Global Economy and Outlook
"Two years ago, the global economy was in a synchronized upswing. Measured by GDP, nearly 75 percent of the world was accelerating. Today, even more of the world economy is moving in synch but, unfortunately, this time growth is decelerating.
In 2019, we expect slower growth in nearly 90 percent of the world. The Global Economy is now in a synchronized slowdown."
Escalating trade tensions are taking a toll on the global economy and have spread into sensitive areas like technology and currencies. Many central banks have appropriately lowered interest rates, but there are limits with this strategy. What other options do policymakers have?
Geoff Cutmore, CNBC
Agustín Carstens, General Manager, Bank of International Settlements
Nadia Calviño, Minister of Economy and Business, Spain
Ray Dalio, Co-Chairman and Co-Chief Investment Officer, Bridgewater Associates
Kristalina Georgieva, Managing Director, IMF
Zhu Min, Chair, National Institute of Financial research, Tsinghua University
Policy mix. The panelists concurred that monetary policy space was close to reaching its limits and called for more active use of fiscal and structural policies. Georgieva emphasized that fiscal policy actions needed to be mindful of the available fiscal space and debt vulnerabilities. Dalio thought that in the current environment of low growth, low inflation, and low interest rates, policy coordination would be critical. Calviño supported stronger communication between fiscal and monetary policy makers. If carefully managed, Carstens did not consider such cooperation as a risk to central bank independence.
Monetary easing and financial risks. Carstens noted that while further monetary policy measures could provide some boost to short-term growth, they could lead to losses later on, as lower interest rates and search for yield by investors would inevitably lead to a rise in financial vulnerabilities.
Structural reforms. Panelists viewed structural reforms, particularly those targeted at boosting productivity, as fundamental for increasing long-term growth in both emerging markets and advanced economies. Zhu noted that for China addressing structural issues was as important as resolving trade tensions. Georgieva emphasized that as more structural issues, including inequality or climate change, were becoming macrocritical, the Fund would increase its focus on assisting members addressing them.
During the great economic crises of the 20th century, there were periods of intellectual and political upheaval. Keynesian and rational expectations revolutions changed economic policy. The current environment of “extreme” uncertainty should lead to a fundamental questioning of the basic ideas underpinning economic policy. The failure to re-examine those ideas risks another financial crisis.
Guillermo Ortiz, Chairman of Per Jacobsson Foundation
Mervyn King, Former Governor, Bank of England
Context: The global recovery since the last financial crisis has been frustratingly slow and global debt to GDP is higher today than in 2007. Conventional economic thinking and too much reliance on economic models has led policymakers to misdiagnose and incorrectly plan for current challenges. The current environment is characterized by an unusual high level of political and economic uncertainty, making investors reluctant to invest. Investment is also unevenly distributed, with too much investment in some areas, and too little in others, such as infrastructure in many advanced countries.
Low growth trap. Conventional economic thinking attributes the current global secular stagnation to supply factors and is resistant to crediting this to demand factors. The aim of the traditional Keynesian model is to boost aggregate demand, either through temporary fiscal or monetary stimulus. To escape permanently from a low growth trap requires a reallocation of resources, supported by exchange rate polices and supply side reforms, and correcting unsustainable national saving rates.
Preparing for the next financial crisis. Regulators have pursued regulations that would have prevented some of the problems that occurred in the last crisis. As a result, regulatory systems have become overly complex. In addition, the cost and political economy of financial bailouts are too great. The focus needs to be on building a robust and resilient ex ante framework. Policymakers should consider an “insurance scheme,” where banks would pay a form of premium to central banks in normal periods, which in turn can lend in a crisis on terms already agreed.
Managing Director's Global Policy Agenda
The global economy has experienced a synchronized slowdown, and growth remains weak. Escalating trade disputes, entrenched policy uncertainty, and adverse geopolitical developments have taken a toll on confidence, investment, and growth. The outlook remains precarious, and downside risks, stemming primarily from a further broadening of trade tensions and rising financial vulnerabilities, cloud the horizon. There is also a growing risk that trade disputes could spill over to monetary, exchange rate, or financial sector policies, threatening global financial stability and jeopardizing hard-won economic gains.
Global Financial Stability Report
World Economic Outlook
A Survey by the IMF staff usually published twice a year. It presents IMF staff economists' analyses of global economic developments during the near and medium term. Chapters give an overview as well as more detailed analysis of the world economy; consider issues affecting industrial countries, developing countries, and economies in transition to market; and address topics of pressing current interest. Annexes, boxes, charts, and an extensive statistical appendix augment the text.
This report emphasizes the environmental, fiscal, economic, and administrative case for using carbon taxes, or similar pricing schemes such as emission trading systems, to implement climate mitigation strategies. It provides a quantitative framework for understanding their effects and trade-offs with other instruments and applies it to the largest advanced and emerging economies. Alternative approaches, like “feebates” to impose fees on high polluters and give rebates to cleaner energy users, can play an important role when higher energy prices are difficult politically.
|Bilateral trade balances are largely driven by macroeconomic factors, rather than bilateral obstacles to trades. At the same time, an increase in bilateral tariffs would nonetheless create significant global spillovers. Reducing multilateral trade barriers would benefit trade and macroeconomic outcomes globally.|
|Estimates of the natural interest rate convey useful information for conducting and communicating monetary policy as well as carry implications for economic policy more generally. The topic has gathered much attention in the post-crisis era, as there is uncertainty regarding the process of monetary policy normalization as well as the future path of interest rates. For the Euro Area, despite sharing a common monetary policy, monetary conditions can vary across countries reflecting differences in their stages in the business cycles, the transmission mechanism via financial markets, and other factors. Our research provides the estimates of the country-specific natural interest rates and their potential drivers and discusses various policy implications of the general decline in the natural interest rates relative to the pre-crisis period.|
Governor Talks: United Kingdom: Addressing the fundamental asymmetry of the International Monetary and Financial System
Speaker: Mr. Mark Carney, Governor of Bank of England
Moderator: Mr. Poul M. Thomsen, Director of European Department
Speaker: Mr. Philip Lowe, Governor of the Reserve Bank of Australia
Moderator: Mr. Changyong Rhee, Director of Asia and Pacific Department
IMF POLICY PAPERS
Publication Date: July 3, 2019
The Methodology review identified three broad areas for improving the EBA-Lite methodology: (1) expanding the fundamentals and policy determinants in the CA and REER regressions to better capture the external balance of EBA-Lite countries; (2) identifying alternatives to regression models for external assessments of large exporters of exhaustible commodities; and (3) a revised approach for the assessment of external sustainability in highly indebted economies. Accordingly, the revised methodology consists of three modules: 1) Regression Module 2) Module for External Assessments of Exporters of Exhaustible Commodities 3) Module for the Assessment of External Sustainability