Global Growth Fears Loom Over IMF-World Bank Spring Meetings

14 April 2016

The pace of global economic growth has been “too slow for too long,” warned the International Monetary Fund (IMF) on Tuesday, suggesting that a continuation of this trend could have serious long-term ramifications.

In its latest World Economic Outlook (WEO), the Washington-based institution revised downward its earlier projections for growth this year and next. According to the 12 April report, global growth should hit 3.2 percent this year and 3.5 percent in 2017 – down from the earlier projections of 3.4 and 3.6 percent released in January.

The sobering update comes as finance and development officials from nearly 200 countries are gathering in Washington for the Spring Meetings of the International Monetary Fund and World Bank Group, set for 12-17 April.

The Spring Meetings bring together the Fund’s International Monetary and Financial Committee (IMFC) and the joint World Bank-IMF Development Committee. The IMFC serves as the Fund’s policy-setting body and represents the institution’s 188 member countries, while the latter ministerial-level group regularly advises both organisations regarding key development-related issues.

With these prospects in mind, the IMF has recommended that countries undertake a ‘three-pronged approach” that incorporates a mix of structural reforms, fiscal support and stimulus, and monetary policy measures. Details of how this policy mix should work will likely be under debate during the upcoming weekend’s discussions.

Furthermore, the report says, “policymakers also need to make contingency plans and design collective measures for a possible future in case downside risks materialise.”

Oil price impacts, refugee crisis effects

The WEO noted various reasons for the new figures, including the oil price slump and slowing growth in countries that are its key exporters; China’s slowdown; Brazilian and Russian recessions; and lower growth prospects for many African countries.

Indeed, the ramifications of low oil prices have yet to give the “shot in the arm” that had previously been expected, IMF officials said in a March preview of the April World Economic Outlook.

“We argue that, paradoxically, global benefits from low prices will likely appear only after prices have recovered somewhat, and advanced economies have made more progress surmounting the current low interest rate environment,” said Maurice Obstfeld, Gian Maria Milesi-Ferretti, and Rabah Arezki in a blog post previewing last week’s report.

Obstfeld is the IMF’s Economic Counsellor and Director of Research; Milesi-Ferrit is Deputy Director in the organization’s Research Department; and Arezki is Chief of the Commodities Unit.

One bright spot, the IMF report noted, could be a potential increase in demand from countries that are major buyers of oil.

The Fund, along with warning overall regarding the long-term ramifications of continued low oil prices, also noted that there are other significant risks for the overall global economy.

These include, for example, terrorism, refugee flows, and global health crises such as the 2015 Ebola outbreak that cost thousands of lives and had severe economic implications.

Concerns over trade growth

The particular risks to trade were also highlighted in the IMF report, with Obstfeld noting in a 12 April blog post that the economic pressures facing Europe – particularly as it grapples with the ongoing refugee crisis – have sparked a “rising tide of inward-looking nationalism.”

“One manifestation is the real possibility that the United Kingdom exits the European Union, damaging a wide range of trade and investment relationships,” he said.

The United Kingdom is due to hold a domestic referendum on 23 June to decide whether the country will continue to be a member of the 28-nation EU bloc. UK Prime Minister David Cameron, who negotiated a series of reforms to his country’s relationship with the EU, has openly advocated against a so-called Brexit, including in a recent op-ed published in The Telegraph.

“The longer this referendum campaign goes on, the clearer it becomes: those campaigning to leave Europe are inviting the British people to make an extraordinary choice – to be the first major economy in history to deliberately choose a second-rate, more restrictive trading relationship for its biggest market,” he warned in the 4 April article.

The IMF research director also noted that other advanced economies are facing their own risks to trade. “In other advanced countries as in Europe, including in the United States, a backlash against cross-border economic integration threatens to halt or even reverse the postwar trend of ever more open trade,” Obstfeld noted.

Separately, the WTO released last week its own update to its projections for this year’s trade growth, finding that this number – 2.8 percent – is set to match the “sluggish” growth seen last year. In 2017, trade growth should reach 3.6 percent.

“This will be the fifth consecutive year of trade growth below three percent,” said WTO Director-General Roberto Azevêdo. “Moreover, while the volume of global trade is growing, its value has fallen because of shifting exchange rates and falls in commodity prices.”

The global trade chief further warned about the risks that falling trade value – and volume – could have for the growth prospects of vulnerable developing countries, along with repeating previous concerns over the growing stock of trade protectionist measures.

World Bank chief: Addressing global threats key

Given the current global context, there is a need for institutions such as the World Bank Group to continue changing their “vision” in order to achieve their missions, said the organisation’s president, Jim Yong Kim, in a Berlin speech last week.

In the speech, which included warnings against trade protectionism, Kim outlined what the World Bank views as the main reasons for the current economic slowdown, namely “slower growth in trade, increasing difficulty in gaining access to capital, and lack of progress in job creation,” along with noting various areas where countries must work together with even more urgency.

“It is now exceedingly clear that we will never end extreme poverty and boost shared prosperity if we don’t tackle global threats like pandemics, climate change, and forced displacement in partnership with our member countries – one region, one country, and one person at a time,” he said.

Regarding climate change, for example, the World Bank chief noted that there is a continued lack of agreement over how to use the financial resources that were pledged during the UN climate talks last December.

Indeed, the Spring Meetings could see some key announcements on climate change, including on carbon pricing and financing. For example, one event on the agenda involves a meeting of the high-level assembly of the Carbon Pricing Leadership Coalition, a group which brings together participants from governments, businesses, and civil society who share as their goal the use of carbon pricing internationally.

The group was launched last December during the Paris climate talks, with the upcoming meeting marking their first official gathering. The 15 April event will be co-chaired by Ségolène Royal, France’s Minister of Ecology, Sustainable Development, and Energy, and Feike Sijbesma, who is the CEO of the Dutch multinational Royal DSM.

Those talks will come quick on the heels of the World Bank group’s announcement that it would be ramping up its own efforts to address the global challenge of climate change. Under this new “Climate Action Plan,” adopted on 7 April, the organisation sets out a series of targets between now and the end of the decade.

These targets will be geared toward helping countries meet their commitments under their “nationally determined contributions” – the building blocks of the Paris Agreement adopted last year at the UN Framework Convention on Climate Change’s (UNFCCC) annual meet.

Among the actions outlined in the World Bank plan, the organisation intends to mobilise US$25 billion in clean energy financing from the private sector by 2020, along with leveraging US$13 billion in such financing; adding 30 gigawatts of capacity; increasing four-fold climate-resilient transport funding; ensuring climate concerns are incorporated into urban planning; and increasing support to sustainable forest and fisheries management.

Other features of the plan include increasing the World Bank’s International Finance Corporation’s annual climate investments from US$2.2 billion to US$3.5 billion; developing climate-smart agriculture investment plans for at least 40 countries; and ensuring that 100 million people in 15 countries have access to early warning systems for natural disasters, among various others.

ICTSD reporting; “Britain’s choice: economic security with the EU, or a leap into the dark,” THE TELEGRAPH, 4 April 2016.

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