Time to Act Now: It’s All About the Right Policy Mix

IMF Blog, October 19, 2017

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IMF raised world growth forecasts to 3.5 percent this year and 3.6 in 2018, from 3.2 in 2016.
Nine years after the global financial crisis of 2008, the outlook is improving: global growth has recovered, demand remains robust, and financial markets are buoyant.
Near-term risks described as "balanced" with confidence and market sentiment remaining strong.
Managing Director Christine Lagarde: "We should not let a good recovery go to waste."

Inequality is rising within countries; productivity has risen faster than wages, contributing to global discontent (Deborah Greenfield, ILO).
Recovery remains weak in many countries; inflation is below target in most advanced economies.
Prospects are lackluster for many emerging market and developing economies in sub-Saharan Africa, the Middle East, and Latin America; fuel exporters are hit by lower commodity revenues.
High policy uncertainty raises the possibility that missteps, shocks, and crises could materialize.
Cross-cutting challenges highlighted: inequality, gender, corruption, climate change, and rapid technological change (including Fintech).
Winnie Byanyima (Oxfam International): extreme inequalities are "the consequences of mistaken beliefs and misguided policies run amok."

The central message: use all policy tools—structural, monetary, and fiscal—to achieve "strong, sustainable, balanced, and inclusive growth."
"Right now is the moment for action." (David Lipton, First Deputy Managing Director)
Policy makers should "seize the moment" (Maurice Obstfeld, Chief Economist).
Jens Weidmann (President of the Deutsche Bundesbank): enhance resilience and re-examine current macroeconomic policy mix.
IMFC communique: safeguard current growth momentum by maintaining the right policy mix, align monetary policy with IMF recommendations, and adopt fiscal policies that are in line with countries’ needs.
Financial sector point: tighter regulation has led to stronger global balance sheets with improved capital and liquidity buffers, but legacy bank issues persist and monetary accommodation may lead to a search for yield in unchartered territories—posing risks to growth and calling for strengthened financial and macroeconomic policy coordination.
Joint action and international cooperation are emphasized: "Recognizing that all countries benefit from cooperation, we will work to tackle common challenges." (IMFC)

Investment in education and youth emphasized as critical in a "post-oil world"; Sherif Kamel: "people could be the oil of the 21st century."
Growth broadening provides an environment to address deeper economic issues and to make policy changes that improve inclusivity and resilience.

Papua New Guinea: custodian of the third largest rainforest and 20 percent of world tuna stocks; aims for responsible sustainability and inclusive economic growth.
Recent difficulties for Papua New Guinea: El Nino drought, low oil and gas prices, under-performance, declining government revenues, rising operating costs, and foreign exchange imbalances affecting commercial activity and confidence.
Charles Kauvu Abel (Governor of the Bank and the Fund for Papua New Guinea): "Like many other developing countries, we know that we cannot, and should not, face these challenges alone and in isolation."

Reference to IMF’s first ever Annual meeting in 1946 and Executive Directors’ 1946 comment: "The road ahead is not an easy one... We do not underestimate the difficulties facing us."
The Fund’s historical role underscores the call for international cooperation: "An indispensable element in a prosperous world economy is cooperation among all countries for establishing and maintaining an enduring peace." (IMF’s Executive Directors, 1946)

Contributors: The Editors; Meera Louis and other editors — October 19, 2017

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