The International Monetary Fund (IMF) has warned of higher risks for a derailed global recovery and called for urgent policy actions to strengthen growth and manage vulnerabilities.
“The recovery has weakened further amid increasing financial market turbulence and falling asset prices,” the IMF said in a recent document, titled “Note on Global Prospects and Policy Challenges.” It added that a downgrade of global growth prospects is likely as these are being revised for the April World Economic Outlook.
In January, the Washington-based agency forecast the global economy to grow 3.4% this year and 3.6% next year, both 0.2 percentage points lower than its forecast in last October, according to a news item by Xinhua.
In view of the weak recovery and turbulent financial markets, the global economy is highly vulnerable to adverse shocks, said the IMF.
Financial market turbulence may not only tighten financial conditions in advanced economies and hurt their growth, but it could also trigger capital outflows from emerging markets and tighten financial conditions in these economies, resulting in further currency depreciations and funding challenges.
Continued declines in commodity prices, oil in particular, could impact on inflation outlook and hurt commodity exporters, and the less-than-expected boost to demand in oil-importing countries from lower oil prices could also have negative effects on global economy, said the IMF. Other risks, including the sharper-than-expected slowdown in China and worsening geopolitical tensions, could also derail global recovery.
Although China’s transition to a more balanced growth model is likely to entail spillovers through trade and commodities, the rebalancing would benefit global growth and reduce tail risks, said the global lender, suggesting the international community should support China’s efforts to reform and rebalance its economy.
“The fragile conjuncture increases the urgency of a broad-based policy response that strengthens growth and manages vulnerabilities,” said the IMF.
It called on advanced economies to keep monetary policy accommodative, while reducing over-reliance on monetary policy. It also asked both advanced and emerging economies to push forward with structural reforms, strengthen supervision and macro-prudential frameworks, and address corporate and banking sector vulnerabilities.
G20 vows to focus on policies that boost economic activity
Meanwhile, the G20, an international forum for governments and central bank governors from the world’s 20 major economies, has pledged to use all policy tools, including monetary, fiscal, and structural ones to strengthen the uneven global recovery.
“The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balance growth,” noted a communique issued after the two-day G20 Finance Ministers and Central Bank Governors Meeting held on February 26 to February 27 in Shanghai.
The policymakers cited volatile capital flows, slumping commodity prices, escalated geopolitical tensions, a potential UK exit from the European Union, and increasing refugee numbers as major vulnerabilities of the global economy.
To foster confidence, monetary policies will continue to support economic activity and ensure price stability, but monetary tools alone cannot lead to balanced growth, said the communique.
“We will use fiscal policy flexibly to strengthen growth, job creation and confidence,” it added.
The nations reaffirmed their previous exchange rate commitments, including refraining from competitive devaluations and not targeting exchange rates for competitive purposes.
“We will carefully calibrate and clearly communicate our macroeconomic and structural policy actions to reduce uncertainty, minimize negative spillovers and promote transparency,” the communique pledged.
Photo: Hydrogen Iodide
