{
  "title": "Decisive Action to Secure Durable Growth; Lecture by Christine Lagarde, IMF Managing Director, at an event hosted by Bundesbank and Goethe University, Frankfurt, Germany, April 5, 2016",
  "publication": "IMF News, April 5, 2016",
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  "summary": "Context: Lecture delivered in Frankfurt, hosted by the Bundesbank and Goethe University; remarks “As prepared for delivery.”",
  "publishDate": "2016-04-05",
  "sections": [
    {
      "heading": "Introduction / Overview",
      "content": "- Context: Lecture delivered in Frankfurt, hosted by the Bundesbank and Goethe University; remarks “As prepared for delivery.”\n- Key framing: interconnectedness and internationalism as essential principles to confront global economic risks.\n- Status of the global economy: “the recovery continues; we have growth; we are not in a crisis” but the recovery is “too slow, too fragile, and risks to its durability are increasing.”\n- Membership context: the IMF’s 188 member countries will focus on the state of the global economy at the Spring Meetings."
    },
    {
      "heading": "Today’s Global Challenges: A Time of Uncertainty",
      "content": "- Recent trend: “the global outlook has weakened further over the last six months—exacerbated by China’s relative slowdown, lower commodity prices, and the prospect of financial tightening for many countries.”\n- Advanced-economy conditions:\n  - United States: growth flat, partly due to the strong dollar.\n  - Euro Area: low investment, high unemployment, weak balance sheets.\n  - Japan: weaker-than-expected growth and inflation.\n- Emerging-market conditions:\n  - China: transition to a more sustainable model; growth lower though still strong.\n  - Brazil and Russia: downturns larger than expected.\n  - Middle East: hit hard by the oil price decline.\n  - India: “a bright spot—with strong growth and rising real incomes.”\n  - ASEAN-5 (Indonesia, Malaysia, Philippines, Thailand and Vietnam) performing well.\n- Recent improvements in sentiment: driven by further easing from the ECB, a slower pace of Fed rate increases, relative firming of oil prices, and lower capital outflows from China.\n- Key downside risks identified:\n  - Advanced economies: high debt, low inflation, low investment, low productivity, and high unemployment in some countries; strained bank and non-bank balance sheets by non-performing assets and low operating profit margins.\n  - Emerging/developing economies: lower commodity prices, higher corporate debt, volatile capital flows, de-risking, reduced bank lending.\n  - Macrofinancial feedback loops: possible spillovers to sovereign balance sheets (example: implicit guarantees of large and inefficient state-owned enterprises).\n  - Increased frequency and force of cross-border spillovers from emerging economies (trade, commodities, financial markets); reference to Global Financial Stability Report, April 2016, Chapter 2.\n  - Slowing global trade and elevated financial stability risks; recent market turmoil reflecting lower confidence in policy effectiveness.\n- Political and non-economic risks:\n  - Terrorism, global epidemics, conflict and persecution leading to refugee flows (Jordan, Lebanon, Turkey, some European countries).\n  - Inequality: reference to Oxfam’s claim that “the world’s richest 62 individuals own the same wealth as the poorest 3.6 billion.”\n  - Rising public frustrations that can drive inward-looking, protectionist responses.\n- Macro priority: “secure the recovery and lay the foundation for stronger and more equitable medium-term growth.”"
    },
    {
      "heading": "Key Actions at Country Level: A Three-Pronged Approach",
      "content": "- High-level strategy: structural, fiscal, and monetary measures implemented decisively and in combination so country actions add up globally.\n\n- I. Structural Reforms: More Specificity\n  - G-20 commitment: raise global GDP by an additional 2 percentage points by 2018; Lagarde calls to advance these commitments into 2016.\n  - Examples of country-specific structural measures:\n    - United States: expand the earned income tax credit, increase the federal minimum wage, strengthen family-friendly benefits.\n    - Euro Area: improve training and employment-matching policies, especially for youth.\n    - Commodity-exporters and many low-income developing countries: increase diversification.\n  - Policy design note: accompany supply-side measures with supportive fiscal and monetary policies to offset short-term demand dampening.\n\n- II. Fiscal Policy: More Growth-Friendly\n  - Reorient revenue and expenditure composition to be growth-friendly.\n  - Country examples:\n    - India: reduced spending on costly energy subsidies to invest more in social infrastructure.\n    - Japan: investing in childcare to boost female labor force participation and medium-term growth.\n    - Germany: expand public investment by €17 billion in the years 2015-18 and provide labor tax relief in 2016.\n    - Canada: cited as using available fiscal space with a recent budget.\n  - Efficiency and returns:\n    - IMF staff research: the most efficient public investors get twice the growth “bang” for their investment “buck” than the least efficient.\n    - IMF Fiscal Monitor finding: GDP in advanced economies could increase by 5 percent over the next two decades if private R&D investment was raised by 40 percent; estimated fiscal cost of around 0.4 percent of GDP per year.\n  - Domestic resource mobilization:\n    - Strengthen domestic revenue, including by reducing energy subsidies—the direct and indirect cost of which is estimated at about $5.3 trillion globally (IMF working paper).\n  - Fiscal strategy:\n    - Countries with high and increasing debt and elevated sovereign spreads need further fiscal consolidation.\n    - Others may expand fiscally if backed by credible, medium-term consolidation plans.\n    - Prepare fiscally smart contingency measures for swift implementation if downside risks materialize.\n\n- III. Monetary Policy: More Help from Fiscal and Structural\n  - Role to date: accommodative monetary policy and quantitative easing have been crucial to support recovery.\n  - Policy assessments:\n    - Positive view of ECB and President Draghi’s actions to improve confidence and financial conditions in the Euro Area.\n    - Negative interest rates introduced by the ECB and Bank of Japan seen as net positives in current circumstances though they carry side effects requiring vigilance.\n    - U.S. Fed’s December decision and data-dependent approach described as appropriate.\n  - Limitations: monetary policy “can no longer be the alpha and omega to recovery”; more effective with fiscal and structural support.\n  - Transmission channel concerns:\n    - High levels of non-performing loans—from EU to China—impede transmission of lower interest rates.\n    - Strengthen bank balance sheets via enhanced prudential oversight, debt enforcement regimes, and insolvency frameworks.\n  - Emerging/developing economy guidance:\n    - Monetary policy should adapt to circumstances, including exchange rate flexibility where feasible to cushion terms-of-trade shocks.\n\n- Political Will and Leadership\n  - Implementing the three-pronged approach may require crossing political red lines; leadership and cooperation are essential."
    },
    {
      "heading": "International Action: Time for Greater Global Cooperation",
      "content": "- Collective priorities requiring cooperation:\n  - Shore up global trade.\n  - Press ahead with financial regulatory reform.\n  - Tackle “global public goods” (climate change, corruption).\n  - Maintain and revisit the global financial safety net.\n- Crisis-era reforms acknowledged:\n  - Creation of the Financial Stability Board and European Stability Mechanism, strengthened central bank swap lines, expanded prominence of the G-20.\n  - IMF reforms: overhauled surveillance and lending toolkits, doubled quotas following passage of the 2010 Governance Reforms earlier in the year, enhancing financial resources and representation of dynamic emerging markets.\n- Areas for revisiting the global safety net:\n  - Reflect on its size given financial globalization and the scale and speed of spillovers.\n  - Improve access because many emerging and developing countries cannot use key elements (e.g., advanced-economy swap lines).\n  - Increase responsiveness to new challenges: digital currencies, block chain technology, cyber-hacking.\n- IMF’s forward role:\n  - Membership discussions on options in coming months.\n  - A well-resourced Fund is fundamental.\n  - Strengthen approach to helping members manage risk, volatility, and uncertainty—including a financial backstop as needed.\n  - Deepen work on structural reforms, capital flows, and de-risking.\n  - Be more agile on emerging issues: migration impact on growth, women’s role in labor markets, inequality, climate change—identified as “urgent macro-critical problems.”"
    },
    {
      "heading": "Conclusion",
      "content": "- Overall assessment: global economy faces “a time of increased risk and uncertainty.”\n- Call to action: leadership and cooperative, decisive policy implementation are required now.\n- Epigraph: Goethe quotation used to underscore the imperative to act—“It is not enough to know, we must also apply; it is not enough to will, we must also do.”\n\nLecture by Christine Lagarde, Managing Director, IMF; Bundesbank and Goethe University, Frankfurt, April 5, 2016.\n\n---\n\n Content in this bundle\n\n- 040516apdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- 040516cpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- 040516jpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- 040516rpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Germany and the IMF\n- Japan and the IMF\n- People's Republic of China and the IMF\n- United States and the IMF\n- Speeches\n- Christine Lagarde\n- https://www.imf.org/external/spring/2016/index.htm\n- PRESS CENTER\n- Webcast\n- Global Financial Stability Report\n- Making Public Investment More Efficient\n- IMF Fiscal Monitor\n- How Large Are Global Energy Subsidies?\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp040516"
    }
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    "Published: April 5, 2016",
    "Context: Lecture delivered in Frankfurt, hosted by the Bundesbank and Goethe University; remarks “As prepared for delivery.”",
    "Key framing: interconnectedness and internationalism as essential principles to confront global economic risks.",
    "Status of the global economy: “the recovery continues; we have growth; we are not in a crisis” but the recovery is “too slow, too fragile, and risks to its durability are increasing.”",
    "Membership context: the IMF’s 188 member countries will focus on the state of the global economy at the Spring Meetings.",
    "Recent trend: “the global outlook has weakened further over the last six months—exacerbated by China’s relative slowdown, lower commodity prices, and the prospect of financial tightening for many countries.”",
    "Advanced-economy conditions:",
    "Emerging-market conditions:",
    "Recent improvements in sentiment: driven by further easing from the ECB, a slower pace of Fed rate increases, relative firming of oil prices, and lower capital outflows from China.",
    "Key downside risks identified:",
    "Political and non-economic risks:",
    "Macro priority: “secure the recovery and lay the foundation for stronger and more equitable medium-term growth.”",
    "High-level strategy: structural, fiscal, and monetary measures implemented decisively and in combination so country actions add up globally.",
    "I. Structural Reforms: More Specificity",
    "II. Fiscal Policy: More Growth-Friendly",
    "III. Monetary Policy: More Help from Fiscal and Structural",
    "Political Will and Leadership",
    "Collective priorities requiring cooperation:",
    "Crisis-era reforms acknowledged:",
    "Areas for revisiting the global safety net:",
    "IMF’s forward role:",
    "Overall assessment: global economy faces “a time of increased risk and uncertainty.”",
    "Call to action: leadership and cooperative, decisive policy implementation are required now.",
    "Epigraph: Goethe quotation used to underscore the imperative to act—“It is not enough to know, we must also apply; it is not enough to will, we must also do.”",
    "[040516apdf (PDF)](/-/media/websites/imf/imported/external/arabic/np/speeches/2016/040516apdf.pdf){rel=\"external\" type=\"application/pdf\"}",
    "[040516cpdf (PDF)](/-/media/websites/imf/imported/external/chinese/np/speeches/2016/040516cpdf.pdf){rel=\"external\" type=\"application/pdf\"}",
    "[040516jpdf (PDF)](/-/media/websites/imf/imported/external/japanese/np/speeches/2016/040516jpdf.pdf){rel=\"external\" type=\"application/pdf\"}",
    "[040516rpdf (PDF)](/-/media/websites/imf/imported/external/russian/np/speeches/2016/040516rpdf.pdf){rel=\"external\" type=\"application/pdf\"}",
    "[Germany and the IMF](http://www.imf.org/external/country/DEU/index.htm)",
    "[Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)",
    "[People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)",
    "[United States and the IMF](http://www.imf.org/external/country/USA/index.htm)",
    "[Speeches](https://www.imf.org/en/news/searchnews)",
    "[Christine Lagarde](https://www.imf.org/external/np/omd/bios/cl.htm)",
    "[https://www.imf.org/external/spring/2016/index.htm](https://www.imf.org/external/spring/2016/index.htm)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[Webcast](https://www.imf.org/external/mmedia/view.aspx?vid=4832803837001)",
    "[Global Financial Stability Report](https://www.imf.org/external/pubs/ft/gfsr/2016/01/index.htm)",
    "[Making Public Investment More Efficient](http://www.imf.org/external/pp/longres.aspx?id=4959)",
    "[IMF Fiscal Monitor](https://www.imf.org/external/pubs/ft/fm/2016/01/fmindex.htm)",
    "[How Large Are Global Energy Subsidies?](https://www.imf.org/external/pubs/cat/longres.aspx?sk=42940.0)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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