Transcript of the Press Conference on the Release of the October 2017 World Economic Outlook

October 11, 2017

Washington, D.C.
October 10, 2017


Maurice Obstfeld, Economic Counsellor and Director of the Research Department
Gian Maria Milesi-Ferretti, Deputy Director, Research Department
Oya Celasun, Chief of the World Economic Studies Division, Research department
Olga Stankova, Special Assistant to the Director, Communications Department

Ms. Stankova - Good morning, everybody, and good afternoon to those who are joining us from other parts of the world. Welcome to the press conference on the release of the World Economic Outlook entitled “Seeking Sustainable Growth: Short-Term Recovery, Long-Term Challenges.’

At the press conference with us is Maurice Obstfeld, IMF Economic Counsellor and Director of Research. To the far right of the table is Gian Maria Milesi-Ferretti, Deputy Director in the Research Department. And between Gian Maria and Maury is Oya Celasun; she is Chief of the Global Economic Studies Division in the Research Department.

With this I will pass the microphone to Maurice Obstfeld for his opening remarks, and then we will take your questions.

Mr. Obstfeld - Thank you, Olga, and good day, everyone. The global recovery is continuing and at a faster pace. The picture is very different from early last year when the world economy faced faltering growth and financial market turbulence. We see an accelerating cyclical upswing boosting the major economies, including Europe, China, Japan, and the United States, as well as emerging Asia.

The latest World Economic Outlook has therefore upgraded its global growth projections to 3.6 percent for this year, 2017, and 3.7 percent for next year. In both cases, this is 0.1 percentage points above our previous forecasts and well above 2016’s global growth rate of 3.2 percent, which was the lowest since the global financial crisis.

For 2017, most of our upgrade owes to brighter prospects for the advanced economies, whereas for 2018’s positive revision, emerging market and developing economies play a relatively bigger role. Notably, we expect Sub-Saharan Africa, where growth and per capita incomes has on average stalled for the past two years, to improve overall in 2018.

The current global acceleration is also notable because it is so broad-based, more so than at any time since the start of the decade. This breadth offers a global environment of opportunity for ambitious policies that will support growth and raise economic resilience in the future. Policymakers should seize the moment. The recovery is still incomplete in important respects, and the window for action that the current cyclical upswing offers will not be open forever.

Why do we say that the recovery is incomplete?  It is incomplete in our view in three important ways.

First, the recovery is incomplete within countries. Even as output nears potential in advanced economies, nominal and real wage growth have remained low. This wage sluggishness follows many years during which median real incomes grew much more slowly than incomes at the top, or even stagnated. Drivers of growth including technological advances and trade have had uneven effects, lifting some up but leaving others behind in the face of structural transformation. The resulting higher income and wealth inequalities have helped fuel political disenchantment and skepticism about the gains from globalization, putting recovery at risk.

Second, the recovery is incomplete across countries. While most of the world is sharing in the current upswing, emerging market and low-income commodity exporters, especially energy exporters, continue to face challenges, as do several countries experiencing civil or political unrest, mostly in the Middle East, North and Sub-Saharan Africa, and Latin America. Many small states have been struggling. About a quarter of all countries and nearly a third of emerging market and developing economies saw negative per capita income growth in 2016. Despite the current upswing, nearly a fifth of all countries and nearly a fourth of emerging market and developing economies are projected to do the same in 2017.

Finally, the recovery is incomplete over time. The cyclical upswing masks much more subdued, longer-term trends of productivity and demographics, even correcting for the arithmetical effect of more slowly growing populations. For advanced economies, per capita output growth is now projected to average only 1.4 percent per year over the 2017-2022 period, compared with 2.2 percent per year during the pre-crisis decade, 1996-2005. Moreover, we project that fully 43 emerging market and developing economies will grow even less in per capita terms than the advanced economies over the coming five years. These economies are diverging rather than converging, going against the more benign trend of declining inequality between countries due to rapid growth and dynamic emerging economies like China and India.

These gaps in the recovery challenge policymakers to action, action that should take place now while times are good. Success requires a three-pronged approach in the context of competing and refining the important financial stability reforms undertaken since the global crisis without weakening them.

Needed structural reforms differ across countries, but all have ample room for measures that raise economic resilience along with potential output. Our research has shown that structural reforms are easier to implement when the economy is strong.

For some countries that have returned close to full employment, the time has come to think about gradual fiscal consolidation to reduce swollen public debt levels and build buffers against the next recession. Higher infrastructure and educational spending, which are needed in some countries that do have fiscal space, can have the added benefit of boosting global demand just as consolidation measures elsewhere subtract from it. This multilateral fiscal policy mix can also help reduce excess global imbalances.

Critically important to growth that can be sustained and shared by all is investment in people at all life cycle stages, but especially the young. Better education, training, and retraining can both ease labor market adjustment to long-term economic transformation — from all sources, not only trade — and raise productivity. In the short term, the excessive youth unemployment that afflicts many countries urgently deserves attention. Investing in human capital should also push labor’s income share upward, contrary to the broad trend of recent decades, but governments should also consider correcting distortions that may have reduced workers’ bargaining power excessively.

In sum, structural and fiscal policy together should promote economic conditions conducive to sustainable and more inclusive real wage growth.

The third policy prong, monetary policy, still has a key role to play. Earlier deflation threats in advanced economies have receded considerably, but inflation has remained puzzlingly low even as unemployment rates have come down. Clear central bank communication and the smooth execution of monetary policy normalization, where and when appropriate, remain crucial. Success will help prevent market turbulence and sudden tightening of financial conditions which could disrupt the recovery with spillovers to emerging and developing economies.

Those economies, in turn, face diverse monetary policy challenges but should continue where possible to use exchange rate flexibility as a buffer against external shocks, paying due attention to implications for price stability.

Numerous global problems require multilateral action. Priorities for mutually beneficial cooperation include strengthening the global trading system, further improving financial regulation, enhancing the global financial safety net, reducing international tax avoidance, and fighting famine and infectious diseases. Also crucially important are to mitigate greenhouse gas emissions before they do more irreversible damage and to help poorer countries, which are not themselves substantial emitters, adapt to climate change. Of course, we have a WEO chapter on that in this cycle.

If the strength of the current upswing makes the moment ideal for domestic reforms, its breadth makes multilateral cooperation opportune. Policymakers should act while the window of opportunity is open.

And with that, we welcome your questions.

Ms. Stankova - Thank you, Maury. And the first question from the gentleman in the first row.

Question - Good morning. I would like to do a two-part question about Brazil. The first one is the positive outlook that you see for Brazil, does it indicate the end of a recession or of a stagnation in the Brazilian economy? 

And the second part is that positive outlook happens despite the investigations about corruption in Brazil or because of it? 

Mr. Obstfeld - I am going to turn that one to Oya Celasun. Oya.

Ms. Celasun - Thank you very much. Yes, indeed, we see an end to the recession in Brazil. We have had two consecutive quarters of positive growth, so Brazil seems to be at a turning point. But given the ongoing uncertainty in the political front, in terms of policies, our outlook for growth is quite a weak one. We expect quite a subdued recovery going forward.

Question - [Inaudible].

Ms. Celasun - As I said, broader uncertainty is weighing on growth, and we expect that to dissipate gradually over time.

Ms. Stankova - And since we are on Latin America, maybe we will take a question from our online audience: 

On Mexico and Latin America in general, what are your perspectives for the economy of Mexico and Latin America, how the NAFTA negotiations could impact the Mexican economy and the peso?  How do we estimate the inflation in Mexico, from here [inaudible] Mexico? 

Mr. Obstfeld - Just as a general point, anything including the NAFTA negotiations that disrupt established trading and production relationships across countries that are supply chains could be disruptive to all the partners involved, so that does carry substantial risk for Mexico as well as its NAFTA partners.

You know, what we have seen historically is that difficulties in NAFTA negotiations have been associated with peso weakness. Now, of course, one would have to be very courageous to try to forecast exchange rates on a short-term basis. So, our hope is that the negotiations over the future of NAFTA do go forward smoothly and actually reach the improvements that are certainly attainable in the framework.

On the Mexico macro situation more specifically, you know, there are a number of structural problems. Mexico is for the moment not following the general trend in the region of weaker inflation, but there are structural challenges. I think Governor Carstens indicated some of these in his exit interview. These include informality, low productivity, informal sector, labor market duality, et cetera. So, Mexico has made impressive progress in its macro management, but there is room to do more.

Ms. Stankova - Thank you, and next question would come from the gentleman in the first row.

Question - In the report you are saying that India’s growth has slowed down, and your have brought down the projection for 2017 by .5 percent. What was the main reason for the slowdown, which was which one had greater role in this, demonetization or GST, and what is the impression of the state of India’s economy now? 

Mr. Obstfeld - In general the state of India’s economy is quite good. The government has energetically pursued structural reforms, including the GST, which will have a payoff longer term. The country has benefited from improved terms of trade. It has benefited from the return of a normal monsoonal rain season, given the large share of agriculture.

For this year, there were two headwinds. Number one, the implementation of the GST itself, particularly in July and August, had some disruptive effects which we believe are passing; and you can see that our forecast for next year is quite high at, I think, 7.4 percent. The other headwind came from the demonetization, which led for a time to temporary cash shortages. These have now been overcome, and so the downgrade for this year looks like a blip in a much more positive longer-term picture.

Ms. Stankova - Next question. Yes, gentleman in the third row in white shirt.

Question - You say in the WEO that the outlook for the U.K. economy depends on what sort of trading relationship is eventually struck with the European Union. What impact do you think that no deal would have on the U.K. economy and, of course, the European economy as well with the U.K. falling back on WTO arrangements? 

Mr. Obstfeld - We very much hope that negotiations can be constructive and minimize the cost to both sides. I think that is in everyone’s interest. But the clock is, as everybody knows, very short, particularly given that whatever deal there is would have to be approved by the EU 27, and that would take time.

Prime Minister May, I think very constructively in her Florence speech, suggested a two-year transition period; and this could be a good thing in allowing more time for adjustment, given that there is a clear end point and a clear process during that period for getting to the end point. So, I think for all partners, you know, reducing the uncertainty is not good, and a sort of cliff-edge Brexit without any sort of firm, predictable arrangements would involve a lot of uncertainty.

Ms. Stankova - And the gentleman on the fourth row, I think Andrew.

Question - Thanks. You mentioned the fact that inflation has been puzzlingly low in a lot of economies. What is your view of how the world’s major central banks should proceed, the Federal Reserve, ECB?  And on inflation in particular, can you drill down a little bit on your interpretation of why it is so low?  I mean, how adrift would you say central bankers are in terms of their understanding of why it is low? 

Mr. Obstfeld - You know, it is hard to give a very brief answer to your question because it really touches on very deep issues in macroeconomics. And also different countries are in very different places with their monetary policies, and in some cases their normalization processes. You know, for most advanced economies, not everywhere — for example, not the U.K. — inflation has been puzzlingly low as output gaps are closing.

Partly this reflects low inflation and nominal wages, and chapter 2 of this WEO looked at that in detail. Nominal wage growth is dependent on a number of factors. One is slack, and we do see slack remaining in a number of economies, particularly slack in the form of workers who are working part-time for noneconomic reasons, slack in the form of workers working shorter hours or on temporary contracts. So we think this is one of the factors.

And another factor is expectations of inflation itself. If workers and firms expect low inflation, then wages will grow more slowly, other things equal, and that will itself feed into prices. This highlights the importance and, indeed, the central role of expectations in monetary policy. Advanced countries’ central banks tend to have inflation targets that are around 2 percent. They have not produced inflation around 2 percent for several years. And so there is a need to maintain, or in some cases, strengthen credibility.

Our view is generally that in Europe and Japan where inflation expectations remain significantly below target, accommodation needs to continue for some time. In the U.S. there has been more success in keeping inflation expectations and inflation closer to target, and the Fed is balancing growth considerations against inflation in a data-dependent way and monitoring the economy going forward, which I think is the best they can do.

Ms. Stankova - Thank you, Maury. And since you have touched upon the United States, a question from our online audience: 

Why didn’t the IMF include U.S. tax cuts in the estimates, and what impact do you expect they would have on growth and inflation?

Mr. Obstfeld - Back at the start of this year, we felt that some form of fiscal stimulus was highly likely; and we did incorporate that into our forecasts, and the situation has actually remained very fluid since then with expectations of what might happen and when being quite variable, so at this point I think we are in wait-and-see mode. We are really not sure, based on what we have seen, what degree of stimulus the ultimate tax plan that is agreed in the U.S. would be. You know, there are many options on the table. We do not know what sort of deficit might emerge. A lot of what has been promised in terms of ending tax exemptions has not been spelled out.

So, you know, our upgrade for the U.S. in this cycle is based on the strong first half we have seen on the data, not on fiscal expectations.

Now, again, if the stance of fiscal policy turns out to be very expansionary with a big deficit, that would have implications for the dollar, possibly for growth, for the current account deficit.

Ms. Stankova - Thank you. And the lady, please, to the back of the room, over there. Thank you.

Question - I would like to know what kind of suggestion do you make to the Portuguese government at this time; and, second, if you have any prediction for the situation in Catalonia, the big political turmoil, if that will have consequences in Spain and Portugal, too? 

Mr. Obstfeld - You know, Portugal has been growing quite handsomely this year. Our 2017 projection is for 2.5 percent growth after 1.4 percent last year, and for 2.0 percent in 2018.

That should not obscure the fact that Portugal does face challenges. Despite having done some important structural reforms, there is room for more. The debt, the public debt at around 130 percent of GDP is high, and our general advice to all countries with high debt levels is please embark on gradual consolidation, bring those debt levels down.

This upswing will not last, and there will be a recession some day; and then you will want to use fiscal space. So policymakers need to be thinking long term, which is not always the normal mode for politicians.

Speaking of politics, the situation in Spain is, indeed, concerning as it causes a lot of uncertainty both for the Catalan economy and for the Spanish economy. We can only hope that the parties do not act precipitously, negotiate. There is a lot of potential gains on both sides if they do so.

Would there be spillovers to Portugal given its contiguity?  Yes, there would probably be some spillovers and to other countries in Europe.

Ms. Stankova - Thank you. Gentleman in the back of the room, please.

Question - Thank you. Two questions. The first one is you mentioned the inequality between rich and poor. Could you elaborate a little bit of what you would suggest countries to do about it because everybody is saying this now, but what would be the advice of the IMF?

And my second question is, did the mindset of your experts change, because you were also talking about global warming, poverty, inequality between countries?  I never heard so much talk about these social issues here, so is there kind of a new dogma here?  Thank you.

Mr. Obstfeld - Taking the last question first, I do not think there has been a sharp shift on these issues. There has been evolution. But, for example, on the climate issue, you can find a chapter of the World Economic Outlook on the effects of emissions reduction from, I think, it was 2008. Yes, 2008. You know, Mr. Cottarelli, who was the former Italian Finance Minister, now an Executive Director, when he ran our Fiscal Affairs Department, did a great blog on carbon pricing and the efficiency gains from reducing emissions in a cost-minimizing way.

This is something we have been thinking about for a long time. Our Fiscal Affairs Department has written a lot about the social costs and the global costs of fossil fuel subsidies, so I would push back on the idea that this is totally new; but there has undoubtedly been evolution.

On ways to deal with inequality, I will punt to the Fiscal Monitor press conference tomorrow. The Fiscal Monitor deals with tackling inequality that is devoted entirely to that and looks at a broad range of options, so I will try to stay here on the global outlook.

Ms. Stankova - And next question, maybe the gentleman here in the second row.

Question - Thank you. Good morning. A little bit about Brazil. The World Economic Outlook highlights the fiscal stance that Brazil is pursuing, and I would like to know what are the major challenges or even the major structural adjustments that Brazil needs to do to improve the GDP on the next couple of years? 

Mr. Obstfeld - Oya, do you want to take that one? 

Ms. Celasun - Sure. On what can improve Brazil’s — underpin a stronger growth outlook for Brazil or make the recovery come to pass, one aspect is the fiscal outlook. It has to be brought to a more solid footing. The expenditure cap passed earlier on this year was a very important step in that direction. To achieve that goal, the next important step is to pass social security reform within a reasonable timeframe and without much dilution from what the government has proposed. That will underpin broader fiscal sustainability but also the sustainability of the pension system itself in Brazil. So that we see is a very important leg of the reform agenda.

But the other leg is about accelerating structural reforms to boost potential growth, which has not been very strong. Infrastructure provision has been for a while an area where we have been saying that more attention, stronger infrastructure spending is needed. Improving the business environment more generally, credit allocation, reform of the state-owned banks to improve the efficiency of credit is another important area.

Ms. Stankova - Thank you, next question, please. The gentleman at the end of that row.

Question - This is the fourth time you are upgrading China’s growth projection this year, and I am hearing that this is partly because of the expansionary policy mix. At the same time you are cautioning the debt level of this downside risk increasing, so I wonder do you suggest an early withdrawal of these expansionary policies, or how do you think the downside risks will increase in the future? 

Mr. Obstfeld - You know, those recommendations strike some people as paradoxical, but our Global Financial Stability Report, which will be released tomorrow, highlights the seeming paradox that credit expansion and more debt can raise output today and raise growth today but cause problems later, actually reducing output.

China’s strong growth performance in the first half owes a lot to policy support of the type you mentioned, and the authorities have certainly recognized that credit expansion if unchecked will possibly cause problems down the road, and I am sure we will be hearing more about that after the Congress next week.

This has been a long-term concern of ours, and the problem is that more debt can give you a short-term bump, but then later on the debt has to be repaid; and particularly in a global environment where interest rates may be rising, that poses a risk. So our advice for China has been to curb excessive debt growth, excessive credit expansion, put state-owned firms on a basis of hard budget constraints so that they do not borrow too much, obviously reform the economy in a number of other ways. And I think most of these messages have been taken to heart by the leadership.

Ms. Stankova - Next question, please. Gentleman in the first row.

Question - Thank you. Globally your report is full of optimism. Can we have a much more better explanation on the dynamics in Africa?  And precisely is the Nigerian economy out of danger, which is the largest on the Continent?  And maybe an explanation of the situation in the CEMAC member countries, Central Africa. Thank you.

Mr. Obstfeld - Oya, do you want to take that? 

Ms. Celasun - So when we talk about Sub-Saharan Africa, what we need to keep in mind is a really significant amount of heterogeneity. What we see for the headline numbers is a pickup in growth this year, a better outcome, which is largely driven by the larger economies, Nigeria, South Africa, and Angola, where one of the factors that had been weighing on growth, particularly weighing on growth, are dissipating, and allowing for a somewhat better outcome but not necessarily a very strong one.

In particular, in the case of Nigeria, stronger oil production after the problems in the Niger Delta last year are dissipating. Better agriculture production are playing a role. Likewise, in South Africa, a rebound in agricultural production as drought conditions in the broader region have eased, and stronger mining outputs are helping. So these are the dissipation of negative factors but, again, it is not a very strong growth impetus that is coming. But that is not to say that a number of economies are not growing strongly. Many, one-third of the countries are growing at around 5 percent. So that is also quite, that is a favorable part of the story, although it comes with risks in some countries where credit growth or public debt growth has been quite strong.

Now turning to CEMAC, four of the economies are oil exporters, and they are adjusting their public finances to lower oil prices, and that is creating a drag for their economies. Cameroon is a relatively well-diversified one in that group and also in Africa more generally. In the context of cutting public spending, it is also seeing a slowdown in growth; but growth there is expected to be around 4 percent this year, which is still a pretty good outcome.

Nigeria is going to have stronger growth this year, as I mentioned, because agriculture and oil production are doing better; but there is still a lengthy adjustment to lower oil prices ahead.

Mr. Milesi-Ferretti - If I may add one word on this, the heterogeneity in the performance of emerging economies owes a lot to the structural production, so there are 34 emerging economies, emerging and developing economies, with negative per capita growth in 2017. Of these 34, 21 are fuel exporters. And you see it very clearly in Africa where a lot of the economies that are hit hardest by the declining commodity prices are the fuel exporters. That is really where a lot of the pain is, and it so happens that in Africa, some of those are among the largest in the Continent, Nigeria the largest; Angola the third largest. So that has been really a pattern across the emerging world.

Ms. Stankova - Thank you. And lady in the first row.

Question - To what extent will the series of natural disasters, hurricanes, earthquakes, in the Caribbean, Mexico, United States, over the past couple months affect both the regional and global outlook? 

Mr. Obstfeld - They obviously have a big impact on the regional outlook, less impact on the global outlook. The Fund is engaging to do damage assessments with a number of the countries which have been tragically affected by these events; and we stand ready with our Rapid Financing Facility in case that should be needed.

Going forward, you know, if such events become more routine, and there are theories about why they may have increased in intensity and in frequency that may be linked to climate change; and I think the international community has to think about what kind of support it can give to countries because the suffering is really quite great. And we have, you know, economies like in Antigua and Barbuda where a huge amount of capital stock has been wiped out. So this is, I think, a problem for global cooperation going forward.

Ms. Stankova - All right. And the next gentleman in the second row.

Question - You say in the report that there is a need to accelerate the cleaning up of the bank balance sheets and reducing NPLs. The ECB just issued a guideline for banks to do exactly that. In Italy, one of the countries where NPLs are highest, the banks and the authorities say that these are provoking credit crunch. Could you please explain your reasoning and say if you think the guidelines from the ECB are appropriate? 

Mr. Obstfeld - Italy has made a lot of progress on financial sector reforms. NPLs are, indeed, coming down. There is greater stability in the banking sector, but the NPLs stock remains high, and NPLs limit new lending, are themselves a source of credit crunch. So certainly dealing with the new NPLs is important. Stock of NPLs also has to be brought down. There is really no alternative, and this is, of course, painful for the banks, but we have seen some banks being able to raise capital. These are good signs. More generally, the Italian banking structure is one with many, many small banks, many, many branches. And there is certainly room for efficiency gains there that would also help to smooth the allocation of credit to the economy.

Ms. Stankova - Thank you. And the gentleman in the first row, please.

Question - Thank you. What can you tell us about economies in small countries in Latin America like Guatemala, and how can affect corruption occupations against government officials and Congress members?  Thank you.

Ms. Celasun - On the growth outlook, again, Latin America, like Sub-Saharan Africa, is one of quite elevated heterogeneity. Smaller countries in that region, I mean in the Central American region, have been recently doing reasonably well. They are oil importers. They have benefited from lower oil prices and the lack of a strong increase in oil prices in recent years. But their growth outlook, medium-term growth outlook and potential growth is not very satisfying. It should be higher given their income levels. And the factor that you mentioned, governance and institutional quality, is one of the factors where improvements would definitely make a difference for their longer term growth outlook.

Ms. Stankova - And let me take a question from our online audience. It is from the Middle East since I do not get questions from the audience on this region:

Saudi Arabia is making reforms [inaudible]. How do you assess the outlook for the Saudi economy in particular and the GCC economies with all the geopolitical challenges that face the region? 

Mr. Obstfeld - Let me turn to Gian Maria.

Mr. Milesi-Ferretti - The outlook for the region is, indeed, a challenging one. It is a region that relies heavily on oil as a source of revenue, and a big decline in oil prices has clearly taken a toll in purchasing power. In addition, if you focus on the growth rate, the agreement by OPEC producers and some non-OPEC producers to contain production to keep prices a bit more elevated is mechanically taking a toll on growth because it implies lower oil production by Saudi Arabia this year.

So the growth performance over 2017-2018 is on the weak side, barely growing this year in Saudi Arabia, .1, picking up a bit next year. Clearly the prospects for the medium term can turn stronger not just if oil prices recover, but also if these economies succeed in rebalancing their structure towards a more diversified model, and this is exactly what the Vision 2030 is aiming to achieve.

It is going to be a long process. You do not improvise a change in structure overnight, but clearly some of these economies have a lot of resources that they can put to use to ease a reallocation of resources towards new sectors; and, indeed, this is what the strategy envisages.

I think another crucial issue for the region is going to be the geopolitical environment as strife is taking a toll on a number of countries, and clearly a decline in those tensions would be enormously helpful for the future of the region.

Ms. Stankova - And perhaps if we could take a close-to-the region question:  Could you explain the reasons behind the large positive revision made in the growth projections for Turkey in 2017? 

Mr. Obstfeld - Fundamentally the economy has recovered very, very strongly in the first two quarters of this year; and that very strong growth — actually also the latter part of 2016. This big rebound is the main reason for the upward revision. You have already achieved — the Turkish economy has already achieved pretty high growth for 2017, just with the level of output that it has reached at the end of the second quarter.

Turkey has been helped by the overall decline in oil prices — it is a big oil importer — and by a very benign market environment because the economy has a number of vulnerabilities that could cause difficulties in a more difficult market environment. It has a widening current account deficit and an inflation rate that remains uncomfortably away from target. So at some point policies will need to address these imbalances and return the macroeconomic settings to a more balanced path.

Ms. Stankova - And the next question may be from down that way of the room. Larry.

Question - You have pointed out a number of risks to the outlook, quite serious risks; but the financial markets do not seem to be taking those risks on board. Are they being irrationally exuberant? 

Mr. Obstfeld - I guess it is fitting that Dick Thaler won the Nobel Prize this week. He is not an irrational, exuberant guy. You know, it is always difficult to determine what fair asset pricing is in a rigorous way. When you view a number of indicators at historic highs, you have to wonder, however. And to some degree, asset prices are being supported by very, very low interest rates. They are supported by growth expectations which could be disappointing, and our assessment that lowered return growth rates, particularly in advanced economies, are subdued feeds into that. So our concern is simply that if interest rates were to rise faster than expected or growth outcomes not validate these high asset prices, there could be abrupt repricing that could be disruptive.

A firm judgment on assets being overpriced, I do not think we are ready to make; but I think we are ready to recognize that there are risks that that may be the case and that there could be adjustments in a downward direction.

Ms. Stankova - I do not see questions from the Japanese media. Maybe a question from the gentleman in the back of the room in the white shirt.

Question - Good morning. I just want to understand if this forecast for Mozambique is taking on mind that the program with the IMF will still [suspended] for 2018, or if there is projection that there will come a new program next year.

Mr. Obstfeld - Yes, I would like to defer that, if you do not mind, to the regional African briefing because I think that is a better venue to deal with program questions for individual countries.

Question - Mr. Obstfeld, what is your first impression of the Trump administration tax plan; and if you are not going to answer that, perhaps, then what is the appropriate tax reform in the United States to enhance growth, both domestically and to contribute to the global recovery? 

Mr. Obstfeld - Are we not on second impression by now at least?  I am not going to answer your question, your initial question; and it is partly because there is a lot that is to be determined in the tax plan. And, you know, these may seem like details to some, but they are actually quite crucial to how the thing will work and what kind of deficit or surplus in the government budget it will lead to. So we are looking forward to further details as the plan is negotiated.

In terms of general principles, and I think these principles would apply very broadly to all countries, simplification is a good thing. If it brings a sharp reduction in exemptions, loopholes, special giveaways, which allow a reduction in rates, that is also a good thing. I think increasingly we are aware that tax systems have to be cognizant of how they affect inequality, and there is a need in a number of countries to be especially attuned to the needs of the middle class and those with incomes below the median.

And, again, the Fiscal Monitor tomorrow is going to address inequality and what can be done about it, including through taxation, in great detail. And what happens with government revenue is important as well. Do you invest in productive infrastructure?  Do you invest in people?  How do you structure the spending side?

In general, given where the U.S. is in terms of its overall debt level and the off-the-balance-sheet obligations going out into the future as population ages, we feel that whatever the tax reform plan looks like, it should not increase the deficit. Over the medium term, as our Article IV advice made clear, tax reforms should be revenue enhancing. The U.S. could usefully use more revenue in a number of ways, including for productive infrastructure investments. So those are the features we are hoping to see as this plan evolves.

Ms. Stankova - Thank you. And this will be our last question for the press conference. Question, please, lady in the third row.

Question - Thank you. So for the year 2022, you project that Greece will grow by 1 percent, but for next year you estimate that the growth will be at 2.6 percent. Can you please explain what are the reasons for this slowdown and if this slowdown in growth has to do with the high primary surpluses and the arrangements that have been imposed on Greece. Thank you.

Mr. Obstfeld - Gian Maria, do you want to answer that one? 

Mr. Milesi-Ferretti - Greece clearly has a lot of excess unemployment, a lot of slack. And the fact, this is why once a recovery takes hold, we expect growth to remain, to be a bit higher in the short run than it is in the medium term. As you correctly point out, there are challenges to medium-term prospects. There is still the weight of very elevated public debt and the need to maintain correspondingly high surpluses. So we very much hope the needed structural reform and an agreement to reduce the debt burden will help us lift also potential growth estimates over the medium-term.

Ms. Stankova - Thank you. And I would like to remind everyone that on country-specific questions, we will have a set of regional press conferences later this week on Friday, and tomorrow we will have two major releases:  Global Financial Stability Report and Fiscal Monitor press conferences in the morning. Thank you for joining us today. Enjoy annual meetings. Good-bye. 

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