## Stability, Growth, and Prosperity: The Global Economy and the IMF — Speech by Anne O. Krueger _IMF News, June 7, 2006_ ## Source details **Canonical URL:** [Stability, Growth, and Prosperity: The Global Economy and the IMF — Speech by Anne O. Krueger](https://www.imf.org/en/news/articles/2015/09/28/04/53/sp060706) ## Other formats - [Markdown version](/en/news/articles/2015/09/28/04/53/sp060706/index.md) - [Structured JSON version](/en/news/articles/2015/09/28/04/53/sp060706/index.json) - [Bundle manifest](/en/news/articles/2015/09/28/04/53/sp060706/bundle-manifest.json) ## Bibliographic details - Published: June 7, 2006 --- ### Global growth outlook and risks - On current projections, 2006 is likely to be the fourth consecutive year that real world GDP has grown by more than 4 percent; growth this year is expected to be close to 5 percent. - Every region shared in the expansion: the United States a major engine, emerging Asia growing more rapidly, strong growth in the Middle East, Latin America and Africa, promising signs in Western Europe, and a firmly entrenched recovery in Japan. - Canada: average annual real GDP growth of 3.4 percent over the past decade; per capita income grew by an average of 2.4 percent a year; unemployment at a 30 year low; inflation contained. - Downside risks that could slow growth include: persistent and rising global imbalances; lack of progress in the Doha trade negotiations; high and rising oil prices; continuing geopolitical uncertainty; the threat of an avian flu outbreak. - Despite risks, the Fund revised upwards its central growth forecast for the year in April. ### Achievements in macroeconomic management and inflation control - Historical inflation reduction: - 25 years ago, 111 IMF member countries had double digit inflation rates. - Last year, only 35 countries had double-digit inflation (described as "less than a fifth" of members). - In 1980, 39 members had inflation rates above 20 percent; last year only five did. - Global inflation rate changes: - Declined from an annual average of close to 15 per cent in 1980-84 to 3.8 per cent in 2005. - Average inflation in industrial economies: almost 9.5 per cent between 1975 and 1979; nearly 9 per cent in the early 1980s; 2.3 per cent in 2005 (projected to decline further per the WEO). - Developing countries: average inflation around 80 per cent in the early 1990s; 5.4 per cent by 2005; IMF forecasts project a further drop to below 5 percent by 2007. - Contributing factors: improved macroeconomic management, central bank independence, inflation targeting, fiscally prudent policies enabling counter-cyclical responses during downturns. ### Lessons and policy implications for sustaining growth - Core lessons: - Importance of macroeconomic stability, flexible exchange rate regimes, attention to debt sustainability, and financial system health. - Transparency in policymaking and structural reforms raise potential growth and resilience. - Opportunities during strong growth: - Easier planning and consensus-building for reforms. - Need for fiscal adjustment in industrial economies to aim for balance over the business cycle. - Address demographic challenges: aging populations, rising elderly dependency ratios, and strains on public pension systems require early action to avoid fiscal crunches. - Emerging market priorities: - Further fiscal reforms, debt reduction, reducing foreign currency exposure, lengthening debt maturities. - Many emerging market countries still have uncomfortably high debt levels limiting counter-cyclical policy space. - Structural reforms to reduce labor market rigidities, burdensome business regulations, and weak enforcement of contracts and property rights. ### IMF roles and actions - Core mandate: maintenance of international financial stability; main focus on macroeconomic policy and national surveillance (Article IV consultations). - Technical assistance: improving customs procedures, tax and public expenditure administration, monetary policy management; significant element of Fund work. - Crisis prevention and resolution: fewer borrowers currently may indicate improved prevention, but aim to further strengthen economic performance and resilience. ### Multilateral surveillance and global imbalances - IMF is strengthening multilateral and regional surveillance and establishing a new process of multilateral consultations to address global issues. - Causes of current large imbalances: low consumption and rising surpluses in Asia; the large and rising US current account deficit; sluggish growth in Europe; rising surpluses in main oil-exporting countries. - Risks of failure to unwind imbalances smoothly: potential disorderly adjustment (described as low risk but not impossible), costly unilateral actions, negative spillovers. - Broad agreement on needed steps: - Raise national saving in the United States (reduce fiscal deficit and spur private saving). - Implement structural reforms to increase flexibility and growth in the Euro area and several other countries. - Further structural reforms, including fiscal consolidation, in Japan. - Increase consumption and exchange rate flexibility in a number of surplus countries in emerging Asia. - Promote efficient absorption of higher oil revenues in oil-exporting countries with strong macroeconomic policies. - First set of multilateral consultations announced and involving China, the Euro Area, Japan, Saudi Arabia and the United States. ### Trade liberalization and the Doha round - A satisfactory outcome to the Doha round could significantly boost world trade and global growth through lowering barriers in agriculture, services, and further liberalization in manufactures. - Failure of Doha would weaken the global trading system and encourage protectionism, slowing global growth and reducing resilience to shocks. - The WTO leads Doha negotiations; the Fund supports WTO efforts and collaborates closely. ### Conclusion — priorities for national and multilateral action - Urgent priorities: progress in the Doha negotiations; multilateral resolution of global imbalances. - National policymakers: implement reforms to strengthen economies, raise potential growth rates, preserve macroeconomic stability, and build fiscal space for downturns. - Multilateral: IMF to facilitate coordinated, effective responses to global imbalances through strengthened multilateral surveillance and consultations. - The current favorable environment—strong global growth, subdued inflation, progress in macroeconomic management—is an opportunity to press ahead with reforms at national and global levels. *Speech by Anne O. Krueger, First Deputy Managing Director, IMF; Conference De Montreal, Montreal, Canada; June 7, 2006.* --- ## References - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp060706_