Global ETF News For The Past Year
How Inflation Radically Changes Economic Ideas
March 7, 2024-Inflation teaches us that supply, not demand, constrains our economies, and government borrowing is limited
The unexpected resurgence of inflation is a slap in the face, telling us that the consensus ideas of economic policy are wrong and need to change. Fortunately the "new" ideas we need are well tested and sitting on the shelf.
Inflation comes when aggregate demand exceeds aggregate supply.
The source of demand is not hard to find: in response to the pandemic's dislocations, the US government sent about $5 trillion in checks to people and businesses, $3 trillion of it newly printed money, with no plans for repayment. Other countries enacted similar fiscal expansions and reaped inflation in proportion. Supply is more contentious. Supply did shrink during the pandemic. But inflation spiked after the pandemic was largely over, and many "supply shock" industries were producing as much as before but could not keep up with demand.
Red Sea Attacks Disrupt Global Trade
March 7, 2024-In the first two months of 2024, Suez Canal trade dropped by 50 percent from a year earlier while trade through the Panama Canal fell by 32 percent, disrupting supply chains and distorting key macroeconomic indicators
In the past few months, global trade has been held back by disruptions at two critical shipping routes.
Attacks on vessels in the Red Sea area reduced traffic through the Suez Canal, the shortest maritime route between Asia and Europe, through which about 15 percent of global maritime trade volume normally passes.
Instead, several shipping companies diverted their ships around the Cape of Good Hope. This increased delivery times by 10 days or more on average, hurting companies with limited inventories.
On the other side of the world, a severe drought at the Panama Canal has forced authorities to impose restrictions that have substantially reduced daily ship crossings since last October, slowing down maritime trade through another key chokepoint that usually accounts for about 5 percent of global maritime trade.
Global Digitalization in 10 Charts
March 4, 2024---Digital technologies are transforming communications, business, health, education, finance, and more.
Yet there remains a multi-dimensional digital divide across countries, businesses, and individuals, which is compounding the development divide. Hospitals, schools, governments, and businesses cannot operate effectively and efficiently without digital tools.
The digital divide is holding back growth and limiting opportunities for the billions who are still unconnected, and for those who are connected by not harnessing the full potential of these technologies.
The new World Bank Group "Digital Progress and Trends Report 2023" tracks global progress of digitalization and countries' production and use of digital technologies, from digital jobs, digital services exports, and app development to internet use, affordability, quality, and more. The report highlights two clear trends that are shaping our digital future: The importance of digital public infrastructure and the transformative potential of artificial intelligence (AI).
IMF Working paper-The Consequences of Falling Behind the Curve: Inflation Shocks and Policy Delays Under Rational and Behavioral Expectations
March 1, 2024-Summary:
Central banks in major industrialized economies were slow to react to the surge in inflation that began in early 2021. The proximate causes of this surge were the supply chain disruptions associated with the easing of COVID restrictions, fiscal policies designed to cushion the economic impact of COVID, and the impact on commodity prices and supply chains of the war in Ukraine. We investigate the consequences of policy delay in responding to inflation shocks.
First, using a simple three-period model, we show how policy delay worsens inflation outcomes, but can mitigate or even reverse the output decline that occurs when policy responds without delay. Then, using a calibrated new Keynesian framework and two measures of loss that incorporate a "balanced approach" to weigh inflation and the output gap, we find that loss is monotonically increasing in the length of the delay. Loss is reduced if policy, when it does react, is more aggressive. To investigate whether these results are sensitive to the assumption of rational expectations, we consider cognitive discounting as an alternative assumption about expectations. With cognitive discounting, forward guidance is less powerful and results in a reduction in the costs of delay. Under either assumption about expectations, the costs of a short delay can be eliminated by adopting a less inertial policy rule and a more aggressive response to inflation.
IMF Working Paper-Navigating the Evolving Landscape between China and Africa's Economic Engagements
February 28, 2024-Summary:
China and Africa have forged a strong economic relationship since China's accession to the WTO in 2001. This paper examines the evolution of these economic ties starting in the early 2000s, and the subsequent shift in the relationship triggered by the commodity price collapse in 2015 and by the COVID-19 pandemic.
The potential effects on the African continent of a further slowdown in Chinese growth are analyzed, highlighting the varying effects on different countries in Africa, especially those heavily dependent on their economic relationship with China. The conclusion offers a discussion of ways how African countries and China could adapt to the changing relationship.
IMF Working Paper-Determinants of Zombie Banks in Emerging Markets and Developing Economies
February 23, 2024-Summary:
While deeply undercapitalized banks have been shown to misallocate credit to weak firms, the drivers of such zombie banks are less researched, particularly across countries. To furnish empirical evidence, we compile a dataset of undercapitalized banks from emerging markets and developing economies.
We classify zombie banks as those not receiving remedial treatment by owners or regulators or, alternatively, remaining chronically undercapitalized. Using logit regressions, we find that country-specific factors are more influential for zombie status than bank characteristics, alhough some become significant when disaggreating by region. The paper's overall findings imply the need for a proper regulatory framework and an effective resolution regime to deal with zombie banks more decisively.
Crypto exchange-traded products hit bull run levels with $67B AUM
February 20, 2024--Record year-to-date crypto product inflows, slowing outflows, and positive price action have made the perfect recipe for the swelling AUM.
A record week of inflows for crypto-derived exchange-traded products (ETPs) has pushed their combined assets under management (AUM) to levels not seen since the last bull market peak in 2021, according to CoinShares.
Crypto investment products' AUM now stands at $67 billion, "marking the highest level since December 2021," CoinShares research head James Butterfill wrote in a Feb. 19 report, pinning the AUM rise on year-to-date inflows of $5.2 billion and positive crypto market price action.
Emerging Markets Navigate Global Interest Rate Volatility
January 31, 2024--Major emerging markets have shown resilience to global rate gyrations, but more challenging times could be ahead
Global interest rates in recent months have gone on a rollercoaster, especially those on longer-term government bonds. Yields on 10-year US Treasuries are climbing again after pulling back from a 16-year high of 5 percent in October. Interest rate moves in other advanced economies had been equally prodigious.
Emerging market economies, however, saw much milder rate moves. We take a longer-term perspective on this in our latest Global Financial Stability Report, demonstrating that the average sensitivity to US interest rates of 10-year sovereign yield of Latin American and Asian emerging markets declined by two-thirds and two-fifths, respectively, during the current monetary policy tightening cycle compared with the taper tantrum in 2013.
While the lower sensitivity is in part due to the divergence in monetary policy between advanced economies’ and emerging markets’ central banks over the past two years, it nonetheless challenges findings in the economic literature that show large spillovers from advanced economies’ interest rates to emerging markets. In particular, major emerging markets have been more insulated from global interest rate volatility than would be expected based on historical experience, especially in Asia.
Global Economy Approaches Soft Landing, but Risks Remain
January 30, 2024--Policy focus must shift to repairing public finances and improving medium-term growth prospects
The clouds are beginning to part. The global economy begins the final descent toward a soft landing, with inflation declining steadily and growth holding up. But the pace of expansion remains slow, and turbulence may lie ahead.
Global activity proved resilient in the second half of last year, as demand and supply factors supported major economies.
On the demand side, stronger private and government spending sustained activity, despite tight monetary conditions. On the supply side, increased labor force participation, mended supply chains and cheaper energy and commodity prices helped, despite renewed geopolitical uncertainties.
This resilience will carry over. Global growth under our baseline forecast will steady at 3.1 percent this year, a 0.2 percentage point upgrade from our October projections, before edging up to 3.2 percent next year.
Gen-AI: Artificial Intelligence and the Future of Work
January 14, 2024--Summary:
Artificial Intelligence (AI) has the potential to reshape the global economy, especially in the realm of labor markets. Advanced economies will experience the benefits and pitfalls of AI sooner than emerging market and developing economies, largely due to their employment structure focused on cognitive-intensive roles.
There are some consistent patterns concerning AI exposure, with women and college-educated individuals more exposed but also better poised to reap AI benefits, and older workers potentially less able to adapt to the new technology.
Labor income inequality may increase if the complementarity between AI and high-income workers is strong, while capital returns will increase wealth inequality. However, if productivity gains are sufficiently large, income levels could surge for most workers. In this evolving landscape, advanced economies and more developed emerging markets need to focus on upgrading regulatory frameworks and supporting labor reallocation, while safeguarding those adversely affected. Emerging market and developing economies should prioritize developing digital infrastructure and digital skills
