Finding Solid Footing for the Global Economy

IMF Blog, February 19, 2020

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IMF projected growth to strengthen from 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent in 2021.
Monetary easing added approximately 0.5 percentage points to global growth in 2019.
Forty-nine central banks cut rates 71 times as part of the most synchronized monetary action since the global financial crisis.
Growth remains modest in many regions and is expected to remain below historical averages over the medium term.
Uncertainty is becoming the new normal; reducing avoidable policy uncertainty is a priority.

The coronavirus is described as the most pressing uncertainty and a global health emergency not anticipated in January.
Best-case scenario: disruptions end quickly, Chinese economy bounces back soon; a sharp drop in GDP growth in China in the first quarter of 2020 but only a small reduction for the entire year; spillovers to other countries remain relatively minor and short-lived through temporary supply chain disruptions, tourism, and travel restrictions.
Severe/long-lasting outbreak scenario: sharper and more protracted growth slowdown in China; amplified global impact via substantial supply chain disruptions and a more persistent drop in investor confidence, especially if the epidemic spreads beyond China.

The Phase 1 trade deal reduced the drag from trade tensions on the level of GDP in 2020 by 0.2 percent—about one quarter of the total impact.
The deal addresses only a small share of recently imposed tariffs and specifies minimum increases in China’s imports from the United States.
Managed trade provisions are estimated to cost the global economy close to $100 billion dollars.
The agreement leaves many underlying issues between China and the United States unaddressed.
Recommendation: pursue a modern global trading system that unleashes the full potential of services and e-commerce while protecting intellectual property rights.

Example damages: over 200 percent of Dominica’s GDP from Hurricane Maria; over 60 percent of Puerto Rico’s GDP from Hurricane Maria.
IMF staff estimates show that a typical climate-related natural disaster reduces growth by an average of 0.4 percentage points in the affected country in the year of the event.
Frequency of such events is increasing, particularly in the poorest countries least able to cope.
Policy focus: mitigation and adaptation.
A recent IMF staff study shows that global oil demand is expected to peak in the coming decades.
Gulf Cooperation Council and all members of the G-20 are urged to focus on diversification.
Investments in clean energy and resilient infrastructure can yield a "triple dividend": averting future losses, delivering innovation gains, and creating new opportunities for those most in need.
Carbon tax revenues could be used to cut taxes elsewhere, fund assistance to affected households, or finance spending that closes societal gaps.
For countries and communities at highest risk, investing in adaptation is urgent and cost-effective; analysis by the Global Commission on Adaptation suggests benefits could far outweigh costs.

Income and wealth inequalities remain persistently high across much of the OECD and the G-20.
Significant opportunity gaps exist by gender, age, and geography and can widen into social unrest.
Recommendation: renewed focus on raising living standards and creating better paying jobs.
IMF, in collaboration with the World Bank, is identifying key areas to increase access to opportunities, notably investing in high-quality education, R&D, and digitalization.
Low interest rates may give some policymakers additional fiscal space, but public debt is near record levels in many places.
In countries with a high debt-to-GDP ratio, fiscal restraint remains warranted.
Reducing deficits—when needed—should protect essential social spending to increase access to opportunities and build a stronger foundation.

Working together, policymakers can reduce uncertainty and put the global economy on more solid footing.
The remarks invoke Ibn Khaldun’s concept of strength in solidarity and the power of joint purpose as guidance for G-20 ministers and governors.

Kristalina Georgieva, February 19, 2020 — "Finding Solid Footing for the Global Economy"