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How Falling Home Prices Could Strain Financial Markets as Interest Rates Rise
May 31, 2023--Countries with elevated housing prices and high household debt issued at floating rates are particularly vulnerable to monetary policy tightening
The pandemic propelled housing prices to record levels in many countries, especially advanced economies, amid low interest rates and tight property supplies. Then prices started falling late last year in many countries, while others saw the pace of gains slow.
The deterioration was more pronounced in advanced economies with signs of stretched valuations before and during the pandemic. With central banks raising interest rates to contain inflation, the average mortgage rate reached 6.8 percent in advanced economies in late 2022, more than doubling from the start of last year. Now, if borrowing costs keep rising or remain elevated for longer, demand and prices are likely to weaken further.
World Bank-Record High Revenues From Global Carbon Pricing Near $100 Billion
May 23, 2023--Direct carbon pricing instruments, key policy to decarbonization, now cover almost a quarter of global greenhouse gas emissions, according to a new World Bank report
Revenues from carbon taxes and Emissions Trading Systems (ETS) have reached a record high, about $95 billion, finds the World Bank's annual "State and Trends of Carbon Pricing" report released today.
This is despite the challenging context for governments facing high inflation, fiscal pressures, and energy crises.
"Carbon pricing can be an effective way to incorporate the costs of climate change into economic decision making, thereby incentivizing climate action." said Jennifer Sara, Global Director for Climate Change at the World Bank. "The good news from this report is that even in difficult economic times, governments are prioritizing direct carbon pricing policies to reduce emissions. But to really drive change at the scale needed, we will need to see big advances both in terms of coverage and price."
view the World Bank State and Trends of Carbon Pricing 2023
OECD-Of bytes and trade: Quantifying the impact of digitalisation on trade
May 23, 2023--This paper provides an overview of the evolving nature of digital trade and digital trade policies. It shows that digital trade has been growing faster than "non-digital" trade. By 2018, 24% of global trade (USD 5.1 trillion) could be considered digital trade. In parallel, countries have embraced digital trade provisions in trade agreements and new digital economy agreements have emerged.
The empirical analysis shows that growing digital connectivity delivers a double dividend, increasing both domestic and international trade. It also shows that digital trade chapters have the potential to double the effect of trade agreements, while reductions in domestic barriers affecting digital trade have a strong export-enhancing effect, particularly in digitally-deliverable services. Overall, the results suggest that digital connectivity and digital trade policies play a significant and growing role in reducing trade costs and increasing trade across countries at all levels of development. The paper calls for wider participation and ambition in discussions at the WTO.
IMF Working Paper-Spillovers to Emerging Markets from US Economic News and Monetary Policy
May 19, 2023--Summary:
When the U.S. economy sneezes, do emerging markets catch a cold? We show that economic news, and not just monetary policy, in the United States affects financial conditions in emerging markets. News about U.S. employment has the strongest effects, followed by news about economic activity and about vaccines during the COVID-19 pandemic.
News about inflation has instead limited effects on average. A key channel of international transmission of U.S. economic news appears to be the risk perceptions or risk aversion of international investors. We also show that some of the transmission of U.S. economic news occurs independently of the U.S. monetary policy reaction. Finally, we expand on evidence that financial conditions in the U.S. and emerging markets respond differently to U.S. monetary policy surprises, depending on the reaction of US stock prices.
World Bank-Cities Key to Solving Climate Crisis
May 18, 2023--Innovation and investment in lower-income cities essential to achieving global net-zero emissions by 2050
Cities-home to more than half of the world's population and responsible for about 70% of global greenhouse gas emissions- are at the heart of the climate challenge.
A new World Bank report, "Thriving: Making Cities Green, Resilient, and Inclusive in a Changing Climate," investigates the crucial role cities play in both stopping climate change and protecting people from its impacts.
Drawing on data from more than 10,000 cities across the world, this new analysis casts a spotlight on cities' pivotal role in creating wealthier, healthier, and safer lives for people, and reversing the negative effects of climate change on food, water, biodiversity, and more. It also examines how cities contribute to climate change through greenhouse gas (GHG) emissions and how urban households will be impacted by the increasing frequency and intensity of weather events such as droughts, floods and cyclones.
Emerging market debt hits record high of $100tn
May 17, 2023--Emerging market debt has hit a record high of over $100tn, a third higher than pre-pandemic levels, as concerns mount about financial leverage in a world of higher interest rates.
Global debt rose by $8.3tn in the first three months of the year to $306.3tn, the highest level since the first quarter of last year and second-highest quarterly reading ever, according to the Institute of International Finance, in its quarterly global debt monitor.
Global debt is now $45tn higher than its pre-pandemic level and is "expected to continue increasing rapidly," said the IIF, owing to ageing populations, rising healthcare costs, higher national spending on defence and substantial climate finance gaps.
IMF Working Paper-How We Missed the Inflation Surge: An Anatomy of Post-2020 Inflation Forecast Errors
May 12, 2023--Summary:
This paper analyzes the inflation forecast errors over the period 2021Q1-2022Q3 using forecasts of core and headline inflation from the International Monetary Fund World Economic Outlook for a large group of advanced and emerging market economies.
The findings reveal evidence of forecast bias that worsened initially then subsided towards the end of the sample. There is also evidence of forecast oversmoothing indicating rigidity in forecast revision in the face of incoming information. Focusing on core inflation forecast errors in 2021, four factors provide a potential ex post explanation: a stronger-than-anticipated demand recovery; demand-induced pressures on supply chains; the demand shift from services to goods at the onset of the pandemic; and labor market tightness. Ex ante, we find that the size of the COVID-19 fiscal stimulus packages announced by different governments in 2020 correlates positively with core inflation forecast errors in advanced economies. This result hints at potential forecast inefficiency, but we caution that it hinges on the outcomes of a few, albeit large, economies.
Europe, And the World, Should Use Green Subsidies Cooperatively
May 11, 2023--A coordinated approach, including toward subsidies, is needed to tackle climate change successfully
Governments across the world are using subsidies to support the green transition.
Green subsidies can be helpful where there are market failures. When carbon emissions are underpriced in relation to their true cost to society or preferable policy solutions (such as carbon pricing) are not in place, subsidies can steer businesses and consumers towards clean technologies that are less polluting while also lowering the costs of those technologies.
But subsidies should be carefully targeted to correct market failures and they should not discriminate between firms, be they foreign or domestic, old or new, large or small. They must be consistent with World Trade Organization rules, too.
Electric vehicle sales leapt 55% in 2022-here's where that growth was strongest
May 11, 2023--Global sales of electric vehicles (EVs) increased by 55% in 2022 from the year before, according to data from the EV Volumes sales database.
China remains the world's largest EV market, with 59% of global sales.
World Economic Forum estimates annual EV sales need to increase 18-fold by 2030 to meet global emissions targets.
Many people around the world will have noticed an increasing number of electric vehicles (EVs) on the roads in the towns and cities where they live. The latest data on global sales of EVs confirms a growing appetite for green motoring.
EV sales rose by 55% in 2022, reaching a total of 10.5 million, according to the EV Volumes sales database. These figures include both battery electric vehicles (BEVs) and plug-in hybrids (PHEVs).
WEF-Economists Divided on Global Economic Recovery, Expect Rebound in Asia-Chief Economists Outlook: May 2023
May 1, 2023---Growth outlook has strengthened in all regions but chief economists divided on likelihood of a global recession in 2023
Experts do not see recent bank failures as signs of systemic vulnerability, although further turbulence may be ahead
Experts concerned about trade-off between managing inflation and maintaining financial stability, with 76% anticipating central banks to struggle to bring down inflation
Industrial policy is increasingly widespread and could further restructure global supply chains
The continuing uncertainty of the global economic outlook is reflected in the striking spread of responses to the latest Chief Economists Outlook, released today. In a survey featured in the report, experts are evenly divided on the prospects for the global economy, with equal shares of 45% saying that a global recession this year is likely or unlikely.
Chief economists expect both growth and inflation dynamics to vary widely across regions, while on the economic policy front, 72% predict proactive industrial policy to become an increasingly widespread phenomenon over the next three years. Although a majority do not see recent financial-sector disruption as a sign of systemic vulnerability, further bank failures and turbulence are considered likely this year.
