Global prospects and policy challenges point towards a weak global recovery: IMF

Feb 26 • current affairs, General Knowledge • 1128 Views • No Comments on Global prospects and policy challenges point towards a weak global recovery: IMF

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

economic system.

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

economies.

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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