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

G-20 Surveillance Note

June 8-9, 2019

The Following executive summary is from a note by the Staff of the IMF prepared for the June 8-9, 2019 G-20 Finance Ministers and Central Bank Governors' Meetings in Fukuoka, Japan.
Read the Full Text

Executive Summary

There are tentative signs of stabilization in global growth. Amid softness in many parts of the world, global growth for 2019 was revised down in the April 2019 World Economic Outlook, partly reflecting idiosyncratic temporary factors and weakness in stressed economies. Against this backdrop, major central banks appropriately slowed the pace of monetary policy normalization, leading to an easing of financial conditions and some recovery of capital flows to emerging markets. Recent data releases suggest that growth may have firmed up in the first quarter. Going forward, the current forecast is for global growth to increase slightly from 3.3 percent this year to 3.6 percent in 2020.

The expected recovery comes with downside risks. In particular, questions remain about the strength of the recovery, as the impact of temporary setbacks and stresses could be felt for longer than expected. Trade tensions could persist or further escalate, and Brexit might end up being disorderly. Monetary and fiscal stimulus in China may delay the adjustment to more sustainable growth and add to risks in the medium term. Meanwhile, financial vulnerabilities continue to accumulate amid still-low interest rates in advanced economies, leaving many economies exposed to a sudden shift in financial conditions. Alongside, macroeconomic policy space to respond to shocks is limited in many G-20 economies.

The outlook remains wanting over the medium term. G-20 policymakers cannot be content with rates of GDP growth, which—in per capita terms—remain below historical averages for many countries, as aging and low productivity growth take their toll. At the same time, global imbalances persist, and continued inequality points to further room for sharing more widely the gains from trade and technological progress.

With the global economy remaining at a delicate juncture, the policy mix must be carefully calibrated. Policymakers should avoid any hastened removal of policy support. Monetary policy needs to stay accommodative until incoming data confirm inflationary pressures toward targets. Amid varying degrees of fiscal space, fiscal policy must balance the trade-offs between protecting the recovery and the most vulnerable and ensuring sustainability. Financial sector policy can help support stability by mitigating risks from high leverage in many sectors and vulnerabilities in non-bank financial institutions. Structural reforms should lay the foundation for stronger, more inclusive growth. Emerging market economies need to remain vigilant to reduce vulnerabilities to international capital flow volatility.

Should growth substantially disappoint, policymakers need to stand ready to act. Should downside risks materialize, a more accommodative policy mix would be warranted. This would include making use of conventional and unconventional monetary policy and fiscal stimulus—where space is available. Implementing structural reforms today will also help lift growth in the event of a downturn. Additional stimulus would be most effective if well-coordinated domestic policies are part of an internationally synchronized policy response.

Global cooperation can mitigate risks and support growth. Multilateral policies are necessary to help address global challenges. A key priority should be to create a more open, stable, and transparent trade system, including by durably resolving current trade tensions. International cooperation is also needed to reform the system for taxing multinational enterprises, complete post-crisis regulatory reforms, strengthen the global financial safety net, and mitigate and adapt to climate change.

Read the Full Text