Group of Twenty IMF Report — IMF Annual Meetings

G-20 Report on Strong, Sustainable, and Balanced Growth

October 2017

The Following executive summary is from a report by the Staff of the IMF prepared for the G-20 on the occasion of the 2017 World Bank Group/IMF Annual Meetings in Washington, D.C.
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Executive Summary

The G-20 has come a long way towards its goal of strong, sustainable, and balanced growth, but more remains to be done. At the G-20’s request, this report offers diagnostics and policy recommendations for further action.

  • Growth is stronger, but there remain pockets of concern. After a slow recovery, growth has strengthened and output gaps are expected to close in about half of the G-20 by 2018. However, there are still symptoms of insufficient demand in many advanced economies, with inflation below target; and several emerging economies are facing challenges from low commodity prices or domestic problems.
  • The sustainability of growth is not assured. The cyclical recovery has firmed, but productivity growth remains low, with more than half of G-20 economies’ potential growth rates currently estimated at around 2 percent or lower, with the lowest rates in advanced economies. Imbalances (see below) are posing sustainability risks going forward.
  • Progress toward balanced growth remains incomplete. While much reduced since the crisis, external imbalances remain excessive, and are concentrated among advanced economies. Debt levels are substantially higher than before the crisis, particularly public debt in advanced economies and private debt in some emerging economies.

Policymakers should focus on rebalancing and ensuring the sustainability of growth, while fine-tuning the macroeconomic policy mix. The following policies—based on IMF Article IV recommendations, with input from the OECD on structural reforms—would help bringing the G-20 closer to its objectives:

  • Macroeconomic policy should adjust to changing circumstances. Monetary policy remains appropriately accommodative in advanced economies. In some countries more available fiscal space should be deployed to help close output gaps (e.g., Korea) or raise public investment (e.g., Germany). Elsewhere, deficits should be reduced further to rebuild buffers now (e.g., Turkey, Indonesia, India, Brazil).
  • Internal imbalances need attention. Where public debt is high (e.g., Italy, Japan, United States), medium-term consolidation plans should be more ambitious to reduce vulnerabilities. China should build on recent efforts to reduce financial vulnerabilities in the private sector.
  • External adjustment must continue. The adjustment of the policy mix discussed above would help reduce excess surpluses and deficits in advanced economies (e.g., Germany, United States). In China, enhancing social safety nets and reducing import barriers would further help its external rebalancing.
  • Sustaining long-term growth requires ambitious structural reforms, in addition to implementing still in-progress G-20 growth strategies. The needs differ across countries, but there is substantial scope to raise potential growth in most.

Joint action promises significant gains along all G-20 goals. Simulating the implementation of these recommendations with the help of the IMF’s G-20 model suggests:

  • Slightly higher GDP in the short term. By 2018, G-20 output is about 0.3 percent higher than expected under the baseline, but it reflects a more balanced composition of demand, with additional support in excess surplus advanced economies offsetting the effects of lower fiscal deficits in excess deficit countries and China’s welcome rebalancing policies.
  • Strong output gains in the medium and long term. Output continues to rise due to the implementation of recommended additional structural reforms, with the level of G-20 GDP estimated to exceed the baseline by about 3.5 percent in 2028. A more ambitious reform agenda would yield even higher gains.
  • The G-20 economy also becomes more balanced. Changes in the current accounts of advanced surplus and deficit economies go in the right direction, while public debt of high-debt countries drops.

Acting together yields benefits significantly beyond what countries would reap by acting alone. In the short term, the GDP gains across the membership from implementing the recommended policies more than double due to spillovers from other countries’ actions. In the long run, positive productivity spillovers operating through the trade channel amount to 15 percent of total output gains. Joint G-20 action would also be critical to react to common shocks, such as a sudden drop in confidence that would threaten the current momentum, and to protect the open multilateral trade system from protectionist policies.

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