## IMF EXECUTIVE BOARD DISCUSSION OF THE OUTLOOK, OCTOBER 2017

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### Global outlook and risks
- Global activity has strengthened further and is expected to rise steadily into next year.
- The pickup is broad based across countries, driven by investment and trade.
- The recovery is not complete, with medium-term global growth remaining modest, especially in advanced economies and fuel exporters.
- In most advanced economies, inflation remains subdued amid weak wage growth.
- Medium-term prospects are weighed down by slow productivity growth and worsening demographic profiles.
- Several emerging markets and developing economies continue to adjust to a range of factors, including lower commodity revenues.
- Directors noted that risks are broadly balanced in the near term, but medium-term risks remain skewed to the downside, with rising financial vulnerabilities.
- Identified vulnerabilities and risk channels:
  - Possibility of a sudden tightening of global financial conditions.
  - Rapid increase in private sector debt in key emerging market economies.
  - Low bank profitability and pockets of still-elevated non-performing loan ratios.
  - Policy uncertainty about financial deregulation.
  - Risks associated with inward-looking policies, rising geopolitical tensions, and weather-related factors.

### Policy priorities and coordination
- Importance of employing a range of policy tools, in a comprehensive, consistent, and well-communicated manner, to secure the recovery and improve medium-term prospects.
- Major central banks have made every effort to communicate their monetary normalization policies to markets.
- The cyclical upturn provides a window of opportunity to:
  - Accelerate critical structural reforms.
  - Increase resilience.
  - Promote inclusiveness.
- Directors stressed that a cooperative multilateral framework remains vital to amplify mutual benefits of national policies and minimize cross-border spillovers.
- Common multilateral challenges:
  - Maintaining the rules-based, open trading system.
  - Preserving the resilience of the global financial system.
  - Avoiding competitive races to the bottom in taxation and financial regulation.
  - Further strengthening the global financial safety net.
  - Tackling noneconomic challenges including refugee flows, cyberthreats, and mitigating and adapting to climate change.
- Need for concerted effort to reduce excess global imbalances through a recalibration of policies to achieve domestic objectives and strengthen prospects for strong, sustainable, and balanced global growth.
- Role for the IMF: continue to strengthen its multilateral analysis of external imbalances and exchange rates (as emphasized by a few Directors).

### Monetary and fiscal guidance
- Continued accommodative monetary policy is still needed in countries with low core inflation, consistent with central banks’ mandates.
- Fiscal policy guidance:
  - Gear toward long-term sustainability.
  - Avoid procyclicality.
  - Promote inclusive growth.
  - Be as growth friendly as possible, using space, where available, to support productivity and growth-enhancing structural reforms.
  - In many cases, prioritize rebuilding buffers, improving medium-term debt dynamics, and enhancing resilience.

### Structural reforms and inclusiveness
- Priorities to raise potential output should be country-specific and may include:
  - Increasing the supply of labor.
  - Upgrading skills and human capital.
  - Investing in infrastructure.
  - Lowering product and labor market distortions.
- Social safety nets remain important to protect those adversely affected by technological progress and other structural transformation.

### Inequality and fiscal policy responses
- Directors noted that income disparities among countries have narrowed, but inequality has increased in some economies.
- Role for well-designed fiscal policies to achieve redistributive objectives without necessarily undermining growth and incentives to work.
- Scope identified for:
  - Strengthening means-testing of transfers in many countries.
  - Increasing the progressivity of taxation in some countries.
- Universal basic income:
  - Most Directors noted any consideration would have to be weighed carefully against country-specific factors—including existing social safety schemes, financing modalities, fiscal cost, and social preferences, as well as its impact on incentives to work—which, in the view of many Directors, raised questions about its attractiveness and practicality.
- Emphasis on improving education and health care as key to reducing inequality and enhancing social mobility over time.

### Emerging market and developing economy resilience
- Continued need for these economies to bolster economic and financial resilience to external shocks, including through:
  - Enhanced macroprudential policy frameworks.
  - Exchange rate flexibility.
- Common challenges to speed convergence toward advanced economy living standards:
  - Improve governance.
  - Strengthen infrastructure, education, and access to health care.
  - Facilitate greater labor force participation.
  - Reduce barriers to entry into product markets.
  - Enhance the efficiency of credit allocation.

### Financial stability outlook
- Global financial system continues to strengthen, and market confidence has improved generally.
- Substantial progress made in resolving weak banks in many advanced economies.
- A majority of systemic institutions are adjusting business models and restoring profitability.
- Risks from prolonged monetary accommodation:
  - Further increases in asset valuations.
  - Buildup of leverage in the nonfinancial sector signaling higher risks to financial stability.
- Need for continued vigilance regarding household debt ratios and investors’ exposure to market and credit risks.
- Policy responses:
  - Calibrate the path of normalization of monetary policies carefully.
  - Implement macro- and microprudential measures as needed.
  - Address remaining legacy problems.

### Commodity prices and low-income developing countries
- Directors noted a generally subdued outlook for commodity prices.
- Recommendations for commodity-exporting low-income developing countries:
  - Continue improving revenue mobilization.
  - Strengthen debt management.
  - Safeguard social outlays and capital expenditures.
- For countries with more diversified export bases:
  - Further strengthen fiscal positions and foreign exchange buffers.
- Overarching challenge across all low-income developing countries: maintain progress toward their Sustainable Development Goals.

*The following remarks are made by the Chair at the conclusion of the Executive Board’s discussion of the Fiscal Monitor, Global Financial Stability Report, and World Economic Outlook on September 21, 2017.*

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_Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2017/october/pdf/fmboardsum.pdf_