-Pacific coal capital stock could become stranded if the speed of the transition is underestimated. By contrast, global natural gas faces both upside and downside risks: when energy policy targets coal alone, natural gas extraction benefits, prompting an 18 percent rise in capital stock, whereas a fuel-agnostic transition would reduce gas capital stock by 16 percent. Impacts differ across countries, with high-cost coal exporters facing early losses, low-cost producers potentially gaining market share, and some gas exporters benefiting under select scenarios. At the same time, new growth opportunities will emerge for countries with strong critical mineral endowments and green energy potential.

At the request of the Government of Sierra Leone, an inter-departmental IMF team conducted a Governance and Corruption Diagnostic (GCD). The GCD provides a detailed assessment of governance and corruption vulnerabilities in key state functions of fiscal governance, financial sector oversight, anti-money laundering and combating the financing of terrorism (AML/CFT), and rule of law. Informed by political economy analysis, the diagnostic also considered the nature and severity of corruption in Sierra Leone and the effectiveness of anticorruption laws and institutions to address corruption risks. Key challenges, including institutional weaknesses, limited enforcement of the rule of law, and vulnerabilities in public procurement, have contributed to inefficiencies in the allocation of public resources and have, at times, undermined public trust in government. These practices constrain the fiscal space, limit the effectiveness of service delivery, discourage investment and limit the potential for private sector–led growth. The GCD offers actionable recommendations to strengthen accountability, transparency, and institutional capacity that are necessary for sustainable growth and restoring public trust in institutions.