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International Monetary Fund. Western Hemisphere Dept.

Abstract

The economic recovery is under way, with upward revisions to global growth as financial markets normalized faster than expected and policy stimulus took effect. The upswing in advanced economies is still muted and dependent on policy support. In contrast, many emerging markets are experiencing a more vigorous upswing amid easy financing conditions and rising commodity prices.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Klakow Akepanidtaworn, Gareth Anderson, Dalmacio R Benicio, and Joyce C. Wong prepared this chapter, and Oluremi Akin-Olugbade provided research assistance.

International Monetary Fund. Western Hemisphere Dept.

Abstract

The Latin America and Caribbean region is recovering from the crisis somewhat faster than previously anticipated. However, the speed of recovery and the associated policy challenges differ markedly across countries. For some of the larger commodity exporters, a favorable external environment and a strong rebound in domestic demand are boosting growth. Challenges ahead include managing the upswing of the economic cycle and adjusting to easy external financial conditions. In contrast, for some of the smaller commodity importers, challenges will likely be shaped by continued sluggish activity, particularly in countries more reliant on tourism and constrained by high debt levels.

International Monetary Fund. Western Hemisphere Dept.

Abstract

Although easy external financial conditions are overall good news for emerging markets, they come with risks that need to be managed. Past episodes of easy conditions often have led to sustained accelerations of domestic demand and significant real appreciation in emerging market countries, sometimes also accompanied by fast credit growth. Importantly, responses to easy conditions have varied in degree, reflecting differences in policies as well as structural features. With interest rates of major advanced economies and global risk aversion both likely to remain low for a sustained period, the challenge for policymakers is to conduct macroeconomic and prudential policies that make the most out of the enhanced financing possibilities while reducing the likelihood of boom-bust cycles. Policies on many fronts will be relevant, with exchange rate flexibility, fiscal policy, and macroeconomic prudential regulation being among the most important in insulating against unwanted demand and credit booms.

International Monetary Fund. Western Hemisphere Dept.

Abstract

The world economy continues to be buffeted by the burgeoning downdraft of the financial crisis and volatile commodity prices. As such, the outlook points to a major downturn for the global economy, with growth falling to its slowest pace since the 2001–02 recession. Levels of uncertainty and volatility are very high, presenting policymakers with a challenging environment to navigate.

International Monetary Fund. Western Hemisphere Dept.

Abstract

The regional outlook is being increasingly clouded by the deepening global financial turmoil. Growth is expected to slow markedly as the global slowdown and tightening financial conditions take hold, while external current accounts are set to weaken. Downside risks to growth have also increased, given the uncertain outlook for world commodity prices and the possibility of further spillovers from the strains to global financial stability. Flexible exchange rates should ease the adjustment for some. Policymakers face a delicate balance in mitigating the expected slowdown while maintaining orderly funding conditions, and seeking to anchor stability over the medium term.

International Monetary Fund. Western Hemisphere Dept.

Abstract

The recent inflationary episode in Latin America and the Caribbean has been the first real test of the region’s commitment to low inflation, especially for the countries with formal inflation-targeting (IT) frameworks. Inflation in the region—which rose to over 8 percent in August 2008—is expected to remain high through end-2008, before beginning to decline gradually in 2009. All other emerging markets have also experienced similar price pressures, with consumer prices rising by over 14 percent a year in the Middle East and by about 8 percent a year in emerging Asia and Europe. Within the region, inflation pressures have been most acute in countries with less flexible exchange rate regimes (including most countries in Central America, Bolivia, Ecuador, and, notably Venezuela, with inflation surpassing 30 percent). In contrast, the IT countries have the lowest inflation in the region, on average. Yet even in these countries headline inflation picked up on average by over 2 percentage points between August 2007 and August 2008, and exceeded the target range in most of the IT countries, often by a wide margin, as of August 2008.