Lagarde: Global growth in 2016 was disappointing 12-16
Lagarde: Global growth in 2016 was disappointing
Started Christine Lagarde: were not November terrorist attacks in Paris and the flow of refugees to Europe just the latest presentations of acute political and economic tensions that swept across North Africa and the Middle East, and these events are not isolated in any way, conflicts are raging in other places as well, and there are approximately sixty million displaced people in various parts of the world.
Moreover approaching 2015 maturity General described the hottest in recorded at all history, with causing the phenomenon of 'El Niņo' strong in the generation of weather-related disasters across the Pacific, as the possibility of raising interest rates in the United States contributed along with the slowdown in China in creating a state of severe economic uncertainty and volatility in various parts of the world, as world trade growth slowed sharply, with falling commodity prices, which imposes a difficult problem on the economies that depend on resources.
One reason for the severe slowdown of the world economy due to the fact that financial stability remains uncertain so far, despite seven years after the collapse of Lehman Brothers, and the weakness of the financial sector remains a constant in many countries, and the growing financial risks in emerging markets.
Global growth will be in 2016, disappointing and uneven thanks to meeting all these conditions, also enables weakness of the expectations of growth of the world economy in the medium term, with low productivity caused, population aging, and the legacy of the global financial crisis in blocking potential growth, and continue to high debt, low investment , and the weakness of banks in burdening some developed economies, especially in Europe, remain many emerging economies face the need to make adjustments after mutations credit and investment in post-crisis.
This scene is influenced significantly by some major economic changes that cause the creation of indirect effects and the effects of counter global, and especially move China to a new model of growth and the approach of normalization of monetary policy in the United States, and the fact that these two-turnover are essential and health centers and useful to the United States and the world, and the challenge is to managed as accurately as possible the efficiency and smoothness.
China has launched a deep structural reforms to raise the incomes and living standards, in light of its efforts to impose 'unusual new situation' is based on slower growth and a safer and more sustainable, and relies more on services and consumption and less on investing heavily use commodity and manufacturing industries, however, Policy makers in China are facing the need to find a delicate balance, we have to implement these difficult reforms while maintaining the demand and financial stability at the same time.
One of these indirect effects we have seen in the past summer, when caused investors' concerns about the pace of slowdown in the Chinese economy to impose more pressure on the commodity markets and spark significant declines in the value of currencies in a number of exporting countries for commodities that rely on Chinese demand, however declining investment in China, which currently consume 60% of the iron ore in the world, for example, would diminish its appetite for commodities will inevitably, and will contribute to this in the arrival period may be extended from lower commodity prices, and it will be incumbent on the makers Alsaasat-, especially in the states major exporter of commodities such as Australia and Brazil-to deal with this period with caution.
The terms of the main switch the second design of the US Federal Reserve to raise interest rates, although the Bank has also clearly indicated that interest rates are expected to remain low for some time, this shift reflects better economic conditions in the United States, which is also beneficial for the global economy.
Low interest rates encourage investors to search for yield has contributed, which in turn helped to support the fight financial risks and increase equity valuations, sovereign bonds, corporate credit, and on this, the Fed is also facing the need to find a delicate balance: the normalization of interest rates with the limit the risk of disruption of the financial markets at the same time.
This is also not devoid of potential indirect effects, the prospect of higher interest rates in the United States already has contributed to the rise in financing costs for some borrowers, including emerging and developing economies.
This constitutes part of the necessary global financial conditions of the amendment, however, that this process could be complicated by structural changes in the fixed income markets, which have become less liquid and more fragile, and this recipe to make a reaction excessive and disrupt the functioning of markets.
Indeed, the countries outside the advanced economies generally are better prepared than ever to deal with higher interest rates, but I feel like even though this concerned about their capacity to absorb shocks, has responded to more emerging and developing economies to the global financial crisis to take bold fiscal and monetary measures in the face of cyclical and using these policies dilute shock, it was able to lead the global economy at a time of distress, and over the past five years, they represent nearly 80% of global growth.
However, these initiatives were usually accompanied by an increase in the use of leverage (borrowing) in the private sector, and suffered many countries more debt, and a large proportion of the debt denominated in US dollars, and on this, the factors such as rising US interest rates and increase the strength of the dollar may reveal inconsistencies between currencies, which would lead to the inability of companies to repay their debts, and the spread of infection to the fierce banks and sovereign entities.
However, we know that despite this negative risks resulting from these changes could be administered through the support of the demand, and maintain financial stability, and implementation of structural reforms, and will continue most of the developed economies, with the exception of the United States and perhaps the United Kingdom, in the need to accommodative monetary policies, but Per advanced economies should take into account fully the risks of indirect effects in the decision-making process and to ensure the clarity of her remarks in this regard.
And can the euro on the other hand area that works to upgrade its prospects through the full treatment for non-performing loans worth around 900 billion euros, a legacy of the major financial crisis that has not been resolved, and this would enable banks to increase the supply of credit to companies and households, thereby enhancing the effectiveness of monetary harmonization, and improve the prospects for growth, and enhance market confidence.
The emerging economies have to be working to improve the monitoring of large companies exposed to foreign currencies, as it should also ensure financial stability through the use of macro-hedge to enhance the resilience of banks and their ability to withstand tools in the face of the accumulation of corporate borrowing and foreign debt.
At the global level, the need for salt is particularly arises to complete the implementation of the regulatory reform agenda, with a focus on improving transparency and control of non-bank institutions or banks shade, also ahead of other major task: to improve the framework, which is still incomplete resolve globally active financial institutions, which are important Systemic the whole system.
On the financial side, countries should use the policy of the greatest possible flexibility and the ability to support growth, and the fact that the IMF continues to emphasize the recommendations that seek advanced economies, which still has space enough fiscal stimulus to use it to promote public investment, especially in the high-quality infrastructure, financial plans and remain credible in the medium term is an important priority, particularly in the United States and Japan.
States should also exporting basic commodities that have the room for maneuver in fiscal policy to exploit this area to facilitate the process of adaptation with low prices, should other countries that rely on the re-fiscal balance operations in support of growth, for example through the implementation of tax regulations and energy prices and re-reforms prioritize spending, including the protection of the most vulnerable groups.
Exporters of commodities, such as Chile, Colombia, Norway and Botswana have used a boom commodity to strengthen the financial structures in the face of shocks, it has given her this much greater control over the pace of necessary fiscal adjustment, and enabled thus maintain growth, and carries this salutary lesson to other countries.
Finally, all countries should work to raise the level of economic structures through reform of labor and production markets, infrastructure, and systems of education, health care, trade policies, and will require implementation certainly a great deal of skill and intelligence in policy-making, especially at this stage characterized by low growth and high levels of uncertainty, given the collective nature that characterizes many of the relevant calls issues such as climate change, trade, migration, and network financial safety World-increasing international cooperation constitute the most pressing basic necessity and importance than ever before.
I was thrilled when I saw this spirit is reflected in the adoption of sustainable development in September targets, and again at the United Nations Climate Change Conference in Paris in December, and similarly we should not look to the refugees in the Middle East and Europe crisis as merely a humanitarian issue; They are, in fact, an economic issue that affects everyone, and we are all obliged to extend a helping hand.
It is true that the challenges facing the world in a great 2016, but with the help of the correct policy, and leadership, and cooperation, we can manage it for all our interests.
* Managing Director of the International Monetary Fund / for 'Project Syndicate'