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The paper examines the impact of oil shocks on sovereign credit default swaps (CDS) for the G10 countries and major oil-exporting countries. The results show that oil demand shocks have a uniformly negative impact on CDS spreads. In contrast, oil supply shocks increase the spreads of the G10 countries, but reduce the spreads of oil-exporting countries. Using quantile regressions, the findings show that oil demand shocks affect spreads across the conditional distribution, while oil supply shocks mostly influence the upper quantiles of spread changes. Furthermore, a two-state Markov-switching modeling confirms a significant non-linearity in the impact of oil shocks.

Business Cycles and Stabilization Policies --- Commodities --- Debt --- Debt Markets --- External Debt --- Finance and Financial Sector Development --- G10 --- International Economics and Trade --- Macroeconomics and Economic Growth --- Oil Exporters --- Oil Prices --- Oil Shock --- Oil-Exporting Country --- Sovereign Credit Default Swaps --- Sovereign Debt

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In 2011, India's economic growth has slowed to below 7 percent and the stock markets mirrored the weakening economic conditions, but recovered somewhat in early 2012. Industrial sector output growth briefly slipped into negative territory. On the demand side, fixed investment and consumption growth slowed. India's exports were growing very strongly through 2011 despite the worsening economic conditions in Europe, which continued to be India's most important export market. The balance of payments continued to be in surplus during April-September 2011, but the Reserve Bank of India (RBI) reserves declined by a small amount since then. The rupee nevertheless depreciated by 20 percent between August and December, before recovering somewhat in early 2012. Macroeconomic policies presented a mixed picture: the central government is likely to miss the ambitious target for fiscal consolidation it had set in the FY2011-12 budget by about one percent of Gross Domestic Product (GDP). Slippages are due to lower-than-expected revenues and increasing outlays on subsidies, which had been given low budgetary allocations in anticipation of strong policy changes, which failed to materialize. In India, the slowdown in GDP growth witnessed over the last two quarters is likely to extend into the coming fiscal year because of the weakness in investment. In FY2011-12 and FY2012-13, GDP growth is forecast to reach around 7-7.5 percent, a significant slowdown from the 9-10 percent growth in the run-up to the global financial crisis. The slowdown is at least partly caused by structural problems (power projects facing delays due to the lack of coal and gas feedstock, mining and the telecom sectors hit by corruption scandals, unavailability of land and infrastructure).

Access to Finance --- Accounting --- Agriculture --- Auctions --- Capital Flows --- Commercial Banks --- Commodity Prices --- Credit Default Swaps --- Currencies and Exchange Rates --- Debt --- Debt Markets --- Developing Countries --- Economic theory & Research --- Emerging Markets --- Equity Markets --- Exporters --- Finance and Financial Sector Development --- Financial Crisis --- Financial Sector --- Gdp --- Household Savings --- Human Capital --- Income Tax --- Inflation --- Insurance --- Interest Rates --- Living Standards --- Macroeconomics and Economic Growth --- Monetary Policy --- Political Economy --- Private Investment --- Private Sector Development --- Productivity --- Purchasing Power --- Remittances --- Savings Rate --- Securities --- Tax Exemptions --- Transparency --- Unemployment --- Wages

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The Indian economy recovered from the slowdown at the time of the global financial crisis with strong Gross Domestic Product (GDP) growth, in particular over the first half of FY2010-11. The agricultural sector bounced back strongly after the 2010 monsoon brought normal levels of rainfall, and the industrial sector registered double-digit growth for three consecutive quarters. Inflation came down to 7.5 percent in November but then accelerated again to 8.4 percent in December because of a renewed food supply shock. The current account deficit in FY2009-10 was the largest ever (in USD terms) and the monthly deficit widened further during the first half of FY2010-11, but the trend then reversed with import growth slowing and export growth accelerating in September-December 2010. With the significant inflation differential between India and its trading partners, the rupees real effective exchange rate (REER) strengthened. On the fiscal side, massive windfall revenue from wireless spectrum auctions and buoyant tax revenue are likely to be offset by two supplementary spending bills. Monetary policy tightening continued with increases in policy rates. This update also discusses several medium-term issues: the link between the real exchange rate and growth, a long-term look at education, demographics and growth, the challenges facing the introduction of the Goods and Services Tax (GST), and the mid-term evaluation of the eleventh development plan. On the real exchange rate, economists have pointed out that the most successful emerging market economies have maintained an undervalued exchange rate to promote exports. In India, the real exchange rate has been broadly stable since the early 1990s, and the International Monetary Fund (IMF) judges it fairly valued with respect to different measures of equilibrium. However, the growing trade deficit and a large fiscal deficit do not quite fit this picture. Discussing policies, we argue that it would be best to focus on policies that increase productivity and competitiveness.

Access to Finance --- Accounting --- Agriculture --- Auctions --- Capital Flows --- Commercial Banks --- Commodity Prices --- Credit Default Swaps --- Currencies and Exchange Rates --- Debt --- Debt Markets --- Developing Countries --- Economic theory & Research --- Emerging Markets --- Equity Markets --- Exporters --- Finance and Financial Sector Development --- Financial Crisis --- Financial Sector --- Gdp --- Household Savings --- Human Capital --- Income Tax --- Inflation --- Insurance --- Interest Rates --- Living Standards --- Macroeconomics and Economic Growth --- Monetary Policy --- Political Economy --- Private Investment --- Private Sector Development --- Productivity --- Purchasing Power --- Remittances --- Savings Rate --- Securities --- Tax Exemptions --- Transparency --- Unemployment --- Wages

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Despite the recent slowdown, the underlying growth of the global economy remains solid. After a 4 percent growth in 2010, Russia's real output is expected to grow 4.4 percent in 2011, increasingly driven by domestic demand. Russia's households have absorbed the food price shock thanks to a combination of higher wages and pensions, and resort to private and public safety nets. The country emerged from the global recession with lower unemployment and poverty than feared. But global risks and uncertainties increased with the new oil shock. Although the short-term impact will be positive for Russia's export and fiscal revenues, there is no room for complacency. Macroeconomic policy should focus on the short-term objective of controlling inflation and medium-term fiscal adjustment towards long-term, sustainable level of non-oil fiscal deficit. Improving the efficiency of public expenditure to create fiscal space for productive infrastructure and strengthening the investment climate for the private sector remain among key long-term challenges. The ongoing rethinking of the government's long-term strategy and a period of high oil revenues provide an opportunity to focus on these long-term issues more forcefully than during the global crisis.

Accounting --- Agriculture --- Airports --- Asset Management --- Business Environment --- Capital Expenditures --- Capital Flows --- Capital Markets --- Civil Service --- Commodity Prices --- Competitiveness and Competition Policy --- Credit Default Swaps --- Debt --- Decision Making --- Developed Countries --- Developing Countries --- Economic Forecasting --- Economic Growth --- Financial Services --- Fiscal & Monetary Policy --- Fiscal Policy --- Fuel Taxes --- Gdp --- Global Economy --- Gross Domestic Product --- Inflation --- Interest Rates --- Investment Climate --- Labor Costs --- Labor Market --- Macroeconomics and Economic Growth --- Market Economy --- Monetary Policy --- Operating Costs --- Private Sector Development --- Privatization --- Property Rights --- Public Investment --- Public Safety --- Public Sector Development --- Public Spending --- Railways --- Retirement --- Risk Aversion --- Roads --- Tax Administration --- Toll Roads --- Transparency --- Transport --- Unemployment --- Vehicles --- Wages

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The improvement in public finances since last year, coupled with buoyant revenue due to the commodity price recovery, has led to growing pressures for increased government spending. Recently approved budget amendments envisage a 4.5 percent of gross domestic product (GDP) increase in spending on the originally approved 2010 budget, while the Mid-Term Budget Framework (MTBF) for 2011-2013 projects another 12.1 percent of GDP increase in spending in 2011. The main driver for the increases is the execution of promises made by both coalition parties to distribute monthly percentage rate, or MNT 1.5million (around USD 1000) to each citizen in the form of cash and non-cash handouts and large public sector wage increases planned for October of this year. If these public spending plans materialize, they will set the stage for a renewed bout of high inflation and a possible return to the macroeconomic vulnerability characteristic of the boom-and-bust cycle of the recent past. In the real sector, the impact of increasing inflation is evidenced through a decline in real wages. The latest informal wage survey indicates that on average, workers' nominal wages have increased by about 10 percent from January 2010 to June 2010; this is because of an increase in job opportunities in the construction sector. Real wages, however, have declined on average due to the significant increase in the consumer price index.

Access to Finance --- Accounting --- Bailouts --- Banking Sector --- Capital Flows --- Cash Transfers --- Commercial Banks --- Commodity Prices --- Credit Default Swaps --- Debt Markets --- Deposit Insurance --- Developing Countries --- Domestic Debt --- Economic Forecasting --- Economic Growth --- Employment --- External Shocks --- Finance and Financial Sector Development --- Financial Crisis --- Financial Institutions --- Financial Stability --- Fiscal Policy --- Foreign Banks --- Gross Domestic Product --- Housing --- Income Tax --- Inflation --- Insurance --- Interest Rates --- Macroeconomics and Economic Growth --- Market Economy --- Migration --- Monetary Policy --- Public Debt --- Public Spending --- Purchasing Power --- Remittances --- Risk Aversion --- Risk Management --- Sovereign Debt --- Transport --- Unemployment --- Wages --- Water Supply