Building a More Resilient and Inclusive Global Economy
Christine Lagarde, IMF Managing Director
April 12, 2017
Thank you, Jean-Claude Trichet and Guntram Wolff, for your kind introductions. And thank you to Bruegel for hosting this event here at the wonderful Bibliothèque Solvay.
As I experience this beautiful building, it reminds me that good architecture is not about geometry or design in the first instance – it is about fostering human relationships in private and in public spaces.
I hear about this often from my son who is an architect – and I also thought about it when reading about the Pritzker Prize – the “Nobel prize” of architecture.
Last month, when a little-known firm in Catalonia was announced as the winner of this year’s prize, the jury said:
“More and more people fear that because of international influence, we will lose our local values, our local art, and our local customs. The prize winners help us to see that we can aspire to have both – our roots firmly in place and our arms outstretched to the rest of the world.”
Being concerned with the global economic and financial architecture, we should take inspiration from this statement.
We are at a moment where the global economy needs both – a foundation of sound domestic policies combined with a steadfast commitment to international cooperation.
We need these two elements – the domestic as well as the international – to create a more resilient global economy with sustainable, more durable, and more inclusive growth.
The good news is that, after six years of disappointing growth, the world economy is gaining momentum as a cyclical recovery holds out the promise of more jobs, higher incomes, and greater prosperity going forward.
But just as we see this momentum unfolding, we also see – at least in some advanced economies – doubts about the benefits of economic integration, about the very “architecture” that has underpinned the world economy for more than seven decades.
These issues will be on the minds of finance ministers and central bankers from the IMF’s 189 member countries when they meet in Washington next week for our Spring Meetings.
They will assess the state of the global economy and, as usual, we will release our World Economic Outlook a few days before the meeting. Today, I will touch on some broad trends.
For advanced economies, the outlook has improved with stronger manufacturing activity. This upswing is broad-based across countries – including in Europe – although some countries here still face high debt and weaknesses in some banks.
The prospects for emerging and developing economies also bode well for global growth. These countries have driven the global recovery in recent years, and they will continue to contribute more than three-quarters of global GDP growth in 2017.
Meanwhile, higher commodity prices have brought relief to many low-income countries. However, these economies still face difficult challenges, including revenue levels that are projected to stay well below the boom years.
Putting all this together, we see a global economy that has a spring in its step – benefiting from sound policy choices in many countries in recent years.
At the same time, there are clear downside risks: political uncertainty, including in Europe; the sword of protectionism hanging over global trade; and tighter global financial conditions that could trigger disruptive capital outflows from emerging and developing economies.
And underneath those short-term issues lies a weak productivity trend that continues to be a severe drag on strong and inclusive growth – largely because of population aging, the slowdown in trade, and weak private investment since the 2008 financial crisis.
We estimate that, if productivity growth had followed its pre-2008 crisis trend, overall GDP in advanced economies would be about 5 percent higher today. That would be the equivalent of adding a country with an output larger than Germany to the global economy.
This suggests that there is no room for complacency when it comes to economic policies.
We need to build on the policies that have delivered so much for the world. And at the same time, we must avoid policy missteps – or as I have described them, “self-inflicted wounds.”
How do we do this? I see three dimensions of economic policies:
Supporting growth, with an emphasis on productivity;
Sharing the benefits more equitably; and
Cooperating across borders through a multilateral framework that has served the world well.