IMF: uncertainty in global economy is becoming “the new normal”
Kristalina Georgieva, managing director of the International Monetary Fund (IMF), said in an article on Wednesday that the global economy lacks solid ground and uncertainty is becoming the new normal.
The article was published on the IMF website ahead of the G20 industrialised and emerging market economies finance ministers and central bank governors summit, scheduled to be held 22-23 February in Riyadh.
The IMF forecasted that global growth is strengthening from 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent in 2021.
This uptick is dependent on improved performance in some emerging and developing economies, Georgieva said. “Monetary and fiscal policy have been doing their part. Forty-nine central banks cut rates 71 times as part of the most synchronised monetary action since the global financial crisis,” she added.
However, a number of challenges remain affecting the global economy.
She added that the “coronavirus is our most pressing uncertainty. It is a global health emergency we did not anticipate in January. It is a stark reminder of how a fragile recovery could be threatened by unforeseen events.”
“There are a number of scenarios, depending on how quickly the spread of the virus is contained. If the disruptions from the virus end quickly, we expect the Chinese economy to bounce back soon.”
“The result would be a sharp drop in GDP growth in China in the first quarter of 2020, but only a small reduction for the entire year. Spillovers to other countries would remain relatively minor and short-lived, mostly through temporary supply chain disruptions, tourism, and travel restrictions,” the IMF official added.
Georgieva emphasised that the forecasted rate of global growth is still modest in too many parts of the world, and over the medium-term growth is projected to continue below historical averages.
Trade, climate, and inequality are areas where finance ministers and central bank governors can make progress at the G20 meetings in providing more certainty about future actions, she added.
For trade, the Fund official proposed building a better global trading system, explaining that that phase one of the trade deal between Washington and Beijing eliminated some immediate negative impacts on global growth.
“We estimate the deal will reduce the drag from trade tensions on the level of GDP in 2020 by 0.2 percent, about one quarter of the total impact,” Georgieva noted.
Yet, according to Georgieva these types of trade deals have the potential to distort trade and investment while harming global growth, adding that the Fund estimations propose that managed trade provisions cost the global economy near to $100 billion.
Therefore, the world is in need of a modern global trading system that can unleash the full potential of services and e-commerce while protecting intellectual property rights.
Talking about climate, Georgieva said that natural disasters narrow growth by an average of 0.4 percent in the affected country in the year of the event. These types of events are becoming more frequent, particularly in the poorest countries and those least able to cope with the impact, she added.
Thus, investment in clean energy and resilient infrastructure will be important as an approach to dealing with climate change and natural disasters, Georgieva said. Additional revenues generated from carbon taxes could be as well used to cut taxes elsewhere and fund assistance to affected households, or to finance spending, she added.
On inequality, the IMF official noted that across much of the Organisation for Economic Cooperation and Development (OECD) and G20 countries, income, and wealth inequalities remain persistently high. She added that ministers can put a renewed focus on raising living standards and creating better paying jobs.
Furthermore, she said that curbing deficits, as well, should be undertaken, along with protecting necessary social spending.
“This is how countries can increase access to opportunities for all and build a stronger foundation within their own economies,” Georgieva said.
Source: Ahram Online