## Getting into Higher Gear: Why Structural Reforms Are Critical for Revving Up Global Growth

_IMF Blog, July 25, 2016_

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**Canonical URL:** [Getting into Higher Gear: Why Structural Reforms Are Critical for Revving Up Global Growth](https://www.imf.org/en/blogs/articles/2016/07/25/getting-into-higher-gear-why-structural-reforms-are-critical-for-revving-up-global-growth)

## Other formats

- [Markdown version](/en/blogs/articles/2016/07/25/getting-into-higher-gear-why-structural-reforms-are-critical-for-revving-up-global-growth/index.md)
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## Bibliographic details
- Authors: David Lipton
- Published: July 25, 2016

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### Overview and context
- Author: David Lipton  
- Date: July 25, 2016
- Core point: Almost a decade after the start of the global financial crisis, the world economy has not achieved escape velocity.
- IMF forecast highlighted in the piece:
  - Global growth of 3.1 percent in 2016
  - Global growth of 3.4 percent in 2017
- Main challenge cited: increased economic and political uncertainty, including from the impact of the Brexit vote.
- Policymakers have used fiscal stimulus and appropriately accommodative monetary policy, but a lasting recovery remains elusive.
- Central argument: The world’s largest economies need more structural reform to boost productivity and revive growth; this theme was emphasized at recent G-20 meetings.

### Guiding Framework for Structural Reforms (three key considerations)
- Consideration 1 — Level of development:
  - In advanced economies: reforms that foster innovation are likely to yield the greatest productivity pay-off.
  - In emerging markets: reforms that improve the way markets function are likely to matter more.
- Consideration 2 — Position in the business cycle:
  - The weaker the economy, the more important it is to choose reforms that support both short-term and long-term growth.
  - Example: Infrastructure investment boosts growth today through investment and job creation and boosts future growth by improving productive capacity.
  - Note on labor market deregulation: In good times it can increase hiring; in poor outlooks it can lead to short-term job losses because layoffs become easier.
- Consideration 3 — Macroeconomic policy space:
  - Demand support can be critical to enhance the impact of structural reforms and to offset possible short-term costs of supply measures (e.g., support for those who become unemployed because of deregulation).
  - Structural reforms can also help increase macroeconomic policy space:
    - Labor and product market reforms that increase competition and lower prices can create space for monetary easing.
    - Reforms that boost medium-term growth increase tax revenue, which—together with higher output—will lower the ratio of public debt to GDP over time and increase fiscal space today.

### IMF policy focus and country-level recommendations
- Advanced economies:
  - Emphasis on measures that raise both short- and medium-term growth.
  - Specific recommendations include:
    - Increase public spending on infrastructure investment in Australia, Canada, and Germany.
    - Reforms to broaden full-time employment opportunities for women in Canada, Germany, Japan, Korea, the UK, and the US.
    - Where policy space is limited (example: Italy), recommend product market deregulation to raise investment, employment, and output without short-run budgetary costs.
    - Tax simplification and broadening measures in the U.S. can reduce inefficiencies and generate revenues to finance other high pay-off (but costly) reforms.
- Emerging markets:
  - Focus on reforms that can deliver near-term payoffs given weaker conditions and limited fiscal space.
  - Specific recommendations include:
    - Better management of public investment processes in India.
    - Product market reforms in China.
    - Labor market reforms in South Africa.
    - Address trade and FDI impediments in Brazil, India, and Indonesia.
    - Governance of public institutions and other institutional reforms.
  - Where fiscal space is limited or consolidation is necessary, encourage adjusting the composition of fiscal policy to make it more growth-friendly.

### Policy implementation and synergies
- G-20 members are making new structural reform commitments ahead of the Hangzhou Summit.
- To maximize impact:
  - Implement reforms as part of a comprehensive policy package with demand and supply policies complementing each other.
  - Support reforms with policies that cushion those who may suffer short-term costs.
  - Ensure reforms deliver inclusive benefits so they "need to benefit not just some, but all."

*David Lipton, July 25, 2016*

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## Content in this bundle

- **Staff Note for the G 20—A Guiding Framework for Structural Reforms; IMF Policy paper; March 31, 2016**
  - [Staff Note for the G 20—A Guiding Framework for Structural Reforms; IMF Policy paper; March 31, 2016 (Markdown version)](/external/np/pp/eng/2016/033116.pdf.md){rel="alternate" type="text/markdown"}
  - [Staff Note for the G 20—A Guiding Framework for Structural Reforms; IMF Policy paper; March 31, 2016 (PDF)](/external/np/pp/eng/2016/033116.pdf){rel="external" type="application/pdf"}
- **072216a — Executive Summary**
  - [072216a — Executive Summary (Markdown version)](/external/np/pp/eng/2016/072216a.pdf.md){rel="alternate" type="text/markdown"}
  - [072216a — Executive Summary (PDF)](/external/np/pp/eng/2016/072216a.pdf){rel="external" type="application/pdf"}

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## References

- [عربي](http://blog-montada.imf.org/?p=4418)
- [forecast](http://www.imf.org/en/News/Articles/2016/07/18/18/11/NA07192016-IMF-Cuts-Global-Growth-Forecasts-on-Brexit-Warns-of-Risks-to-Outlook)
- [April 2016 World Economic Outlook](http://www.imf.org/en/news/articles/2015/09/28/04/53/sores040616a)
- [structural reforms](http://www.imf.org/en/news/articles/2015/09/28/04/53/sopol110915a)

_Source: https://www.imf.org/en/blogs/articles/2016/07/25/getting-into-higher-gear-why-structural-reforms-are-critical-for-revving-up-global-growth_