Global prospects and policy challenges point towards a weak global recovery: IMF10:45 pm
Ahead of G-20 Finance Ministers and Central Bank Governors’ Meetings
in China, the IMF highlights the global prospects and policy challenges,
recent developments, outlook and risks in the global economic system. The
developments point to higher risks of a derailed recovery, at a moment
when the global economy is highly vulnerable to adverse shocks.
At their first meeting under China’s G20 Presidency, the G20 finance
ministers and central bank governors will meet in Shanghai on
26th and 27th February 2016, to discuss the current state of and outlook for
the global economy. Ahead of G-20 Finance Ministers and Central Bank
Governors’ Meetings in China, the IMF highlighted the global prospects
and policy challenges, recent developments, outlook and risks in the global
Recent developments, outlook, and risks
According to the IMF, global activity has slowed unexpectedly at the end of
2015, and it has weakened further in early 2016 amid falling asset prices.
The baseline outlook suggests a continuation of the modest recovery in
advanced economies, and weaker growth prospects in emerging
In advanced economies, the recovery will continue to be modest, reflecting
a combination of weak demand and slow potential growth in the aftermath
of the crisis. In emerging economies, growth prospects remain weak in
historical perspective, reflecting a variety of factors, including the slowdown
and rebalancing in China, lower commodity prices, and distress in some
large emerging market economies.
Oil prices have further declined markedly, reflecting subdued global
demand and expectations of sustained increases in production by OPEC
members. With renewed declines in commodity prices and weakness in
global manufacturing, headline inflation is set to soften again in most
countries. Core inflation rates remain generally stable and well below
inflation objectives in advanced economies.
Financial market volatility has risen amid declining asset prices. Persistent
financial market turbulence and the associated asset price declines could
perpetuate tighter financial conditions in advanced economies, increasing
the cost of capital as well as risk premiums and interest rates. Triggered by
developments in financial markets in advanced economies, a more
significant and lasting rise in global risk aversion accompanied by a
stronger pullback of capital flows to emerging markets may generate even
tighter financial conditions in these economies.
Policies to boost growth and contain risks
IMF suggested that the fragile conjuncture requires a comprehensive policy
response both at the national and the G-20 level. In many advanced
economies, where the recovery remains disappointingly weak, both
demand and supply measures are needed to deliver stronger growth gains.
The Emerging economies, faced with tightening external financial
conditions and diminished growth prospects, should focus on managing
vulnerabilities and rebuilding resilience while implementing policies to lift
potential growth. At the G-20 level, the full and prompt implementation of
G-20 growth strategies will support global activity.
Multilateral actions to boost growth and resilience
The IMF is of the view that strong action is needed to achieve full
implementation of the G-20 growth strategies across countries which would
provide a significant boost to the global economy at a critical moment. In
implementing and strengthening structural reforms, prioritization and
sequencing should be tailored to the macroeconomic context and country
circumstances based on some core principles.
There is scope for further trade integration and participation in global value
chains. The G-20 can promote trade integration through multilateral and,
where appropriate, regional trade initiatives, and should support this with a
strong commitment to stop and roll back protectionist measures.
Given the high likelihood of spillovers in the interconnected international
financial system, the global safety net should be enhanced to better
manage the risks associated with capital flows. Finally, the G-20 needs to
consider a new mechanism to contain geopolitical spillovers that threaten
the global recovery.
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