## New Challenges and Opportunities in a New Era

_IMF News, November 5, 2020_

## Source details

**Canonical URL:** [New Challenges and Opportunities in a New Era](https://www.imf.org/en/news/articles/2020/12/02/sp120220-new-challenges-and-opportunities-in-a-new-era)

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## Bibliographic details
- Published: November 5, 2020

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### Global growth prospects
- Near-term outlook: the global economy is recovering but "a global recession for 2020 overall is a foregone conclusion."
- IMF expects the global economy to shrink by 4.4 percent in 2020.
- Upward revision since the June WEO is driven by strong Q2 GDP in major economies.
- Country-specific Q3/quarterly outturns cited:
  - China is expected to be the only major economy to maintain positive growth throughout 2020, at 1.9 percent.
  - US grew by 7.4 percent quarter-on-quarter, or 33.1 percent at an annual rate (Q3).
  - China grew by 4.9 percent (Q3).
- Recovery characteristics and risks:
  - Recovery described as a "long, uneven, and uncertain ascent."
  - Pace and synchronization of recovery across regions remain uncertain.
  - Divergence across sectors, particularly services (example: October PMI for services strengthened in the US and the UK while weakening in Japan and some countries in the European Union).
  - Pandemic relapses in some countries cast a shadow over the next phase of recovery.
  - Outcomes depend on progress in vaccines, medicines, and treatments; slower-than-expected progress could weaken recovery.

### Global policy outlook
- Policy responses to COVID-19:
  - Total global fiscal support has now reached $11.7 trillion.
  - Monetary authorities of major advanced economies have provided $7.5 trillion in liquidity support.
  - These supports have supported disposable incomes, corporate cash flow, and banks' credit supply, helping avoid a repeat of the 2008–09 global financial crisis experience.
- Monetary and macroprudential considerations:
  - Broad consensus that low interest rates will exist for a longer period of time.
  - Low interest rates help support recovery but may increase risk appetite and lead to excessive and lower-quality credit.
  - Policy challenge: balance accommodative monetary policy with flexible macroprudential policies.
- Fiscal considerations:
  - Protecting livelihoods and preventing long-term structural scarring are priorities.
  - Global public debt has reached a record high, accounting for around 100 percent of global GDP.
  - Fiscal sustainability frameworks for the medium and long term are critical, especially for countries with weak economic fundamentals where debt sustainability challenges are more severe.
- Implementation caveats:
  - Success in realizing policy goals will vary by country due to differences in policy tools, market sophistication, implementation capacity, and communication ability.
  - Policy selection and implementation must be flexible, precise, and adapted to local conditions.
- Policy recommendation (high level):
  - Avoid premature withdrawal of macroeconomic support before consolidation of the recovery.

### Prospects for global recovery (longer term) — focus on green recovery
- Pre-existing structural challenges that COVID-19 may exacerbate:
  - Slowdown in global productivity growth.
  - Population aging in advanced economies.
  - High levels of corporate and household debt in some regions.
  - Intensifying income inequality within many economies.
- Opportunity: pandemic creates transformational momentum for a smarter, greener, and more inclusive recovery; international cooperation should be strengthened.
- Three key points on the green recovery:
  1. Necessity
     - IMF research suggests that if no further action is taken to reduce greenhouse gas emissions, "the earth will embark on a path of no return toward higher temperatures."
     - Natural disasters becoming more frequent; pressure from global warming increasingly obvious.
     - Analysis suggests the loss of global economic output will exceed 20 percent by 2100 if no further action is taken.
     - Urgent need to reduce greenhouse gas emissions.
  2. Achievability
     - Early and comprehensive action can help achieve global carbon neutrality by the middle of this century.
     - Measures include raising carbon taxes or implementing carbon emissions trading, plus subsidies, guarantees, and investment to increase low-carbon energy supply, carbon capture, and carbon storage.
     - Raising the price of carbon emissions will provide incentives to improve energy efficiency and promote resource shifts from high-carbon to low-carbon industries.
     - Green investment can bolster transformation, quickly add aggregate demand, and provide buffers to absorb transition costs related to higher carbon prices.
  3. Prioritization
     - Early-stage green investment can buoy growth and boost employment while supporting low-carbon industries, taking advantage of favorable fiscal and monetary policies.
     - Combined with a gradual phase-in of moderate carbon pricing, the net short-run effect on growth would be positive.
     - Carbon prices would need to be raised thereafter to achieve carbon neutrality by mid-century, but IMF research suggests the drag on growth during this transitional period would be negligible — no more than 0.1 percent annually compared with the base case.
- Country example and encouragement:
  - China has made a commitment to achieve carbon neutrality by 2060.
  - IMF encourages other countries to scale up ambition in their submissions for COP26 next year.

### Conclusion and policy priorities
- Overall assessment:
  - The global economic recession in 2020 seems less dire than earlier expectations, but the recovery will be long, uneven, and uncertain.
- Policy priorities going forward:
  - Maintain continuity of macroeconomic policy support and consolidate the recovery.
  - Prioritize resilient and sustainable growth, with particular emphasis on a green recovery.
  - Seize the opportunity for a more inclusive, smarter, and greener economic recovery path.

*Source: New Challenges and Opportunities in a New Era — 2020 CICC Forum Speech, November 5, 2020, IMF Communications Department*

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## References

- [Tao Zhang](https://www.imf.org/en/About/senior-officials/Bios/tao-zhang)
- [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)

_Source: https://www.imf.org/en/news/articles/2020/12/02/sp120220-new-challenges-and-opportunities-in-a-new-era_