Pursuing Durable Growth in an Uncertain World
Policymakers must resolve trade tensions, safeguard stability, and implement growth-oriented reforms to achieve durable growth in an uncertain world.
The global economy is at a crossroads. Despite the world economy’s considerable resilience over the past five years, trade tensions have soared since the publication of the previous Annual Report, and policy uncertainty has increased. Against this backdrop, achieving sustained growth has become more challenging.
Trade and capital flows are being rewired and significant policy shifts are underway in major economies. Authorities are contending with tightening financial conditions and higher market volatility, and policy buffers have been depleted by the shocks of recent years.
Figure 1.1
Growth performance and forecasts
(Percent)
Source: IMF staff calculations.
Note: AEs = advanced economies; EMDEs = emerging market and developing economies.
Policymakers must rapidly confront three key priorities. First, they need to resolve trade tensions and address underlying imbalances. A rules-based and level playing field is imperative, avoiding distortive policies designed to secure a competitive advantage and measures that impede the flow of trade.
The second priority is to act together to safeguard economic and financial stability. Countries can best achieve this by getting their own house in order through credible and realistic adjustment plans. This will require medium-term fiscal consolidation and frameworks to reduce debt and rebuild fiscal buffers. Targeted fiscal reforms will also be necessary, through expenditure reprioritization in advanced economies and revenue mobilization in emerging markets and developing economies, or a mix of both depending on country-specific circumstances.
Figure 1.2
Global output gap
Source: IMF staff calculations.
Simultaneously, authorities may need to implement timely, targeted, and temporary support to mitigate the impact of reforms and protect the most vulnerable.
The current environment also demands agile policies to mitigate shocks, with central banks remaining acutely focused on delivering low and stable inflation.
The pursuit of growth will also require international cooperation, particularly to resolve global imbalances. Internal balances between savings and investment are fundamental, and can tilt too far one way or another. They can drive external current account balances and by extension, capital flows. Rebalancing can enhance stability not only internally, but also externally, and globally. All countries can pursue policies for better internal and external balance, supporting collective resilience and wellbeing. The third priority is to double down on growth-oriented reforms to lift productivity and potential output. Countries must prioritize domestic policy and structural reforms in labor, product, and financial markets (while maintaining regulatory rigor).
To that end, countries must encourage innovation, invest in infrastructure, and streamline regulatory environments. Policies that promote entrepreneurship and competition will be essential for driving productivity and job creation, while tackling corruption will be essential to level the playing field and avoid distortive policies.
In addition, technological progress, including that related to digitalization and artificial intelligence can further enhance productivity and potential growth.
Although global growth faces significant obstacles, the future is not predetermined. Through deliberate and well-calibrated policies, countries can harness transformative forces and mitigate risks.
Despite the current challenging conditions, the IMF will continue to serve as a trusted advisor to policymakers, a reliable lender of last resort during crises to resolve balance of payments problems, a champion of strong policy frameworks, and a convener to confront common economic challenges. As we continuously adapt to changing conditions, we will remain engaged with our members to meet their needs over the medium- and long-term.
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