Group of Twenty IMF Note — Finance Ministers and Central Bank Governors' Meetings

G-20 Surveillance Note

February 22-23, 2020

The Following executive summary is from a note by the Staff of the IMF prepared for the February 22-23, 2020 G-20 Finance Ministers and Central Bank Governors' Meetings in Riyadh, Saudi Arabia.
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Executive Summary

Global growth appears to be bottoming out, but the projected recovery is fragile. Activity in the manufacturing sector is showing tentative signs of stabilization, as uncertainty and the adverse effects of sector-specific shocks have diminished and policy easing in 2019 is providing support. However, the expected increase in global growth—from 2.9 percent in 2019 to 3.3 percent this year—is a fragile one, as it largely reflects improved prospects in previously stressed or underperforming economies, while growth in advanced economies is expected to remain subdued. Growth in China has been disrupted by the spread of the coronavirus, and prospects in many emerging market and developing economies remain too weak to meaningfully improve living standards. Over the medium term, growth is projected to remain below historical averages.

Downside risks to the outlook continue to dominate. Risks remain skewed to the downside. The recovery could be derailed by a sharp rise in risk premia, triggered for example by a re-escalation of trade tensions, or a further spread of the coronavirus. A more general retreat from multilateralism and the associated economic fragmentation could further depress growth, including over the medium term. More frequent climate-related natural disasters could cause widespread economic damage and disrupt activity.

To support a lasting recovery, policymakers must carefully balance the domestic policy mix. Broad-based monetary policy easing together with fiscal easing in some economies have helped avert a deeper slowdown and continue to support activity. As the projected recovery is highly fragile, it will be important not to withdraw policy support too quickly. Low inflation requires monetary policy to stay accommodative in most economies. Fiscal policy must balance the needs for lifting potential growth, ensuring debt sustainability, and protecting vulnerable groups. Where fiscal space allows, policymakers can take advantage of low rates for productivity-enhancing investment to lift potential growth. Yet, low-for-long interest rates have also led to a continued buildup in vulnerabilities, intensifying the need for macro- and micro-prudential policy.

Increasing the pace and inclusiveness of medium-term growth requires both fiscal and structural policies. Fiscal spending—including through reprioritization—to enhance access to high-quality education and health care can promote more equal opportunities. Labor and product market reforms can support medium-term growth by boosting labor productivity, strengthening the ability and incentives of unemployed people to find a job, and reducing barriers to entry in highly regulated industries. When combined, such fiscal and structural policies not only help make growth stronger, more sustainable, and more balanced, they can also engender a more equal society in the future.

Many of today’s most fundamental challenges are global and require global solutions. A “Phase 1” deal between the United States and China—while a step towards de-escalation—needs to avoid managed trade and must be complemented by collective efforts to reform the multilateral trading system. Cooperation is also needed to make climate mitigation and adaptation more effective and less costly. Global efforts to address issues related to international corporate taxation, financial regulation, debt transparency, illicit financial flows, and the adequacy of the global financial safety net would make growth more robust and more inclusive in the future.

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