Transcript of the Press Conference on the Release of the October 2016 World Economic Outlook
IMF News, October 4, 2016
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- Published: October 4, 2016
Global outlook and main findings
- Global output growth projected at 3.1 percent in 2016 and at 3.4 percent in 2017.
- World economy described as "moving sideways": slowdown in advanced economies in 2016 offset by a pickup in emerging and developing economies.
- Compared to the 1998‑2007 averages, long‑term potential growth is now projected to be lower in all regions.
- Persistent negative output gaps and legacy effects from the crisis include: high debt overhangs, nonperforming loans, deflationary pressures, low investment, and eroded human capital.
- These legacies can depress realized growth via self‑fulfilling cautious behavior by investors and consumers.
Risks and scenarios
- Risks to the baseline are tilted to the downside; potential derailers include:
- a bumpy transition in China,
- a further sharp fall in commodity prices,
- a tightening in global financial conditions,
- climate‑related disruptions,
- a sharp hike in trade barriers,
- geopolitical tensions and humanitarian crises in the Middle East and Africa.
- Upside scenario: widespread adoption of comprehensive, consistent, and coordinated policies that exploit synergies across instruments, time, and countries.
Policy recommendations (three‑pronged strategy)
- Comprehensive policies should deploy structural and fiscal policy in support of monetary policy; monetary policy should maximize the expansionary effects of structural reforms and active fiscal measures.
- Consistent and well‑communicated policies to stabilize expectations.
- Coordination among countries to generate beneficial spillovers (example cited: 2014 Brisbane Action Plan on structural measures).
- Structural priorities highlighted:
- Renewed commitment to lowering trade barriers.
- Develop labor market resilience.
- Lower barriers to entry in product and services markets.
- Ease adjustment for people vulnerable to dislocations from technology, trade, and structural reforms.
- For commodity exporters:
- Adjust within clear, coherent policy frameworks to lower commodity prices.
- For countries outside monetary unions, allow exchange rates to adjust to restore domestic currency value of fiscal revenues.
- Fiscal policy must adjust; move toward diversification of the economy and investment in human capital, governance, and institutions.
Monetary policy stance and central bank roles
- Federal Reserve:
- September decision not to raise rates at that time considered "a very appropriate balancing of the risks"; data‑dependent approach endorsed.
- Inflation below target and moderate wage pressures justify caution; a rate increase in coming months remains possible if data warrant.
- Central banks have been relied upon excessively; monetary policy cannot bear the entire burden.
- Euro area:
- Euro area inflation forecast to rise to 1.1 percent in 2017; core inflation forecast to be below target for quite some time over the medium term.
- ECB could take further measures if inflation remains below target, but other policy levers should supplement monetary policy.
- Very low interest rates make it attractive for countries with fiscal space to undertake productive public investment at near‑zero borrowing cost.
Regional snapshots and country specifics
- United Kingdom / Brexit:
- IMF presented several scenarios in Article IV and other writings; the outcomes reported fall within the milder scenario.
- After the vote, sterling depreciated sharply, reducing real income over imports and aiding tradable sectors; evidence of deferred investment and heightened uncertainty led to further downgrade for 2017.
- Current outcome described as a "soft landing" for 2016, relative to worst‑case scenarios.
- China:
- Near‑term baseline prospects viewed as favorable due to recent Chinese fiscal and other supportive measures.
- Medium‑term concerns: rapid domestic credit growth, continued support of sectors with excess capacity, financial sector expansion (including shadow banking) that could threaten financial stability.
- Challenges: upgrade regulatory framework, address extensive nonperforming loans, impose hard budget constraints on state‑owned enterprises, and accelerate elimination of excess capacity as economy shifts toward services and consumption.
- Euro area (general and Spain):
- Countries with fiscal space encouraged to increase productive public investment (infrastructure, education) to support demand and help the ECB reach its inflation mandate (roughly 2 percent).
- Spain:
- Forecast for Spain in 2016 marked up to 3.1 percent despite prolonged political uncertainty.
- Strong H1 performance and a benign external environment supported the upward revision.
- Near‑term challenges: resume fiscal adjustment gradually as public debt approaches a hundred percent of GDP and address political uncertainty to stabilize policies.
- Russia:
- Forecasts marked up since spring partly due to improvement in oil prices and strong oil production.
- Policy response (exchange rate depreciation, incomes policies, tight macro policies) helped stabilize external accounts and contain fiscal impact.
- Domestic demand declined sharply but is gradually recovering; monetary policy has started an easing cycle.
- Medium‑term challenges: unfavorable demographics, weak investment, and sanctions effects on productivity and technology transfer.
- Latin America (Brazil, Mexico, Argentina):
- Brazil:
- Activity indicators improving; activity expected to bottom out around end‑2016 with growth to resume in late 2016 or 2017.
- Medium‑term growth expected to gradually improve to around 2, 2 1/2 percent after a strong recession.
- Reforms and policies to address infrastructure bottlenecks, tax system complexity, and trade barriers remain important.
- Mexico:
- Lower oil prices and downgrades to the US outlook (manufacturing underperformance) contributed to downgraded expectations.
- Argentina:
- IMF projects near 40 percent inflation by December 2016 and a decline to just above 20 percent by end‑2017.
- MENA region:
- Slight downgrade driven by large variations across countries undergoing strife (Libya, Yemen, Iraq, Syria).
- Two offsetting forces: improvement in oil prices vs. protracted fiscal adjustments to lower oil revenues; many countries have pegged exchange rates which constrain adjustment and require larger domestic spending cuts.
- Africa / commodity exporters:
- Fall in commodity prices likely long‑lasting; calls for diversification into non‑commodity sources, investment, education, and improved governance.
- Security concerns (e.g., Boko Haram impacts) are major growth disruptors; IMF can offer advice, technical assistance, and financial support but not direct security solutions.
- Greece:
- ESM program under review; Fund emphasizes that debt and fiscal plans must be realistic and not driven by politics.
- Debt values must be consistent with politically sustainable primary surplus targets to avoid "kicking the can down the road."
Political economy and distributional concerns
- Slow and incomplete recovery has been especially damaging where income distribution skewed toward highest earners, fueling political movements against globalization (Brexit cited as example).
- Political fallout from persistently low growth risks further depressing global growth.
Key quoted numeric and date references
- Global growth projections: "3.1 percent in 2016" and "3.4 percent in 2017."
- Comparison period: "1998‑2007 averages."
- Crisis reference: "2008‑09."
- ECB inflation mandate: "roughly 2 percent."
- Euro area inflation forecast referenced: "1.1 percent in 2017."
- Spain growth revision: "3.1 percent."
- Spain public debt: "a hundred percent of GDP."
- Argentina inflation projections: "near 40 percent" by December 2016 and "just above 20 percent" by end‑2017.
- Brazil medium‑term growth path: "around 2, 2 1/2 percent over the medium term."
Transcript of the Press Conference on the Release of the October 2016 World Economic Outlook — Washington, DC, October 4, 2016