The global economy lacks solid ground and uncertainty is becoming the new normal, according to Kristalina Georgieva, managing director of the International Monetary Fund (IMF), in an article 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.
IMF projected 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, according to Georgieva. “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 explained.
But a number of challenges remain, affecting the global economy.
“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,” Georgieva said.
Georgieva asserted that the projected rate of global growth is still modest in too many parts of the world, and over the medium term growth is expected to remain below historical averages.
She noted that trade, climate, and inequality are areas where finance ministers and central bank governors can make progress during the G20 meetings in providing more certainty about future actions.
For trade, Georgieva proposed building a better global trading system, explaining that that phase one of the trade deal between the United States and China 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,” she said.
However, according to Georgieva these types of trade arrangements have the potential to distort trade and investment while harming global growth, adding that IMF estimations suggest that managed trade provisions cost the global economy close to $100 billion dollars.
Thus, the world needs a modern global trading system that can unleash the full potential of services and e-commerce while protecting intellectual property rights.
On climate, Georgieva said that natural disasters reduce growth by an average of 0.4 percent in the affected country in the year of the event, and that these types of events are becoming more frequent, particularly in the poorest countries and those least able to cope with the impact.
In this context, Georgieva said that investment in clean energy and resilient infrastructure will be important as an approach to dealing with climate change and natural disasters. Furthermore, additional revenues generated from carbon taxes could be used to cut taxes elsewhere and fund assistance to affected households, or to finance spending.
On inequality, Georgieva noted that across much of the the Organisation for Economic Cooperation and Development (OECD) and G20 countries, income and wealth inequalities remain persistently high, adding that ministers can put a renewed focus on raising living standards and creating better paying jobs.
Curbing deficits, as well, should be undertaken, along with protecting essential social spending, she added.
“This is how countries can increase access to opportunities for all and build a stronger foundation within their own economies," according to Georgieva.