Weekend Read: Georgieva on Europe's Cohesion | Asia's Economic Recovery | Mineral Wealth in Sub-Saharan Africa | Latin America's Changing Demographic

In today's edition, we highlight:

• MD Kristalina Georgieva : the world needs a strong, cohesive Europe
• Asia's regional economy strengthens
• Harnessing sub-Saharan Africa's mineral wealth
• Latin America's changing demographics
• Suresh Naidu on Labor Markets, our latest podcast on the World Economic Outlook, Chart of the Week, and much more

EUROPEAN UNION

Georgieva Calls for Strengthening and Cohesion

During a period of tensions threatening the rules-based world order, the world needs a strong and unified Europe now more than ever, said IMF Managing Director Kristalina Georgieva in a speech at the Annual EU Budget Conference in Brussels.

Reflecting on the current global environment, Georgieva noted that she could see a “hint of sunshine” with inflation down and deep recessions in Europe averted, but she also warned of “dark clouds” in the face of weak trend rates of growth and heavy debt burdens.

“The policy message is clear,” said Georgieva. “Global economic policymaking needs a calm voice, a cool mind, and a steady temperament……the world needs a strong and cohesive Europe. To defend the rules-based order. To show the world how much is gained by working together. To lead by example.”

It will be particularly critical for the EU to coalesce around the areas of climate and energy security in the coming years, Georgieva said. “The cost of abating one ton of CO2 emissions varies widely across countries and sectors…..It becomes vital to do what you can, wherever you can, as cost effectively as possible. This involves figuring out where you get the biggest bang for your buck in terms of reducing emissions,” she noted. “Once again, the EU needs to come together – with a focus on helping to surge public and private investments to the most cost-effective and impactful areas.”

ASIA OUTLOOK

Economic Outlook Strengthens, But Risks Remain

Asia’s economy is likely to slow less than previously projected as inflation pressures lessen, said the IMF’s Krishna Srinivasan in a recent blog. The regional growth forecast for this year has been raised to 4.5 percent, up 0.3 percentage point from six months prior. The increase is driven by policy stimulus in China and public investment in India, the world’s fastest-growing major economy. The growth forecast for 2025 is unchanged at 4.3 percent, said Srinivasan.

“Global disinflation and the prospect of lower central bank interest rates have made a soft landing more likely, hence risks to the near-term outlook are now broadly balanced,” he said.

Srinivasan warned of the need for Asian governments to urgently reduce debts and deficits, noting that progress last year fell behind previous projections. A protracted property sector correction in China that weakens demand and could increase the odds of sustained deflation remains a risk, along with China’s falling export prices.

“Beyond the short term, population aging, slowing productivity growth, and new technologies such as artificial intelligence confront policymakers in Asia with important challenges,” said Srinivasan. “While policy responses need to be tailored to country circumstances, there’s a common need to invest in capital, digital infrastructure, and workforce skills, to preserve Asia’s role as growth engine of the world economy.”

Watch the press briefing for the Asia and Pacific Regional Economic Outlook.

IMF PODCAST

In this podcast, IMF Chief Economist Pierre-Olivier Gourinchas discusses the recently released World Economic Outlook, noting that while the fears of a global recession have not materialized, the path ahead is not without obstacles. 

SUB-SAHARAN AFRICA

Harnessing Critical Mineral Wealth

Countries in sub-Saharan Africa have an opportunity to develop critical minerals markets and processing industries to maximize the coming boom, write Wenjie Chen, Athene Laws , and Nico Valckx in an IMF Country Focus article.

Between 2022 and 2050, demand for nickel will double, cobalt triple and lithium rise tenfold, according to the International Energy Agency. With sub-Saharan Africa estimated to hold about 30 percent of the volume of proven critical mineral reserves, this transition—if managed properly—has the potential to transform the region, they write. These findings are included in the latest Regional Economic Outlook report for sub-Saharan Africa.

The authors note that the region can maximize such windfalls by not only exporting raw materials but processing them as well.

“Developing local processing industries could significantly boost value added, create higher-skilled jobs, and increase tax revenues—thereby also supporting poverty reduction and sustainable development.”

In a podcast, Wenjie Chen says the surging global demand for critical minerals key to renewable energy systems could help the region overcome the ongoing funding squeeze.

LATIN AMERICA OUTLOOK

Changing Demographics Weigh on Growth

The IMF expects growth in Latin America to average around 2 percent per year in the next five years, below its already low historical average, said the Fund’s Gustavo Adler and Rodrigo Valdes in a recent blog.

“This weaker outlook partly reflects long-standing challenges of low investment and slow productivity growth,” the authors noted. “The additional challenge this time is that the demographics are turning, and the labor force won’t grow as fast as before,” following a 50 percent increase in the region’s workforce between 2000-2020.

Population growth in the region will continue to decline, note the authors. The region’s population is aging, leading to a smaller share of the population able to generate income.

Keeping the labor force engine running will require boosting labor force participation. “It will be key to further integrate women into the labor force,” the authors said. “Their participation remains low, at only 52 percent of working-age women compared to 75 percent of men.” Expanding childcare programs and providing more training for women, among other options, can help raise female participation.

Countries can also grow their workforces by providing vocational training opportunities and raising the retirement age, note the authors. It will also be necessary for countries to put more effort into raising labor productivity growth by tackling poor governance and stringent business regulations, the authors said.

FINANCE & DEVELOPMENT

Labor Market Models Paint an Incomplete Picture

The traditional economic model of how wages are set fails to reflect the real world, writes Columbia’s Suresh Naidu in the March issue of F&D.

The standard model of the labor market has pushed economic policy thinking to focus on demand and supply as the only things that matter for labor market outcomes. But the empirical implications of the theory do not much match up with the real world, he writes.

“Collective and sectoral wage bargaining between employers and democratic unions has the potential to improve efficiency, fairness, and the balance of power in the labor market.”

Suresh Naidu expands on why labor market models fall short in our podcast.

This article is from F&D’s March issue, in which we ask, Economics: How should it change?

For this issue, we invited leading thinkers to share their views on how economics can rise to today’s challenges. Contributors include Angus Deaton, Atif Mian, Diane Coyle, Jayati Ghosh, John H. Cochrane, Michael Kremer, Dani Rodrik, Jeffry Frieden, Kate Raworth, Katharina Pistor, Michael Olabisi, Niall Kishtainy, Signe Krogstrup, Suresh Naidu, Ulrike Malmendier, Wendy Carlin, and many others.

Read the issue online in español, français, عربي, русский, 中文 and 日本語.

COLOMBIA

Flexible Credit Line Approved

Highlighting Colombia’s strong economic fundamentals and institutional policy frameworks, along with its track record of implementing and maintaining very strong policies, the IMF approved a $8 billion successor two-year arrangement under the Flexible Credit Line (FCL), the Fund said in a press release. The FCL, designed for crisis prevention, would be treated by the Colombian authorities as precautionary, and the previous arrangement has been canceled, the press release noted.

“Appropriately tight macroeconomic policies over the last two years have allowed for an impressive reduction in Colombia’s domestic and external imbalances,” said the Fund’s Deputy Managing Director Antoinette M. Sayeh in a statement, “This has improved the resilience of the Colombian economy, which is further bolstered by the ongoing program to accumulate further international reserves.”

“Going forward, careful normalization of monetary and fiscal policies and decisive progress on structural reforms are key to durably eliminate imbalances, reinvigorate investment, diversify the economy away from fossil fuels, and raise potential growth,” Sayeh said.

PAKISTAN

Economy Stabilizes, Growth Begins to Return

Strong policy efforts by country authorities have supported the stabilization of Pakistan’s economy and the return of modest growth, said the IMF in a press release marking the completion of the Second and Final Review of the Stand-By Arrangement for Pakistan. The completion allows for the immediate disbursement of US$1.1 billion, bringing total disbursements under the arrangement to about $3 billion.

Macroeconomic conditions have improved over the course of the program, and growth of 2 percent is expected in FY24 given the country’s continued recovery in the second half of the fiscal year, the IMF noted.

“Given the significant challenges ahead, Pakistan should capitalize on this hard-won stability, persevering – beyond the current arrangement – with sound macroeconomic policies and structural reforms to create stronger, inclusive, and sustainable growth,” said IMF Deputy Managing Director Antoinette M. Sayeh in a statement. “Continued external support will also be critical.”

“Achieving strong, long-term inclusive growth and creating jobs requires accelerating structural reforms and continued protection of the most vulnerable through an adequately-financed Benazir Income Support Program [a federal unconditional cash transfer poverty reduction program]. Priorities include advancing the reform of state-owned enterprises (SOEs), including to ensure that all SOEs fall under the new policy framework, strengthening governance and anti-corruption institutions; and continuing to build climate resilience.”

Weekly Roundup

POLICY NOTE

Pension Reforms in Iraq

By ensuring income security for older persons and other vulnerable groups, pension systems prevent poverty and reduce inequality. Iraq’s current pension system is fragmented, inequitable, and inefficient, and comprehensive pension reform is urgently needed, says a new policy note based on collaboration among the IMF, ILO, and the World Bank. The authors outline a multi-pillar approach to pension reform, which includes establishing general social protection for older persons; creating a social insurance pillar collectively financed through employer and worker contributions; a publicly regulated defined-contribution or defined-benefits pillar aimed at supplementing the pension benefits from the previous two pillars; and a complementary voluntary personal savings pillar.

STAFF PAPER

Climate Changes Link to Monetary Policy

The escalating frequency and intensity of natural disasters have already inflected severe consequences on economic growth, development, and inequality. But climate change can also have a substantial effect on inflation, particularly through its influence on food prices. A new staff paper looking at evidence from the Middle East and Central Asia finds that the persistence of climate shocks could have a substantial impact on food inflation, making it challenging for central banks to maintain price stability. This could lead to higher interest rates and lower outputs and, in some contexts, may require a tighter monetary policy stance, the authors say.

STAFF PAPER

Successful Industrial Policy's "Secret" Ingredient

Industrial policies pursued in many developing countries in the 1950s-1970s largely failed while the industrial policies of the “Asian Miracles” (i.e., Taiwan Province of China, Korea) succeeded. Key to the success of these Asian Miracles is industrial policy with export orientation in contrast to import substitution, says a new IMF staff paper. Exporting encouraged competition, economies of scale, innovation, and local integration and provided market signals to policymakers, the authors find. They argue that export orientation could be the “secret” ingredient of a successful industrial policy.

CHART OF THE WEEK

Demographic transition may be the biggest single opportunity for the economies of Sub-Saharan Africa, but countries will only be able to enjoy the dividends if they make sufficient investment in education. The region’s population is poised to double to 2 billion by 2050. As the Chart of the Week shows, that expansion will be led by growth in the working-age population of those ages 15 to 64 that will outpace other age groups and drive almost all the increase. The IMF's Michele F. and Andrew Tiffin explain.

Thank you again very much for your interest in the Weekend Read! Be sure to let us know in the comments what issues and trends we should have on our radar.

Miriam Van Dyck

Editor, IMF Weekend Read