Emerging and developing countries to contribute 75% to 2017 global growth
HARARE – The International Monetary Fund (IMF) says after six years of disappointing growth, the world economy is gaining momentum as a cyclical recovery holds out the promise of more jobs, higher incomes, and greater prosperity going forward.
In a statement prior to the release of the World Economic Outlook’s April update, IMF managing director Christine Lagarde says as the momentum unfolds, at least in some advanced economies doubts on benefits of economic integration are still prone. She said for advanced economies, the outlook has improved with stronger manufacturing activity and the upswing is broad-based across countries.
On emerging and developing economies, she said the prospects also bode well for global growth and these countries have driven the global recovery in recent years, and they will continue to contribute more than three-quarters of global GDP growth in 2017.
Lagarde said higher commodity prices have brought relief to many low-income countries, albeit these economies still face difficult challenges, including revenue levels that are projected to stay well below the boom years.
“Putting all this together, we see a global economy that has a spring in its step, benefiting from sound policy choices in many countries in recent years,” she said.
Lagarde said there are clear downside risks: political uncertainty, including in Europe; the sword of protectionism hanging over global trade; and tighter global financial conditions that could trigger disruptive capital outflows from emerging and developing economies.
“And underneath those short-term issues lies a weak productivity trend that continues to be a severe drag on strong and inclusive growth largely because of population aging, the slowdown in trade, and weak private investment since the 2008 financial crisis,” she said.
She said if productivity growth had followed its pre-2008 crisis trend, overall GDP in advanced economies would be about 5 percent higher today and that would be the equivalent of adding a country with an output larger than Germany to the global economy.
In terms of policies, the IMF chief said this suggests that there is no room for complacency when it comes to economic policies.
“We need to build on the policies that have delivered so much for the world. And at the same time, we must avoid policy mis-steps or as I have described them, “self-inflicted wounds.”
She said there are three dimensions of economic policies which include supporting growth, with an emphasis on productivity, sharing the benefits more equitably; and cooperating across borders through a multilateral framework that has served the world well.
On supporting growth, Lagarde said the first dimension is to maintain the current growth momentum, which requires the right mix of fiscal, monetary, and structural measures tailored to individual country needs.
She gave an example of demand which is still weak in a number of countries and inflation which is not yet within the radar, which call for continued monetary support and a greater emphasis on growth-friendly fiscal policies, revamping tax and benefit systems to improve incentives and boosting high-quality infrastructure investment in countries that have room in their budgets.
More fundamentally, she said policymakers need to reinvigorate productivity over the long term as this is the most important source of higher income and rising living standards; adding that should start by fostering innovation, to boost productivity, and also invest more in education and infrastructure, while providing tax incentives for research and development.
Lagarde emphasised on inclusive growth saying when the benefits of growth are shared more broadly, growth is stronger, more durable, and more resilient.
“Think of technology; while it has brought enormous benefits to societies, we have found that technology has been the major factor behind the relative decline of lower and middle-skilled workers’ incomes in recent years, with trade contributing to a much lesser extent.
“And there are concerns that automation will progressively jeopardize employment growth in emerging and developing economies as well.When economic winds shift, we must find better ways of supporting workers.”
Lagarde said fostering more resilient growth requires more international cooperation and cooperating to reduce excessive external imbalances. She added that restricting trade would be a “self-inflicted wound” that disrupts supply chains, hurts global output, and inflates the prices of production materials and consumer goods.
“We also need to cooperate to ensure financial stability including a stronger global financial safety net to help emerging and developing countries better cope with capital flow volatility in times of distress.”