{
  "title": "After the Crisis: The Outlook and the Long View",
  "publication": "IMF News, November 8, 2017",
  "sourceUrl": "https://www.imf.org/en/news/articles/2017/11/08/sp110817-after-the-crisis-the-outlook-and-the-long-view",
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  "summary": "Global growth outlook (World Economic Outlook forecasts): 3.6 percent growth this year and 3.7 percent in 2018.",
  "publishDate": "2017-11-08",
  "sections": [
    {
      "heading": "A Strengthening Recovery",
      "content": "- Global growth outlook (World Economic Outlook forecasts): 3.6 percent growth this year and 3.7 percent in 2018.\n- Advanced economies are leading the recovery; most emerging markets are also growing.\n- Both consumption and investment are experiencing an upswing; import-intensive investment has helped accelerate trade, which for the first time in several years is growing faster than GDP.\n- Inflation remains weak in many countries, reflecting slow wage growth and remaining slack in some advanced economies.\n- About 25 percent of the world, in per capita GDP terms, is not growing; most of these countries are commodities exporters of the developing world, particularly oil producers.\n- Accommodative monetary policies since the crisis have been instrumental in restoring growth; the IMF supports continuation where core inflation remains below targets and supports the pace of normalization by the Federal Reserve and other central banks.\n- Risks highlighted: rising asset prices, increased exposure to credit, maturity and liquidity risks, subdued volatility suggesting investor complacency, and rising corporate and sovereign debt."
    },
    {
      "heading": "The Long View on Interest Rates",
      "content": "- Observation: a long-term decline in real interest rates over the past three decades in the advanced economies.\n- Two key structural changes examined:\n  - Demographic changes: greater longevity and rapid aging of societies as birth rates drop; rising longevity is propelling an increase in savings as households prepare for longer retirement (notably in Japan and euro area countries).\n  - Declining productivity growth since the global crisis: factors include waning IT-driven boom, slowing global trade, weaker capital accumulation, and in some countries, population aging weighing on productivity. Lower total factor productivity will dampen demand for credit and financial intermediation.\n- Caveat: technological surprises (positive or negative) remain possible; fintech could substantially disrupt financial services.\n- Implication: demographic change and declining productivity growth could lower steady-state economic growth and exert downward pressure on nominal and real interest rates."
    },
    {
      "heading": "Challenge to Business Models",
      "content": "- Prolonged low rates and a flatter yield curve (associated with lower short-term rates) would strain profits and survivability of financial institutions.\n- Expected sectoral impacts:\n  - Banks: tail-risk exposure likely to increase as banks reach for higher yields; smaller banks may face falling demand for business lending and difficulty competing for aging-population services, likely resulting in continued consolidation (example: Japan over past two decades).\n  - Insurance: pressure on capital from funding liabilities taken on during past higher-rate periods; many business lines could struggle to turn a profit in slower-growth, lower-rate environment.\n  - Pensions: defined-benefit plans may become less attractive than defined-contribution plans, which offer more portability.\n  - Asset managers: investors less inclined to pay high management fees; demand for passive index funds likely to continue growing."
    },
    {
      "heading": "Policy Implications",
      "content": "- Regulatory and supervisory priorities:\n  - For banking sector: provide and sustain legal and regulatory frameworks that limit excessive risk taking amid lower returns.\n  - Increase supervision and regulation of the asset management industry as its market share expands.\n  - Strengthen macroprudential policies with clear assessment of systemic risks.\n- Recommended macroprudential actions and calibrations:\n  - Introduce or tighten borrower-based measures to slow fast-growing overvalued segments.\n  - Bank stress tests must assume more stressed-asset valuations.\n  - Increase capital requirements for banks more exposed to vulnerable borrowers.\n  - Consider debt-service-to-income and loan-to-value limits where rising household debt is a concern.\n  - For nonfinancial corporate leverage: sectoral capital requirements and risk weights on foreign currency credits.\n  - Increase focus on regulation of nonbank institutions to limit risk migration and excessive capital market financing; greater transparency is essential.\n- Emerging markets considerations:\n  - Emerging markets benefited from a decade of low interest rates but many have a buildup of leverage and vulnerabilities.\n  - Example: increase of Chinese debt since 2007; China has taken steps to improve risk management and address maturity and liquidity risks under shadow banking, but these measures must remain a priority and be accompanied by slower credit growth.\n- Overarching message: strengthen defenses now to be better prepared for future vulnerabilities and for longer-term structural shifts affecting interest rates.\n\nSpeech by IMF First Deputy Managing Director David Lipton, November 8, 2017.\n\n---\n\n\n References\n\n- David Lipton\n- People's Republic of China and the IMF\n- Japan and the IMF\n- Speeches\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2017/11/08/sp110817-after-the-crisis-the-outlook-and-the-long-view"
    }
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    "Published: November 8, 2017",
    "Global growth outlook (World Economic Outlook forecasts): 3.6 percent growth this year and 3.7 percent in 2018.",
    "Advanced economies are leading the recovery; most emerging markets are also growing.",
    "Both consumption and investment are experiencing an upswing; import-intensive investment has helped accelerate trade, which for the first time in several years is growing faster than GDP.",
    "Inflation remains weak in many countries, reflecting slow wage growth and remaining slack in some advanced economies.",
    "About 25 percent of the world, in per capita GDP terms, is not growing; most of these countries are commodities exporters of the developing world, particularly oil producers.",
    "Accommodative monetary policies since the crisis have been instrumental in restoring growth; the IMF supports continuation where core inflation remains below targets and supports the pace of normalization by the Federal Reserve and other central banks.",
    "Risks highlighted: rising asset prices, increased exposure to credit, maturity and liquidity risks, subdued volatility suggesting investor complacency, and rising corporate and sovereign debt.",
    "Observation: a long-term decline in real interest rates over the past three decades in the advanced economies.",
    "Two key structural changes examined:",
    "Caveat: technological surprises (positive or negative) remain possible; fintech could substantially disrupt financial services.",
    "Implication: demographic change and declining productivity growth could lower steady-state economic growth and exert downward pressure on nominal and real interest rates.",
    "Prolonged low rates and a flatter yield curve (associated with lower short-term rates) would strain profits and survivability of financial institutions.",
    "Expected sectoral impacts:",
    "Regulatory and supervisory priorities:",
    "Recommended macroprudential actions and calibrations:",
    "Emerging markets considerations:",
    "Overarching message: strengthen defenses now to be better prepared for future vulnerabilities and for longer-term structural shifts affecting interest rates.",
    "[David Lipton](http://www.imf.org/external/np/omd/bios/dl.htm)",
    "[People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)",
    "[Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)",
    "[Speeches](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
  ],
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