National industrial policy may be effective but they are at risk, says IMF

Provided by Andrea Shal

Washington (Reuters) -Deratel countries seek to reorganize their economy by using public support for specific companies and sectors, but subsidies and other industrial policy may not be expensive and may not be effective if not carefully used, the IMF said Friday.

The International Monetary Fund in the future economic perspective of the World Economic Perspective said that industrial policies can help countries to bring production ashore and catch up with other world players in the target sector, but they can also increase consumer prices and encourage incorrect distribution of resources.

The department, which addressed the European Union, China, Brazilian and South Korean industry policy, concluded that well -designed and targeted support could help the sectors, but the subsidies had to be carefully developed for clear purposes and accomplished with structural reforms. It did not contain data on recent industrial policy changes in the US

Due to global growth slowing down, increasing geopolitical voltage and increasing concern for supply chains and energy security, the risk of industrial policies used in subsidies and other provisions to help target companies and increase growth, job creation and greater self -confidence.

One third of all industrial politicians, implemented in 2009-2022, were focused on the energy sector, says.

In order to be successful, the IMF said industrial policy should be carefully evaluated, re -calibrated and try to improve the overall business environment.

The report does not mention the US; Presidential Donald Trump’s administration has adopted some industrial policy measures in recent months, including the taking of securities in troubled companies such as the Chipmaker Intel.

Politics can be expensive

Even when well -directed, industrial policy can be expensive, said the global lender, noting that it can cost the EU about 0.4% of its annual domestic product to finance a clean technology subsidy that would suffice on the shore a large part of the output.

China, which has long used industrial policy measures for priority sectors, such as electric vehicles and semiconductors, was believed to have supported about 4% of their GDP industry politicians in 2011-2023, the IMF said.

Despite some success, structural modeling has shown that this policy reduced China’s overall productivity by 1.2%and its GDP as much as 2%, the IMF said.

EU state aid for companies was almost 1.5% of GDP in 2022, according to the IMF, noting that the funds provided by national governments risk distorting competition and destroying level conditions in one EU market.

He said modeling showed that state aid provided a boom for recipients’ firms by increasing income and employment, but only temporarily. She was also inclined to push off the non -recipient firms operating in the same industry, he said.

If state aid was required to resolve specific market failures, this should be done at the EU level, not by individual Member States to relieve negative discharge, the IMF said.

The IMF study included an industrial policy comparison in South Korea and Brazil in the 1970s, concluding that the Asian countries have successfully expanded the target industries by increasing production and GDP.

South Korea implemented an export -oriented model based on large private business conglomerates, and Brazil focused on state -owned enterprises and domestic consumption.

South Korea also created structured care and review of its efforts, as export purposes ensured that firms that failed to fulfill their goals risk losing access to state support. Brazil lacked comparable security measures, says.

(Editor Andrea Shalal; edited by Thomas Sikumbinghaus.)