International Monetary Fund. Asia and Pacific Dept
The coronavirus disease (COVID-19) pandemic is still unfolding around the globe. In Asia, as elsewhere, the virus has ebbed in some countries but surged in others. The global economy is beginning to recover after a sharp contraction in the second quarter of 2020, as nationwide lockdowns are lifted and replaced with more targeted containment measures.
Mr. Pragyan Deb, Davide Furceri, Mr. Jonathan David Ostry, and Nour Tawk
Containment measures are crucial to halt the spread of the 2019 COVID-19 pandemic but entail large short-term economic costs. This paper tries to quantify these effects using daily global data on real-time containment measures and indicators of economic activity such as Nitrogen Dioxide (NO2) emissions, flights, energy consumption, maritime trade, and mobility indices. Results suggest that containment measures have had, on average, a very large impact on economic activity—equivalent to a loss of about 15 percent in industrial production over a 30-day period following their implementation. Using novel data on fiscal and monetary policy measures used in response to the crisis, we find that these policy measures were effective in mitigating some of these economic costs. We also find that while workplace closures and stay-at-home orders are more effective in curbing infections, they are associated with the largest economic costs. Finally, while easing of containment measures has led to a pickup in economic activity, the effect has been lower (in absolute value) than that from the tightening of measures.
China’s growth potential has become a hotly debated topic as the economy has reached an income level susceptible to the “middle-income trap” and financial vulnerabilities are mounting after years of rapid credit expansion. However, the existing literature has largely focused on macro level aggregates, which are ill suited to understanding China’s significant structural transformation and its impact on economic growth. To fill the gap, this paper takes a deep dive into China’s convergence progress in 38 industrial sectors and 11 services sectors, examines past sectoral transitions, and predicts future shifts. We find that China’s productivity convergence remains at an early stage, with the industrial sector more advanced than services. Large variations exist among subsectors, with high-tech industrial sectors, in particular the ICT sector, lagging low-tech sectors. Going forward, ample room remains for further convergence, but the shrinking distance to the frontier, the structural shift from industry to services, and demographic changes will put sustained downward pressure on growth, which could slow to 5 percent by 2025 and 4 percent by 2030. Digitalization, SOE reform, and services sector opening up could be three major forces boosting future growth, while the risks of a financial crisis and a reversal in global integration in trade and technology could slow the pace of convergence.
This paper investigates the effects of unconventional monetary policy in a small open economy.
Using recently proposed shadow interest rates to capture unconventional monetary policy at the zero
lower bound (ZLB) we estimate a Bayesian structural vector autoregressive model for Canada - a
useful case where foreign shocks can be proxied by U.S. variables alone. We find that, during the
ZLB period, Canadian unconventional monetary policy increased output (measured by industrial
production) by 0.013 percent per month on average while US unconventional monetary policy raised
Canadian output by 0.127 percent per month on average. Our results demonstrate the effectiveness of
domestic unconventional monetary policy and the strong positive spillover effects that foreign
unconventional monetary policies can have in a small open economy.
Motivated by the literature on the capital asset pricing model, we decompose the uncertainty
of a typical forecaster into common and idiosyncratic uncertainty. Using individual survey
data from the Consensus Forecasts over the period of 1989-2014, we develop monthly
measures of macroeconomic uncertainty covering 45 countries and construct a measure of
global uncertainty as the weighted average of country-specific uncertainties. Our measure
captures perceived uncertainty of market participants and derives from two components that
are shown to exhibit strikingly different behavior. Common uncertainty shocks produce the
large and persistent negative response in real economic activity, whereas the contributions of
idiosyncratic uncertainty shocks are negligible.
External headwinds, together with domestic vulnerabilities, have loomed over the prospects of
emerging markets in recent years. We propose an empirical toolbox to quantify the impact of external
macro-financial shocks on domestic economies in parsimonious way. Our model is a Bayesian VAR
consisting of two blocks representing home and foreign factors, which is particularly useful for small
open economies. By exploiting the mixed-frequency nature of the model, we show how the toolbox
can be used for “nowcasting” the output growth. The conditional forecast results illustrate that regular
updates of external information, as well as domestic leading indicators, would significantly enhance
the accuracy of forecasts. Moreover, the analysis of variance decompositions shows that external
shocks are important drivers of the domestic business cycle.
This Selected Issues paper provides a brief overview of Slovakia’s transformation over this period. The note is divided into three parts. The first section offers some historical background on the run-up to EU accession. The paper also discusses the economic impact of EU accession and highlights the main challenges that Slovakia still faces. Although the first decade in the EU has seen successes, Slovakia faces important challenges to consolidate its position and close the gap with more advanced economies. A first long-term challenge is to shift from efficiency to an innovation-driven growth model. Actions to improve the business environment and domestic infrastructure could lay the foundations for stronger and more job-rich growth. In Slovakia, the high unemployment rate reflects the faulty working of three key mechanisms: the transition from school to work; the transition from unemployment back to employment; and mobility across regions. In order to address this situation, wide-ranging policies need to be implemented. The quality of education and training needs to be improved in order to better correspond to labor market needs. The ongoing reform of vocational education and training is a step in the right direction.