Climate Change

Press briefing for the World Economic Outlook Update on Monday, January 19 at 10:30 AM CET (4:30 AM ET), hosted at the Auditorium of the National Bank of Belgium in Brussels.

The demand and supply of new skills—especially in IT and AI—are reshaping labor markets, impacting wages and hiring. About one in ten job vacancies in advanced economies demands at least one new skill, often appearing first in the United States. The incidence is about half in emerging economies. These skills boost average wages and employment but deepen polarization, mostly benefitting high- and—through higher consumption of services—low-skilled workers, and potentially contributing to the shrinking of the middle class. Vacancies demanding AI skills post higher wages, but the diffusion of such skills is linked to lower employment in occupations with high exposure and low complementarity with AI, posing challenges for the youth. A Skill Imbalance Index reveals wide cross-country differences. Economies facing strong demand should prioritize education and reskilling, while those facing strong supply should foster firms’ absorption through innovation and access to credit.

The country continues to face a highly challenging environment marked by the conflict in the East, compounded by mounting humanitarian pressures. The situation continues to strain public finances, with escalating security spending crowding out other essential expenditure. Recent political transitions, including a government reshuffle and changes of leadership at the central bank and the National Assembly, have not altered the authorities’ firm commitment to the Fund-supported programs.

This paper examines how productivity dynamics and, as a consequence, potential output, are affected by energy price shocks. We do this through the lens of a model of endogenous technical change where firms adjust their investment in non-energy productivity and energy productivity in reaction to the economic environment. Higher energy prices prompt a shift in investment from enhancing non-energy (capital and labor) productivity to improving energy efficiency. The resulting gains in energy efficiency act as an important macroeconomic buffer, but cannot fully offset the adverse input price effect and the transitional cost of shifting investment away from non-energy productivity. We thus find that the change in European energy prices following the 2022 shock reduces the level of euro area potential GDP by 0.8 percent by 2027. The impact on potential growth is temporary, and will have dissipated by that time. Energy efficiency itself is projected to rise by about three percent, offering a silver lining to the crisis. We estimate that the output effect would have been around two-thirds larger had energy efficiency not cushioned the impact of the price shock.

Strong growth has continued during 2025 as large financial inflows have contributed to robust domestic demand, but the medium-term outlook remains vulnerable to a less favorable external environment in the context of regional and global uncertainty. Tajikistan’s favorable economic performance creates an opportunity to deepen reforms to address structural vulnerabilities and support domestic job creation.

We investigate the role of government credit in monetary policy transmission, using detailed credit registry data from Brazil. We find that government direct credit can effectively support small and medium-sized enterprises (SMEs) in a tight monetary policy environment, aligning with developmental objectives. But it comes at the cost of diminishing the overall effectiveness of monetary policy transmission. We also uncover complexities introduced by government-subsidized lending, where the impact of monetary policy transmission is influenced by factors such as credit market segments, lending relationships, and prevailing monetary policy conditions. These insights provide valuable guidance for policymakers on the transmission of monetary policy and the trade-offs involved in government credit programs.