Shifting Tides: Policy Challenges and Opportunities for the G-20

IMF Blog, July 18, 2018

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Author: Christine Lagarde; Date: July 18, 2018.
Key framing: "Take advantage of global growth before the tides change."
IMF World Economic Outlook Update confirmed the April forecast of 3.9 percent global growth for 2019.
Growth is beginning to slow in the Euro Area, Japan, and the United Kingdom; US growth is projected to moderate in the medium term. Emerging market growth is more uneven due in part to rising oil prices and currency pressures.

Findings and scenarios:
- Recent tariffs and counter-tariffs have gone into effect and are already leaving a mark on trade flows and business confidence (noted decreases in new export orders and wavering confidence among some car-exporting countries, including Germany).
- IMF G-20 Surveillance Note simulates four hypothetical trade scenarios.
- If all currently announced tariffs go into effect, global output would be reduced by 0.1 percent in 2020.
- If investor confidence is shaken by these tariffs, global GDP could decrease by ½ percent—or roughly US$430 billion—below the current projection for 2020.
- The US economy is especially vulnerable because much of its global trade would be subject to retaliatory measures.
Policy recommendations:
- Move past tit‑for‑tat tariffs and develop multilateral solutions to improve the global trading system.
- Modernize trade rules to address intellectual property rights.
- Adopt innovative agreements on e-commerce and digital services; “The future of trade is the future of data.”

Findings:
- Rising US interest rates have put pressure on many developing economies, including Brazil and Turkey.
- Investors withdrew over 14 billion dollars from emerging markets in May and June of this year.
- Most pressure has been limited to a few countries and is nowhere near as widespread as the Taper Tantrum of 2013, but risk remains as US interest rates continue to rise.
Policy recommendations ("Use all the tools at their disposal"):
- Exchange rates should remain flexible and act as a shock absorber to help countries weather the departure of investors’ money.
- Regulators should coordinate to prevent excessive credit growth from turning into another crisis, including by ensuring liquidity in financial markets.
- With high debt levels in many countries, fiscal policy should be used to preserve and rebuild buffers where needed.
IMF role:
- The IMF will continue to provide guidance and is committed to helping members strengthen their economies and increase resilience.

Findings:
- Advances in artificial intelligence and automation promise to raise productivity and growth, but could lead to job losses and increased inequality.
- Many nations lack an accurate picture of how technology is changing the workforce; labor market statistics are hampered by a lack of information about the scope of the gig economy.
- Estimates of productivity can overlook how technology increases efficiency (example: a watch in 2018 can also be a cellphone, a movie theater, a navigation tool, and a supercomputer).
- The IMF’s new G-20 paper on the future of work shows measurement gaps.
Policy recommendations:
- Modernize social safety nets to address disruptions from automation.
- Reform education systems to provide for lifelong learning.
- Commit to major investments in digital infrastructure.
- Learn from examples such as Singapore, which prioritized infrastructure over the last decade and now "possess[s] the most advanced digital infrastructure of any nation in the world."
Imperative:
- It is time to prepare for accelerating technological disruption and to pair better measurement with bold policy action.

The current moment of growth may not last forever; the G-20 should use the opportunity to build a solid economic foundation rather than a fragile system.
Since the Global Financial Crisis nearly ten years ago the G-20 nations have chosen to build resilience; finance ministers should continue that path in Buenos Aires.

Source: Shifting Tides: Policy Challenges and Opportunities for the G-20 — Christine Lagarde, July 18, 2018 (IMF blog).

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