Project in Georgia, California, and Arizona aim to strengthen America’s leadership in cutting-edge substrate technology for critical industries like AI
Today, the Biden-Harris Administration announced that the U.S. Department of Commerce (DOC) is entering negotiations to invest up to $300 million in advanced packaging research projects in Georgia, California, and Arizona to accelerate the development of cutting-edge technologies essential to the semiconductor industry. The expected recipients are Absolics Inc. in Georgia, Applied Materials Inc. in California, and Arizona State University in Arizona.
These competitively awarded research investments, each expected to total as much as $100 million, represent novel efforts in advanced substrates. Advanced substrates are physical platforms that allow multiple semiconductor chips to be assembled seamlessly together, enable high-bandwidth communication between those chips, efficiently deliver power, and dissipate unwanted heat. The advanced packaging enabled by advanced substrates translates to high performance computing for AI, next-generation wireless communication, and more efficient power electronics. Such substrates are not currently produced in the United States but are foundational to establishing and expanding domestic advanced packaging capability. Up to $300 million in federal funding will be paired with additional investments from the private sector, bringing the expected total investment across all three projects to over $470 million. This combined effort will help ensure U.S. manufacturers stay competitive and continue to drive technological innovation, giving companies a stronger edge in global competition.
“The key to the United States’ long-term competitiveness hinges on our ability to out-innovate and out-build the rest of the world. That’s why the R&D side of the CHIPS for America Program is so fundamental to our success, and these proposed investments in advanced packaging underscore the work we’re doing to prioritize every step of the semiconductor supply chain pipeline,” said U.S. Secretary of Commerce Gina Raimondo. “Emerging technology like AI requires cutting-edge advances in microelectronics, including advanced packaging. Thanks to President Biden’s and Vice President Harris’ leadership, and through these proposed investments, we are positioning the United States as a global leader in designing, manufacturing and packaging the microelectronics that will fuel tomorrow’s innovation.”
“Today’s awards are vital to secure America’s global leadership in semiconductors– making sure the supply chain here in America is on the cutting edge from end to end,” said National Economic Advisor Lael Brainard.
Rising power consumption, computational performance in AI data centers, and scalability in mobile electronics will not be solved with current packaging technology. Sustaining these industries of the future in America will require innovation at all levels. The CHIPS National Advanced Packaging Manufacturing Program (NAPMP) set aggressive technical targets for the substrates that all three entities are expected to meet or exceed. Advanced substrates are the basis for advanced packaging, which will enhance key advanced packaging technologies including but not limited to equipment, tools, processes, and process integration. The projects will play a vital role in helping to ensure that American innovation drives cutting-edge developments in semiconductor research and development (R&D) and manufacturing.
“Advanced packaging is essential to the development of the advanced semiconductors that are the drivers of emerging technology like artificial intelligence,” said Under Secretary of Commerce for Standards and Technology and National Institute of Standards and Technology Director Laurie E. Locascio. “These first investments of the National Advanced Packaging Manufacturing Program will drive breakthroughs that address a critical need in the CHIPS for America’s mission to create a robust domestic packaging industry where advanced node chips manufactured in the U.S. and abroad can be packaged within the United States.”
The proposed projects are:

Absolics, Inc. in Covington, Georgia: Absolics is poised to revolutionize glass core substrate panel manufacturing by developing cutting-edge capabilities in partnership with over 30 partners including academic institutions, large and small businesses, and non-profit entities, having been recognized as the recipient in the glass materials and substrates areas, with up to $100 million in potential funding. Through its Substrate and Materials Advanced Research and Technology (SMART) Packaging Program, Absolics aims to build a glass-core packaging ecosystem. In addition to developing the SMART Packaging Program, Absolics and their partners, is planning to support education and workforce development efforts by bringing training, internship, and certification opportunities into technical colleges, the HBCU CHIPS Network, and Veterans programs. Through these efforts, Absolics would leapfrog the current glass core substrate panel technology and support investments in a future high-volume manufacturing capability.

Applied Materials in Santa Clara, California: Applied Materials, along with a team of 10 collaborators, is working on developing and scaling a disruptive silicon-core substrate technology for next-generation advanced packaging and 3D heterogeneous integration. Applied’s silicon-core substrate technology has the potential to advance America’s leadership in advanced packaging and help catalyze an ecosystem to develop and build next-generation energy-efficient artificial intelligence (AI) and high-performance computing (HPC) systems in the US. In addition, Applied Materials’ education and workforce development plan is designed to strengthen the training and internship pipeline in the US between state universities and the semiconductor industry.

Arizona State University in Tempe, Arizona: Arizona State University is leading the charge in developing the next generation of microelectronics packaging through fan-out-wafer-level-processing (FOWLP). At the heart of this initiative is the ASU Advanced Electronics and Photonics Core Facility, where researchers are exploring the commercial viability of 300 mm wafer-level and 600 mm panel-level manufacturing, a technology that does not exist in as a commercial capability in the U.S. today. ASU’s team of over 10 partners, led by industry pioneer Deca Technologies, is centered in a regional stronghold for microelectronics manufacturing and is composed of large and small businesses, universities and technical colleges, and non-profits. This team spans the entire United States with industrial leaders in materials, equipment, chiplet design, electronic design automation, and manufacturing. ASU will establish an interconnect foundry that connects advanced packaging and workforce development programs with semiconductor fabs and manufacturers. ASU’s education and workforce development efforts bring industry-relevant training such as train the trainer, microcredentials, and quick start programs for working professionals. Inclusion of the HBCU CHIPS network and the National Center for American Indian Enterprise Development is integral to their workforce development plan.

About CHIPS for America
CHIPS for America is part of President Biden’s economic plan to invest in America, stimulate private sector investment, create good-paying jobs, make more in the United States, and revitalize communities left behind. CHIPS for America includes the CHIPS Program Office, responsible for manufacturing incentives, and the CHIPS Research and Development (R&D) Office, responsible for R&D programs. Both offices sit within the National Institute of Standards and Technology (NIST) at the Department of Commerce. NIST promotes U.S. innovation and industrial competitiveness by advancing measurement science, standards, and technology in ways that enhance economic security and improve our quality of life. NIST is uniquely positioned to successfully administer the CHIPS for America program because of the bureau’s strong relationships with U.S. industries, its deep understanding of the semiconductor ecosystem, and its reputation as fair and trusted. Visit https://www.chips.gov to learn more.
About CHIPS National Advanced Packaging Manufacturing Program (NAPMP)
To enable the CHIPS Research and Development Office’s vision for success, the CHIPS National Advanced Packaging Manufacturing Program will make approximately $3 billion in investments to develop critical and relevant innovations for advanced packaging technologies and accelerate their scaled transition to U.S. manufacturing entities. These investments will include research programs for core technologies that can be scaled to high-volume manufacturing, an advanced packaging piloting facility to support this scaling, resources to support the expansion of advanced packaging solutions, and workforce development. As a result, within a decade, NAPMP-funded activities, coupled with CHIPS manufacturing incentives, will establish a vibrant, self-sustaining, high-volume, domestic, advanced packaging industry where advanced-node chips manufactured in the United States are packaged in the United States. The technology developed will be leveraged in new applications and market sectors and at scale.
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Improving fiscal policy frameworks, fostering education and skills, and supporting the green transition can help ensure strong, sustainable, balanced, and inclusive growth

Blog post by Paula Beltran Saavedra, Nicolas Fernandez-Arias, Chanpheng Fizzarotti, Alberto Musso | For most Group of Twenty economies, growth is poised to weaken over the next five years and remain well below what was typical in the two decades before the pandemic.

That’s one of the biggest shared challenges for the group, which accounts for about 85 percent of global gross domestic product. Growth is more robust across the African Union, which joined the G20 last year, but booming populations mean those economies also must create jobs for millions of young people entering the labor market.
For both groups, as well as the European Union, lifting growth is essential to improving outcomes for people, and there’s a common solution: implementing priority reforms can significantly boost prospects for growth over the next five years, or medium term, as our new report to the G20 outlines. Our analysis also indicates that payoffs from structural reforms are greatest when they are carefully sequenced and reflect social consensus.
Various challenges underscore why it’s time to invest in growth-enhancing reforms. Subdued productivity growth, reinforced in some countries by adverse demographic trends, holds back potential growth, as Chapter 3 of the April 2024 World Economic Outlook details. Sustainable growth also is imperiled by elevated public debt, and increased geoeconomic fragmentation and protectionism.
As the Chart of the Week shows, the biggest priority across countries in these groups is reforming fiscal policy frameworks to aid lasting consolidation of government budgets.

Specifically, most G20 advanced economies and several EU economies would benefit from tighter public spending limits, while for most G20 emerging market and developing economies reforms to boost government revenues should be prioritized. Several African Union countries could benefit from enhanced fiscal transparency.
For many G20 and African Union economies, there are two other key areas for high priority structural reforms. First, the quality of education and skill training must be improved to better match skills with job opportunities. Second, reforms to accelerate the energy transition are essential, such as improving renewable energy capacity, enhancing the carbon tax efficacy, and phasing out fossil fuel subsidies. In several African Union economies, governance reforms are also urgently needed to strengthen the rule of law, fight corruption and improve public finance management.

 
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The average level of tax revenues among OECD countries was largely unchanged in 2023 as governments sought to ease cost-of-living pressures amid growing spending challenges related to climate change and ageing populations, according to a new report released today.
Revenue Statistics 2024 shows that the average tax-to-GDP ratio for OECD countries was 33.9% in 2023, 0.1 percentage points (p.p.) below its level in 2021 and 2022, but above its pre-pandemic level of 33.4% in 2019.
In 2023, the tax-to-GDP ratio increased in 18 of the 36 OECD countries for which preliminary data are available, declined in 17, and remained unchanged in one. The largest increases (of at least 2.5 p.p.) occurred in Luxembourg, Colombia and Türkiye, while the largest declines (of at least 3.0 p.p.) were observed in Israel, Korea and Chile.
Across the OECD, tax-to-GDP ratios ranged from 17.7% in Mexico to 43.8% in France in 2023. The difference between the highest and the lowest tax-to-GDP ratio across OECD countries was 26.1 p.p. in 2023, the smallest difference since at least 2000. Since 2019, this difference has narrowed by 5.2 p.p.

Revenue Statistics 2024 includes a special chapter on health taxes, which are increasingly common in OECD countries due to their capacity to generate revenues and to improve health outcomes by reducing consumption of harmful products. On average across OECD countries, revenues from excise taxes on alcohol, tobacco and sugar-sweetened beverages amounted to 0.7% of GDP and generated 2.2% of total tax revenues in 2022. However, these revenues declined as a proportion of GDP between 2000 and 2022 in almost all OECD countries, with the largest drop seen in revenues from excise taxes on alcohol.
Consumption Tax Trends 2024, also released today, highlights governments’ ongoing efforts to improve the performance of their VAT systems and combat fraud and non-compliance. The report shows that VAT revenues continue to rise across the OECD, reaching 20.8% of total tax revenue on average in 2022, up 0.1 p.p. from 2021.
According to the new report, which presents cross-country detailed comparative data on consumption tax rates, tax bases and design trends, most OECD countries have implemented reforms to ensure that VAT is effectively collected on online sales, in line with OECD standards, ensuring a level playing field between bricks-and-mortar businesses and online merchants.
Twenty-seven OECD countries have introduced solutions developed by the OECD to collect VAT on e-commerce sales of goods imported from abroad. These complement measures to collect VAT on online services – such as apps and streaming services – that have now been adopted by almost all OECD countries that have a VAT.
Consumption Tax Trends 2024 explains that almost all OECD countries with a VAT have now implemented digital reporting requirements, often requiring the electronic transmission of detailed transactional information in real time or periodically, to enhance VAT compliance. However, the scope and requirements of these regimes vary across OECD countries.
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Projects in Georgia, California, and Arizona aim to strengthen America’s leadership in cutting-edge substrate technology for critical industries like AI
Today, the Biden-Harris Administration announced that the U.S. Department of Commerce (DOC) is entering negotiations to invest up to $300 million in advanced packaging research projects in Georgia, California, and Arizona to accelerate the development of cutting-edge technologies essential to the semiconductor industry. The expected recipients are Absolics Inc. in Georgia, Applied Materials Inc. in California, and Arizona State University in Arizona.
These competitively awarded research investments, each expected to total as much as $100 million, represent novel efforts in advanced substrates. Advanced substrates are physical platforms that allow multiple semiconductor chips to be assembled seamlessly together, enable high-bandwidth communication between those chips, efficiently deliver power, and dissipate unwanted heat. The advanced packaging enabled by advanced substrates translates to high performance computing for AI, next-generation wireless communication, and more efficient power electronics. Such substrates are not currently produced in the United States but are foundational to establishing and expanding domestic advanced packaging capability. Up to $300 million in federal funding will be paired with additional investments from the private sector, bringing the expected total investment across all three projects to over $470 million. This combined effort will help ensure U.S. manufacturers stay competitive and continue to drive technological innovation, giving companies a stronger edge in global competition.
“The key to the United States’ long-term competitiveness hinges on our ability to out-innovate and out-build the rest of the world. That’s why the R&D side of the CHIPS for America Program is so fundamental to our success, and these proposed investments in advanced packaging underscore the work we’re doing to prioritize every step of the semiconductor supply chain pipeline,” said U.S. Secretary of Commerce Gina Raimondo. “Emerging technology like AI requires cutting-edge advances in microelectronics, including advanced packaging. Thanks to President Biden’s and Vice President Harris’ leadership, and through these proposed investments, we are positioning the United States as a global leader in designing, manufacturing and packaging the microelectronics that will fuel tomorrow’s innovation.”
“Today’s awards are vital to secure America’s global leadership in semiconductors– making sure the supply chain here in America is on the cutting edge from end to end,” said National Economic Advisor Lael Brainard.
Rising power consumption, computational performance in AI data centers, and scalability in mobile electronics will not be solved with current packaging technology. Sustaining these industries of the future in America will require innovation at all levels. The CHIPS National Advanced Packaging Manufacturing Program (NAPMP) set aggressive technical targets for the substrates that all three entities are expected to meet or exceed. Advanced substrates are the basis for advanced packaging, which will enhance key advanced packaging technologies including but not limited to equipment, tools, processes, and process integration. The projects will play a vital role in helping to ensure that American innovation drives cutting-edge developments in semiconductor research and development (R&D) and manufacturing.
“Advanced packaging is essential to the development of the advanced semiconductors that are the drivers of emerging technology like artificial intelligence,” said Under Secretary of Commerce for Standards and Technology and National Institute of Standards and Technology Director Laurie E. Locascio. “These first investments of the National Advanced Packaging Manufacturing Program will drive breakthroughs that address a critical need in the CHIPS for America’s mission to create a robust domestic packaging industry where advanced node chips manufactured in the U.S. and abroad can be packaged within the United States.”
The proposed projects are:

Absolics, Inc. in Covington, Georgia:  Absolics is poised to revolutionize glass core substrate panel manufacturing by developing cutting-edge capabilities in partnership with over 30 partners including academic institutions, large and small businesses, and non-profit entities, having been recognized as the recipient in the glass materials and substrates areas, with up to $100 million in potential funding. Through its Substrate and Materials Advanced Research and Technology (SMART) Packaging Program, Absolics aims to build a glass-core packaging ecosystem. In addition to developing the SMART Packaging Program, Absolics and their partners, is planning to support education and workforce development efforts by bringing training, internship, and certification opportunities into technical colleges, the HBCU CHIPS Network, and Veterans programs. Through these efforts, Absolics would leapfrog the current glass core substrate panel technology and support investments in a future high-volume manufacturing capability.

Applied Materials in Santa Clara, California: Applied Materials, along with a team of 10 collaborators, is working on developing and scaling a disruptive silicon-core substrate technology for next-generation advanced packaging and 3D heterogeneous integration. Applied’s silicon-core substrate technology has the potential to advance America’s leadership in advanced packaging and help catalyze an ecosystem to develop and build next-generation energy-efficient artificial intelligence (AI) and high-performance computing (HPC) systems in the US. In addition, Applied Materials’ education and workforce development plan is designed to strengthen the training and internship pipeline in the US between state universities and the semiconductor industry.

Arizona State University in Tempe, Arizona: Arizona State University is leading the charge in developing the next generation of microelectronics packaging through fan-out-wafer-level-processing (FOWLP). At the heart of this initiative is the ASU Advanced Electronics and Photonics Core Facility, where researchers are exploring the commercial viability of 300 mm wafer-level and 600 mm panel-level manufacturing, a technology that does not exist in as a commercial capability in the U.S. today.  ASU’s team of over 10 partners, led by industry pioneer Deca Technologies, is centered in a regional stronghold for microelectronics manufacturing and is composed of large and small businesses, universities and technical colleges, and non-profits. This team spans the entire United States with industrial leaders in materials, equipment, chiplet design, electronic design automation, and manufacturing. ASU will establish an interconnect foundry that connects advanced packaging and workforce development programs with semiconductor fabs and manufacturers. ASU’s education and workforce development efforts bring industry-relevant training such as train the trainer, microcredentials, and quick start programs for working professionals. Inclusion of the HBCU CHIPS network and the National Center for American Indian Enterprise Development is integral to their workforce development plan.

About CHIPS for America    
CHIPS for America is part of President Biden’s economic plan to invest in America, stimulate private sector investment, create good-paying jobs, make more in the United States, and revitalize communities left behind. CHIPS for America includes the CHIPS Program Office, responsible for manufacturing incentives, and the CHIPS Research and Development (R&D) Office, responsible for R&D programs. Both offices sit within the National Institute of Standards and Technology (NIST) at the Department of Commerce. NIST promotes U.S. innovation and industrial competitiveness by advancing measurement science, standards, and technology in ways that enhance economic security and improve our quality of life. NIST is uniquely positioned to successfully administer the CHIPS for America program because of the bureau’s strong relationships with U.S. industries, its deep understanding of the semiconductor ecosystem, and its reputation as fair and trusted. Visit https://www.chips.gov to learn more.
About CHIPS National Advanced Packaging Manufacturing Program (NAPMP)
To enable the CHIPS Research and Development Office’s vision for success, the CHIPS National Advanced Packaging Manufacturing Program will make approximately $3 billion in investments to develop critical and relevant innovations for advanced packaging technologies and accelerate their scaled transition to U.S. manufacturing entities. These investments will include research programs for core technologies that can be scaled to high-volume manufacturing, an advanced packaging piloting facility to support this scaling, resources to support the expansion of advanced packaging solutions, and workforce development. As a result, within a decade, NAPMP-funded activities, coupled with CHIPS manufacturing incentives, will establish a vibrant, self-sustaining, high-volume, domestic, advanced packaging industry where advanced-node chips manufactured in the United States are packaged in the United States. The technology developed will be leveraged in new applications and market sectors and at scale.
 
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Understanding the drivers of the current downturn in commercial real estate (CRE) can provide insights into the outlook for the market and potential spillovers to the financial system and wider economy.
The CRE market is facing the simultaneous effects of higher interest rates, falling demand due to a structural shift towards remote working and rising costs from higher sustainability-linked capex requirements. Understanding the role of each factor in driving prices and firms’ profits can provide some insight into how financial stability risks from CRE might evolve over the coming quarters. For example, the pressure from high interest rates could soften with a potential further easing of monetary policy, while structural factors appear unlikely to change. Moreover, spillovers to the financial system – such as deteriorating credit quality in banks’ CRE loan books – and the wider economy could differ, depending on the nature of the market downturn.

 
Chart A
The CRE market downturn has been driven by both monetary policy and falling CRE demand, with the latter likely to persist due to structural change

a) Decomposition of drivers of CRE price growth

b) Impact of monetary, CRE demand and construction supply shocks on GDP

(percentage share of various shocks to house prices dynamics)

(percentage deviation of GDP from initial level)

Sources: ECB (SDW) and ECB calculations.
Notes: Panel a: historical decomposition from a BVAR model based on the approach taken in de Nora et al.* but adapted to examine drivers of CRE price growth. The model is a Bayesian VAR of order 2, fitted on euro area data over the period from Q1 2003 to Q3 2023. The model includes the following endogenous variables: CRE prices, real estate investments, lending to NFCs, NFC income (gross operating surplus), GDP, CPI, lending rates and the euro area shadow rate. Structural shocks are identified via zero and sign restrictions. The chart shows the response to (i) a monetary policy shock triggering an increase of 1 percentage point on the policy rate on impact, (ii) a 3 standard deviation CRE preference shock, and (iii) a 3 standard deviation CRE supply shock. NFC stands for non-financial corporation.
*) de Nora, G., Lo Duca, M. and Rusnák, M., “Analysing drivers of residential real estate (RRE) prices and the effects of monetary policy tightening on RRE vulnerabilities”, Macroprudential Bulletin, ECB, 2022.

Tight monetary policy and adverse CRE demand shocks have been the main factors pushing CRE prices down since the start of 2022 (Chart A, panel a). While the downward pressure exerted by tight monetary policy is expected to decline going forward, the impact of lower CRE demand will likely persist where it is driven by pandemic-induced structural changes in preferences and new remote working practices. By contrast, construction supply shocks have played a relatively less important role in recent years. Even so, falling numbers of new building permits in many countries suggest that construction activity may start to decline in the coming quarters.[1] This is relevant to the extent that a large negative real estate construction supply shock could have particularly severe real economy spillovers, with the BVAR model showing the biggest GDP impact from this shock (Chart A, panel b).

 
Chart B
Asset write-downs have been a primary driver of falling profits among real estate firms; the sector is also seeing falling interest coverage ratios

a) Drivers of real estate firms income

b) Dynamics of key ratios in recent years

(Q1 2015-Q2 2024, percentages)

(Q1 2018-Q2 2024; left graph: percentages, right graph: multiples)

Sources: S&P Global Market Intelligence and ECB calculations.
Notes: Panel b: lines show median firm values and shaded areas show the cross-firm interquartile range. The sample consists of 100 of the euro area’s largest real estate firms and is predominantly made up of landlord firms. The interest coverage ratio is calculated as (total revenue – operating expenses)/net interest expenses.

With falling prices, asset write-downs have been the primary driver of the recent sharp drop in the headline profits of real estate firms. Declining profitability could affect the debt repayment capacity of real estate firms, with spillover effects on the credit quality of banks’ CRE loan books. Decomposing the profits of 100 of the euro area’s largest public real estate firms shows that asset write-downs have played an outsized role in driving recent declines in profits (Chart B, panel a). Like market price fluctuations, asset write-downs are likely caused by both monetary policy and reduced demand for CRE (Chart A, panel a). In light of falling CRE prices, it is important that asset write-downs are recognised to ensure that firms’ balance sheets accurately reflect their financial health. Aggregate asset write-downs posted since the start of 2022 come to just -3.05% of the value of real estate owned by firms prior to monetary tightening, although there is significant variation across firms. Compared with a cumulative market price correction of -11%, this suggests that some firms may need to recognise further write-downs in the coming quarters.[2] Asset write-downs may not immediately affect the resources available to firms to meet debt repayments, meaning that the immediate spillovers to the credit quality of banks’ CRE loan books may be limited. However, this reduction in asset values – and hence collateral values – may still pose challenges to firms when they seek to refinance their debts. Reduced access to funding could force them to deleverage, thus amplifying the CRE demand shock mentioned above and further depressing market prices.
Real estate firms’ revenue growth has not kept pace with their financing costs, which has potential implications for their repayment capacity. Unlike asset write-downs, falling revenues or rising costs will affect the resources available to firms to meet debt repayments. As a result, fluctuations in these factors will have immediate implications for credit quality. For the sample of firms examined, the ratio between revenue and expenses remained broadly stable over the period studied, suggesting that this sample of large firms has not seen capex costs exceeding their rental growth (Chart B, panel b).[3] While rental growth has kept pace with expenses for large firms, financing costs have increased disproportionately. The median real estate firm saw its interest coverage ratio drop from 4x to 2x over the course of the monetary tightening cycle, although with some recovery since the start of 2024 (Chart B, panel b). This will likely have immediate implications for the capacity of firms to meet debt repayments, with clear spillovers to bank and market credit risk. While any potential further monetary easing may reduce pressure on repayment capacity in the coming quarters, firms may still see financing costs rise as the debt that originated during the period of ultra-loose monetary policy matures. Indeed, as of June 2024 20% of loans to euro area real estate firms were due to mature within two years.[4]

This measure and the measure included in the BVAR include both commercial and residential construction.
This figure is calculated as the sum of asset write-downs across firms since the start of 2022 divided by the total value of real estate held by these firms at the end of 2021. Real estate holdings are estimated as total assets less current assets. Differences between dynamics in firms’ write-downs and aggregate market indices may of course also arise from firms holding a disproportionate amount of certain types of asset (e.g. higher quality assets).
However, market intelligence indicates that this problem may be more pronounced in smaller firms which, unfortunately, are not captured in the sample.
The data are taken from AnaCredit.

 
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By Kristalina Georgieva, Managing Director, IMF | Good morning, and welcome. Let me start by thanking Bert and the Statistics Department for organizing the 12th IMF Statistical Forum on ‘Measuring the Implications of AI on the Economy.’ You always choose a topic that is timely and important—and also fascinating!
It has been just two years since generative AI emerged from the lab and became a tool that anyone with internet access can use. We still feel the excitement of something new and world changing. At the same time, we are all concerned about potential harms.
AI has huge potential to boost growth and efficiency—call centers, for example, have reported productivity gains of 34 percent among new and lower-skilled workers. But AI could also disrupt labor and financial markets. And it could deepen inequality within and among countries, destabilizing societies at a time when many are already very polarized.
To make AI a force for good that boosts inclusive economic growth, we need concerted, coordinated actions by governments, the private sector, and civil society.
And what do we need to inform those actions? Data! Reliable, timely, accurate, actionable data.
For the next two days, you will be exploring both how to measure AI’s impact on the economy, and how AI can help us do our jobs better.
Let me pose a few questions to help guide your discussions:
First, how do we strengthen our statistical systems and frameworks so that countries can better measure the impact of AI on sectors like healthcare, finance, and manufacturing? How do ensure that we capture AI investment and its impact on productivity?
Second, over many years, countries have worked with international organizations such as the IMF to build ethical, strong, and transparent standards and guidelines for collecting, compiling, and disseminating official internationally comparable statistics—all while taking into account privacy concerns.
Are the existing standards and guidelines fit for purpose in an era of widespread adoption of AI?
Third, how can we leverage AI in the production of statistics? We see central banks exploring how GenAI can help them sift petabytes of banking data to better monitor risks and refine forecasts. We see statistical organizations use AI to help classify transactions, transform unstructured data into robust indicators, and improve the accessibility of economic data.
The IMF Statistics Department has recently established the IMF Big Data Center dedicated to supporting the use of Big Data and statistical innovation and has also led the development of StatGPT, an AI assistant that lets users talk to data, significantly reducing the time needed to find, retrieve and use data.
But those are just a few examples. We want to know: How are all of you applying this technology? How can we act together to create and share better analytical tools with policymakers in all countries?
With better data and analysis, policymakers can make better decisions, react more quickly in a crisis, and ultimately design policies that support inclusive growth.
AI has transformative potential for the world economy and for our work—if we can figure out how to measure and use it well. I’m sure you are all up for the challenge!
Thank you.
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Economic growth remains fragile, while concerns about global trade outlook add to geopolitical and policy uncertainty
High valuations and risk concentration make markets more susceptible to sudden corrections
Policy uncertainty, weak fiscal fundamentals in some countries and sluggish potential growth raise concerns about sovereign debt sustainability
Credit risk vulnerabilities in some euro area households and firms could lead to weaker asset quality for banks and non-bank financial intermediaries if downside risks to growth materialise

The European Central Bank (ECB) sees elevated financial stability vulnerabilities in a volatile environment, according to its November 2024 Financial Stability Review, which was published today. Risks to euro area economic growth have shifted to the downside as inflation has moved closer to 2%, while financial markets have experienced several pronounced but short-lived spikes in volatility in recent months. “The outlook for financial stability is clouded by heightened macro-financial and geopolitical uncertainty together with rising trade policy uncertainty” said ECB Vice-President Luis de Guindos.
While financial markets have proved resilient so far, there is no room for complacency. Underlying vulnerabilities make equity and corporate credit markets prone to further volatility. High valuations and risk concentration, especially in equity markets, increase the odds of sharp adjustments. Should adverse dynamics materialise, non-banks could amplify market stress given their liquidity fragilities, in some cases coupled with high leverage and concentrated exposures.
Despite the decline in sovereign debt-to-GDP ratios after the surge during the pandemic, fiscal fundamentals remain weak in some euro area countries. Sovereign debt service costs are expected to continue rising as maturing debt is rolled over at interest rates that are higher than those on outstanding debt. Elevated debt levels and high budget deficits, coupled with weak long-term growth-potential and policy uncertainty, increase the risk that fiscal slippage will reignite market concerns over sovereign debt sustainability.
High borrowing costs and weak growth prospects continue to weigh on corporate balance sheets, with euro area firms reporting a decline in profits due to high interest payments. The outlook for real estate markets is mixed, with residential real estate prices stabilising, while commercial real estate markets are still stressed because of challenges posed by remote working and e-commerce. Households, by contrast, are benefiting from a strong labour market and have bolstered their resilience by increasing savings and reducing debt.
While the overall increase in credit risks has so far been gradual, small and medium-sized companies and lower-income households could face strains if growth slows by more than is currently expected, which could, in turn, adversely affect the asset quality of euro area financial intermediaries. Losses on commercial real estate exposures are at risk of rising further and could be significant for individual banks and investment funds. In aggregate, however, banks’ ability to absorb further asset quality deterioration continues to be supported by high levels of profitability and by strong capital and liquidity buffers.
To preserve and strengthen financial system resilience in the current uncertain macro-financial environment, it is advisable for macroprudential authorities to maintain existing capital buffer requirements together with borrower-based measures that ensure sound lending standards. In addition, the growing market footprint and interconnectedness of non-bank financial intermediaries calls for a comprehensive set of policy measures to increase the sector’s resilience. Such resilience across the NBFI sector would also help to foster more integrated capital markets. This should enhance financial stability and complement the objectives of the capital markets union, which is aimed at supporting Europe’s productivity and economic growth.
 
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Governor Hochul Doubled the Local Government Efficiency Grant Program to Help Local Governments Reduce Current and Future Operational Costs
Support for Local Governments Will Help Lower Taxes and Ensure Property Owners Across the State Can Save Money

Governor Kathy Hochul today announced that the popular Local Government Efficiency Grant program has doubled the amount of funds available to municipalities with innovative ideas for streamlining government operations and services to reduce current or future costs, ultimately translating into savings for local property taxpayers. This year’s $8 million initiative provides grants for measures in which two or more local governments team up to apply to plan or implement shared services, consolidations, and dissolutions.
“We are committed to working with our local governments to keep costs down and help New Yorkers save their hard earned money,” Governor Hochul said. “By doubling the Local Government Efficiency Grant to $8 million, we’re reducing current and future county, town and village operational costs and lowering property taxes while also ensuring residents enjoy the services they deserve.”
Secretary of State Walter T. Mosley said, “Incentivizing municipalities to work together is a win-win for both local governments and property taxpayers. We see an excellent return on investment with our Local Government Efficiency program and expanding and doubling the amount to serve communities will help encourage local officials to construct tailor-made solutions that will effectively address current and emerging challenges.”
The LGEG program is comprised of approximately $7.2 million available for implementation grants and $800,000 for planning grants. Implementation grants are capped at $1,250,000 with a maximum of $250,000 for each participating municipality and require a 10% local match, while planning grants are capped at $100,000 with $20,000 per municipality and require a 50% match.
The $8 million is a doubling of the $4 million that has been made available annually to local governments in recent years. With the increase, DOS aims to enhance the impact for local governments facing capacity constraints. This year’s program allows for Regional Projects led by Regional Planning Boards or eligible counties to serve as the leads on projects that involve four or more co-applicants. Additionally, DOS is offering a one-year Qualification Grant of up to $20,000 for Regional Planning Boards and eligible Counties to evaluate and select a project for future LGE funding.
New York State Association of Counties President Benjamin Boykin II said, “The Local Government Efficiency Grant program is vital to counties continued success in reducing local property taxes while maintaining the essential services New Yorkers depend on. Planning and implementing collaborative projects across county and municipal lines is often expensive, but ultimately leads to significant savings for local taxpayers. By doubling the amount of funding available and expanding the scope of eligible projects, New York State and Governor Hochul are empowering local governments to do what we do best—work together to think outside the box and find ways to accomplish more for New Yorkers while asking for less of their hard-earned money.”
New York Association of Towns Executive Director Christopher A. Koetzle said, “The Association of Towns is thrilled that the state has increased the amount of funds available to help local governments pursue more shared services opportunities. Many of our member towns have a long history of collaboration and sharing resources at the local and regional levels. They have always found ways to save taxpayer money without sacrificing services or quality of life. This additional funding will better support their efforts and help them continue to deliver critical, front-line services that remain affordable for the taxpayers.”
New York Association of Regional Councils President Richard Zink said, “With increased funding for the Local Government Efficiency program, we have a unique opportunity to drive meaningful collaboration across our region. These additional resources empower municipalities to streamline services, reduce costs, and improve quality of life for residents. By fostering shared services and strategic partnerships, we’re building a stronger, more resilient regional economy that’s well-prepared for future challenges and opportunities.”
Through the LGEG, DOS is also aiming to assist local governments trying to address emerging threats in addition to current challenges. In this current funding round, Priority Points will be given to: Regional Projects; Regional or Local Projects being implemented are part of a previous LGE planning grant or that was included in a Countywide Shared Services Initiative (CWSSI) plan; or Regional or Local Projects that aim to address:

Information Technology Services (ITS), including Cybersecurity;
Emergency Medical Services (EMS);
Countywide or Multi-County Code Enforcement and Planning;
Water and/or Wastewater Management Systems; or
Climate Change.

The LGEG Request for Applications (RFA) and additional information may be found on the DOS website. RFAs must be submitted by Friday, January 24, 2025 at 4 pm.
Through March 2024, DOS has made 489 LGEG project awards, totaling over $105 million. The estimated long-term savings for local government recipients is nearly $650 million.
Eligible Local Government entities are counties, cities, towns, villages, special improvement districts, fire districts, public libraries, association libraries, public library systems (if they advance a joint application on behalf of member libraries), water authorities, sewer authorities, regional planning and development boards, school districts, and Boards of Cooperative Educational Services (BOCES).
Applications are evaluated based on the potential return on investment (ROI), project need, service delivery benefits, operational changes, local and regional capacity, project readiness (ability to complete the project in 5 years) and the comprehensiveness and specificity of the work plan and budget.
Local Government Efficiency Grants may be used to cover costs integral to project implementation including, but not limited to: legal and consultant services; capital improvements and equipment; and transitional personnel costs not to exceed three years.

 
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By Luis de Guindos | Meeting the EU’s climate neutrality targets calls for deep structural changes and significant private funding, requiring a healthy financial system. That’s why we’ve tested how resilient banks, investment funds and insurers are to stresses arising during the green transition. ECB Vice-President Luis de Guindos explains the findings.
Achieving a carbon-neutral European Union by 2050 will require a resilient financial sector to provide the funding for the necessary investment. In other words, the financial system needs to be strong enough to finance the green transformation of our economy. The path is expected to be bumpy and there’ll be transition risks along the way. These come about when companies and financial institutions have to adapt their business models and operations to changes in regulations, consumer behaviour or investor preferences – sometimes quite rapidly. To make sure our financial system can cope, the European Commission asked the ECB and the European Supervisory Authorities to use their stress test models to assess the impact of the green transition on the entire euro area financial system.
Our assessment looked at how banks, investment funds, institutions for occupational retirement provision (IORPs) and insurers across the European Union would fare under three different scenarios. The scenario narratives were set by the European Commission and developed by the European Systemic Risk Board. All three assumed the full implementation of the EU’s “Fit-for-55” package, a set of measures that includes the goal of cutting carbon emissions in half by 2030 and becoming carbon neutral by 2050. We also checked the potential for contagion and amplification effects, giving us a truly comprehensive view of what the impact across the financial system might be.[1]
So, what did our analysis tell us?
 
Transition risks and the financial system
The three scenarios of our stress test looked at transition risks and macroeconomic variables over an eight-year horizon. Under the baseline scenario, the package is implemented in an economic environment as projected to evolve in the June 2023 Eurosystem staff macroeconomic projections. But, of course, things might turn out to be more difficult. So a first adverse scenario imagines and models investors abruptly shifting away from “brown” companies – those with environmentally unfriendly business models – leading to a significant fall in the value of their assets. This is known as a “run on brown”. And to make things even more challenging, a second adverse scenario introduces a recession characterised by the standard macroeconomic stress factors such as sharp falls in GDP and real estate prices – on top of the run on brown.
Under the baseline scenario, excluding the mitigating effect of earnings, financial institutions across all sectors suffer moderate losses (Chart 1). These losses come from the increased risk of default by firms that urgently need to invest in reducing their carbon emissions and, as a result, have smaller profits and greater debt. Adding a run on brown to the baseline scenario brings a small increase in losses. This means that shifts in perceived climate risks alone are not a threat to financial stability during the green transition. But the picture worsens considerably when the run on brown coincides with a recession. In this case, losses increase significantly. However, the impact on financial institutions’ capital is expected to be mitigated by factors such as banks’ income, insurers’ liabilities and funds’ cash flows and holdings, which were not included in this assessment.
The good news is that the findings show that the overall stability of the financial system is not at risk under these specific adverse scenarios. However, the substantial losses under the second adverse scenario highlight the need for financial institutions to properly manage climate-related risks. Moreover, a coordinated policy approach to financing the green transition is essential.

 
Chart 1
Financial sector losses under the three scenarios

(aggregate losses over the period 2023-30 as a share of exposures in scope, by financial sector and scenario)

Sources: European Banking Authority, European Insurance and Occupational Pensions Authority, European Securities and Markets Authority and ECB calculations.
Notes: “Exposures in scope” refers to the assets covered for each sector in this exercise. These are 35% of total credit risk exposures and 26% of total market risk exposures for banks, 81% of total investments for insurers, 76% of total investments for IORPs and 77% of total assets for investment funds. IORPs are not included in the model used to assess cross-sectoral amplification. “B” refers to the baseline scenario, “A1” to the first adverse (run-on-brown) scenario and “A2” to the second adverse (run-on-brown plus recession) scenario.

Zooming in on the banking sector, the findings show that banks should be able to continue financing companies during the green transition. That holds for both the baseline scenario and the first adverse run-on-brown scenario (Chart 2, panel a). However, when severely adverse economic conditions are combined with climate-related risks – as modelled by the second adverse scenario – our analysis indicates that loans to these companies could fall by as much as 11% over the eight-year period.[2] This would result from banks trying to restore their solvency position after their balance sheets had taken a hit from bigger losses as well as the recession.
Banks are affected differently in each scenario, with those more exposed to energy-intensive sectors seeing bigger drops in loan volumes because of the run-on-brown effect. Under the two adverse scenarios, banks may need to increase lending to energy-intensive sectors more than to less energy-intensive sectors, so that their corporate customers can meet their green investment needs (Chart 2, panel b).
So, how can public policy help companies going through the green transition get sufficient funding? In our view, policy should take an all-encompassing perspective on how to support firms and sectors. This would be based on where they are in their green innovation cycle and what transition goals they have. It should also involve all financial intermediaries and markets to ensure the funding needs of our economy are met. Financial market segments outside the banking sector, such as venture capital, can be particularly effective when it comes to financing innovative start-up firms and supporting green technology projects.

 
Chart 2
Banks’ financing capacity is resilient but would benefit from targeted policy measures

Panel a) Change in banks’ total outstanding loans to NFCs between 2023 and 2030

Panel b) Green investment needs as a share of new lending to NFCs between 2023 and 2030

Sources: ECB calculations, Banking Euro Area Stress Test (BEAST) projections and the EBA stress test 2023 starting points.
Notes: NFCs stands for non-financial corporations. The box plot shows the 10th, 25th, 50th, 75th and 90th percentiles. The point on the box plot represents the weighted average. “B” refers to the baseline scenario, “A1” to the first adverse (“run-on-brown”) scenario and “A2” to the second adverse (run-on-brown plus recession) scenario.

A cross-sectoral assessment to complete the analysis
Since the different financial sectors are interlinked, the ECB and the European Supervisory Authorities have worked together to complement the sectoral results with a cross-sectoral assessment.[3] This additional analysis considers the possibility that each financial institution’s reaction to the financial stress might trigger contagion and amplify the stress on other financial institutions and sectors. Here, liquidity risks and the reactions they trigger play a significant role.
Under the baseline scenario the amplification effects are contained, but these can lead to losses that are up to 50% greater when the run-on-brown scenario triggers liquidity stress (Chart 1). Amplification effects vary both within and across sectors. Investment funds face greater liquidity stress as a result of redemptions, which could force them into fire sales of assets. This means that investment funds might become the main driver of subsequent losses for all sectors. Insurers are more exposed to this through their holdings of fund shares and depreciated securities, while banks are less exposed on account of their smaller exposures and hedging strategies.
It is crucial to continue monitoring the financing of the green transition in the EU and, more broadly, to keep making further system-wide assessments of financial risks. This work benefits from collaboration between EU institutions. The findings can help shape policies that seek to prevent risks from spreading across the financial system and ensure funding reaches activities that support the green transition.
Coordinated efforts are essential to unlock the capital we need for the green transition in Europe. Policymakers should facilitate this process, and supervisors should watch out for the potential risks that could undermine the EU’s ability to meet its climate change objectives.
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The Council today adopted new rules on clearing services that revise the European market infrastructure regulation and directive (EMIR). The new rules aim to make the EU clearing landscape more attractive and resilient, to support the EU’s open strategic autonomy and to preserve the EU’s financial stability.
The European Market Infrastructure Regulation (EMIR) lays down rules on over-the-counter (OTC) derivatives, central counterparties (CCPs) and trade repositories.
The new rules improve EU clearing services by streamlining and shortening procedures, improving consistency between rules and strengthening CCP supervision. In particular, the new rules will contribute to reducing excessive reliance on systemic CCPs in non-EU countries, by requiring all relevant market participants to hold active accounts at EU CCPs and clear a representative portion of certain systemic derivative contracts within the single market.
 
Next steps
The revised EMIR regulation and directive will be published in the EU’s Official Journal before entering into force 20 days later.
 
Background
Derivatives play an important role in the economy, but they also bring certain risks. This was demonstrated during the 2008 financial crisis, that brought to light the weaknesses in the OTC derivatives markets.
To address the situation, the EU adopted the European market infrastructure regulation (EMIR) in 2012. The aim was to increase transparency in the OTC derivatives markets, mitigate credit risk and reduce operational risk.
On 7 December 2022, the Commission presented a proposal to review European market infrastructure regulation and directive in order to deepen the EU’s capital markets union, improve the existing rules and make the EU’s clearing landscape more attractive.
Adoption by the Council follows an agreement reached with the European Parliament at first reading under the ordinary legislative procedure.
For more information, please contact:

Johanna Store, Press officer, EU COUNCIL

 
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