Synchronised Action Of Central Banks Helped World Economy, Says IMF Chief
Synchronised action of central banks and “accommodative” monetary policy have delivered half a percentage boost to global growth, IMF Managing Director Kristalina Georgieva said, cautioning that the Coronavirus outbreak in China posed a major threat to the global economy.
“We are in a better place in comparison to October, but the growth remains sluggish and we see risks still tilted to the downside. Why we believe we are in a better place? We saw reduction of trade tensions prior to Davos and in Davos and trade tensions were weighting quite severely on growth prospects,” Georgieva told a group of reporters on Friday.
“We also saw the benefit of synchronised action of central banks. Accommodative monetary policy has delivered half a percentage boost to global growth. Actually, it is quite remarkable that 49 central banks cut interest rates 71 times, and leading to an outcome for growth for 2019 of 2.9 percent,” she said.
“If we didn’t have this synchronised monetary policy, growth would have been in the zone that by IMF assessments lingers into recession. So very important to recognise the contribution monetary policy has made,” she said. Noting poor trade and industrial output, Georgieva said it is a more uncertain world than before.
“It is a more shock-prone world and we got the evidence virtually days after we presented this outlook with the Coronavirus hitting the Chinese economy but also presenting a risk for growth globally,” Georgieva said. “That point of more uncertain global environment is one I want to stress very strongly. Australia saw a significant risk to its own growth prospects because of forest fires. We had a week of uncertainty because of tensions in the Middle East and now we have Coronavirus,” she said.
At the same time, there are other uncertainties that still hang on the world economy, whether the trade truce between China and the U.S. will turn into trade peace, whether there would be reform of the trade system that boosts the role of trade as an engine of growth; what kinds of geopolitical tensions one might be faced throughout the year, she said. The IMF managing director urged policymakers to do everything possible not to add to the uncertainty and to build agility so they can anticipate and act quickly as these kinds of events occur.
Georgieva said climate change has now taken central stage. “On one side it presents a clear danger to our economies and to livelihoods of people. And also because it presents a tremendous opportunity for investments in low carbon climate resilient development,” she said. The world, she said, is faced with “low productivity growth, low economic growth, low interest rates, low inflation”.
“And if we are seeking a silver bullet to boost investments and growth, it might very well be that concerted climate action is that silver bullets. I'm stressing it because we tend to talk about climate as a risk negative. However, it is also an opportunity for growth,” she said. One of the reasons for the IMF to slightly downgrade assessments for 2019, projections for 2020 and 2021 was unrest in a number of countries—Chile, Ecuador, Lebanon, Iraq, Hong Kong.
“We need to recognise that inequalities have been growing,” she said, ruing that in the Organisation for Economic Co-operation and Development member states and in many countries there was a record high or climbing towards a record height. “Our research shows that raising rising inequalities is not good for growth and actually building more inclusive societies facilitates better economic performance,” the IMF chief said. The IMF, she said, is very closely monitoring the impacts of Coronavirus.
The first and most immediate is on domestic demand in particular in the parts of China that had been most directly impacted by measures to contain the virus. “We see some indirect impacts building up around manufacturing, value chains being impacted by the disruption caused by the virus,” she said. “We see impact on travel and on tourism. This in the short-term is likely to bring some slow down. In the long-term, we don't know. We have to assess how quickly action is being taken to contain the spread of Coronavirus and how effective this action is,” Georgieva said.