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Joint Action Needed to Secure the Recovery

By Kristalina Georgieva G20 should lead in sharing vaccine doses, helping developing countries financially, and committing to reaching net-zero carbon…

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This article was originally published by IMF Blog

By Kristalina Georgieva

G20 should lead in sharing vaccine doses, helping developing countries financially, and committing to reaching net-zero carbon emissions by mid-century.

When G20 leaders gather in Rome this weekend, they can take inspiration from the bold design of the meeting venue, known as La Nuvola.

Just as the architect created a striking new space, global leaders must take bold action now to end the pandemic and create space for a more sustainable and inclusive economy.

The good news is that the foundations for recovery remain strong, because of the combined effect of vaccines and the extraordinary, synchronized policy measures led by the G20. Yet our progress is held back especially by the new virus variants and their economic impact, as well as supply-chain disruptions.

G20 leaders have a once-in-a-generation opportunity to move the carbon needle.

The IMF recently reduced its global growth forecast to 5.9 percent for this year. The outlook is highly uncertain, and downside risks dominate. Inflation and debt levels are rising in many economies. The divergence in economic fortunes is becoming more persistent, as too many developing countries are desperately short of both vaccines and resources to support their recoveries.

So, what should be done?

Our new report to the G20 calls for decisive actions within each economy. For example, monetary policy should see through transitory increases in inflation, but be prepared to act quickly if risks of rising inflation expectations become tangible. Here, clear communication of policy plans is more important than ever to avoid adverse spillovers across borders.

Carefully calibrating monetary and fiscal policies, combined with strong medium-term frameworks, can create more room for spending on healthcare and vulnerable people. These calibrations can deliver quick benefits through 2022.

After that, growth-enhancing structural reforms provide the bulk of added gains—think of labor market policies that support job search and retraining, and reforming product market regulations to create opportunities for new firms by reducing barriers to entry. Such a package of short-to-medium-term policies could boost aggregate real GDP in the G20 by about $4.9 trillion through 2026.

First, end the pandemic by closing financing gaps and sharing vaccine doses.

The pandemic remains the biggest risk to economic health, and its impact is made worse by unequal access to vaccines and large disparities in fiscal firepower. That’s why we need to reach the targets put forward by the IMF, with the World Bank, WHO, and WTO—to vaccinate at least 40 percent of people in every country by end-2021, and 70 percent by mid-2022.

But we are still behind: some 75 nations, mostly in Africa, are not on track to meet the 2021 target.

To get these countries on track, the G20 should provide about $20 billion more in grant funding for testing, treatment, medical supplies, and vaccines. This additional funding would close a vital financing gap.

We also need immediate action to boost vaccine supply in the developing world. While G20 countries have promised more than 1.3 billion doses to COVAX, fewer than 170 million have been delivered. Thus, it is critical that countries deliver on their pledges immediately.

Equally important is swapping delivery schedules for doses already under contract, allowing the buyer with more urgent needs to go first. Countries with high vaccination coverage should swap delivery schedules with COVAX and AVAT to speed up deliveries to vulnerable countries.

We must take these and other measures to save lives and strengthen the recovery. If COVID-19 were to have a prolonged impact, it could reduce global GDP by a cumulative $5.3 trillion over the next five years, relative to the current projection. We must do better than that!

Second, help developing countries cope financially.

Even as the global recovery continues, too many countries are still hurting badly. Think of how the pandemic caused a spike in poverty and hunger, lifting to more than 800 million the number of people who were undernourished in 2020.

In this precarious situation, vulnerable nations must not be asked to choose between paying creditors and providing health care and pandemic lifelines.

Indeed, some of the world’s poorest countries have benefited from the temporary suspension of sovereign debt payments to official creditors, initiated by the G20. Now we must speed up the implementation of the G20’s Common Framework for debt resolution. The keys are to provide more clarity on how to use the framework and offer incentives to debtors to seek Framework treatment as soon as there are clear signs of deepening debt distress. Early engagement with all creditors, including the private sector, and faster timelines for debt resolution will make a difference in the role and attractiveness of the Common Framework.

Providing help to deal with debt is important, but it’s not enough. Given their massive financing needs, many developing nations will need more support with raising revenue, as well as more grants, concessional financing, and liquidity support. Here the IMF has stepped up in unprecedented ways, including through new financing for 87 countries and a historic allocation of Special Drawing Rights of $650 billion.

Countries have already benefitted from holding the new SDRs as part of their official reserves. And some are using part of their SDRs for priority needs, such as vaccine imports, boosting vaccine production capacity, and supporting the most vulnerable households.

We are now calling on countries with strong external positions to voluntarily provide part of their allocated SDRs to our Poverty Reduction and Growth Trust, increasing our ability to provide zero-interest loans to low-income countries.

Third, commit to a comprehensive package to reach net-zero carbon emissions by mid-century.

New IMF staff analysis projects that increasing energy efficiency and transitioning to renewables could be a net job creator, because renewable technologies tend to be more labor-intensive than fossil fuels. In fact, a comprehensive investment plan with a combination of green supply policies could lift global GDP by about 2 percent this decade—and create 30 million new jobs.

In other words, as we strive to reach net-zero emissions, we can boost prosperity—but only if we act together and help ensure a transition that benefits all. The most vulnerable within societies and among countries will need more help making the structural transformation to a low-carbon economy.

One thing is clear: putting a robust price on carbon lies at the heart of any comprehensive policy package. Here G20 leadership will be critical, particularly when it comes to building support for an international carbon price floor. Moving together could also help overcome political constraints.

Under a proposal put forward by the IMF, a price floor for large carbon emitters would take into account a country’s level of development. It would also allow for equivalent regulations in lieu of an explicit price mechanism like emissions trading. This could jump-start cuts in greenhouse gases at a critical moment for the world.

At COP26 in Glasgow, G20 leaders will have a once-in-a-generation opportunity to move the carbon needle in the right direction and support developing economies. These countries have the fastest growth in population and in demand for energy. But they have the least fiscal firepower to ramp up investment in climate adaptation and emissions reduction—and often lack the technology needed.

At a minimum, this requires richer countries to deliver on their longstanding promise to provide $100 billion per year for green investment in the developing world.

For our part, we are extending a call to channel SDRs to establish the new Resilience and Sustainability Trust that our members strongly endorsed at our Annual Meetings. This will serve the needs of low-income and vulnerable middle‑income countries, including in their transition to a greener economy.

Completing and further strengthening the historic agreement on global minimum corporate tax will also help mobilize revenue for transformative investments.

These and other priorities will be top of mind for global leaders as they gather in La Nuvola.

This futuristic, versatile structure was built through a combination of vision, cooperation, and hard work—exactly what we need from the G20 at this pivotal moment. To secure the recovery and build a better future for all, we must take strong joint action now.

 

 

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Economics

New Zealand cash rates – the canary in the coal mine?

My son, Angus, ventured into the Sydney residential market at the beginning of the year acquiring a small apartment, with what I considered to be an enormous…

My son, Angus, ventured into the Sydney residential market at the beginning of the year acquiring a small apartment, with what I considered to be an enormous loan from one of the Big Four. At the time the fixed four-year home loan rate was around 1.95 per cent per annum. Today, the advertised rate has jumped 1.0 per cent per annum to around 2.95 per cent. This reflects the Australian four-year Government Bond yield moving up from 0.20 per cent at the beginning of 2021 to the current 1.32 per cent.

The likely response to this change from property buyers today is that a much higher proportion of their mortgage will be attributed to a variable home loan. This rate typically reflects the Reserve Bank of Australia’s (RBA) cash rate, and at 0.10 per cent per annum it is currently at a record low, and well below the “emergency low” of 3.0 per cent per annum implemented during the Global Financial Crisis (6 months to September 2009).

Across the ditch, the Reserve Bank of New Zealand (RBNZ) has raised its official cash rate for the second time in two months by 0.25 per cent to 0.75 per cent per annum to counter growing inflation, which hit 4.9 per cent in the September 2021 quarter, and is expected increase to 5.7 percent in the March 2022 quarter.

RBA vs RBNZ cash rate

Markets are currently pricing in five more 0.25 per cent increases by the RBNZ over the next twelve months to a targeted 2.0 per cent per annum. Will New Zealand be seen as a canary of the coal mine moment given inflation has become a global problem? Only time will tell, however if cash rates happen to jump by 1.5 per cent and this filters through into the rate for variable home loans. The tailwinds currently being enjoyed by asset owners (with debt) – close to nil interest rates – could easily become headwinds.

The US inflation figure for October 2021 hit 6.2 per cent, a 30 year high.  Selected CPI subcategories saw the following 12 month changes: Beef +24 per cent, gasoline +51 per cent, natural gas +28 per cent and used cars and trucks +26 per cent. The UK was not far behind, with an inflation rate of 4.2 per cent for October.

ds-us-inflation-2021-2

Global supply chain bottlenecks and shifting consumer demand from services to goods could well be transitory, but as the Founder of Bridgewater Associates, Ray Dalio, warns, “raging inflation” is eroding people’s wealth today – particularly those who have their money in cash.




Author: David Buckland

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Economics

Dow Jones, the S&P 500, and Nasdaq price forecast after sell-off on Friday

Wall Street’s three main indexes ended sharply lower on Friday as news of a new COVID variant worried investors around the world. The World Health Organization…

Wall Street’s three main indexes ended sharply lower on Friday as news of a new COVID variant worried investors around the world.

The World Health Organization (WHO) on Friday designated a new COVID-19 variant detected in South Africa, and a lot of people didn’t want to hold risk assets on Monday morning or are afraid of what that could look like Monday morning.

Markets are reacting negatively because it is unknown at this point to what degree the vaccines will be effective against the new strain and would it initiate new lockdowns around the world. David Kotok, chairman and chief investment officer at Cumberland Advisors, added:

All policy issues, meaning monetary policy, business trajectories, GDP growth estimates, leisure, and hospitality recovery, the list goes on, are on hold. The new strain may complicate the outlook for how aggressively the Federal Reserve normalizes monetary policy to fight inflation.

The new Omicron coronavirus is detected in Britain, Italy, Netherlands, Germany, Israel, Belgium, Botswana, Denmark, Hong Kong, and Australia for now.

Britain has already imposed travel restrictions on southern Africa, while the European Commission is considering suspending travel from countries where the new variant has been identified.

The upcoming week will be busy, and investors will pay attention to Fed Chair Jerome Powell and U.S. Treasury Secretary Janet Yellen’s appearance before Congress to discuss the government’s COVID response on November 30.

S&P 500 down -2.3% on Friday

 S&P 500 (SPX ) weakened by -2.3% on Friday and closed the week at 4,594 points.

Data source: tradingview.com

If the price falls below 4,500 points, it would be a strong “sell” signal, and we have the open way to 4,300 or even 4,200 points.

The upside potential remains limited for the week ahead, but if the price jumps above 4,650 points, the next target could be around 4,700 points.

DJIA down -2.5% on Friday

The Dow Jones Industrial Average (DJIA) weakened -2.5% on Friday and closed the week below 35,000 points.

Data source: tradingview.com

The Dow Jones Industrial Average remains under pressure as news of a new COVID variant worried investors worldwide.

The current support level stands at 34,500 points, and if the price falls below this level, the next target could be around 34,000 points.

Nasdaq Composite down -2.2% on Friday

Nasdaq Composite (COMP) has lost -2.2% on Friday and closed the week at 15,491 points.

Data source: tradingview.com

The strong support level stands at 15,000 points, and if the price falls below this level, it could be a sign of a much larger drop.

Summary

Wall Street’s three main indexes ended sharply lower on Friday after the news that the World Health Organization designated a new COVID-19 variant detected in South Africa. All policy issues go on hold currently, and investors will pay attention to the government’s COVID response on November 30.

The post Dow Jones, the S&P 500, and Nasdaq price forecast after sell-off on Friday appeared first on Invezz.







Author: Stanko Iliev

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Economics

Wind Power Becoming too Cheap for Industry to Sustain Itself

The price of generating wind power has gotten so low, that companies may soon be unable to invest in additional
The post Wind Power Becoming too Cheap…

The price of generating wind power has gotten so low, that companies may soon be unable to invest in additional technologies for the sector.

According to major turbine-making company Siemens Gamesa, the cost of wind power has recently dropped to such a low level that it can finally challenge the fossil fuel industry, mostly due to an abundance of investments in renewable energy. “What we’ve clearly achieved is that wind power is now cheaper than anything else,” said the company’s CEO Andreas Nauen as quoted by Reuters.

However, Nauen warned that “we shouldn’t make it too cheap,” because it could hinder the influx of additional investments in the green space. Across Europe, both wind and solar are substantially cheaper that natural gas, coal, and even nuclear power. And, with governments’ strong ambitions to adopt a climate friendly agenda, the demand for wind turbines has reached a record-high; but, the relatively lower prices and increased competition have also eroded away at producers’ margins.

“We have probably driven it too far,” said Nauen, adding that if prices continue to decline, the sector won’t be able to invest in further innovations. To make matters worse, accelerating global inflation for raw materials, coupled with supply shortages, also threatens to squeeze turbine makers’ margins. Moreover, governments around the world have begun eliminating generous wind subsidies in favour of more competitive contracts submitted by the lowest bids.

“We need to change auction systems in the future,” said Nauen, suggesting that local job creation should be governments’ top priority, rather than just the lowest price.


Information for this briefing was found via Reuters. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

The post Wind Power Becoming too Cheap for Industry to Sustain Itself appeared first on the deep dive.

Author: Hermina Paull

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