Press Briefing: World Economic Outlook (WEO)May 09, 2020
well good morning everyone welcome to this global
pressconference nice to have you join us today welcome also to our colleagues who are following us online let me introduce you to the speakers for today's
pressconference we have on my right Geetha Gopinath she is the
economiccounselor and the head of the IMF research department on her right we have jamario melody Ferretti he is the deputy director of the IMF research department and then on her right we have a cello soon she she's the division head in charge of global economic
outlookin the research department Geeta will have some introductory remarks and then we'd be happy to answer your question so I'll pass the fort to Geeta please good morning and welcome to everyone.
A year ago economic activity was accelerating in almost every region of the
worlda year later a lot has changed escalating trade tensions between us and china needed a credit tightening in china macroeconomic stress in arge Disruptions in the sector Intina and Turkey in Germany and the financial tightening together with the normalization of monetary policy in the largest advanced economies have contributed to a significantly weakened global expansion, especially in the second half of 2018, and this weakness is expected to persist in The first half. Our new Global Economic Outlook projects a slowdown in growth in 2019 for 70% of the global economy Global growth smoothed to 3.6% in 2018 and is projected to slow further to 3.3% in 2019 0.2% point growth downward revision for 2019 is also broad-based reflecting negative revisions for several major economies, including the euro area, Latin America, the United States, the United Kingdom, Canada, and Australia after the start of this week, growth is expected to rebound in the second half of 2019, this rebound is supported by significant accommodative monetary policy by major economies that was made possible by a lack of certain inflation pressures, despite growing at close to potential, the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of England have all shifted to a more accommodating policy stance. fashion.
China has increased its fiscal and monetary stimulus in response to trade tariffs. us. Triana China Trade tensions have improved as the prospect of a trade agreement looms. Now these responses have helped reverse the tightening of financial conditions to varying degrees across countries. Emerging markets have seen some resumption in portfolio flows. their currencies relative to the US dollar, while the improvement in financial markets has been rapid, those in the real economy have been slow to materialise, measures of industrial production and investment remain weak for now in many major economies and the
worldtrade has yet to recover with an improvement outlook for the second half of 2019 global growth in 2020 is projected to return to 3.6% this recovery is precarious and based on a rebound in emerging market economies and in Development where growth is projected to increase from 4.4% in 2019 to 4.8% in 2020 specifically is based on an expected pickup in growth in Argentina and Turkey and a few other stressed economies and is therefore subject to considerable uncertainty growth in advanced economies will slow slightly in 2020 despite projected recovery partial recovery in euro area a as the impact of the US fiscal stimulus fades low productivity growth beyond 2020 global growth is expected to stabilize at around 3.5%, driven mainly by growth in China and India and their increasing share of global income growth in emerging market and developing economies will stabilize at 5%, albeit with considerable variation as emerging Asia continues to grow faster than other regions A similar pattern holds for low-income countries income with some particular commodity importers growing rapidly but others lagging behind the advanced world on a per capita basis so while the world economy continues to grow at a reasonable pace and a global recession is not in the baseline projections there are many Downside risks Trade policy tensions could reappear and develop in other areas, such as the Automotive sector, with large disruptions in the growth of global supply chains in systemic countries, such as the euro area and China, which could surprise on the downside and the risks surrounding Brexit continue to accentuate a deterioration in market confidence could rapidly tighten financial conditions in an environment of large public and private sector debt in many countries, including the sovereign bank Doom loop risks given these risks it is imperative that costly policy mistakes be avoided policy makers must work cooperatively to help ensure that political uncertainty does not further weaken investment fiscal policy will need to manage the trade-offs between supporting demand protecting social spending and ensuring that public debt remains on a sustainable path with the optimal mix given country-specific circumstances policies of the financial sector must address vulnerabilities proactively by implementing The use of macroprudential tools, such as countercyclical capital buffers, is a task made more urgent by the possibility that interest rates will remain low for longer.
To take action to boost output potential, enhance inclusiveness, and strengthen resilience, greater multilateral cooperation is needed to resolve trade disputes, address climate change and cybersecurity risks, and improve the effectiveness of international taxation, this is a delicate moment for the world economy. if the downside risks do not materialize and the support policies implemented are effective, world growth should recover; however, if any of the major risks materialize, then expected recoveries in stressed economies in high debt economies in export-dependent economies may be derailed, in which case policymakers need to adjust d depending on circumstances , this may require a synchronized, albeit country-specific, fiscal stimulus across all economies, complemented by accommodative monetary policy.
Finally, adequate resources for multilateral institutions remain essential to maintain an effective global safety net that would help stabilize the global economy. try to get to as many questions as possible to cover as many countries and regions so i'll start here in the second row the gentleman over there yes please hi i'm Chris Giles from the Financial Times as you said, the recovery you are forecasting. it's because the global economy is precarious and there are a lot of risks around how much ammunition you think is left in monetary policy to address the risks if they do happen and how big any coordinated fiscal stimulus you've mentioned correctly should be. in the end again if necessary our baseline forecasts are for global growth to pick up in 2020 but in fact this is precarious and there are serious downside risks monetary policy space varies across countries in the world for many advanced economies remains limited and we would expect to see unconventional monetary policy tools being used for example in the euro area now on the positive side inflationary pressures remain low so there is the possibility that monetary policy be even more accommodative on the fiscal side again this is going to be very country specific because it depends on the physical space that countries have if the recession turns out to be much more severe than what is in our baseline projection we would expect a timing on fiscal spending because that would be more effective as I think it would be better in terms of boosting confidence and it would also mitigate some of the The negative side effects of imports, but having said that, the actual magnitude of that is going to depend on the circumstances it's going to depend on the country thank you very much Gita so we'll go here at the end Gentlemen in the front row yes please hello , I'm on Oprah of India's trading standard on this because of this trade war, there was concern that currency war could take place but that didn't really happen but of course it cut back on emerging market currencies, which is a pressure, the Indian rupee has depreciated a lot, so do you think that in this globally connected world this situation that this currency was in is a real possibility or is it losing levels that at the beginning of 2018 we saw in response to a combination of factors? but not only trade tensions, but also the increase in oil prices that several emerging markets faced pressure on their currency.
Do you know what the impact of our exchange rates will be on trade? I think what we have to keep in mind is that exchange rate movements are largely driven by monetary policy in different countries and driven you know a lot about financial risks and therefore it's very difficult To pin down the direction of exchange rates for any of these regions going forward, what we have seen is that with the more accommodative monetary policy and stance in many of the major banks, we have certainly seen some partial strengthening of the currencies of the emerging markets relative to the US dollar and as long as things are relatively stable you know the trend could continue thanks Gita so we'll stick to this side of the room and then we're going to rock the gentleman in the second row there yourself, yes, good morning, Roberto Petrini, La Repubblica, Italy, what is your opinion on Italy? a flat tax on the italian economy what's your take on that thanks the second half of 2018 was particularly weak for italy i was li was in a recession and that weakness carrie As we move into 2019 the concerns that remain have to do with high debt levels with high sovereign debt levels cost borrowing costs for banks and all of this is reflected in weaker investment right away so these are risks to be aware of especially given that growth in Italy is weak not just in actual calls in nominal terms which means we are projecting the GDP share to rise in Italy going forward to your flat rate tax question we would have to wait to see what the details are about the nature of the particular source of the attacks before we can comment on it thank you so we're going to move to this side of the room please let me know I'll sit in the third row in the pink jacket, please, hello studio people.
China, I have a question about trade, dear, how do you see the US-China trade conflicts and their impact on the global economy and if they reach your agreement, how do you see the importance to the world economy, thank you for the escalation of trade tensions? between the US and China was certainly one of the important factors influencing growth at the end of 2018 we have certainly seen a truth and we have certainly seen negotiations going on and we hope that there will be an agreement soon the nature of the agreement is not Sure, we'll have to wait and see what the specifics are going to be, but as we've said on many occasions, any improvement in trade relations, multilateral cooperation on this front, ensuring that there's some sort of lasting resolution to trade uncertainty would be everything. very positive for world growth thank you so we continue to swing and in the lady here on the day of the wind yes please pilot hello my name is Yolanda Morales I am from Mexico at the economist a newspaper I want to know your perspective for Mexico now that we have a new president that it has different ways of directing the economy thanks to what Mexico we have revised downward our growth ent for Mexico for both 2019 and 2020 this is relative to last October and last January there is a combination of factors for this monetary policy to have been stricter than previously expected and the second has to do with policy and the certainty around the policies of the new government and that it is weighing on investment so this would continue to be a factor, especially political uncertainty would continue to be an important factor in the future for Mexico's growth outlook.
I'm going to pass this on to Jan Maria. Maybe she wants to add something. in recent years due to trade tensions with the United States, which have been mostly resolved, but the Trade Agreement was not ratified, resulting in exchange rate pressures which in turn led to tighter monetary policy, which is one of the factors that has beenweighs on economic growth but clearly uncertainty is a big factor both on the home front as Gaeta has just emphasized thank you thank you so let's continue to move the gentleman in the second row yes please sir yes Allen Larry Elliot of The Guardian, has some alternative Brexit scenarios in his River that speak of a fairly significant deviation downward from the baseline.
How serious do you think the risks of a no deal breaker are and what the consequences of that would be, the situation is clearly changing as we all know on a daily basis so it's hard to predict where this will all end but what What we have seen is that we have seen the negative consequences of the uncertainty surrounding Brexit which has weighed on investment in the UK and is one of the factors in our downward revision or growth for 2019 for the UK we have also made our Estimates of the long-term impact of an OD Brexit that would mean going back to WTO tariff rules and they are quite substantial in the order of magnitude of around 6% for the UK and around half for the EU, so these are great effects, hopefully there will be a deal soon we are all watching events as they unfold but it's a little hard to predict at this point where it's all headed.
Thanks kita, so I'm going to answer two more questions on this side and then we'll go back to FA on the third row. Thank you very much, Alexa, we are a family effort has cut its forecast for Latin America by 0.6% for this year in both Brazil and Mexico has been revised downwards and the situation in Venezuela continues to worsen, so what is your general opinion on the region thank you, so the region as a whole, you know that the last half of 28:18 was weak and much of that will carry over to 2019, so we have revised our estimates for Brazil downwards and Mexico, of course, the reasons are different in both cases in the case of Mexico the combination of political uncertainty and tightening of monetary policy in Brazil is hidden in the face of political uncertainty and the postponement of some reforms on the fiscal front for Venezuela of course it is a great humanitarian crisis of you know social economy economic crisis, etc., and we are seeing a very important contraction for Venezuela, everyone who knows about you would like to add to something now, as Peter said for Venezuela, it is very difficult to make predictions at the moment and it is a humanitarian crisis food crisis medical crisis one the concern is that oil production is collapsing and that leads to us downgrading that country . a little bit more about your forecast for the US economy you know how far you see how you see the fiscal stimulus sugar surge going and then specifically about the Federal Reserve's monetary policy how far you think your appropriate positioning for a lot of people who are weighing that recently including the president of the United States so the US economy in our focus will slow down in 2019 and then slow down a bit more in 2020 this is for to be expected as the effect of fiscal stimulus fades and that is one of the important reasons for the decline at the same time that the more accommodative monetary policy stance is helping growth in 2020 to your question on monetary policy I mean we fully support the I think any central bank takes a very data driven approach that is well communicated so depending on the d Any issues that come up I think it's important to respond with the path of interest rates thank you so we'll come back here ma'am. in the orange jacket right in the back yesterday hello my name is Leah and I'm from Nigeria.
I wonder how it was going to affect trade to Sub-Saharan Africa in 2019. Thank you for Sub-Saharan Africa. There is an impact. that comes from the trade wars but there is also an impact of the trade war on global growth which then spills over into oil prices for example for Nigeria the important price that matters what is happening with oil prices commodities and if why or if trade tensions are going to weaken on global growth which may have a bigger negative effect, would you like to add something like sub-Saharan Africa? well thank you the lady here in the fourth row in the middle say Mohammed from Egypt you mentioned a lot of risks going forward so what are the main risks for emerging markets including Egypt thank you well the trade tensions are clearly a more open one particularly for the more open economies in the emerging world it is a direct effect there is an indirect effect through the market sentiment that we saw towards the beginning to the middle of last year a swinging market sentiment moving away from the emerging economies that has caused a substantial change the outflows, particularly of short-term capital from the most vulnerable economies, are clearly very important risks, I think that the risk of conflicts and geopolitical fights that, unfortunately, it continues to affect a number of countries, particularly in the emerging world, and exacts a heavy price, first of all in terms of humanitarian, but also in terms of aggregate growth, as Geeta just mentioned, of course, for countries. more reliant on commodities and, again, predominantly in the emerging world Weaker global growth and particularly weaker demand from China could be associated with lower commodity prices, which could put additional stress on markets. current accounts of the public finances of many emerging economies these are just some of the potential downside risks that we could see thank you so back to the front row here gentlemen yes please yes that's Barry Barry wood sorry Barry wood RTHK and Hong Kong miss Gopinath when listing the factors that have contributed to the significant weakening of the global economy and trade, how would you distribute that it is mainly between the US and China? and tariffs that have led to that slowdown, the US-China trade tension is a contributing factor, but there have been other factors, so for example, in China for much of 2018, the biggest factor it was tightening and credit that was needed because they needed to be more regulation of a shadow banking sector so before March 2018 that was a driver for China the trade conflict plays out pretty much towards the end of 2018, the other big factors have also been country specific so for Germany the decline had to do with the auto sector with the new emission standards it had in Japan, it had some natural disasters and that also influenced growth but that, but general sentiment and concerns about the trade conflict have weighed on business and consumer confidence. confidence and that has affected more countries than just the two here at the time, so I think that's an important factor to take into account, especially in terms of I mentioned earlier that there needs to be a lasting solution for business courtesies and to ensure that it does not intensify in other sectors.
Thanks Kita, so let's take one more question from this side. Hello Ricardo Poder, instead, Miss Kita, could you give us a little sense about how important this social security is now in Brazil because you said that you mentioned some of the reasons for the reduction of the Brazilian projection from two point five to two point one this year It is a kind of postponement of this fiscal reform, so in its projections for Brazil the Brazilian economy 2019 2020 considered that the social security reform will be approved by Congress this year, it is very important to have the right level of social security for the most vulnerable population in any country, of course it has to be fiscally prudent and in the case of Brazil it is the case that the debt levels are somewhat unsustainable and therefore would require pension reforms that were partly postponed until 2019.
It is difficult for us to say the exact date of when the implementation will occur, so it is difficult for us to forecast at this time , but we're expecting some resolution in the next year or so, that's right, we're expecting it to pass sometime in 2019 and what we've done is shift the growth from 2019 to 2020 a little bit because of that, thank you, oh yeah, so i'm going to go back to the middle row here so i'm going to go all the way the gentleman in the purple shirt yes right there hello Jason Lange with Reuters you mentioned in the report that China may need to undertake fiscal stimulus to avoid a severe recession that could derail your reform agenda how much fiscal stimulus beyond what is currently contemplated at least publicly known to be contemplated and how critical is the risk of that severe recession thank you on our on our cast front we hope China continues to slow down, you know it's a gradual weakening of growth, but this is to be expected, it's a necessary transition from very high investment-led growth driven by au ge of credit towards one that is more sustainable and it will imply weakening credit and credit growth deleveraging all of those factors we expect them to slow growth I mean the Chinese government has put in a substantial amount of monetary and fiscal stimulus we are already seeing some green shoots there in terms of recovery if you look at the manufacturing PMI for China the most recent numbers show that there has been some recovery there so we are already seeing positive signs.
What would be needed in the most severe crisis, of course, would depend on the nature of the what. the problems are but you know it would be very difficult for us to comment on the exact numbers at this point thank you so let's get back to the ore the gentleman in the brown jacket yes sir yes please thank you very much modern barbarian marlin today could you give us an assessment for the Caribbean region please and since most of our economies are independent and if you could point to Barbados we are currently in an IMF program what is your outlook for the Caribbean we always have a diversity we have more product dependent economies basics and we have economies that are less dependent on basics more reliant on tourism the latter group is doing a little better their prospects are usually tied to advanced economies so there have been some weakening but overall growth is stronger those who are dependent on commodities are still in the process of adjusting to lower commodity prices basics some of them oil prices for Barbados we have an IMF program so the outlook is for activity to strengthen a bit with confidence building as the program rolls out it is essential that that happens to get back to positive growth in 2020 goals are met and reforms are implemented steadily thank you i will go here to the front row yes sir right to the gentlemen tannaz coke accent and fat in your report you significantly changed your estimates on greece's current account deficit to be Precise now believes that according to their report, it will be five times larger than what they projected seven months ago.
So is this related to the climate environment in the eurozone and the pressures on experts in the region? It all has to do with the legacies of the class, it's that the country should happen, it's a combination of factors, I understand there were some data revisions that also contributed to boosting the current account. We have resumed growth, which is good, but it does tend to pick up import demand, but I think there are literally statistical issues at play as well that had to do with data revisions thank you. I'm going to answer a question online before I move to the right side of the room, so the question is o In the MENA region, the IMF revised its growth forecast for the MENA region and the United Arab Emirates in particular, yes, so that if we compare what we forecast in October with what we forecast now, we see that particularly for 2019 there is a considerable difference in the The previous price predictions in October we still expected, based on futures prices, that oil prices would be around the $70 a barrel in 2019 is more than $10 down and that of course implies a downward revision for oil exporters in general. kinda two categories of oil exporters you have some that you know suffer from a variety of other factors including geopolitical tensions and conflicts this is clearly not the case with the United Arab Emirates but we have a review to the driven down, they said, by the lower oil price is about a percentage point, a little less than a percentage point below the revision for 2019 and a little less for 2020, so the forecast is that growth will be just under 3% for 2019 almost 3% in 2020 but of course again oil price deals to restrict oil productionoil to support prices in 2019 and generally weakening global demand are the main factors in play thanks Jim is that you?
I'm going to go to the second row here. in the middle lady in black yes please hi grace Blakely of the New Statesman in the UK and to what extent do you think financial markets take into account the downside risks associated with climate change and also the kind of weakening of various others environmental systems or are we facing what some called a carbon bubble and to what extent have you taken into account that in this year climate changes are clearly a major risk in the medium term it seems to be getting closer as each month goes by that is why it is a major risk for low-income countries, in fact, it's one of the risks that we're pointing out needs to be urgently addressed when we've seen natural disasters around the world and those that are unfolding that are turning negatively. growth, so this is a very important factor going forward, there is an attempt to incorporate some of these risks when it comes to thinking about the forecast going forward, I mean, not just by us but by the major central banks of everyone, there is this sense. from looking at crisis resilience to climate risk crisis or stressed, as they take into account risks that come from climate, that's also something new that we're seeing these days, but we expect it to continue to advance in the years to come, thank you. let's swing on this side room lady in gray jacket yes front row yes please hello my name is Ginoza from Pakistan I am interested in Central Asia region what kind of restoration challenges do you see in that region thank you yes it sure is a very differentiated picture in Central Asia, so you have economies like Kazakhstan or Azerbaijan that are highly dependent on oil prices, the outlook of which is of course greatly affected by what happens with the prices of raw materials that you have . economies like Pakistan where they have a more different set of different types of commodity dependency, more cotton exports for example, but also quite a wide opening and reforms of the economy and growth forecast to be around 5%, for which again a picture that is quite different in all countries and depends a lot on what happens with the price of their main exports, as well as internal stability issues and external internal conflicts in some cases, thanks Mario, so let's answer two more questions. to get the gentleman in the white shirt right there in the second row yes please and then we're going to get to you secular about there my name is misaki-kun Luigi Press from Japan my question is in parentheses there is a question before but en I think it's a short-term risk.
Let me ask you again. There is an analysis in box one and then you put the canary or moderating scenario A and B and the most serious scenario. I don't see the severe case scenario. Can you explain how much negative? the impact you would expect and then the second question if you will allow me again i would like to ask your opinion married modern modern money family hmm tea thank you very much so um in the analysis we did for brexit we looked at two possible No Deal scenarios the diff The difference between the two had to do with whether in the short term there would be border disruptions and how severe the financial disruptions would be, so scenario B, which is a war scenario, is one where we have disruptions to Short term bullet. and we know that more financial stress shows up in higher credit spreads you know the numbers that tell you relative to our baseline we're seeing about a three to four percentage point reduction in GDP now again we just have to reiterate that the environment is changing rapidly and then you know the scenarios can be different, but maybe that's what we have at this point to your question about modern monetary theory.
I mean, I'll start, we'll start by saying that we think there's a very important role for fiscal policy in macro stabilization for redistribution for equity considerations, so fiscal policy is a very important part of the toolkit for policy makers. policies now that you said you know nothing f In the past, in many developed countries and in developing countries it has been proven in the past that many developed countries and developing countries have tried to use financing money to finance fiscal deficits, and the Experience suggests that that usually ends with runaway inflation with a collapse in investment with a collapse in growth and I think it's very important to be that while fiscal policy is a powerful tool I think it's very important to be careful about the financing you use for this and it is history that has taught us the value of central bank independence l to maintain stable economies and we believe that it is also an important lesson to bear in mind.
Thank you Gita, so we're going to have time for two more questions, so I'll start with the gentleman here in the front row, thank you. a little two part question if I can answer the first one on monetary policy the second on fiscal on the monetary policy side I think we started this year expecting to see quantitative tightening or a resumption of central bank normalization like You mentioned in your comments, which hasn't been seen and in fact we've seen more easing from central banks and I'm wondering if and in your outlook looking forward in terms of 2021 and beyond that, how do you take into account the potential stress of the extension of this unorthodox monetary policy that we are seeing continue?
The second question on the fiscal side is that we've seen it become more and more difficult for democracies to pass regulations to pass more things like stimulus, we've also seen an increase in leaders like López Obrador, like Guerra de Juan and Turkey, a couple from others, both in our own Brazil, as you mentioned, how do those things influence your short and long term prospects, thank you etc. your question about monetary policy, in fact, there's been a twist in the air with the Federal Reserve with the pause and the expectation of a rate hike in 2019 and that's a major event that we think has taken place. ff some of the downside risks that were building towards the end of 2018 and so the data dependent pause was welcome indeed we have to look ahead and see how this plays out which again would depend on the data that is coming in if we have the recovery that we are projecting for 2020 that could change the policy stance, this policy certainly has a net resumption of capital flows to emerging markets, so there has been a positive impact there, I mean there's been some rebound, not a tremendous rebound with some rebound, but again I think it's important to note that we're still living in an environment with high levels of public and private sector debt, so there are financial vulnerabilities that they are still there and they are still accumulating, which is why our advice is to use macroprudential tools at this stage to make sure they remain fiscal policy is a very important part of our you know the assumptions we make in the future for both the short term and the long term and it varies from country to country you know it's country specific to some extent the space The one I'm not in, politics is very, but it's a very important part of our when you're trying to make amends. projections on what's going to happen with growth both in the short term and in the medium term, thank you Gita, so let's just answer one last question here from the gentleman and the front row, yes thank you, I'm Michael Ignatieff everyone.
PTV Greece, but my question is about Turkey, there is a lot of information that in the summer, Turkey will knock on the door of the IMF, can you tell us what is your prediction and does the IMF have the money to save Turkey, a Turkish economy? thank you i mean we have no reason to think turkey is any easier to even contemplate coming to the imf so that's where we are at this point the turkish economy is certainly under stress they have used monetary policy tightening to contain the inflation and trade effects r As we have certainly seen an improvement in its trade balance, so net exports have grown and this has been driven mainly by a compression on imports and less by exports in Turkey, for what we are seeing some adjustment but I mean our forecast for Turkey is that this year there would be negative growth but then we expect a recovery in 2020 and indeed this recovery is an important part of the element going towards the whole recovery global. thank you very much for being here thanks to the speakers tomorrow we have two press conferences the global financial stability report and the fiscal monitor so see you tomorrow thank you very much
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