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Q2 GDP and June industrial production above consensus. Retail sales slightly below. Figure 1: Real GDP, 1992Q1=1 (black), Bloomberg consensus of 7/16 (red triangle), IMF WEO April 2023 (light blue triangle). Source: OECD, IMF WEO, Bloomberg. Figure 2: Chinese industrial production ex-construction (black), Bloomberg consensus of 7/16 (red triangle). ECRI defined peak-to-trough recession dates […]

A key question for U.S. policymakers is whether the recent strength in federal revenue is likely to continue. This question is addressed through an econometric analysis of the determinants of tax revenue, using time series that are adjusted for tax policy changes. The results suggest that growth in corporate profits and capital gains each contributed forty percent of the increase in the revenue-to-GDP ratio from 2004-2006, and rising income inequality explains much of the rest. While part of the revenue rise is the result of structural changes taking place in the U.S. economy, some of the rece

National’s “fiscal plan” came out this afternoon. To no one’s great surprise I guess, we didn’t learn much from it. The big National numbers had been in the Back Pocket Boost package a few weeks ago, combined with the statement from Willis last week that National would get back to an OBEGAL surplus no sooner … Continue reading 0.7 per cent of GDP

This paper attempts to assess the economic consequences for Iraq of its 2003 invasion. Using revised GDP data (available only back to 1997), it estimates the effects of oil price changes, the invasion, and the threat of invasion on GDP growth rates. Even in a short time series, the
invasion is found to be significant at the 10 level, and is associated with a halving of real GDP in 2003. Almost alone among its neighbours and OPEC members, Iraqi real GDP correlates negatively with oil prices over 19972004, a symptom of the economic distortions faced by its economy. While
Iraq has received considerable attention from international institutions following the 2003 invasion, its subsequent troubled economic performance should not surprise in light of the transition recessions of the post-Soviet countries.

The external conditions facing the transition economies slightly improved on balance during the year 2004. The eight new EU member states of Central and Eastern Europe (NMS-8) recorded higher GDP growth (5% on average) than in the previous year, largely thanks to expanding domestic demand - in particular of investment (Czech Republic, Hungary and Latvia) and of private consumption (Poland, Slovakia, Estonia and Lithuania). Growth accelerated also in Southeast Europe (except Croatia and Macedonia), as well as in Belarus and Ukraine (Russia's GDP grew by 7% again). The transition economies have thus been one of the most dynamic regions in the world. The NMS have been growing more than 2 percentage points faster than the 'old' EU-15. These countries not only add a certain dynamism to the European economy but put some pressure on the EU reform agenda as well. On the downside, the situation on the labour market remains precarious, robust economic growth notwithstanding. The average rate of unemployment in the NMS is nearly twice as high as in the EU-15 (mainly on account of Poland and Slovakia); in most of Southeast Europe it is even higher, with little prospect for marked improvements any time soon. The latter refers to industry in particular, which - despite a remarkable acceleration of output growth (10% on NMS average in 2004) - continues to shed labour. This implies impressive gains in labour productivity and, given the general wage restraint, in unit labour costs as well. The improving international costs competitiveness of NMS has recently been eroded by appreciating domestic currencies (Hungary, Poland and Slovakia). After a temporary increase in 2004 (largely caused by tax adjustments prior to EU accession and rising energy prices), inflation resumed its downward trend, reaching low single digits in most NMS (except Slovakia) and in the remaining transition countries as well (except Romania, Serbia and Ukraine). Russian inflation has been stubbornly high, fuelled by large inflows of foreign currency, tariff hikes and galloping producer prices. The remaining inflation differential with respect to the eurozone, magnified by a natural appreciation tendency of NMS currencies (frequently stimulated by short-term capital inflows) may lead to competitiveness losses in the future. Given the ongoing productivity and quality improvements this danger is not imminent in most NMS yet. Still the exchange rate developments should be watched closely, not least in the period prior to EMU accession, which in several NMS will probably extend beyond 2010. The need to reduce excessive budget deficits represents another challenge facing several NMS in the coming years. The outstanding feature of last year's economic developments was a boost in foreign trade (or of intra-EU dispatches and arrivals in the case of NMS). NMS exports jumped by more than 20% in current euro terms, somewhat faster than imports (+18%), yet their aggregate trade balance slightly deteriorated (in fact foreign trade contributed positively to GDP growth in Poland only). Nonetheless, the export sector of NMS is strengthening - not least thanks to sustained reforms and large FDI inflows in the past few years - and their integration in the European and world economy is increasing. Today, 86% of NMS exports and 72% of imports represent intra-EU trade. Given the high (and rising) export surpluses of Russia and Ukraine - in both cases swelled by rising world market commodity prices - the trade contribution to growth has been positive in these countries as well. After the takeover of EU external trade policies upon accession, especially intra-NMS trade (preliminary estimates suggest an increase by 30% in 2004) and extra-EU trade are booming. Altogether, the NMS enjoy a surplus in trade transactions with the EU, an achievement attributable largely to the high and growing surpluses of the Czech Republic, Hungary and Slovakia (and to a lower deficit in Poland); the separate effect of trade with the EU on GDP growth was most likely positive. In Southeast Europe, trade integration is (with few exceptions such as Bulgaria) still rather low and many countries in the region suffer from huge trade and current account deficits which may not be sustainable (particularly in Bosnia and Herzegovina, and Serbia). The EU accession of eight Central and East European countries on 1 May 2004 has brought few surprises and may generally be considered a success. The accession was well prepared and managed. The direct economic effects of accession on the NMS are difficult to identify economic growth, especially of industry, had speeded up already before May 2004, a temporary increase of inflation was soon successfully contained and domestic currencies strengthened. Net transfers from the EU budget were negligible (less than 1% of NMS GDP), yet inflows of FDI picked up in 2004 again - albeit remaining below the peak of 2000-2002. The GDP growth outlook is fairly robust barring major external shocks, the NMS are expected to grow by 4-5% annually in the coming years (the Baltic States will continue to enjoy even somewhat higher growth) thus maintaining their speed of nominal and real convergence to the 'old' EU. Inflation is converging to eurozone levels as well. The shadow side of this fairly upbeat forecast is the labour market where no substantial reduction of unemployment is expected. Estonia, Lithuania and Slovenia (all already participating in the ERM II) may adopt the euro in late 2006 or early 2007, with the remaining 'high-deficit' NMS following suit during 2008-2010. Also the economic outlook for Southeast Europe is more encouraging now than in the recent past GDP growth will accelerate in most countries (without recurring inflation), but unemployment will remain high. As far as the integration prospects of this region are concerned, Bulgaria and Romania will become EU members in 2007, followed by Croatia in 2008 and with Macedonia the next candidate. The coming two years will be crucial also for the remaining countries of the Western Balkans as a number of exceptionally difficult issues will have to be solved (in Bosnia and Herzegovina, Serbia, Montenegro and Kosovo). If everything goes well (and there are a lot of caveats) the whole region could be in the EU around 2015. However, by that time the issue of Turkey's EU membership will have to be finally decided and a possible application of Ukraine (as well as Moldova) for EU membership will have to be dealt with. In addition, the enlarged EU will simultaneously have to clarify its relations with Russia. These challenging developments will doubtlessly require a new (and this time much more radical) reform of the whole system of EU institutions.

Bangladesh has in recent decades achieved reasonably rapid economic growth and significant progress in social development indicators despite many impediments: the desperate initial conditions after gaining independence, lack of resources, natural disasters, widespread corruption, and a record of systemic governance failure. By identifying the sources of growth stimulus and the drivers of social transformation, the paper addresses what it calls Bangladesh's development surprise. The policy-making process is analyzed as the outcome of incentives created by patronage politics as opposed to the compulsion for the government to play an effective developmental role. The paper examines the governance-growth nexus as affecting the pace and quality of growth and its inclusiveness. If the governance environment has been barely adequate to cope with an economy breaking out of stagnation and extreme poverty, it increasingly may prove a barrier to putting the economy firmly on a path of modernization and global integration. Bangladesh's experience also shows that it is possible to make rapid initial progress in many social development indicators by creating awareness through successful social mobilization campaigns and by reaping the gains from affordable low-cost solutions. Further progress, however, will require increased public social spending and improved quality of public service delivery.

Do governments in Latin America tend to be optimistic when preparing budgetary projections? We address this question by constructing a novel dataset of the authorities' fiscal forecasts in six Latin American economies, using data from annual budget documents over the period 2000–2018. We compare such forecasts with the outturns reported in the corresponding budget documents of the following years, to understand the evolution of fiscal forecast errors. Our findings suggest that: (i) there is no general optimistic bias in the forecasts for the fiscal balance-to-GDP ratio; (ii) over time, fiscal forecasts have improved for some countries and worsened for others; (iii) forecast errors for the fiscal balance-to-GDP ratio are positively correlated with GDP growth and terms-of-trade changes, and negatively correlated with GDP deflator surprises; (iv) forecast errors for public debt-to-GDP ratios are negatively associated with surprises to GDP growth; and (v), budget balance rules may help contain fiscal forecast errors.

JEL Classification Codes: E6, H50

Positive NFP employment surprise. Figure 1: Nonfarm Payroll (NFP) employment from CES (bold blue), civilian employment (orange), industrial production (red), personal income excluding current transfers in Ch.2017$ (bold green), manufacturing and trade sales in Ch.2017$ (black), consumption in Ch.2017$ (light blue), and monthly GDP in Ch.2017$ (pink), GDP (blue bars), all log normalized to 2021M11=0. Source: […]

AbstractThis paper identifies how a rise in the deficit/debt impacts interest rates by looking at the high‐frequency response of interest rates to fiscal surprises. The fiscal surprises are the unexpected components of deficit releases and the changes in official forecasts by the Congressional Budget Office and by the Office of Management and Budget. The paper estimates that a rise in the deficit‐to‐GDP ratio of 1 percentage point raises the 10‐year nominal interest rate by 8.1 basis points. The response is similar quantitatively for other Treasury maturities and for corporate debt interest rates. The paper also investigates which theoretical channel drives this relationship, and whether surprises affect interest rate expectations or the term premium. These results are used to estimate how recent spending may have affected interest rates.

January NFP employment growth surprises on the upside, at +275 vs. +198 thousands consensus. With combined downward revisions in the prior two months totaling 168 thousand, the level of employment is just about consistent with implied consensus. Here's a picture of key indicators followed by the NBER's Business Cycle Dating Committee, plus monthly GDP and […]

NFP growth surprises on the upside (see discussion here), but combined with downward revisions in October and November, we're just at about the consensus level. Here's the picture of some key indicators followed by the NBER Business Cycle Dating Committee, plus monthly GDP and GDPNow. Figure 1: Nonfarm Payroll employment incorporating preliminary benchmark (bold dark blue), […]

Nominal consumption spending surprises on the upside. Here's a picture of the series the NBER BCDC follows, along with monthly GDP. Figure 1: Nonfarm payroll employment, NFP (dark blue), civilian employment (orange), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), consumption in Ch.2012$ (light blue), and […]

Nonfarm payroll employment surprises on the downside, while preceding months are revised down. Here's the picture of key indicators followed by the NBER BCDC, along with monthly GDP (SPGMI). Figure 1: Nonfarm payroll employment, NFP (dark blue), civilian employment (orange), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in […]

Industrial production near consensus, while manufacturing surprises on upside (+0.8% vs. +0.3% m/m). Here's a picture of key indicators followed by the NBER Business Cycle Dating Committee, along with SPGMI's monthly GDP (formerly from Macroeconomic Advisers and IHS-Markit). Figure 1: Nonfarm Payroll employment from CES (bold blue), from Philadelphia Fed early benchmark (teal), civilian employment […]