The Quest for Robust and Synchronized Growth
IMF Blog, October 6, 2015
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- Authors: Maurice Obstfeld
- Published: October 6, 2015
Context and key drivers
- Author: Maurice Obstfeld
- Date: October 6, 2015
- Released alongside: the October 2015 World Economic Outlook
- The world economy is at the intersection of three powerful forces:
- China’s economic transformation—away from export- and investment-led growth and manufacturing, toward greater focus on consumption and services.
- The fall in commodity prices, which began turning downward in the second half of 2011 and has accelerated recently.
- The impending normalization of monetary policy in the United States, with a possible interest-rate increase as U.S. output and price performance strengthens.
Major findings and projections
- Global growth trajectory:
- Global real GDP grew at 3.4 percent last year.
- Global real GDP will grow at only 3.1 percent this year.
- For 2016, projected rebound to 3.6 percent growth.
- These 2015 and 2016 numbers were reduced by 0.2 percentage point compared with the July 2015 projections.
- Advanced economies:
- Advanced economies grew at a 1.8 percent rate last year.
- Projected growth of 2.0 percent this year.
- Projected growth of 2.2 percent in 2016.
- Notable heterogeneity: moderate pick-up in the United States and euro area; Japanese growth appears to be faltering after a strong first quarter; major commodity producers (notably Canada, also Australia and Norway) are experiencing slowdowns.
- Emerging market and developing economies:
- For commodity-exporting emerging and developing economies (now representing well over half of world GDP and generating the lion’s share of world growth):
- 2015 growth is projected to fall to 4.0 percent from its 2014 level of 4.6 percent.
- This represents the fifth straight year of falling GDP growth for emerging and developing economies.
- Projected rebound to 4.5 percent growth in 2016, with a further pickup in subsequent years.
- The 2016 rebound largely reflects expected gradual normalization in countries experiencing deep recessions this year (such as Brazil and Russia) and in economies growing much below trend, including parts of Latin America.
- Drivers beyond commodities:
- Political instability, and debt overhangs after capital inflows and over-investment earlier in the decade, can be significant growth headwinds in some countries.
Risks to emerging and low-income countries
- Increased resilience in many emerging markets through:
- Increased exchange rate flexibility.
- Higher foreign exchange reserves.
- Increased reliance on Foreign Direct Investment flows and domestic-currency external financing.
- Generally stronger policy frameworks.
- New and growing concerns:
- A notable risk is a rapid decompression of bond risk premiums, leading to spikes in longer-term interest rates; some increases have already been observed for some emerging and developing economies, especially commodity exporters.
- Exchange-rate depreciation has been a helpful buffer but could cause adverse balance-sheet effects where there is foreign-currency borrowing.
- Some countries have proactively tightened monetary policy to keep inflation expectations well anchored.
- Complementary IMF work: the Global Financial Stability Report and the Fiscal Monitor cover financial and fiscal risks in detail.
Needed: proactive policy management (policy recommendations)
- For emerging market and developing economies:
- Be ready for monetary policy normalization by the United States.
- Enhance surveillance over financial vulnerabilities.
- Shift further away from debt finance, especially foreign-currency financing.
- Consider targeted capital flow measures where appropriate.
- Strengthen fiscal frameworks, safeguarding growth and preserving social safety nets for the most vulnerable.
- For advanced economies:
- Continue to deal with crisis legacies, including non-performing loans, where they persist.
- Maintain monetary accommodation where output gaps are negative.
- Supplement monetary policy with fiscal measures where fiscal space permits.
- Address persistent deflation pressures in several regions.
- Cross-cutting recommendations:
- Scale up infrastructure investment where justified by very low long-term real interest rates and concerns about low global demand—higher investment can enhance potential output growth.
- Implement targeted structural reforms to enhance future growth and increase resilience of growth.
Conclusion
- Near-term global growth is projected to remain moderate and uneven, with higher downside risks than in July 2015.
- The “holy grail” of robust and synchronized global expansion remains elusive.
- The World Economic Outlook underscores the challenges facing all countries and the heightened importance of policy upgrades.
Source: The Quest for Robust and Synchronized Growth, Maurice Obstfeld, October 6, 2015
Content in this bundle
- 寻求强劲、同步的经济增长; iMFdirect博客; 2015年10月6日
- 力強く同時に拡大する成長を目指して: iMFdirect ブログ, モーリス・オブストフェルド, 2015年10月6日掲載
- Full Report
- В поисках активного и синхронизированного роста, Блог iMFdirect, Морис Обстфелд, 6 октября 2015 года