Economic activity continued to expand
in the first half of 2018, albeit at a slower-than-expected pace, mainly in
advanced Europe. Domestic demand, supported by stronger employment and wages,
remains the main engine of growth. However, the external environment has become
less supportive and is expected to soften further in 2019 owing to slowing
global demand, trade tensions, and higher energy prices. Tighter financial
conditions in vulnerable emerging market economies and maturing business cycles
are also weighing on activity. Accordingly, growth is projected to moderate
from 2.8 percent in 2017 to 2.3 percent in 2018 and 1.9 percent in 2019. That
said, it is expected to remain above potential in most countries in the region.
Mr. Gee Hee Hong, Zsoka Koczan, Weicheng Lian, and Mr. Malhar S Nabar
Nominal wage growth in most advanced economies remains markedly lower than it was before the Great Recession of 2008–09. This paper finds that the bulk of the wage slowdown is accounted for by labor market slack, inflation expectations, and trend productivity growth. In particular, there appears to be greater slack than meets the eye. Involuntary part-time employment appears to have weakened wage growth even in economies where headline unemployment rates are now at, or below, their averages in the years leading up to the recession.
This paper uses the Global VAR (GVAR) model proposed by Pesaran et al. (2004) to study cross-country linkages among euro area countries, other advanced European countries (including the Nordics, the UK, etc.), and the Central, Eastern and Southeastern European (CESEE) countries. An innovative feature of the paper is the use of combined trade and financial weights (based on BIS reporting banks’ external position data) to capture the very close trade and financial ties of the CESEE countries with the advanced Europe countries. The results show strong co-movements in output growth and interest rates but weaker linkages bewteen inflation and real credit growth within Europe. While the euro area is the dominant source of economic influences, there are also interesting subregional linkages, e.g. between the Nordic and the Baltic countries, and a small but notable impact of CESEE countries on the rest of the Europe.
This 2009 Article IV Consultation highlights that following a period of rapid growth, economic activity in the Slovak Republic tumbled in the first half of 2009 as a result of the global crisis. Slovakia’s banks have so far withstood the global crisis relatively well. Executive Directors have encouraged the authorities to formulate and announce a credible medium-term fiscal consolidation strategy, aimed at bringing down the general government deficit to within the Maastricht norm in a timely manner. Directors have also emphasized that external competitiveness will require sustained structural reforms and wage discipline.
Mr. Luca A Ricci, Mr. Jonathan David Ostry, Mr. Jaewoo Lee, Mr. Alessandro Prati, and Mr. Gian M Milesi-Ferretti
The rapid increase in international trade and financial integration over the past decade and the growing importance of emerging markets in world trade and GDP have inspired the IMF to place stronger emphasis on multilateral surveillance, macro-financial linkages, and the implications of globalization. The IMF's Consultative Group on Exchange Rate Issues (CGER)--formed in the mid-1990s to provide exchange rate assessments for a number of advanced economies from a multilateral perspective--has therefore broadened its mandate to cover both key advanced economies and major emerging market economies. This Occasional Paper summarizes the methodologies that underpin the expanded analysis.
This paper assesses the role of international commodity prices, cyclical fluctuations, and convergence in driving inflation in 18 European emerging economies. Country specific VARs and panel estimates indicate that international commodity price shocks have a significant impact on domestic inflation, but the inflation response is asymmetric for positive and negative shocks. Cyclical fluctuations explain a relative small share of inflation variability, and the inflation response is asymmetric during upturns and downturns. Price convergence is estimated to add nearly 3 percentage points to headline inflation, for the average country whose price level is about 50 percent relative to the EU-15 average.