WASHINGTON, Oct 13 — The world economy is enjoying a recovery that spans three-quarters of global output. Trade volumes have rebounded and unemployment is falling. But the best may be still to come.
That’s the message from finance ministers and central bankers gathered in Washington yesterday for the start of annual meetings of the World Bank and International Monetary Fund, where they expressed an increasingly upbeat outlook for their economies.
“It’s going to get better,” IMF Managing Director Christine Lagarde said on a panel debate moderated by CNN anchor Richard Quest. She spoke two days after the fund lifted its global growth outlook on improved forecasts for the world’s biggest economies.
Unlike last year when emerging markets drove gains, the current upswing is more balanced, she said. “It is broader-based, it is more solid and it should get better. But it needs to get sustainable and benefit all.”
Officials from around the globe largely shared her optimism.
“I am pleased to note that there have been signs lately that a sustainable global recovery may finally be materialising,” US Federal Reserve Governor Jerome Powell, who is a potential candidate to run the central bank when Chair Janet Yellen’s term ends in February, said in Washington. “This is certainly good news, although significant risks and uncertainties remain.”
Words of caution
Powell’s words of caution echoed warnings from other policy makers throughout the day that painful reforms are still needed to defuse political tensions and ensure the recovery lasts.
Some of the world’s leading central bank chiefs said more work needs to be done. Bank of Japan Governor Haruhiko Kuroda told reporters he will keep up a massive stimulus program to hit a 2 per cent inflation goal, and European Central Bank President Mario Draghi said that although there are some signs that wages are finally increasing, “we’re still not there.”
There are also concerns that not everyone is sharing in the global upswing. “It is not inclusive enough,” Indonesia’s Finance Minister Sri Mulyani Indrawati said.
Citing the British poet Percy Bysshe Shelley, Lagarde said there is a “degree of harmony” in global growth, before cautioning that a lack of economic reforms amid growing technological and other disruptions are limiting aspirations.
The fund in meetings this week is pushing policies that include investment in education, a strengthening of safety nets and infrastructure spending.
“Our goal is turning that harmony we see into a season of action,” she told reporters earlier yesterday in Washington. “The recovery is not complete.”
Threats include the risk of volatile capital markets and tighter financial conditions with consequences for spillover around the globe. Lagarde advocated against protectionism that could disrupt a revival in global commerce.
“This pickup in trade that we see is good for growth, and we need to secure it and make sure it continues to be so,” she said. “Trying to reduce trade would not be helpful for that roof we want to fix.”
While policy makers pushed back against calls for higher tariffs or protectionism, they also said domestic policies needs to deliver benefits to those who feel left out of the global recovery.
“We can’t divorce our domestic policy from our goal of having a more open and transparent trading system,” said Canadian Finance Minister William Morneau, whose country is engaged in talks this week to renegotiate the North American Free Trade Agreement with the US and Mexico.
“If people believe that trade is not going to necessarily advantage them, then why are they going to buy into it?” — Bloomberg