Transcript of World Economic Outlook Update Press Conference

IMF News, January 22, 2018

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The World Economic Outlook Update revises global growth forecasts for 2018 and 2019 to 3.9 percent.
"For both years, that is 0.2 percentage point higher than last October’s forecast, and 0also .2 percentage point higher than our current estimate of 2017 global growth."
The Fund stresses the current acceleration in global growth began in mid-2016 and is largely cyclical.

Main sources of GDP acceleration: Europe and Asia, with improved performance in the United States, Canada, and some large emerging markets (notably Brazil and Russia, both of which shrank in 2016, and Turkey).
Trade dynamics: Trade is again growing faster than global income, driven in part by higher global investment.
Commodity markets: Commodity prices have moved up, benefiting commodity exporters.
Financial conditions: Booming equity markets, low long-term government yields and borrowing costs, compressed corporate spreads, and attractive borrowing terms for emerging market and developing economies.
Policy contributions:
- Monetary policy: Accommodative in largest countries; ECB tapering asset purchases but signaling distant rate hikes; the U.S. Federal Reserve raising rates gradually and communication described as good and data-dependent.
- Fiscal policy: Advanced economies shifted from contractionary to roughly neutral; China provided considerable fiscal support since its mid-decade slowdown.
- U.S. tax legislation: Expected to contribute noticeably to U.S. growth over the next few years, largely because of temporary exceptional investment incentives.

The current upswing is unlikely to become a "new normal"; medium-term downside hazards likely to grow over time.
Key structural constraints:
- Advanced-economy potential: Projected advanced-economy growth of 2.3 percent in 2018, with longer-term potential growth assessed at only about two-thirds as high.
- Demographics and productivity: Aging populations and low productivity growth weigh on prospects.
- Fuel exporters: Face bleak prospects and need diversification.
Country-specific rebalancing:
- China: Will cut back fiscal stimulus and rein in credit growth to strengthen an overextended financial system; rebalancing implies lower future growth.
- United States: Temporary spending incentives (notably for investment) in the tax bill expected to boost near-term growth but generate partial payback later; increasing federal debt will take a toll over time.
Financial vulnerabilities:
- Buildup of debt across governments, corporations, and households in advanced and emerging economies.
- Elevated equity prices and easy financial conditions could be vulnerable to sudden adjustments.
- A sudden rise in inflation or interest rates would tighten financial conditions globally and prompt re-evaluations of debt sustainability.

Despite recovery in employment and aggregate income, many are left behind:
- About one fifth of emerging markets and developing countries saw their per capita incomes decline in 2017.
- Tepid real wage gains, reduced labor shares, and rising job polarization have eroded voter trust in political establishments.
Risks from political shifts:
- A turn to more nationalistic or authoritarian governance could stall reforms and withdraw from cross-border economic integration, harming long-term growth.
Inequality: High levels in emerging market and low-income economies pose risks of future disruption unless growth is made more inclusive.

Europe: Recovery is strengthening; external environment supports exports for countries like Spain. Spain's growth has been above 3 percent for several years, but that pace may not be sustainable.
Middle East and Sub-Saharan Africa: Weaker prospects, with Sub-Saharan Africa weighed down by weaknesses in larger economies; low growth, adverse weather events, and civil strife contributing to outward migration.
Latin America: Improvements in some large economies, but Venezuela’s continuing economic collapse will weigh on aggregate regional growth.
Brazil and Russia: Noted improvements after shrinking in 2016.
Turkey: Included among some large emerging markets showing improved performance.

Build policy buffers and resilience:
- Strengthen defenses against financial instability.
- Prepare policy tools to counter the next downturn (recognizing public debts are much higher than a decade ago).
Structural reforms and investments:
- Implement difficult structural and fiscal reforms while the recovery is underway.
- Invest in productive infrastructure, people, and research to boost long-term potential.
- Pay down debt where it is too high; invest where fiscal space allows.
Inclusiveness and opportunity:
- Make growth more inclusive within countries through training for workers displaced or at risk from technology and globalization.
- Focus on opportunities for workers at risk, young people, and women, and workplace inclusion and safety.
Multilateral cooperation:
- Counter global financial stability threats (including cyber-threats).
- Strengthen the multilateral trading system.
- Cooperate on international tax policy, including the fight against money laundering.
- Promote sustainable development in low-income countries.
- Fight irreversible environmental damage, notably from climate change.

Eurozone architecture:
- Continue structural reforms across more countries.
- Complete the banking union: single supervisory mechanism and single resolution mechanism are positive steps; more can be done on deposit insurance and central fiscal capacity.
Financial sector oversight:
- Watch crypto currencies carefully for risks; acknowledge potential benefits of blockchain for payment efficiency and inclusion, while monitoring to prevent materialized risks.

U.S. tax bill effects:
- Impact is complex and uncertain; some features are temporary (e.g., temporary expensing of investment) and expected to lead to near-term surges followed by payback.
- Some changes (corporate tax cuts, move to territorial system) are not temporary; future adherence to pay/go provisions is uncertain.
- Potential for widened U.S. current account deficit, a somewhat stronger dollar, altered international investment flows, and spillovers to trading partners.
Forecast timing and recent events:
- Some recent geopolitical developments (e.g., in South Africa) post-date the Update projections and will be considered in the spring World Economic Outlook release.
Measurement debate:
- GDP is an anchor for assessing economic performance but does not capture distributional outcomes or environmental damages; supplement GDP with other data for welfare assessments.

Transcript of World Economic Outlook Update Press Conference — January 22, 2018; IMF Communications Department