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April 20, 2017, article from marketwatch.com
"IMF warns of dangers of enacting fiscal stimulus as Credit Cycle Worsens"
There are some $4 trillion worth of companies at risk if U.S. plans for fiscal stimulus are enacted but don’t significantly boost the economy, the International Monetary Fund warned Wednesday.
The IMF’s global financial stability report finds improving conditions relative to last year’s issue. But the international agency considered what would happen if the U.S. proceeds in tax reform and deregulation.
The IMF considered a situation where there’s a 10-percentage point reduction in effective corporate tax rates, the expensing of new capital expenditures, the removal of the tax deductibility of interest expenses and a one-off repatriation of retained foreign earnings.
Such a move could add more than $100 billion a year in cash flow to S&P 500 firms, and expensing investment and removing interest deductibility would increase cash flow in capital-intensive sectors, such as energy, real estate and utilities. Repatriating liquid assets would give a big lift to the information technology and health-care sectors, where 60% of the $2.2 trillion in unremitted foreign earnings is concentrated.
However, the IMF notes, cash flow from tax reforms may accrue mainly to sectors that have engaged in substantial financial risk taking.
Further, the corporate sector of late has been relying on debt financing. Corporate credit fundamentals have started to weaken, which create the conditions that can precede a credit cycle downturn.
Median net debt across S&P 500 firms is close to a historic high of more than 1.5 times earnings, the IMF says.
And earnings have dropped to less than six times interest expense. Firms accounting for 10% of corporate assets appear unable to meet interest expenses out of current earnings, and firms representing about 20% of corporate assets have slightly higher earnings cover.
Not surprisingly, what the IMF calls “challenged” firms are primarily in the energy sector, owing to oil-price volatility. But real estate and utilities industries also have a number of challenged firms.
“Authorities need to be vigilant to the increase in leverage and deteriorating credit quality,” the IMF said.
While reduced incentives for debt financing could limit a buildup in leverage, a deterioration in interest coverage can still represent a risk, that could lead to losses for banks, insurers, and funds.
“Although there is room to fine-tune existing regulations, policy makers should guard against wholesale dilution or backtracking on the important progress made in strengthening the resilience of the financial system, particularly at a time when balance sheet fundamentals are deteriorating for U.S. companies,” the IMF finds.
Written by Steve Goldstein, D.C. Bureau chief
April 13, 2017, from IMF.org website by Andrew Mayeda
"Spring Is in the Air for Global Economy", IMF's Lagarde Says
The global economic recovery is gaining momentum as businesses ramp up production, though policy makers must guard against imposing new trade barriers, Lagarde said.
“The good news is that, after six years of disappointing growth, the world economy is gaining momentum as a cyclical recovery holds out the promise of more jobs, higher incomes, and greater prosperity,” Lagarde said Wednesday in a speech in Brussels ahead of the fund’s annual spring meetings next week in Washington.
“But just as we see this momentum unfolding, we also see -- at least in some advanced economies -- doubts about the benefits of economic integration, about the very architecture that has underpinned the world economy for more than seven decades,” the head of the International Monetary Fund said.
The outlook in advanced economies has improved, driven by stronger manufacturing activity, Lagarde said. Meanwhile, higher commodity prices have brought relief to many low-income countries, she said.
“We see spring in the air of the global economy,” Lagarde said in a Bloomberg Television interview following the speech. “We should not waste it.”
Lagarde’s optimistic tone suggests the IMF may upgrade its forecast for the global economy when it releases its World Economic Outlook on April 18. In an update in January, the Washington-based fund forecast the world economy would grow 3.4 percent this year after an estimated 3.1 percent expansion last year.
At the time, the IMF bumped up its projection for U.S. growth this year and next, saying fiscal stimulus planned by President Donald Trump would likely boost output.
IMF’s Lagarde Says Protectionism Is Clearly a Threat
Lagarde said clear downside risks to the global recovery remain, including political uncertainty and the “sword of protectionism hanging over global trade.” Tighter financial conditions could trigger capital outflows from emerging markets and developing economies, she said.
“Underneath those short-term issues lies a weak productivity trend that continues to be a severe drag on strong and inclusive growth,” Lagarde said.
Countries need to adopt the right mix of fiscal and monetary policies and structural reforms to boost growth, she said. At the same time, policy makers need to ensure growth is more inclusive, by addressing the negative effects on workers of trade and technology, according to Lagarde.
She also called on countries to work together to reduce excessive trade imbalances and ensure financial stability. “Fostering more resilient growth therefore requires more international cooperation -- not less.”
In her interview with Bloomberg TV, Lagarde warned the U.S. against targeting a single country in its upcoming currency report -- the first under President Donald Trump, who has promised to label China a currency manipulator.
“You cannot just identify one particular country, because the whole system works together,” she said. “When the currency goes up somewhere, it goes down somewhere else.”
October 6, 2016, from IMF.org website by Press Officer Andrew Kanyegirire
"Paris Agreement" - Ratification
On 5 October 2016, the threshold for entry into force of the Paris Agreement was achieved.
Authoritative information on the status of the Paris Agreement, including information on its signatories, ratification and entry into force, is provided through the United Nations Treaty Collection website
The Paris Agreement will enter into force on 4 November 2016. The first session of the Conference of the Parties serving as the Meeting of the Parties to the Paris Agreement (CMA 1) will take place in Marrakech in conjunction with COP 22 and CMP 12. More information available soon.
Paris Agreement: essential elements
The Paris Agreement builds upon the Convention and – for the first time – brings all nations into a common cause to undertake take ambitious efforts to combat climate change and adapt to its effects, with enhanced support to assist developing countries to do so. As such, it charts a new course in the global climate effort.
The Paris Agreement’s central aim is to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius. Additionally, the agreement aims to strengthen the ability of countries to deal with the impacts of climate change. To reach these ambitious goals, appropriate financial flows, a new technology framework and an enhanced capacity building framework will be put in place, thus supporting action by developing countries and the most vulnerable countries, in line with their own national objectives. The Agreement also provides for enhanced transparency of action and support through a more robust transparency framework. Further information on key aspects of the Agreement can be found here
Nationally determined contributions
The Paris Agreement requires all Parties to put forward their best efforts through “nationally determined contributions” (NDCs) and to strengthen these efforts in the years ahead. This includes requirements that all Parties report regularly on their emissions and on their implementation efforts.
Further information on NDCs can be found here
In 2018, Parties will take stock of the collective efforts in relation to progress towards the goal set in the Paris Agreement and to inform the preparation of NDCs.
There will also be a global stocktake every 5 years to assess the collective progress towards achieving the purpose of the Agreement and to inform further individual actions by Parties.
Taking the Paris Agreement forward
Through decision 1/CP.21, Parties also decided on a work programme
to be undertaken in preparation to the full implementation of the Paris Agreement.
A tool to track progress made in relation to the work programme is available here:
September 30, 2016, from IMF.org website by Press Officer Andrew Kanyegirire
" IMF Launches New SDR Basket Including Chinese Renminbi, Determines New Currency Amounts"
- Ms. Lagarde says SDR basket expansion reflects the ongoing evolution of the global economy and is a significant change for the IMF
Today, the International Monetary Fund (IMF) announced the launch of the new Special Drawing Right (SDR) valuation basket including the Chinese renminbi (RMB), and the new currency amounts that will determine the value of the SDR during the new valuation period.
As approved by the Executive Board of the IMF on November 30, 2015, effective October 1, 2016, the RMB is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the euro, Japanese yen, and the British pound (see Press Release No. 15/543
). The Board also decided at that time that the weights of each currency would be 41.73 percent for the U.S. dollar, 30.93 percent for the Euro, 10.92 percent for the Chinese yuan, 8.33 percent for the Japanese yen, and 8.09 percent for the Pound sterling.
To mark the launch of the new SDR basket, Ms. Christine Lagarde, Managing Director of the IMF, stated: “The expansion of the SDR basket is an important and historic milestone for the SDR, the Fund, China and the international monetary system. It is a significant change for the Fund, because it is the first time since the adoption of the euro that a currency is added to the basket.
“The Renminbi’s inclusion reflects the progress made in reforming China’s monetary, foreign exchange, and financial systems, and acknowledges the advances made in liberalizing and improving the infrastructure of its financial markets. The continuation and deepening of these efforts, with appropriate safeguards, will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy.
“This milestone also reflects the ongoing evolution of the global economy. The Fund plays an important role in this evolving process, and the inclusion of the Renminbi in the SDR basket shows once again that the Fund stands ready to adapt to change.”
In addition, the Board also decided today that effective October 1, 2016, the value of the SDR will be the sum of the values of the following amounts of each currency: (USD O.58252, Euro ).38671, Yaun 1.0174, Yen 11.90, Pound 0.085946).
These currency amounts are calculated such that the value of the SDR in U.S. dollar terms is the same under the new basket as the value of the SDR prevailing today, and that, at the average exchange rates for the three-month period ending today (July 1 through September 30, 2016), the share of each currency in the value of the SDR corresponds to the weight approved by the IMF Executive Board on November 30, 2015.
The Board’s decision on the amount of each currency in the SDR valuation basket is the final step toward implementing the results of the latest review of the method of valuation of the SDR (see Press Release No. 15/543
SDR interest rate
The SDR interest rate that will be determined on October 7 and applied for the week of October 10, 2016 will be the first one that reflects the new SDR valuation basket and includes a representative interest rate for the RMB. The change in the SDR interest rate relative to the previous week will reflect the changes in the composition and shares of currencies in the SDR valuation basket, as well as the changes in the interest rates on each component financial instrument.
October 4, 2016 from Barchart.com, by Paul Wiseman, AP Economics Writer Martin Crutsinger contributed to this report"IMF reduces its forecast for US economic growth this year"
WASHINGTON (AP) — The International Monetary Fund is downgrading its forecast for the U.S. economy this year and warns that political discontent threatens global growth.
The IMF on Tuesday cut its estimate for U.S. economic growth in 2016 to 1.6 percent from the 2.2 percent it had predicted in July. The American economy grew 2.6 percent in 2015.
The fund's dimmer outlook for the U.S. occurs even as the Federal Reserve is thought to be preparing to raise interest rates in December.
The U.S. economy has been sputtering since late last year. The main culprit is weak business investment. The fund blames the U.S. investment drought on cutbacks in the energy industry, a strong dollar that's depressing exports and "policy uncertainty" surrounding the November elections.
The IMF says weakness in the U.S. is offset by improving prospects among developing economies. Commodity prices have stabilized after last year's free fall, which badly damaged developing countries that export raw materials such as iron ore and copper. The fund left unchanged its forecast for overall global growth this year at a lackluster 3.1 percent.
"Global growth remains weak," said IMF chief economist Maurice Obstfeld.
The IMF warns that populist discontent — reflected in Britain's vote in June to leave the European Union and the rise of Donald Trump in the United States — could cause countries to retreat from global trade, weakening worldwide growth.
The fund increased its forecast for India to 7.6 percent growth, fastest among the world's major economies. And it upgraded the outlook for Russia — though it still expects the Russian economy to contract 0.8 percent this year as it contends with low oil prices and sanctions for its aggression in Ukraine. The IMF left unchanged its forecast for 6.6 percent growth in China, the world's second-biggest economy.
Pulled down by slower expected growth in the United States, the world's advanced economies are expected to grow 1.6 percent this year, down from the 1.8 percent the fund forecast in July. But the IMF upgraded its forecast for Japanese growth to 0.5 percent this year and for the 19 countries that use the euro currency to 1.7 percent.
The fund's outlook for the United States is a bit gloomier than other private forecasts. Members of the National Association for Business Economics, for example, expect the U.S. economy to grow 1.8 percent.
The Fed has signaled that it is likely to raise U.S. interest rates at its December meeting. Investors put the likelihood of a December rate hike at 63 percent, according to figures from the CME Group.
The American labor market has remained solid despite unimpressive economic growth. Employers have added a healthy 204,000 jobs a month the past year, and the unemployment rate is at 4.9 percent, close to what economists consider full employment.
February 24, 2016 from Reuters by Jason Lange
IMF report urges G20 to prepare global economic stimulus plan
The Group of 20 nations must plan now for a coordinated stimulus program to keep a slowing global economy from stalling, International Monetary Fund staff said in a report on Wednesday.
The report was prepared for senior G20 officials who are meeting in Shanghai later this week amid falling equity markets, volatile currencies and signs of economic weakness throughout the world.
"The G20 must plan now for coordinated demand support using available fiscal space to boost public investment," IMF staff said in the report.
The Shanghai meeting is already being compared to the G20 meeting in April 2009 when officials agreed on coordinated stimulus to prevent a worldwide depression during the global financial crisis.
U.S. Treasury Secretary Jack Lew downplayed expectations of a G20 emergency plan this week, telling Bloomberg Television that some world economies were doing better than thought and that investors should not "expect a crisis response in a non-crisis environment."
But the IMF staff said global economic growth was slowing and financial conditions were tightening for emerging economies, where commodity exporters have been hard hit by an economic slowdown in China.
"These developments point to higher risks of a derailed recovery," according to the report.
Governments around the world may need to create new financing mechanisms to help some emerging market and commodity exporting countries that are highly vulnerable to reversals in the flows of money, the IMF staff said.
The IMF will conduct a review this year of how countries should manage capital flows and will focus its attention on the sources of capital and where the funds are allocated.
Investor cash rushed out of poorer or underperforming economies and into the United States in the run-up to the U.S. Federal Reserve's interest rate hike in December, which ended seven years of near-zero rates.
That weakened emerging market currencies, making their exports more expensive at a time when global demand for commodities had also fallen.
In January, the IMF cut its forecast for 2016 global economic growth to 3.4 percent from 3.6 percent. The staff report on Wednesday said another downgrade was likely in April.
The IMF staff also called on advanced economies to rely less on monetary policy and more on fiscal policy to support economic growth. They said emerging market economies should adopt flexible exchange rates when feasible and use foreign exchange interventions only on a temporary basis.