Policy Actions to Sustain Growth and Guard Against Risks
IMF Blog, March 15, 2018
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- Authors: Christine Lagarde
- Published: March 15, 2018
Overview and context
- Author: Christine Lagarde
- Date: March 15, 2018
- Key context:
- When the Group of Twenty finance ministers and central bank governors met last October, there was a sense of optimism about the global economic upswing and the opportunities for much-needed reforms.
- When they meet again in Buenos Aires next week, their focus will be on the policies needed to protect this upswing against downside risks and bolster growth going forward.
- “The good news is that the growth momentum has continued to strengthen, involving three- quarters of the world economy.”
- “Even though the sun still shines in the global economy, there are more clouds on the horizon.” Examples cited: growing concerns over trade tensions, recent spike in volatility in financial markets, and more uncertain geopolitics.
- Medium-term outlook: “The pick-up expected for 2018 and 2019 will eventually slow, which implies a challenging medium-term outlook for many countries, especially in advanced economies.”
Global outlook and drivers
- IMF projection:
- “The IMF in January upgraded its global GDP forecast to 3.9 percent for both 2018 and 2019.”
- Behind the momentum:
- “Mostly cyclical forces: global growth has been driven by remarkably strong investment and trade, while money and credit are still flowing easily within and across countries.”
- “This year and next, advanced economies are expected to see growth exceeding their still weak medium-term potential.”
- “Growth in emerging and developing countries is projected to firm further in the short term, helped by a modest improvement in prospects in commodity exporters.”
- Imperative: concrete steps to ensure momentum stays strong.
Five policy priorities (high-level findings and recommendations)
1. Steer clear of protectionism
- Findings:
- “Economic history clearly shows that trade wars not only hurt global growth, but they are also unwinnable.”
- “We know that the self-inflicted harm of import tariffs can be substantial even when trade partners do not retaliate with tariffs of their own.”
- “Protectionism is pernicious, because it puts the biggest strain on the poorest consumers who buy relatively more low-priced imports.”
- Policy recommendations:
- “Policymakers need to work constructively together to reduce trade barriers and resolve trade disagreements without resort to exceptional measures.”
- “They should ensure that the recently announced U.S. import tariffs do not lead to a wider escalation of protectionist measures.”
- Use fiscal means to address global imbalances: example actions include “lowering deficits in the U.S. to bring public debt towards a sustainable path, and stronger infrastructure investment and education spending in Germany.”
- Provide support to those adversely affected by globalization and technological progress so they “can invest in their skills and transition to higher-quality jobs.”
2. Guard against financial risks
- Findings:
- “Government debt levels in advanced G20 economies have on average reached 114 percent.”
- “Globally, debt levels of sovereigns, companies, and households are at an all-time high.”
- Vulnerability scenario: “an unexpected surge in inflation and a sudden tightening of global financial conditions” could prompt financial market corrections, worries over debt sustainability, and capital flow reversals in emerging markets.
- Policy recommendations:
- “Take advantage of the current momentum by building fiscal buffers—creating more room to act in the next downturn.”
- “Make active use of macro- and microprudential policies.”
- In emerging economies, “flexible exchange rates can help mitigate external shocks.”
3. Step up economic reforms
- Findings:
- “Boosting growth is especially important for advanced G20 nations. Last year, their GDP was on average about 15 percent below the pre-2008-crisis trend line, while their emerging market peers remained close to it.”
- Need for a sustained increase in growth well beyond the current upswing to lift productivity and potential growth.
- Policy recommendations:
- “Reenergize reforms, especially in labor markets.”
- G20 pledge: “reduce the gap in labor force participation rates between men and women by 25 percent by the year 2025,” which “could create an estimated 100 million new jobs.”
- Note: “Some countries will need to significantly scale up their efforts, while others—such as Australia, Brazil, Germany, Japan, and the United Kingdom—have already made good progress.”
- Timing: “These and other major reforms are more potent and easier to implement when economies are healthier. In other words, the time is now.”
4. Foster more inclusive growth
- Findings:
- Shaping the future of work to benefit all citizens is a key priority.
- Example: “A recent Canadian initiative showed that on-the-job skills training can be more effective than classroom learning.”
- “Reducing the skills gap is more important than ever, because the digital revolution is transforming workplaces and industries.”
- “McKinsey estimates that 375 million workers, or 14 percent of the global workforce, may be at risk of job losses by 2030.”
- IMF analysis: “the gains from technological innovation can be widely shared by adjusting taxes and benefits and increasing public spending on education and training.”
- Policy recommendations:
- Invest in on-the-job training and education.
- Adjust tax and benefit systems and increase public spending on education and training to share gains from technological innovation.
5. Strengthen international cooperation
- Findings:
- “Working together is critical to secure strong, sustainable, balanced, and inclusive global growth.”
- Priority areas: trade, tax competition, climate change, fighting money laundering and the financing of terrorism.
- Low-income country debt vulnerabilities: “Public debt levels for the median country increased to 47 percent last year, up from 33 percent in 2013.”
- Policy recommendations:
- Low-income countries should “move promptly to contain further debt accumulation and need to rely more on generating domestic revenue to meet development financing needs.”
- “Bilateral official creditors should develop plans for participating in debt restructuring operations where needed, and share information with other creditors.”
- Develop international regulatory principles for crypto assets including initial coin offerings (ICOs) to “harness the potential of the underlying technology, while ensuring financial stability and mitigating the risks from money laundering and terrorism financing.”
- Role for the G20: “The G20 can show leadership on all these issues. In the process, they can also secure the upswing and promote growth that is shared by everyone.”
Christine Lagarde — March 15, 2018
Content in this bundle
- 维持增长和防范风险的政策行动; IMF博客; 2018 年3 月15 日
- 成長を持続させ、リスクを防ぐための政策行動; クリスティーヌ・ラガルド; IMF ブログ 2018年3月15日掲載
- Medidas de política para sustentar o crescimento e se proteger contra riscos
- Действия в области политики для поддержания роста и защиты от рисков
