Posted on February 24, 2016 by iMFdirect
By iMFdirect
Shanghai will welcome finance ministers and central bank governors for the first ministerial meeting under China’s Group of Twenty presidency this weekend. The meeting comes at a critical time for the global economy. A note by IMF staff prepared as background for the G20 meeting, Global Prospects and Policy Challenges, points to a tepid recovery, and warns that weaker global growth might well be in the cards. This calls for a strong policy response, both national and multilateral, including from the G20.
Why weaker growth? The G20 Surveillance Note (G20 Note) cites a variety of factors at work: concerns about the global impact of China’s transition to more balanced growth; signs of distress in other large emerging markets, including from falling commodity prices; and a rise in global risk aversion, leading to substantial declines in equity markets.
There is more. Further shocks of a non-economic origin—related to geopolitical conflicts, refugees, terrorism and global epidemics—could also have significant impact on economic activity.
What to do about the increasing risks to the recovery is perhaps the single most important question before the finance chiefs in Shanghai. Here the G20 Note is very clear: There is less room for complacency now. Policymakers can and should act quickly to boost growth and plan to contain risks.
How? Well, the policy mix matters. For many countries, the IMF calls for a mix of demand support and structural reform. If done right, these policies will re-enforce each other and create stronger and more sustainable growth. Another important point is the recognition that accommodative monetary policy, while still very much needed, cannot do it alone. There needs to be a comprehensive approach, including fiscal policy (where there is fiscal space) and balance sheet repair. Where feasible, emerging market commodity exporters impacted by lower commodity prices should make use of fiscal buffers and let their exchange rate help with the adjustment.
Coordinating a strong policy response at the G20 level is just as urgent. The G20 must plan now and proactively identify policies that could be rolled out quickly, if downside risks materialize. The G20 Note also recommends other collective efforts, such as enhancing the global financial safety net and ring-fencing spillovers from non-economic shocks.
page soucre https://blog-imfdirect.imf.org/
