Entries for 2021

Policy stimulus has returned the economy to its pre-COVID trend, … something that was never accomplished in the wake of the Great Recession. The F...

The EU Carbon Border Adjustment Mechanism (CBAM)—which would charge importers of steel, aluminum, and other inputs a tax equivalent to the EU’s domestic carbon price—calls for a gradual phase-in of reporting “embedded emissions”; From 2023, reporting on iron, steel, aluminum, fertilizer, electricity, and cement will take effect, and importers will start paying a tariff on these products from 2026; In 2020, the EU imported some $50 billion in “CBAM products” from countries outside of the EU Emissions Trading System; Russia, China, and Turkey export the most CBAM products to the EU; Italy and Germany are by far the largest importers.

Non-resident flows to EM local markets x/ China have now recovered from the Covid shock. Dynamics differ among countries, however, with some still seeing large cumulative outflows. Foreign investors currently hold around $600 bn in local government debt outside of China. Inflows have been relatively weak in recent months and cost of funding has risen across EM. The opening of China’s local market has had a large impact with $250 bn in inflows since ‘18. The country now accounts for close to 40% of total foreign investor positions in local EM debt.

The covid recession was deep in India, as was the impact of delta. This is not unique to India but initial conditions in early 2020 were, … ...

The recovery has been uneven, with activity below pre-Covid levels for some sectors. Uncertain economic prospects will likely keep authorities from tightening policies. Losses in recent local elections may lead to delays of critical fiscal adjustment steps. Global factors, including tighter global liquidity conditions, could weigh on the Rand. Abrupt depreciation would force the SARB to tighten earlier than otherwise expected.

Economic recovery remains uneven and patchy for low and lower-middle income countries (LLMICs); Despite easing external debt strains, more than half of LLMICs are at high risk of—or already in—debt distress; Little information to date on how the G20 Common Framework is being implemented; Greater debt transparency could galvanize ESG investments in emerging and developing economies—a key COP26 theme.

The possibility of a fourth pension fund withdrawal has fueled market concerns. The first three withdrawals have buoyed consumption, adding to inflationary pressure, and exacerbated financial stability challenges. A fourth withdrawal would undermine private investment, weighing on growth prospects.

EM local market returns react more to global factors than during past stress episodes. However, they remained stable in 2021, and a “Taper Tantrum 2.0” did not materialize. Nonetheless, EM local markets continue to lag EM credit which has largely recovered. We expect investors to remain cautious toward these assets due to inflation concerns. The so-called “transitory” factors behind global and EM inflation are likely to linger.

This briefing note summarizes some of the key digital finance themes that emerged throughout the dedicated digital finance track, as well as in other sessions throughout the week.

The October 2021 edition of the Insurance Update provides targeted updates on IIF insurance activities and events. 

Possible deviations from the fiscal rule have spooked markets. Spending next year might rise 0.7% of GDP above the limit, … but would still be wel...

Portfolio flows to EM stood at $24.9 bn in October. Equity and debt flows were $4.8 bn and $20.1 bn. China equity posted $7.3 bn in inflows. ...

The result of higher oil prices is a shift in purchasing power from oil consumers to producers. Oil exporters are getting a boost to their terms of trade, leading to wider CA and fiscal surpluses. Higher energy prices will hurt several EMDEs that remain heavily dependent on petroleum imports.

The November U.S. Regulatory Update covers Fed announcements on cybersecurity initiatives, climate-related financial risk, AML/CFT policy priorities, and more. 

China's recent electricity shortage was to some degree caused by rising power demand, but mostly due to the constraints imposed by the energy intensity target and coal supply.