Reviews & Outlooks | |
Reviews & Outlooks | |
2308 VIEWS | |
![]() |
Thursday, October 12, 2017 09:38 AM / IMF
Participants
Maurice Obstfeld, Economic
Counsellor and Director of the Research Department
Gian Maria Milesi-Ferretti, Deputy
Director, Research Department
Oya Celasun, Chief of
the World Economic Studies Division, Research department
Olga Stankova, Special
Assistant to the Director, Communications Department
Ms. Stankova - Good morning,
everybody, and good afternoon to those who are joining us from other parts of
the world. Welcome to the press conference on the release of the World Economic
Outlook entitled “Seeking Sustainable Growth: Short-Term Recovery, Long-Term
Challenges.’
At the press conference with us is
Maurice Obstfeld, IMF Economic Counsellor and Director of Research. To the far
right of the table is Gian Maria Milesi-Ferretti, Deputy Director in the
Research Department. And between Gian Maria and Maury is Oya Celasun; she is
Chief of the Global Economic Studies Division in the Research Department.
With this I will pass the
microphone to Maurice Obstfeld for his opening remarks, and then we will take
your questions.
Mr. Obstfeld - Thank you, Olga,
and good day, everyone. The global recovery is continuing and at a faster pace.
The picture is very different from early last year when the world economy faced
faltering growth and financial market turbulence. We see an accelerating
cyclical upswing boosting the major economies, including Europe, China, Japan,
and the United States, as well as emerging Asia.
The latest World Economic Outlook
has therefore upgraded its global growth projections to 3.6 percent for this
year, 2017, and 3.7 percent for next year. In both cases, this is 0.1
percentage points above our previous forecasts and well above 2016’s global
growth rate of 3.2 percent, which was the lowest since the global financial
crisis.
For 2017, most of our upgrade owes
to brighter prospects for the advanced economies, whereas for 2018’s positive
revision, emerging market and developing economies play a relatively bigger
role.
Notably, we expect Sub-Saharan
Africa, where growth and per capita incomes has on average stalled for the past
two years, to improve overall in 2018.
The current global acceleration is
also notable because it is so broad-based, more so than at any time since the
start of the decade. This breadth offers a global environment of opportunity
for ambitious policies that will support growth and raise economic resilience
in the future. Policymakers should seize the moment. The recovery is still
incomplete in important respects, and the window for action that the current
cyclical upswing offers will not be open forever.
Why do we say that the recovery is
incomplete? It is incomplete in our view in three important ways.
First, the recovery is incomplete
within countries. Even as output nears potential in advanced economies, nominal
and real wage growth have remained low. This wage sluggishness follows many
years during which median real incomes grew much more slowly than incomes at the
top, or even stagnated.
Drivers of growth including
technological advances and trade have had uneven effects, lifting some up but
leaving others behind in the face of structural transformation. The resulting
higher income and wealth inequalities have helped fuel political disenchantment
and skepticism about the gains from globalization, putting recovery at risk.
Second, the recovery is incomplete
across countries. While most of the world is sharing in the current upswing,
emerging market and low-income commodity exporters, especially energy
exporters, continue to face challenges, as do several countries experiencing
civil or political unrest, mostly in the Middle East, North and Sub-Saharan
Africa, and Latin America.
Many small states have been
struggling. About a quarter of all countries and nearly a third of emerging
market and developing economies saw negative per capita income growth in 2016.
Despite the current upswing, nearly a fifth of all countries and nearly a
fourth of emerging market and developing economies are projected to do the same
in 2017.
Finally, the recovery is
incomplete over time. The cyclical upswing masks much more subdued, longer-term
trends of productivity and demographics, even correcting for the arithmetical
effect of more slowly growing populations. For advanced economies, per capita
output growth is now projected to average only 1.4 percent per year over the
2017-2022 period, compared with 2.2 percent per year during the pre-crisis
decade, 1996-2005.
Moreover, we project that fully 43
emerging market and developing economies will grow even less in per capita
terms than the advanced economies over the coming five years. These economies
are diverging rather than converging, going against the more benign trend of
declining inequality between countries due to rapid growth and dynamic emerging
economies like China and India.
These gaps in the recovery
challenge policymakers to action, action that should take place now while times
are good. Success requires a three-pronged approach in the context of competing
and refining the important financial stability reforms undertaken since the
global crisis without weakening them.
Needed structural reforms differ
across countries, but all have ample room for measures that raise economic
resilience along with potential output. Our research has shown that structural
reforms are easier to implement when the economy is strong.
For some countries that have
returned close to full employment, the time has come to think about gradual
fiscal consolidation to reduce swollen public debt levels and build buffers
against the next recession. Higher infrastructure and educational spending,
which are needed in some countries that do have fiscal space, can have the
added benefit of boosting global demand just as consolidation measures
elsewhere subtract from it. This multilateral fiscal policy mix can also help
reduce excess global imbalances.
Critically important to growth
that can be sustained and shared by all is investment in people at all life
cycle stages, but especially the young. Better education, training, and
retraining can both ease labor market adjustment to long-term economic
transformation — from all sources, not only trade — and raise productivity. In
the short term, the excessive youth unemployment that afflicts many countries
urgently deserves attention.
Investing in human capital should
also push labor’s income share upward, contrary to the broad trend of recent
decades, but governments should also consider correcting distortions that may
have reduced workers’ bargaining power excessively.
In sum, structural and fiscal
policy together should promote economic conditions conducive to sustainable and
more inclusive real wage growth.
The third policy prong, monetary
policy, still has a key role to play. Earlier deflation threats in advanced
economies have receded considerably, but inflation has remained puzzlingly low
even as unemployment rates have come down. Clear central bank communication and
the smooth execution of monetary policy normalization, where and when
appropriate, remain crucial.
Success will help prevent market
turbulence and sudden tightening of financial conditions which could disrupt
the recovery with spillovers to emerging and developing economies.
Those economies, in turn, face
diverse monetary policy challenges but should continue where possible to use
exchange rate flexibility as a buffer against external shocks, paying due
attention to implications for price stability.
Numerous global problems require
multilateral action. Priorities for mutually beneficial cooperation include
strengthening the global trading system, further improving financial
regulation, enhancing the global financial safety net, reducing international
tax avoidance, and fighting famine and infectious diseases. Also crucially
important are to mitigate greenhouse gas emissions before they do more
irreversible damage and to help poorer countries, which are not themselves
substantial emitters, adapt to climate change. Of course, we have a WEO chapter
on that in this cycle.
If the strength of the current
upswing makes the moment ideal for domestic reforms, its breadth makes
multilateral cooperation opportune. Policymakers should act while the window of
opportunity is open.
And with that, we welcome your
questions.
Ms. Stankova - Thank you, Maury.
And the first question from the gentleman in the first row.
Question - Good morning. I would
like to do a two-part question about Brazil. The first one is the positive
outlook that you see for Brazil, does it indicate the end of a recession or of
a stagnation in the Brazilian economy?
And the second part is that
positive outlook happens despite the investigations about corruption in Brazil
or because of it?
Mr. Obstfeld - I am going to turn
that one to Oya Celasun. Oya.
Ms. Celasun - Thank you very much.
Yes, indeed, we see an end to the recession in Brazil. We have had two
consecutive quarters of positive growth, so Brazil seems to be at a turning
point. But given the ongoing uncertainty in the political front, in terms of
policies, our outlook for growth is quite a weak one. We expect quite a subdued
recovery going forward.
Question - [Inaudible].
Ms. Celasun - As I said, broader
uncertainty is weighing on growth, and we expect that to dissipate gradually
over time.
Ms. Stankova - And since we are on
Latin America, maybe we will take a question from our online audience:
On Mexico and Latin America in
general, what are your perspectives for the economy of Mexico and Latin
America, how the NAFTA negotiations could impact the Mexican economy and the
peso? How do we estimate the inflation in Mexico, from here [inaudible]
Mexico?
Mr. Obstfeld - Just as a general
point, anything including the NAFTA negotiations that disrupt established
trading and production relationships across countries that are supply chains
could be disruptive to all the partners involved, so that does carry
substantial risk for Mexico as well as its NAFTA partners.
You know, what we have seen
historically is that difficulties in NAFTA negotiations have been associated
with peso weakness. Now, of course, one would have to be very courageous to try
to forecast exchange rates on a short-term basis. So, our hope is that the
negotiations over the future of NAFTA do go forward smoothly and actually reach
the improvements that are certainly attainable in the framework.
On the Mexico macro situation more
specifically, you know, there are a number of structural problems. Mexico is
for the moment not following the general trend in the region of weaker
inflation, but there are structural challenges. I think Governor Carstens
indicated some of these in his exit interview.
These include informality, low
productivity, informal sector, labor market duality, et cetera. So, Mexico has
made impressive progress in its macro management, but there is room to do more.
Ms. Stankova - Thank you, and next
question would come from the gentleman in the first row.
Question - In the report you are
saying that India’s growth has slowed down, and your have brought down the
projection for 2017 by .5 percent. What was the main reason for the slowdown,
which was which one had greater role in this, demonetization or GST, and what
is the impression of the state of India’s economy now?
Mr. Obstfeld - In general the
state of India’s economy is quite good. The government has energetically
pursued structural reforms, including the GST, which will have a payoff longer
term. The country has benefited from improved terms of trade. It has benefited
from the return of a normal monsoonal rain season, given the large share of
agriculture.
For this year, there were two
headwinds. Number one, the implementation of the GST itself, particularly in
July and August, had some disruptive effects which we believe are passing; and
you can see that our forecast for next year is quite high at, I think, 7.4
percent. The other headwind came from the demonetization, which led for a time
to temporary cash shortages. These have now been overcome, and so the downgrade
for this year looks like a blip in a much more positive longer-term picture.
Ms. Stankova - Next question. Yes,
gentleman in the third row in white shirt.
Question - You say in the WEO that
the outlook for the U.K. economy depends on what sort of trading relationship
is eventually struck with the European Union. What impact do you think that no
deal would have on the U.K. economy and, of course, the European economy as
well with the U.K. falling back on WTO arrangements?
Mr. Obstfeld - We very much hope
that negotiations can be constructive and minimize the cost to both sides. I
think that is in everyone’s interest. But the clock is, as everybody knows, very
short, particularly given that whatever deal there is would have to be approved
by the EU 27, and that would take time.
Prime Minister May, I think very
constructively in her Florence speech, suggested a two-year transition period;
and this could be a good thing in allowing more time for adjustment, given that
there is a clear end point and a clear process during that period for getting
to the end point. So, I think for all partners, you know, reducing the
uncertainty is not good, and a sort of cliff-edge Brexit without any sort of
firm, predictable arrangements would involve a lot of uncertainty.
Ms. Stankova - And the gentleman
on the fourth row, I think Andrew.
Question - Thanks. You mentioned
the fact that inflation has been puzzlingly low in a lot of economies. What is
your view of how the world’s major central banks should proceed, the Federal
Reserve, ECB? And on inflation in particular, can you drill down a little
bit on your interpretation of why it is so low? I mean, how adrift would
you say central bankers are in terms of their understanding of why it is
low?
Mr. Obstfeld - You know, it is
hard to give a very brief answer to your question because it really touches on
very deep issues in macroeconomics. And also different countries are in very
different places with their monetary policies, and in some cases their
normalization processes. You know, for most advanced economies, not everywhere
— for example, not the U.K. — inflation has been puzzlingly low as output gaps
are closing.
Partly this reflects low inflation
and nominal wages, and chapter 2 of this WEO looked at that in detail.
Nominal wage growth is dependent
on a number of factors. One is slack, and we do see slack remaining in a number
of economies, particularly slack in the form of workers who are working
part-time for noneconomic reasons, slack in the form of workers working shorter
hours or on temporary contracts. So we think this is one of the factors.
And another factor is expectations
of inflation itself. If workers and firms expect low inflation, then wages will
grow more slowly, other things equal, and that will itself feed into prices.
This highlights the importance and, indeed, the central role of expectations in
monetary policy. Advanced countries’ central banks tend to have inflation
targets that are around 2 percent. They have not produced inflation around 2
percent for several years. And so there is a need to maintain, or in some
cases, strengthen credibility.
Our view is generally that in
Europe and Japan where inflation expectations remain significantly below
target, accommodation needs to continue for some time. In the U.S. there has
been more success in keeping inflation expectations and inflation closer to
target, and the Fed is balancing growth considerations against inflation in a
data-dependent way and monitoring the economy going forward, which I think is
the best they can do.
Ms. Stankova - Thank you, Maury.
And since you have touched upon the United States, a question from our online
audience:
Why didn’t the IMF include U.S.
tax cuts in the estimates, and what impact do you expect they would have on
growth and inflation?
Mr. Obstfeld - Back at the start
of this year, we felt that some form of fiscal stimulus was highly likely; and
we did incorporate that into our forecasts, and the situation has actually
remained very fluid since then with expectations of what might happen and when
being quite variable, so at this point I think we are in wait-and-see mode.
We are really not sure, based on
what we have seen, what degree of stimulus the ultimate tax plan that is agreed
in the U.S. would be. You know, there are many options on the table. We do not
know what sort of deficit might emerge. A lot of what has been promised in
terms of ending tax exemptions has not been spelled out.
So, you know, our upgrade for the
U.S. in this cycle is based on the strong first half we have seen on the data,
not on fiscal expectations.
Now, again, if the stance of
fiscal policy turns out to be very expansionary with a big deficit, that would
have implications for the dollar, possibly for growth, for the current account
deficit.
Ms. Stankova - Thank you. And the
lady, please, to the back of the room, over there. Thank you.
Question - I would like to know
what kind of suggestion do you make to the Portuguese government at this time;
and, second, if you have any prediction for the situation in Catalonia, the big
political turmoil, if that will have consequences in Spain and Portugal,
too?
Mr. Obstfeld - You know, Portugal
has been growing quite handsomely this year. Our 2017 projection is for 2.5
percent growth after 1.4 percent last year, and for 2.0 percent in 2018.
That should not obscure the fact
that Portugal does face challenges. Despite having done some important
structural reforms, there is room for more. The debt, the public debt at around
130 percent of GDP is high, and our general advice to all countries with high
debt levels is please embark on gradual consolidation, bring those debt levels
down.
This upswing will not last, and
there will be a recession some day; and then you will want to use fiscal space.
So policymakers need to be thinking long term, which is not always the normal
mode for politicians.
Speaking of politics, the
situation in Spain is, indeed, concerning as it causes a lot of uncertainty
both for the Catalan economy and for the Spanish economy. We can only hope that
the parties do not act precipitously, negotiate. There is a lot of potential
gains on both sides if they do so.
Would there be spillovers to
Portugal given its contiguity? Yes, there would probably be some
spillovers and to other countries in Europe.
Ms. Stankova - Thank you.
Gentleman in the back of the room, please.
Question - Thank you. Two
questions. The first one is you mentioned the inequality between rich and poor.
Could you elaborate a little bit of what you would suggest countries to do
about it because everybody is saying this now, but what would be the advice of
the IMF?
And my second question is, did the
mindset of your experts change, because you were also talking about global
warming, poverty, inequality between countries? I never heard so much
talk about these social issues here, so is there kind of a new dogma here?
Thank you.
Mr. Obstfeld - Taking the last
question first, I do not think there has been a sharp shift on these issues.
There has been evolution. But, for example, on the climate issue, you can find
a chapter of the World Economic Outlook on the effects of emissions reduction
from, I think, it was 2008.
Yes, 2008. You know, Mr.
Cottarelli, who was the former Italian Finance Minister, now an Executive
Director, when he ran our Fiscal Affairs Department, did a great blog on carbon
pricing and the efficiency gains from reducing emissions in a cost-minimizing
way.
This is something we have been
thinking about for a long time. Our Fiscal Affairs Department has written a lot
about the social costs and the global costs of fossil fuel subsidies, so I
would push back on the idea that this is totally new; but there has undoubtedly
been evolution.
On ways to deal with inequality, I
will punt to the Fiscal Monitor press conference tomorrow. The Fiscal Monitor
deals with tackling inequality that is devoted entirely to that and looks at a
broad range of options, so I will try to stay here on the global outlook.
Ms. Stankova - And next question,
maybe the gentleman here in the second row.
Question - Thank you. Good
morning. A little bit about Brazil. The World Economic Outlook highlights the
fiscal stance that Brazil is pursuing, and I would like to know what are the
major challenges or even the major structural adjustments that Brazil needs to
do to improve the GDP on the next couple of years?
Mr. Obstfeld - Oya, do you want to
take that one?
Ms. Celasun - Sure. On what can
improve Brazil’s — underpin a stronger growth outlook for Brazil or make the
recovery come to pass, one aspect is the fiscal outlook. It has to be brought
to a more solid footing. The expenditure cap passed earlier on this year was a
very important step in that direction. To achieve that goal, the next important
step is to pass social security reform within a reasonable timeframe and
without much dilution from what the government has proposed. That will underpin
broader fiscal sustainability but also the sustainability of the pension system
itself in Brazil. So that we see is a very important leg of the reform agenda.
But the other leg is about
accelerating structural reforms to boost potential growth, which has not been
very strong. Infrastructure provision has been for a while an area where we
have been saying that more attention, stronger infrastructure spending is
needed. Improving the business environment more generally, credit allocation,
reform of the state-owned banks to improve the efficiency of credit is another
important area.
Ms. Stankova - Thank you, next
question, please. The gentleman at the end of that row.
Question - This is the fourth time
you are upgrading China’s growth projection this year, and I am hearing that
this is partly because of the expansionary policy mix. At the same time you are
cautioning the debt level of this downside risk increasing, so I wonder do you
suggest an early withdrawal of these expansionary policies, or how do you think
the downside risks will increase in the future?
Mr. Obstfeld - You know, those
recommendations strike some people as paradoxical, but our Global Financial
Stability Report, which will be released tomorrow, highlights the seeming
paradox that credit expansion and more debt can raise output today and raise
growth today but cause problems later, actually reducing output.
China’s strong growth performance
in the first half owes a lot to policy support of the type you mentioned, and
the authorities have certainly recognized that credit expansion if unchecked
will possibly cause problems down the road, and I am sure we will be hearing
more about that after the Congress next week.
This has been a long-term concern
of ours, and the problem is that more debt can give you a short-term bump, but
then later on the debt has to be repaid; and particularly in a global
environment where interest rates may be rising, that poses a risk. So our
advice for China has been to curb excessive debt growth, excessive credit
expansion, put state-owned firms on a basis of hard budget constraints so that
they do not borrow too much, obviously reform the economy in a number of other
ways. And I think most of these messages have been taken to heart by the
leadership.
Ms. Stankova - Next question,
please. Gentleman in the first row.
Question - Thank you. Globally
your report is full of optimism. Can we have a much more better explanation on
the dynamics in Africa? And precisely is the Nigerian economy out of
danger, which is the largest on the Continent? And maybe an explanation
of the situation in the CEMAC member countries, Central Africa. Thank you.
Mr. Obstfeld - Oya, do you want to
take that?
Ms. Celasun - So when we talk
about Sub-Saharan Africa, what we need to keep in mind is a really significant
amount of heterogeneity. What we see for the headline numbers is a pickup in
growth this year, a better outcome, which is largely driven by the larger
economies, Nigeria, South Africa, and Angola, where one of the factors that had
been weighing on growth, particularly weighing on growth, are dissipating, and
allowing for a somewhat better outcome but not necessarily a very strong one.
In particular, in the case of
Nigeria, stronger oil production after the problems in the Niger Delta last
year are dissipating. Better agriculture production are playing a role.
Likewise, in South Africa, a rebound in agricultural production as drought
conditions in the broader region have eased, and stronger mining outputs are
helping. So these are the dissipation of negative factors but, again, it is not
a very strong growth impetus that is coming. But that is not to say that a
number of economies are not growing strongly. Many, one-third of the countries
are growing at around 5 percent.
So that is also quite, that is a favorable
part of the story, although it comes with risks in some countries where credit
growth or public debt growth has been quite strong.
Now turning to CEMAC, four of the
economies are oil exporters, and they are adjusting their public finances to
lower oil prices, and that is creating a drag for their economies. Cameroon is
a relatively well-diversified one in that group and also in Africa more
generally. In the context of cutting public spending, it is also seeing a
slowdown in growth; but growth there is expected to be around 4 percent this
year, which is still a pretty good outcome.
Nigeria is going to have stronger
growth this year, as I mentioned, because agriculture and oil production are
doing better; but there is still a lengthy adjustment to lower oil prices
ahead.
Mr. Milesi-Ferretti - If I may add
one word on this, the heterogeneity in the performance of emerging economies
owes a lot to the structural production, so there are 34 emerging economies,
emerging and developing economies, with negative per capita growth in 2017. Of
these 34, 21 are fuel exporters. And you see it very clearly in Africa where a
lot of the economies that are hit hardest by the declining commodity prices are
the fuel exporters.
That is really where a lot of the
pain is, and it so happens that in Africa, some of those are among the largest
in the Continent, Nigeria the largest; Angola the third largest. So that has
been really a pattern across the emerging world.
Ms. Stankova - Thank you. And lady
in the first row.
Question - To what extent will the
series of natural disasters, hurricanes, earthquakes, in the Caribbean, Mexico,
United States, over the past couple months affect both the regional and global
outlook?
Mr. Obstfeld - They obviously have
a big impact on the regional outlook, less impact on the global outlook. The
Fund is engaging to do damage assessments with a number of the countries which
have been tragically affected by these events; and we stand ready with our
Rapid Financing Facility in case that should be needed.
Going forward, you know, if such
events become more routine, and there are theories about why they may have
increased in intensity and in frequency that may be linked to climate change;
and I think the international community has to think about what kind of support
it can give to countries because the suffering is really quite great. And we
have, you know, economies like in Antigua and Barbuda where a huge amount of
capital stock has been wiped out. So this is, I think, a problem for global cooperation
going forward.
Ms. Stankova - All right. And the
next gentleman in the second row.
Question - You say in the report
that there is a need to accelerate the cleaning up of the bank balance sheets
and reducing NPLs. The ECB just issued a guideline for banks to do exactly
that. In Italy, one of the countries where NPLs are highest, the banks and the
authorities say that these are provoking credit crunch. Could you please
explain your reasoning and say if you think the guidelines from the ECB are
appropriate?
Mr. Obstfeld - Italy has made a
lot of progress on financial sector reforms. NPLs are, indeed, coming down.
There is greater stability in the banking sector, but the NPLs stock remains
high, and NPLs limit new lending, are themselves a source of credit crunch. So
certainly dealing with the new NPLs is important. Stock of NPLs also has to be
brought down.
There is really no alternative,
and this is, of course, painful for the banks, but we have seen some banks
being able to raise capital. These are good signs. More generally, the Italian
banking structure is one with many, many small banks, many, many branches. And
there is certainly room for efficiency gains there that would also help to
smooth the allocation of credit to the economy.
Ms. Stankova - Thank you. And the
gentleman in the first row, please.
Question - Thank you. What can you
tell us about economies in small countries in Latin America like Guatemala, and
how can affect corruption occupations against government officials and Congress
members? Thank you.
Ms. Celasun - On the growth
outlook, again, Latin America, like Sub-Saharan Africa, is one of quite
elevated heterogeneity. Smaller countries in that region, I mean in the Central
American region, have been recently doing reasonably well. They are oil
importers.
They have benefited from lower oil
prices and the lack of a strong increase in oil prices in recent years. But
their growth outlook, medium-term growth outlook and potential growth is not
very satisfying. It should be higher given their income levels. And the factor
that you mentioned, governance and institutional quality, is one of the factors
where improvements would definitely make a difference for their longer term
growth outlook.
Ms. Stankova - And let me take a
question from our online audience. It is from the Middle East since I do not
get questions from the audience on this region:
Saudi Arabia is making reforms
[inaudible]. How do you assess the outlook for the Saudi economy in particular
and the GCC economies with all the geopolitical challenges that face the
region?
Mr. Obstfeld - Let me turn to Gian
Maria.
Mr. Milesi-Ferretti - The outlook
for the region is, indeed, a challenging one. It is a region that relies
heavily on oil as a source of revenue, and a big decline in oil prices has
clearly taken a toll in purchasing power. In addition, if you focus on the
growth rate, the agreement by OPEC producers and some non-OPEC producers to
contain production to keep prices a bit more elevated is mechanically taking a
toll on growth because it implies lower oil production by Saudi Arabia this
year.
So the growth performance over
2017-2018 is on the weak side, barely growing this year in Saudi Arabia, .1,
picking up a bit next year. Clearly the prospects for the medium term can turn
stronger not just if oil prices recover, but also if these economies succeed in
rebalancing their structure towards a more diversified model, and this is
exactly what the Vision 2030 is aiming to achieve.
It is going to be a long process.
You do not improvise a change in structure overnight, but clearly some of these
economies have a lot of resources that they can put to use to ease a
reallocation of resources towards new sectors; and, indeed, this is what the
strategy envisages.
I think another crucial issue for
the region is going to be the geopolitical environment as strife is taking a
toll on a number of countries, and clearly a decline in those tensions would be
enormously helpful for the future of the region.
Ms. Stankova - And perhaps if we
could take a close-to-the region question: Could you explain the reasons
behind the large positive revision made in the growth projections for Turkey in
2017?
Mr. Obstfeld - Fundamentally the
economy has recovered very, very strongly in the first two quarters of this
year; and that very strong growth — actually also the latter part of 2016. This
big rebound is the main reason for the upward revision. You have already
achieved — the Turkish economy has already achieved pretty high growth for
2017, just with the level of output that it has reached at the end of the
second quarter.
Turkey has been helped by the
overall decline in oil prices — it is a big oil importer — and by a very benign
market environment because the economy has a number of vulnerabilities that
could cause difficulties in a more difficult market environment. It has a
widening current account deficit and an inflation rate that remains
uncomfortably away from target. So at some point policies will need to address
these imbalances and return the macroeconomic settings to a more balanced path.
Ms. Stankova - And the next
question may be from down that way of the room. Larry.
Question - You have pointed out a
number of risks to the outlook, quite serious risks; but the financial markets
do not seem to be taking those risks on board. Are they being irrationally
exuberant?
Mr. Obstfeld - I guess it is
fitting that Dick Thaler won the Nobel Prize this week. He is not an
irrational, exuberant guy. You know, it is always difficult to determine what
fair asset pricing is in a rigorous way.
When you view a number of
indicators at historic highs, you have to wonder, however. And to some degree,
asset prices are being supported by very, very low interest rates. They are
supported by growth expectations which could be disappointing, and our
assessment that lowered return growth rates, particularly in advanced
economies, are subdued feeds into that. So our concern is simply that if
interest rates were to rise faster than expected or growth outcomes not
validate these high asset prices, there could be abrupt repricing that could be
disruptive.
A firm judgment on assets being
overpriced, I do not think we are ready to make; but I think we are ready to
recognize that there are risks that that may be the case and that there could
be adjustments in a downward direction.
Ms. Stankova - I do not see
questions from the Japanese media. Maybe a question from the gentleman in the
back of the room in the white shirt.
Question - Good morning. I just
want to understand if this forecast for Mozambique is taking on mind that the
program with the IMF will still [suspended] for 2018, or if there is projection
that there will come a new program next year.
Mr. Obstfeld - Yes, I would like
to defer that, if you do not mind, to the regional African briefing because I
think that is a better venue to deal with program questions for individual
countries.
Question - Mr. Obstfeld, what is
your first impression of the Trump administration tax plan; and if you are not
going to answer that, perhaps, then what is the appropriate tax reform in the
United States to enhance growth, both domestically and to contribute to the
global recovery?
Mr. Obstfeld - Are we not on
second impression by now at least? I am not going to answer your
question, your initial question; and it is partly because there is a lot that
is to be determined in the tax plan. And, you know, these may seem like details
to some, but they are actually quite crucial to how the thing will work and what
kind of deficit or surplus in the government budget it will lead to. So we are
looking forward to further details as the plan is negotiated.
In terms of general principles,
and I think these principles would apply very broadly to all countries,
simplification is a good thing. If it brings a sharp reduction in exemptions,
loopholes, special giveaways, which allow a reduction in rates, that is also a
good thing. I think increasingly we are aware that tax systems have to be
cognizant of how they affect inequality, and there is a need in a number of
countries to be especially attuned to the needs of the middle class and those
with incomes below the median.
And, again, the Fiscal Monitor
tomorrow is going to address inequality and what can be done about it,
including through taxation, in great detail. And what happens with government
revenue is important as well. Do you invest in productive infrastructure?
Do you invest in people? How do you structure the spending side?
In general, given where the U.S.
is in terms of its overall debt level and the off-the-balance-sheet obligations
going out into the future as population ages, we feel that whatever the tax
reform plan looks like, it should not increase the deficit. Over the medium
term, as our Article IV advice made clear, tax reforms should be revenue
enhancing. The U.S. could usefully use more revenue in a number of ways,
including for productive infrastructure investments. So those are the features
we are hoping to see as this plan evolves.
Ms. Stankova - Thank you. And this
will be our last question for the press conference. Question, please, lady in
the third row.
Question - Thank you. So for the
year 2022, you project that Greece will grow by 1 percent, but for next year
you estimate that the growth will be at 2.6 percent. Can you please explain
what are the reasons for this slowdown and if this slowdown in growth has to do
with the high primary surpluses and the arrangements that have been imposed on
Greece. Thank you.
Mr. Obstfeld - Gian Maria, do you
want to answer that one?
Mr. Milesi-Ferretti - Greece
clearly has a lot of excess unemployment, a lot of slack. And the fact, this is
why once a recovery takes hold, we expect growth to remain, to be a bit higher
in the short run than it is in the medium term. As you correctly point out,
there are challenges to medium-term prospects. There is still the weight of
very elevated public debt and the need to maintain correspondingly high
surpluses. So we very much hope the needed structural reform and an agreement
to reduce the debt burden will help us lift also potential growth estimates
over the medium-term.
Ms. Stankova - Thank you. And I
would like to remind everyone that on country-specific questions, we will have
a set of regional press conferences later this week on Friday, and tomorrow we
will have two major releases: Global Financial Stability Report and
Fiscal Monitor press conferences in the morning. Thank you for joining us
today. Enjoy annual meetings. Good-bye.
Related News
1. NSR Q4 2017 (4)
- Nigeria’s Net Creditor Status Diminishes Again
2. NSR Q4 2017 (3)
- Fiscal: Federal Revenue Growth Shows Signs of Life
3. NSR Q4 2017 (2)
- GDP: Uphill with the Handbrake On
4. NSR Q4 2017 -
Crude Oil: Will Crude Oil ‘Roller Coaster’ Linger?
5. Uptick in IMF’s
Global Growth Forecasts
6. Banking Sector
Q3'17 Earnings Outlook
7. Sweet Spot for
World Economy Won't Last Beyond 2018
8. We Are Faced
With Twin Gluts Globally - Dr. Teriba
9. Quantitative
Easing and World Growth Buoy Global Rating Outlooks
10. Nigerian Banks
Sector Update For September 2017: Steadying The Ship
11. Federal Republic of Nigeria Ratings Affirmed At 'B-B'; Outlook Stable