The pervasiveness and relevance of asset price booms and busts in modern economies has now been fully acknowledged. So has the case for combining prudential regulation and monetary policy in the complementary pursuit of financial and macroeconomic stability.
The following post is a part of a series that discusses 'managing risk for development,' the theme of the World Bank’s upcoming World Development Report 2014.
A composite story based on prevailing business practices
In January 1990 after the Velvet Revolution, Jan Sarkis, the son of a Greek immigrant in rural Czech Republic, decides to start a business to produce bottled juices. To obtain needed machinery and funds for working capital (fruits, containers, bottles, etc.), Jan takes credit from a local bank. He had heard from the locals that the region used to experience periodic floods. Although Jan hasn’t experienced any himself, he still buys flood insurance from a reputable insurance company. In the 90s, rural Czech Republic was prone to thefts and burglary. So, Jan decides to protect his savings by depositing them in a bank. Good times settle in Czekia, and Jan’s business and the country begin to boom.
|Flows into the bond and equity funds of developing countries rallied in the second half of this year amid stabilization of financial markets and quantitative easing in high income countries.|
Financial Markets…European stocks slipped on Friday with the benchmark index falling to a three-week low as early optimism on Spain’s new austerity measures was short-lived.
Spanish 10-year bond yield rose back above 6% amid uncertainty over its troubled banks before stress test results, fading optimism on the country’s debt cutting plan, and a looming Moody’s rating review which may cost the country its investment grade rating.
- Congo, Democratic Republic of
- Dominican Republic
- Korea, Republic of
- South Africa
- East Asia and Pacific
- Europe and Central Asia
- Latin America & Caribbean
- Middle East and North Africa
- Financial Sector
- Macroeconomics and Economic Growth
- Central banks
- financial markets
- retail sales
- consumer price inflation
- Industrial Production
- monetary policy measures
Sub-Saharan Africa (SSA) is home to the world’s poorest countries. The region’s geographical disadvantages are often viewed as an important deterrent to its economic development. A country’s geography directly affects economic development through its effect on disease burden, agricultural productivity or the availability of natural resources. However, the new economic geography (NEG) literature, initiated by Krugman (1991), highlights another mechanism through which geography affects prosperity.
As reports of sluggish global job creation continue, some look to new firms as a source of net job creation (Haltiwanger, 2011). But the lead article of this month’s Economics Letters, citing panel data from 93 countries, shows that most countries experienced a sharp drop in new firm registration during the financial crisis. As discussed in an earlier blog, relatively larger contractions are seen in countries with more developed financial markets and where entrepreneurs depend more on banks for start-up capital.
Important developments today:
1. EU unveils new rules for financial markets
2. U.S. Industrial Production up in August
|The global slowdown is hurting Cambodia's tourism industry, with fewer visitors in late 2008 than in the same period of 2007. Image credit: flydime at Flickr under a Creative Commons license.|
It's been a couple of months since the World Bank prepared the "perfect storm" report on the recent economic developments in East Asia. Our view at the time was that the crisis would reveal some of Cambodia's economic vulnerabilities – i.e. its lack of export diversification and its extreme reliance on foreign investment for growth. I think that this is an important lesson from our recent analysis on growth in Cambodia (more on this later).
Our projections for 2009 at the time were just below 5 percent GDP growth. This is consistent with the projections of the Government, the IMF, the Asian Development Bank, and an International Labor Organization (ILO) report on the impact of the crisis released yesterday. The Economist Intelligence Unit has a more pessimistic projection of 1 percent.
So who is right?
Well, the bad news continues across the East Asia and Pacific region. The Financial Times just ran a long article on the "speed and ferocity of the region's economic downturn." The piece highlighted that the fast downturn was a result of Asia's over-reliance on export-led growth over the past decade. This follows the IMF's slashed growth forecasts for the large East Asian economies. It projected only 5.5 percent growth across developing Asia for 2009, which sounds great for most economies these days, but it is way off of the 7.8 percent posted last year.
The IMF is expecting only 6.7 percent growth in China, which is 1.8 percent less than what they forecast only in October. This contrasts sharply with the view of the World Bank's Chief Economist, Justin Lin, who just two weeks ago said he thought China could achieve the target rate of growth – 8 percent – this year because of fiscal stimulus spending.