Economic Research

Weekly Insight: Focus on the Fed

  • Fed a bit more hawkish, but markets take it in stride
  • U.S.—stronger growth, less slack
  • ECB’s Comprehensive Assessment—not fully reassuring
  • Tighter bank lending conditions underscore weak EM recovery
  • China: local government debt solutions unveiled
  • Indonesia—new government brings hope for policy changes

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Emerging Markets Bank Lending Conditions Survey - 2014Q3

EM bank lending conditions tightened slightly in 2014Q3 after having improved in 2014Q2. The tightening was driven by a significant increase in nonperforming loans, notably in EM Europe. Moreover, the marked improvement witnessed in loan demand, funding conditions and trade finance in 2014Q2 waned somewhat. In particular, loan demand slumped in EM Asia. Credit standards continued to be tightened, but at a relatively slower pace, largely driven by EM Asia.

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October 2014 Portfolio Flows Tracker

Portfolio flows to EMs slowed further in October, reaching a 2014 low of $1 billion. We estimate that portfolio equity flows saw a retrenchment of $9 billion, while bond flows rose to $10 billion. Market turbulence in the first half of October amplified a cool-off in investor sentiment towards EMs that had been underway for several months, although a sharp downward shift in expectations for Fed policy rates cushioned the decline in portfolio flows.

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Oil: A Perfect Storm Hits Prices

Oil prices have been retreating since peaking mid-year, driven by a confluence of excess supplies, downward revisions to global growth, and a rise in the dollar. Changes to fundamentals, with both OPEC and non-OPEC producers increasing supplies in a period of weak demand, are creating imbalances in the global oil market and contributing to bearish market sentiment. A stronger dollar and shift away from risk assets has accentuated the fall in prices. Risks to the downside will continue to weigh on prices through the rest of 2014 and into mid-to-late 2015, averaging $87/bbl in Q4 and $94/bbl in 2015.

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Peru: In a Soft PatchMember only content

Real GDP growth has slowed sharply this year due to terms of trade losses and an erosion of confidence. To support economic activity, the central bank has relaxed monetary policy and allowed the sol to depreciate faster. The countercyclical effectiveness of fiscal policy, however, has been hampered by execution shortcomings. We expect growth to recover gradually in the coming quarters driven by policy stimulus and major mining investment projects becoming operational. Post-commodity bonanza growth is bound to be lower, underscoring the importance of productivity-enhancing reforms and well-targeted social policies.

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Teleconference on Argentina: Macroeconomic Situation and Outlook for 2015/16Member only content

October 8, 2014 — Ramón Aracena, IIF Chief Economist for Latin America, and Martín Castellano, Senior Economist, share insights from their recent visit to Buenos Aires.

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Teleconference: Taking Stock of MENA Economies in the Shadows of Rising Geopolitical Risks and Deepening ConflictsMember only content

October 8, 2014 — Just back from the Middle East, George T. Abed and Garbis Iradian discuss the conflicts in Iraq and Syria, the prospects for Egypt, and how are policy makers and market participants responding to the rising turmoil in the region.

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MENA Region: Recovery Buffeted by Geopolitical Risks

The collapse of long-standing authoritarian regimes in important parts of the MENA region, coupled with weak institutional structures, has opened the way for chaos, civil strife and social disintegration in the affected countries. Political instability and overarching geopolitical risks will weigh on economic performance. However, political stability in the GCC and an improved security environment in Egypt, Morocco, and Tunisia should contain the spillovers from the intensifying fighting along the borders of Syria and Iraq. We therefore expect a modest pickup in growth to 3.4% in 2015 on account of continued robust growth in the GCC and improved prospects for the stable, nonoil countries. Over the medium term, a return to trend growth in the range of 4-5% will hinge on reducing geopolitical risks, achieving political stability, and the implementation of structural reforms.

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Emerging Europe: Living With Geopolitical TensionsMember only content

The Russia-Ukraine conflict has caused the regional outlook to deteriorate substantially. The recession in Ukraine has deepened and sanctions imposed on Russia have shut off access to foreign capital, pushing the economy into recession. The rest of the region has been little affected thus far, but remains vulnerable to renewed escalation of the conflict. Should the recent ceasefire break and fighting resume, economic consequences for the region would be severe. Ukraine would face an economic meltdown, Russia’s economy would plunge into a major recession, and growth in the rest of the region would come to a halt or reverse in some countries.

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Teleconference on RussiaMember only content

October 7, 2014 — Mr. Lubomir Mitov, IIF Chief Economist for Emerging Europe, discusses the current financial situation in Russia following his participation in the RUSSIA CALLING! investment forum, of which President Vladimir Putin was the keynote speaker.

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September 2014 EM Coincident Indicator

Our EM coincident indicator (EMCI) rose modestly by 0.2pp in September and now indicates EM GDP growth of 4.1% q/q, saar, in Q3, up from 3.9% in Q2. This suggests that EM growth is tracking somewhat higher than in the first half, but still remains well below the average 4.5% growth registered over the period 2012-13. Among the 41 macroeconomic and financial variables that feed into the EMCI, hard data on merchandise trade and industrial production continued a modest uptrend. By contrast, business sentiment has weakened and financial variables, notably commodity prices, softened in September, suggesting caution going forward.

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Introducing the IIF Euro Area Market Risk IndexMember only content

October 6, 2014 — While the Fed moves to tighten monetary policy, both the ECB and BoJ contemplate further easing. These coming changes have heightened market uncertainty, but current risk gauges such as the CBOE VIX and the VSTOXX for the Euro Stoxx 50 are still very low compared to historical averages.

After introducing the IIF U.S. Market Risk Index in the September 2014 Capital Markets Monitor, we are introducing the IIF Euro Area Market risk index (E.A. MRI). Conceptually, the E.A. MRI is similar to the U.S. MRI: it is meant to be a simple robust measure of market stress that does not use implied volatilities but underlying prices across various asset classes. Its four component risk factors are equal weighted and aim to measure the extent to which market sentiment is “risk-on” or “risk off.”

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Weekly Insight: Adjusting to Higher Volatility

  • More uncertainty, less conviction on market direction
  • Saudi price cuts, ample supply weigh on oil prices
  • ECB—Oiling the currency printing press
  • Modi mania hits the U.S.
  • EM capital flows—choppy with downside risks
  • Frontier markets—continued outperformance

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India: Building BridgesMember only content

In his recent visit to the United States, Prime Minister Narendra Modi connected with three key constituencies. The visit broke new ground and heralds the development of a stronger Indo-U.S. relationship over the longer term.

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October 2014 Capital Flows to Emerging Market Economies

Capital flows to emerging markets have continued to be very choppy. Flows surged over the summer, particularly to Emerging Asia, but have dipped sharply since August. We project total private inflows to reach about $1,160 billion in 2014, which would still be $80 billion below the 2013 level — primarily due to the collapse of flows to Russia. Inflows have been supported by the prospect of additional ECB easing, at a time when the Fed’s steps towards exit have been very gradual. Going forward, increasing divergence in Fed and ECB monetary policy settings will provide a more ambivalent external environment for emerging markets that could lead to renewed volatility.

Following the publication of the Capital Flows Report, Charles Collyns hosted a teleconference on October 2, 2014. The recording of the briefing and the Q & A session is now available for replay.

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September 2014 Portfolio Flows Tracker

After the sharp slowdown in August, EM portfolio inflows climbed to a moderate level in September. According to our EM Portfolio Flows Tracker, emerging markets received $18 billion in September, up from $12 billion in August (revised up by $3 billion). On a component basis, our estimates indicate that portfolio equity inflows slowed marginally to $8 billion, while portfolio debt inflows picked up to $10 billion.

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Venezuela: Running Out of RopeMember only content

Policy inaction has further deepened macroeconomic imbalances. Meanwhile, stagflation, shortages of goods and public insecurity continue to brew social discontent. We expect the government to try to muddle through until after the legislative elections in December 2015, while continuing to prioritize servicing its external debt. Without corrective policies, however, the economy is increasingly vulnerable to an unexpected drop in oil prices and/or a sudden escalation in social tensions that could precipitate a credit event.

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Weekly Insight: Oktoberfest Hangover Already?

  • Risk assets falter, yield curves flatten, commodities slump
  • Dollar storms ahead; more vulnerable EM currencies suffer
  • Flash manufacturing PMIs—U.S. continues to defy gravity
  • Euro Area: How to jump-start the engine?
  • Chinese firms step up hard currency bond issuance

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IIF Teleconference on the BalkansMember only content

September 24, 2014 — Following recent travels to Romania, Bulgaria, Serbia and Croatia, IIF Chief Economist for Emerging Europe Mr. Lubomir Mitov and IIF economists Mr. Jared Bebee and Mr. Ugras Ulku summarize the findings of their missions and provide a regional outlook.

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IIF Teleconference on UkraineMember only content

September 23, 2014 — Lubomir Mitov, IIF Chief Economist for Emerging Europe, and Ondrej Schneider, IIF Senior Economist, provide a briefing on their insights into the outlook, drawing on Mr. Mitov’s participation in the Lviv Financial Forum held September 18-19, attended by the central bank governor, finance minister and other officials. They also discuss the impacts of recent developments in Ukraine on the Emerging Europe region.

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September 2014 Global Economic ChartbookMember only content

The September edition of the IIF Global Economic Chartbook summarizes our current views on the global economy, including updates on our latest assessment of capital flows to emerging economies as well as bank lending conditions in EMs. This update includes a section on emerging market vulnerabilities and also revises sections on the G3 economies. The underlying data for the charts presented are available for download in PowerPoint format—you are encouraged to use the charts and data in your own work.

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Nigeria: Strong Growth Despite HeadwindsMember only content

Nigeria’s economy, the largest in Africa, is performing remarkably well. Strong domestic demand is driving growth notwithstanding challenges which include security concerns, significant theft from oil pipelines, and volatility in capital flows against the backdrop of upcoming elections in February 2015. Inflation is rising again due to pressures on food prices and monetary policy is expected to remain tight into 2015. Important structural reforms, such as the privatization of the power sector, are underway and these are expected to ease constraints on growth.

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Global Economic Monitor Teleconference: Sputtering Growth Engines – The Global Outlook After a Disappointing First HalfMember only content

September 16, 2014 — Charles Collyns, Managing Director and Chief Economist, and Felix Huefner, Deputy Director, Global Macroeconomic Analysis, discuss the global economic outlook, in particular prospects for a stronger H2 following further Q2 growth disappointments in several countries, the implications of divergence across G3 monetary policies following the ECB’s turn towards more aggressive stimulus, and risk factors in emerging markets, with a focus on politics.

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September 2014 Global Economic Monitor

The macro data flow over the summer months ranged from largely positive news in the U.S. and China to negative surprises in the Euro Area and a number of EMs. The Q2 outcome was a very limited pick-up in global growth, and momentum into Q3 looks soft, raising doubts about a more rapid pace of growth going forward. However, policy support is building —notably in the Euro Area—and financial markets continue to rise, fueled by the ECB’s shift to more aggressive easing.

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Teleconference on India: Wind in the SailsMember only content

September 10, 2014 — Dr. Bejoy Das Gupta discusses the economic program of Prime Minister Narendra Modi. The government has embarked on wide-ranging reforms along with macro-stabilization measures aimed at gradually building the foundation for a stronger economic performance. While near-term prospects are improving, there are a number of external and domestic challenges to navigate.

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August 2014 EM Coincident Indicator

Our newly developed EM coincident indicator for EM GDP growth (EMCI) stood at 3.9% in August, unchanged from July, but up by 0.7pp since June. This suggests that EM growth in Q3 is tracking at a slightly higher rate than the 3.5% pace in 2014H1. The EMCI captures the common trend of 41 macroeconomic and financial variables that are highly correlated with EM GDP growth. Among the variables that feed into the EMCI, hard data—notably merchandise trade—continued a modest uptrend. Financial variables were also broadly supportive. By contrast, sentiment data softened in August after having risen in prior months.

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India: Wind in the SailsMember only content

The economic program of Prime Minister Narendra Modi, the post-election boost to sentiment, and continuing large capital inflows are underpinning an increasingly buoyant outlook. The government has embarked on wide-ranging reforms along with macro-stabilization measures aimed at gradually building the foundation for a stronger economic performance. While near-term prospects are improving, there are a number of external and domestic challenges to navigate.

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U.S. Shale: Medium-Term Outlook Bright, Clouds Beyond

The resurgence of U.S. oil and gas production fueled by shale drilling technologies has led to dramatic reductions in energy imports, sharply reduced domestic oil and gas prices, and provided an uplift to the power and energy-intensive manufacturing sectors. As a result, the U.S. will continue to decrease dependence on foreign oil until 2020 and will become a net exporter of natural gas from 2017 onwards. However, continued growth in oil production, which looks favorable in the medium-term, could face headwinds later in the decade, slowing down and possibly reversing the steady rise of recent years. A full liberalization of energy exports could substantially ease the constraints.

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Euro Area Periphery: What Next For Yields and Spreads?Member only content

Spreads and yields for Euro Area periphery borrowers have fallen to remarkable lows on buoyant global risk appetite and expectations of QE-like bond purchases by the ECB, which now look likely early next year. Further ECB easing should help keep spreads versus Bunds near current levels and perhaps nominal yields as well. For individual countries, more may depend on how well they continue to follow country-specific recommendations handed down by Brussels.

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Mexico: Reforms Will Bolster External PositionMember only content

Implementation of structural reforms is set to boost external competitiveness and attract significant foreign investment. Competitiveness gains will stem from reduced prices for key inputs (fuel, gas, electricity) and improved efficiency. The share of equity investment is bound to increase as an external financing source, bolstering balance of payments stability. This will reinforce the effectiveness of already well-established sound macroeconomic policies, enhancing the economy’s underlying resilience to external shocks.

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EM Portfolio Flows Tracker 2.0 Methodology

In early 2014, we launched the first edition of the EM Portfolio Flows Tracker, which has quickly become widely used by the analyst community and the financial press. Based on suggestions from our global membership, we have refined the Tracker methodology. The Tracker 2.0 is based on a broader range of source data, especially country-level portfolio flows data.

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A Coincident Indicator for Emerging Market GDP Growth

The IIF has developed an emerging market coincident indicator (EMCI) that tracks GDP growth in emerging markets on a monthly basis in real time. The EMCI is available 5 days after the end of each month—much more timely than other hard indicators. It is constructed by extracting the common trend of 41 macroeconomic indicators and is closely correlated with quarterly EM GDP. The latest EMCI for July points to GDP growth of 3.9% 3m/3m, saar; somewhat stronger than the estimated Q2 outcome of around 3.7%. This reading supports the view that after the weakness at the start of the year, EM growth should gradually strengthen in 2014H2.

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August 2014 Portfolio Flows Tracker

Following several months of buoyant inflows, portfolio investments in emerging markets slowed sharply in August. According to our newly expanded EM Portfolio Flows Tracker, emerging markets received a mere $9 billion in August, after an average of $38 billion per month in May-July. Our new regional estimates suggest that the drop primarily reflected a reversal of portfolio flows to Emerging Europe and Africa, as well as a decline in flows to EM Asia and Latin America.

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Brazil: Caught in the DoldrumsMember only content

The economy has continued to underperform as confidence has plunged. Business sentiment in the industrial sector has slid for several months and is approaching the low levels recorded in the aftermath of the global recession of 2008. Confidence has been sapped by policy imbalances, lack of reforms, and a more difficult global backdrop. The approaching presidential election provides an opportunity for a change in course. While the outcome remains uncertain, the likelihood of an opposition candidate winning is rising. The challenge for whomever becomes Brazil’s next president is to implement a confidence-building policy realignment.

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Côte d’Ivoire: Sustaining Stability and Robust Growth / Soutenir la stabilité et une croissance robusteMember only content

Côte d’Ivoire has become one of Sub-Saharan Africa’s fastest-growing economies since the recent return to political stability and efforts to improve the business climate have encouraged foreign and domestic investment. Real GDP grew by an estimated 9.1% last year and growth is projected to remain strong in 2014. Nevertheless, further reforms to develop the banking system and improve the business environment are needed to ensure a strong and sustainable economic performance going forward. In the medium term, socio-political instability remains a risk given uncertainties surrounding the presidential and legislative elections and the slow progress towards national reconciliation.

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Philippines: Sustained Strong ExpansionMember only content

Policy-making and economic performance have progressively strengthened since President Aquino came to office in mid-2010. An expansionary fiscal program, typhoon reconstruction, buoyant consumption and investment, and a firming in exports should help support the economy over the near term, dampened in part by gradual monetary policy normalization. Downside risks emanate from slower-than-anticipated typhoon recovery, U.S. monetary tightening surprises and possible heightening of territorial sea disputes, as well as domestic political and governance concerns.

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Poland: Cold Winds From MoscowMember only content

Real GDP growth has slowed in Poland during the second quarter and inflation has dropped. The crisis in Ukraine has already hit growth by restricting exports and diminishing confidence in the economy. The recent imposition of the ban on food imports by Russia is likely to hit growth further. These developments represent a challenge to authorities as the government is readying for the parliamentary election next year.

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Portugal: Surprises Both Upside and DownMember only content

Market sentiment toward Portugal has remained mostly supportive since the exit from its EU-IMF program despite news of large losses at a leading bank. Economic recovery, under way since early 2013, has been boosted by increases in exports and investment but faces constraints from uneven recoveries in key foreign markets and ongoing domestic deleveraging. The governing coalition has done well, maintaining cohesion and sustaining fiscal consolidation. Recovery will need to be sustained, however, for further declines in unemployment to strengthen the ruling coalition’s prospects in next year’s parliamentary elections.

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Turkey: Facing Economic and Political ChallengesMember only content

Even though the near-term outlook for Turkey has improved, the underlying structural issues remain unaddressed and vulnerability to shifts in market sentiment very high. A low savings rate necessitates high current account deficits to sustain growth. Structural reforms are needed both to boost domestic savings and to provide scope for better-quality investment. Advancing such reforms would be difficult, however, with a high degree of polarization contributing to lingering uncertainty surrounding the political agenda.

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Teleconference: Turkey's Presidential ElectionMember only content

August 13, 2014 — Mr. Lubomir Mitov, IIF Chief Economist for Europe, and Mr. Ugras Ulku, Senior Economist for the European Department, provide a briefing on the likely implications of the outcome of the recent presidential elections on the Turkish economy.

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Morocco: Political Stability, Challenges for Higher Growth / Maroc: Stabilité politique et défis pour une croissance accéléréeMember only content

The policy environment has improved since the formation of the coalition government. Reform of the subsidy system will help to ensure fiscal sustainability. Looking forward, the gradual recovery in the European economy should raise demand for Moroccan goods and support the tourism sector. However, deeper reforms will be needed to achieve sustained higher growth in order to address the high urban unemployment and reduce poverty.

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Ukraine: Fighting for SurvivalMember only content

The escalating conflict in eastern Ukraine deepened the economic crisis that follows years of economic mismanagement and widespread corruption. Output has contracted sharply, the currency lost half of its value, deposit withdrawals continued and tax collection imploded. These developments prompted the IMF to revise the standby arrangement approved in May. However, with the economy unlikely to stabilize until the war in the East is stopped, even the revised program will be difficult to implement and a large financing gap is likely to emerge for which there is presently no source of funding.

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Teleconference: Brazil's Policy Challenges and OutlookMember only content

July 31, 2014 — Mr. Ramón Aracena, Chief Economist for Latin America, shares his views on the policy challenges and economic outlook following a trip to Brazil.

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Still Looking for Better Options— Exchange Rate Regimes Since the Global Financial Crisis

In recent years, and in particular since the global financial crisis, policymakers have continued to look for intermediate options in choosing an exchange rate regime, and moved away from the extremes of hard pegs or free floats. The continued search for intermediate regimes reflects a desire to avoid extreme movements in the exchange rate in a volatile external environment while continuing to control domestic monetary conditions in the context of unconventional monetary policies by core central banks. Looking forward, there could be a gradual move back towards freer floats, and less reliance on capital controls, as financial markets deepen and monetary conditions in core countries gradually normalize.

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Emerging Markets Bank Lending Conditions Survey - 2014Q2

EM bank lending conditions eased in 2014Q2 for the first time since early 2013. Banks reported a marked improvement in funding conditions and expansion in loan demand amidst increased risk appetite in global financial markets and some recovery in EM growth. However, banks kept tightening credit standards as nonperforming loans continued to rise.

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Cyprus: Dealing with Rising NPLs

After solid performance in the first year under Cyprus’ rescue program, strong political resistance has emerged against the implementation of the agreed strategy for dealing with the high NPLs. A compromise on a revised draft foreclosure law was reached with the Troika, entailing an appropriate balance of the rights of both borrowers and lenders. Enactment of the foreclosure law is a prior action for the completion of the fifth program review, but it is subject to heightened uncertainty. Adoption and effective implementation of the law is critical for the resumption of bank credit expansion and the restoration of output and employment growth.

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July 2014 Portfolio Flows Tracker

Our Portfolio Flows Tracker indicates that portfolio inflows to emerging economies accelerated further in July, reaching a new two-year high of $44 billion. Both equity and bond inflows were buoyant, propelled by avid risk appetite.

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Russia: Sanctions Begin to BiteMember only content

The sanctions imposed by the U.S. on July 16 represent a further escalation and for the first time target major Russian entities. Even though their immediate impact on the sanctioned entities should be manageable, the broader impact on the Russian economy is likely to be much stronger and longer lasting. The mere threat of sanctions has already caused foreign capital inflows to reverse, for the first time since the 2008 global financial crisis. With sanctions likely to escalate and broaden further, capital outflows look set to accelerate, pushing Russia into recession and intensifying the already significant financial pressures in domestic banks and corporations.

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Morocco: Political Stability, Challenges for Higher GrowthMember only content

The policy environment has improved since the formation of the coalition government. Reform of the subsidy system will help to ensure fiscal sustainability. Looking forward, the gradual recovery in the European economy should raise demand for Moroccan goods and support the tourism sector. However, deeper reforms will be needed to achieve sustained higher growth in order to address the high urban unemployment and reduce poverty.

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Colombia: A Second Chance for PeaceMember only content

The reelection of President Juan Manuel Santos has raised hopes for a conclusion to the peace negotiations with the FARC guerrillas. Success would lift the economy’s trend growth and strengthen the country’s social fabric. The road to peace, however, will not be easy amid increased opposition in Congress, which could stall laws needed for the implementation of an accord. While growth momentum remains strong, rising social demands are bound to increase pressure on fiscal policy, testing compliance to the cyclically adjusted fiscal target.

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Teleconference: Russia & U.S. SanctionsMember only content

July 18, 2014 — Mr. Lubomir Mitov, IIF Chief Economist for Emerging Europe, and Mr. Hung Tran, IIF Executive Managing Director, lead a discussion on the latest round of sanctions imposed on Russia by the U.S. and their likely impacts.

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Teleconference: Colombia's Policy Challenges and OutlookMember only content

July 17, 2014 — Mr. Ramón Aracena, Chief Economist for Latin America, and Ms. Maria Paola Figueroa, Economist, share their views on Colombia’s policy challenges and outlook following the reelection of President Juan Manual Santos.

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Bulgaria: Road To NowhereMember only content

Economic performance has remained lackluster amid growing political tensions and sharply deteriorated policies. Near-term risks should be contained thanks to still-large buffers, and the October 5 election is likely to produce a more prudent government. However, the lack of reforms and the recent sharp fiscal deterioration raise concerns for the medium term. The economy will continue to languish and financial stability will eventually be undermined, unless reforms advance and the political culture plagued by pervasive cronyism, red tape and corruption is changed.

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European Banking Authority (EBA) Issues Opinion on virtual currencies

The EBA has produced an analytical report on Virtual Currencies and the potential risks that they create (PDF at www.eba.europa.eu). The EBA has identified more than seventy risks of various types that VCs could originate: risks to users; risks to non-user market participants; risks to financial integrity, such as money laundering and other financial crime; risks to existing payment systems in conventional FCs, and risks to regulatory authorities.

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July 2014 Global Economic ChartbookMember only content

The July edition of the IIF Global Economic Chartbook summarizes our current views on the global economy, including updates on our latest assessment of capital flows to emerging economies as well as bank lending conditions in EMs. This update includes a new section on emerging market vulnerabilities, drawing on the analysis in our latest Global Economic Monitor, and also revises sections on the G3 economies. The underlying data for the charts presented are available for download in PowerPoint format—you are encouraged to use the charts and data in your own work.

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2014 July Japan Economic ForecastMember only content

The inter-temporal effects of the consumption tax hike on economic activity have been broadly in line with expectations. Improving investment and labor market conditions are likely to help revive GDP growth in 2014H2. The BoJ is unlikely to ease further unless the recent improvements in domestic demand and inflation begin to falter.

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2014 July Euro Area Economic ForecastMember only content

Five quarters after the Euro Area pulled out of recession, the pace of recovery remains modest. While we have penciled in a pickup in real GDP growth in Q2, this mainly reflects an expected positive payback after the weather-related drag in Q1. With the remaining large slack in the economy and the persistent strength of the euro, the prolonged period of low inflation remains a big concern. The measures announced by the ECB in June demonstrate its increased willingness to take steps to avoid very low inflation, but it is hard to make a definite judgment about their effectiveness.

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2014 July U.S. Economic ForecastMember only content

Real GDP data in the U.S. have continued to disappoint, even though forward-looking indicators remain buoyant and labor market data show continued improvement. We are still expecting a significant GDP rebound in Q2 and subsequent quarters. For 2014 as a whole, we now project growth of 1.5% y/y, followed by 2.8% in 2015.

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Global Economic Monitor Teleconference: Where is the global economy heading in 2014H2? Member only content

July 10, 2014 — Charles Collyns, Managing Director and Chief Economist, and Felix Huefner, Deputy Director, Global Macroeconomic Analysis, discuss the implications of the weak 2014H1 growth outcomes and the macroeconomic implications of a potential reversal of risk appetite on emerging markets (“What could a Taper Tantrum 2.0 look like?”), drawing on the July Global Economic Monitor.

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Kuwait: Improved Prospects for ReformMember only content

Growth in nonoil economic activity is improving modestly after a period during which Kuwait has lagged behind peers as the implementation of the 2010-2014 development plan fell short of targets. The country remains one of the most dependent in the region on oil receipts and lags behind in global competitiveness and ease of doing business rankings. Inertia persists in key areas such as fiscal policy where subsidies and social benefits remain high and inefficiently targeted, capital expenditures lag, and nonoil revenues remain low. There is a recognition of structural challenges, but it remains to be seen how successful recent measures to tackle these will be given the decisive changes required.

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Uruguay: Time to Swap Band-Aids for Structural MedicineMember only content

Growth has slowed to a below-trend pace, reflecting rising external headwinds, structural shortcomings, and a weakening policy mix. High inflation has become endemic, sapping international competitiveness, while modest monetary tightening is coming into conflict with expansionary fiscal policy. Following elections in October, we believe the next administration must rebalance the policy mix and adopt a proactive reform agenda to bolster investment and trend growth. However, there are risks that a changing political landscape might get in the way of the required course correction, raising the likelihood of further policy slippage and under-deliverance on structural reforms.

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Catching Up with the RenminbiMember only content

As China’s weight in the world economy continues to rise, international use of the renminbi (RMB) has grown. While true internationalization would require much greater capital account liberalization, the Chinese government continues to take measured steps towards opening China’s financial markets. These steps include encouraging the use of RMB to invoice and settle foreign trade, facilitating the development of offshore RMB centers, supporting the dim sum bond markets, and reducing restrictions on access to China’s capital markets for foreign investors. Further gradual steps to widen the currency trading band—and a more market-determined exchange rate—will help this process.

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July 2014 Global Economic Monitor and Teleconference

The first half of 2014 provided growth disappointments but financial market buoyancy. We continue to expect global growth to accelerate in 2014H2, underpinned by policy support, the unwinding of temporary factors, and the lagged impact of easier financial conditions. A reversal of risk appetite is a key downside risk. A number of emerging markets are vulnerable to a tightening in external financial conditions.

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Overview of IIF Capital Flows Data

This one-pager provides a compact summary of our various proprietary capital flows databases. IIF members have access to all our capital flows data, while a few selected datasets are also made available to the public. All datasets are updated regularly and cover the IIF group of 30 emerging markets.

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Bulgaria: A Self-Inflicted Banking CrisisMember only content

Deposit runs on the two largest domestically-owned banks have stirred concerns about the banking system and financial stability. However, these pressures appear to have been caused by a spat between politically-connected business interests rather genuine financial problems. A well-capitalized and liquid banking system should keep risks of a broader disruption limited, yet the bank runs highlight the threats pervasive cronyism presents to the economy and financial stability.

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China: Targeted Policy Easing Supporting the EconomyMember only content

Policymakers are clearly intent on maintaining GDP growth in 2014 around the 7.5% official target while continuing to moderate the credit excesses of recent years. The “mini-stimulus” approach in recent months has so far utilized mainly fiscal measures along with some targeted monetary steps, and helped to support a strengthening of activity in the second quarter. With the major downside risks emanating from the rapidly cooling property market, the government is likely to introduce further measures to achieve growth objectives in the months ahead.

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June 2014 Portfolio Flows Tracker

Portfolio inflows to emerging economies continued at a rapid pace in June, with portfolio bond flows in particular rising to the highest level since April 2013, according to our Portfolio Flows Tracker. In June, EMs are estimated to have received $36 billion in portfolio inflows from global investors, after $38 billion in May and $28 billion in April.

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IIF Teleconference on TurkeyMember only content

June 26, 2014 — Having recently concluded travel in Turkey, Mr. Lubomir Mitov, IIF Chief Economist for Europe, and Mr. Ugras Ulku, Senior Economist for the European Department, provide a briefing on the insights gained through their visit to Istanbul and Ankara.

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Argentina: The Time of ReckoningMember only content

The U.S. Supreme Court’s decision not to hear Argentina’s petition to review a ruling by the Second Circuit Court of Appeals on the pari passu clause has raised concerns about a possible default. Following several days of charged political rhetoric, on June 20, President Cristina Fernández de Kirchner announced that Argentina will negotiate with holdout creditors. Negotiations could pave the way to a mutually acceptable solution and provide the basis for an orderly path to the October 2015 presidential elections. A default would be deeply damaging to an economy already in stagflation. Despite short-term risks, we remain cautiously optimistic that the outlook could improve beyond 2015 as all presidential candidates are advocating pro-business policies.

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Thailand: Military Government Likely to Revive EconomyMember only content

Concerned by the deteriorating political situation, the military mounted a peaceful coup in late May. The return to a functioning government should spur growth, as the economy is supported by public expenditure programs along with low interest rates, pickup in private spending and gradual recovery in exports and tourism. While the coup is a temporary solution to the political impasse, the recent history of adversarial politics suggests that compromise and reforms are essential for the restoration of democratic governance.

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IIF Teleconference on Russia and Ukraine: The Simmering Conflict and Its Impact on Emerging EuropeMember only content

June 19, 2014 — After visiting Moscow and Kiev, Lubomir Mitov, IIF Chief Economist for Emerging Europe, and Ondrej Schneider, Senior Economist, provide a briefing on their insights into the situation, drawing on their discussions with authorities in Russia and Ukraine. They also discuss the impacts of the crisis in Ukraine on the Emerging Europe region, as summarized in the report “Emerging Europe: Diverging Challenges”.

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