Annual Meetings 2019 "Curtain Raiser" Speech
IMF News, October 8, 2019
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- Authors: Kristalina Georgieva
- Published: October 8, 2019
Introduction & Purpose
- Delivered by Kristalina Georgieva, IMF Managing Director, as her first speech in that role to set the stage for the October 2019 Annual Meetings.
- Central question posed: "What can we all do to help fix the fractures in the global economy and encourage stronger growth?"
- Emphasis on coordinated, multilateral responses and the IMF's role alongside its Executive Board and staff.
Global Outlook: synchronized slowdown
- Two years earlier nearly 75 percent of the world was accelerating (measured by GDP).
- In 2019, growth is decelerating in nearly 90 percent of the world.[1]
- The global economy is described as being in a synchronized slowdown; growth in 2019 will fall to its lowest rate since the beginning of the decade.
- World Economic Outlook to show downward revisions for 2019 and 2020.
- Despite deceleration:
- Close to 40 emerging market and developing economies are forecast to have real GDP growth rates above 5 percent — including 19 in sub-Saharan Africa.
- Unemployment in the United States and Germany is at historic lows.
- Advanced economies (U.S., Japan, euro area) show softening activity.
- Slower growth is pronounced in some large emerging markets such as India and Brazil.
- China’s growth is gradually coming down from its earlier rapid pace.
- The precarious outlook affects countries already facing difficulties, including some IMF program countries.
Fractures underlying the slowdown
- Central theme: "Fractures" — trade disputes, Brexit, geopolitical tensions, currency pressures, and heightened uncertainty.
- Trade:
- Global trade growth has come to a near standstill.
- Manufacturing activity and investment have weakened substantially; risk that services and consumption will be affected.
- Trade disputes now extend between multiple countries and into other critical issues.
- Potential long-lasting changes: broken supply chains, siloed trade sectors, a “digital Berlin Wall” forcing technology system choices.
- Projected costs of US–China trade conflicts:
- Cumulative effect could mean a loss of around $700 billion by 2020, or about 0.8 percent of GDP (approximately the size of Switzerland’s entire economy).
- Uncertainty is holding back economic potential; responses must be coordinated.
Policy priorities to secure stronger and more resilient growth
- Overarching message: domestic reforms plus synchronized international cooperation.
- 1. Use Monetary Policy Wisely & Enhance Financial Stability
- Central bank independence is foundational; banks should communicate clearly, remain data dependent, and where appropriate keep interest rates low given subdued inflation and weakening growth.
- Recognition that interest rates are already very low or negative in many advanced economies; conventional space may be limited.
- Prolonged low rates create negative side effects (pension funds, life insurers taking more risk).
- New analysis: if a major downturn occurs, corporate debt at risk of default would rise to $19 trillion, or nearly 40 percent of the total debt in eight major economies.[2]
- Low rates prompt investors to search for higher yields in emerging markets, increasing exposure to sudden capital flow reversals.
- Recommendation: deploy macroprudential tools, new approaches to manage debt and volatility.
- Monetary and financial policies alone are insufficient; fiscal policy must play a central role.
- 2. Deploy Fiscal Tools to Meet Current Challenges
- Countries with fiscal space should deploy or prepare to deploy fiscal firepower; low interest rates may give some policymakers additional money to spend.
- Examples where increased spending could help: Germany, the Netherlands, and South Korea — especially infrastructure and R&D.
- Caveat: global public debt is near record levels; countries with high debt-to-GDP ratios should continue fiscal restraint.
- Universal principle: reducing debts and deficits should protect education, health, and jobs.
- Domestic revenue mobilization: reducing corruption and utilizing digital tools in tax collection can unlock resources and help reach the 2030 Sustainable Development Goals.
- 3. Implement Structural Reforms for Future Growth
- Structural reforms are essential to address automation, shifting demographics, and medium- to long-term productivity.
- New IMF research (emerging markets and developing economies) shows structural reforms can raise productivity and generate enormous economic gains.
- The right reforms in the right sequence could double the speed at which emerging markets and developing economies reach the living standards of advanced economies.[3]
- Concurrent reforms across countries produce positive spillovers.
- Country examples:
- Chile: childcare programs lifted female labor force participation and helped the economy.
- Ghana: anti-corruption legislation created more transparency and accountability.
- Jamaica: cutting red tape eased starting new businesses while completing an IMF-supported program.
- Urgent call: act now — "The time to jump is before your feet get wet."
- 4. Embrace International Cooperation
- Need for cooperation is rising while the will to engage is declining.
- Priorities for cooperation include: safely adapting to fintech, fully implementing the financial regulatory reform agenda, fighting money laundering and financing of terrorism, and addressing climate change.
- Cooperation should deliver tangible results in people’s lives and demonstrate the power of partnership in crises.
Climate change: mitigation and adaptation priorities
- Climate change is a crisis where all have responsibility.
- IMF priority: assist countries to reduce carbon emissions and become more climate resilient.
- Current average carbon price is $2 per ton; at that level most people and companies have little financial incentive to transition.
- Limiting global warming to a safe level requires a significantly higher carbon price.
- Example: Sweden introduced a carbon tax in 1991; low- and middle-income households received higher transfers and tax cuts to offset higher energy costs.
- Sweden’s policy coincided with a 25 percent reduction in carbon emissions since 1995 and the economy growing by over 75 percent.
- New Fiscal Monitor research confirms carbon taxes can be powerful and efficient tools, but tax systems must be changed, not simply layered with new taxes.[5]
- Additional revenues could be used to cut other taxes, assist affected households, and support clean energy infrastructure.
- Adaptation focuses on pricing risk and incentivizing investment in new technologies.
- Private sector progress: green bonds rising in Europe and parts of Asia (Global Financial Stability Report).[6]
- Strong call for immediate, cooperative action to avoid the high price of inaction.
Scenario for coordinated action if slowdown worsens
- If the global economy slows more sharply, a coordinated fiscal response may be needed.
- Current status: "We are not there" yet, but preparedness for coordinated action is advised.
- Research shows that changes in spending are more effective and have a multiplier effect when countries act together.
- Historical precedent: 2009 G20 joint stimulus as an example of effective coordinated policy.
- Final appeal: IMF’s 189-member countries should come to the Annual Meetings prepared to find solutions and cooperate.
Annual Meetings 2019 "Curtain Raiser" Speech — Kristalina Georgieva, October 8, 2019.
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