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The Parrot and Commodity Prices

Otaviano Canuto | Posted : October 10, 2018

“Teach a parrot the terms ‘supply and demand’ and you’ve got an economist.” That parrot can explain to us what is happening with commodity prices (Chart 1, left side). That is, while agricultural and industrial metal prices - particularly copper - plummeted on average by over 10% since June, energy prices - especially oil - have risen nearly 20% since the beginning of the year. Brent's barrel price is now triple what it was in early 2016. Check the latest World Bank Commodities Price Data (The Pink Sheet) here.

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How to heal the Brazilian economy

Otaviano Canuto | Posted : September 18, 2018

If I were to synthesize the current situation of the Brazilian economy in one sentence, I would say: “it is suffering from a combination of ‘productivity anemia’1 and ‘public sector obesity2’". On the one hand, the mediocre performance of productivity in Brazil in recent decades has limited its GDP growth potential. On the other, the gluttony for expanding public spending has become increasingly incompatible with such limits in the potential expansion of GDP, particularly since the former has not been achieving socioeconomic results that match such appetite.

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No Women, No Growth – The Case for Increasing Women’s Leadership in Latin America

Otaviano Canuto | Posted : August 27, 2018

Latin America is up against a momentous year on multiple fronts. On one hand, game-changing national elections in six countries, including three of its largest – Brazil, Mexico and Colombia – are poised to reshape the political scenario in the region. In parallel, the economic agenda is front and center of countries’ efforts to overcome imbalances, implement reforms and accelerate growth. As a backdrop to all this, an important feminist movement is unfolding on the heels of a year marked by discussions on gender equality, with critical implications on both the political and economic spheres.

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Benefits and Costs of Opening Brazil’s Foreign Trade

Otaviano Canuto | Posted : August 13, 2018

The Brazilian economy pays a price in terms of productivity foregone because of its lack of trade openness. A trade opening process would bring an adjustment impact that could nonetheless be mitigated with public policies that facilitate labor mobility and job migration. Benefits from trade opening would also hinge on policy improvements in complementary areas, such as infrastructure investments, business environment and others.

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Global imbalances and currency bullying

Otaviano Canuto | Posted : August 06, 2018

The IMF released last July 24 its latest assessments of the current account balances for the 30 largest economies in its External Sector Report 2018 (ESR). There was no major change in 2017 relative to previous years and the reconfiguration of surpluses and deficits that has prevailed since 2013 was essentially extended. However, there are reasons to expect more abrupt alterations ahead, as the U.S. fiscal easing under high employment conditions unfolds. Given the context of ongoing U.S.-led trade wars, as well as the recent bout of Chinese exchange rate depreciation, one may wonder about the prospects of currencies also becoming subject to war or rather to what one might call “currency bullying”.

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Emerging markets face multiple tantrums

Otaviano Canuto | Posted : July 03, 2018

The addition of a fourth US rate rise to the Federal Reserve’s 2018 dot-plot graph after the June meeting of the Federal Open Market Committee sparked a bout of portfolio outflows from emerging markets. This followed a fleeting upswing at the beginning of the month that fell short on reversing the unwinding of exposure and sell-off of assets in May (Chart 1). Country differentiation has been accentuated, with exchange rate devaluation pressures and capital outflows occurring more notably in economies exhibiting higher vulnerability to sudden stops in foreign finance.

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Argentina, Turkey and the May Storm in Emerging Markets

Otaviano Canuto | Posted : June 06, 2018

The spike in US bond yields since mid-April in tandem with the strengthening of the dollar sparked a retrenchment of capital flows to emerging markets (EM), accompanied by a sell-off of assets in some cases. Argentina and Turkey suffered from strong and potentially disruptive exchange rate depreciation pressures in May, with financial markets calming down only after bold domestic policy moves (interest rate hikes in both countries and, in the case of Argentina, a decision to seek a new loan from the International Monetary Fund - IMF). 

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Climbing a tall knowledge ladder

Otaviano Canuto | Posted : May 10, 2018

The April issue of the IMF’s “World Economic Outlook (WEO)” included a chapter on how globalization has helped knowledge from technology leaders spread faster than before. Cross-border technological diffusion has not only contributed to rising domestic productivity levels in advanced and emerging economies, but also facilitated a partial reshaping of the technological innovation landscape, with some recipients becoming new significant sources of research and development (R&D) and patents. It behooves us to understand what would it take for such change in the innovation landscape to be even broader. 

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