Globalization and Growth: A Balancing Act, Says Lipton

IMF News, October 17, 2016

Source details

Date: October 17, 2016
International community must work together to strengthen global growth and address rising discontent in advanced economies.
Need to balance:
- strengthening growth and maintaining globalization; and
- dealing with disruptions and dislocations from interconnectedness and economic change.
Greater openness to examining links between political issues and economic issues; IMF staff presented analysis and economic assessments.

IMF recommendation: a three-pronged approach—using monetary, fiscal, and structural policies.
Observations on monetary policy:
- Monetary policy has been the first line of defense for low growth and low inflation in advanced economies, but it is being over-stretched.
- There are synergies in combining monetary support with growth-friendly fiscal and structural policies.
Recommended approach:
- Put together differentiated policy packages for each country.
- Coordinate actions across countries where possible—“the whole will be greater than the sum of the parts.”
Concerns highlighted:
- Prolonged low-interest rate environment.
- Negative consequences of over-reliance on monetary policy.
Emphasis on political leadership to implement national actions, including:
- donor support for countries dealing with refugees and displaced persons;
- support for those affected by technological displacement or by inequality.

IMF projection for growth in 2016: unchanged (the projection for growth this year has not been revised).
Short-run picture described as “okay”:
- Several major emerging economies have bottomed out.
- Capital inflows to several emerging economies have picked up, though not as strongly as in the past.
Differentiation across countries:
- Some countries doing very well (India cited as a prominent example).
- Outcomes vary depending on whether a country is a commodity exporter.
Warning:
- If advanced economies fail to restore stronger growth and inflation toward targeted levels, their weaker performance will be debilitating over time.
On capital inflows:
- IMF has analyzed interactions between advanced-economy monetary policy and capital flows.
- Policy recommendations have been broadly followed: use of exchange rate flexibility and building buffers against potentially destabilizing financial flows.

Depressed commodity prices have negatively affected a number of low-income countries.
Regional mood: widespread disappointment in Africa due to low average growth, though some non-oil and non-commodity exporters continue to grow rapidly.
IMF response and outlook:
- Working to help members navigate this period.
- More optimistic about long-run prospects where countries are:
- building buffers;
- using capacity development to improve economic policy;
- investing in hard and soft infrastructure, health, and education.
- Low growth period seen as a challenge but one that countries are responding to in ways that could improve future prospects.

Core message: there remains “a great promise from globalization” if negative side effects and spillovers are managed.
Vital priorities emphasized:
- Convincing member countries to maintain integration, interconnectedness, and openness.
- Ensuring emerging markets and developing countries remain interconnected to secure demand for exports, investment capital, and technology.
- Continued IMF work alongside actions by member countries to strengthen growth and address side effects of technological change and interconnectedness.

Interview summary of remarks by First Deputy Managing Director David Lipton at the October 2016 Annual Meetings.