IMF CEF organizes symposium
KUWAIT CITY, Nov 13: While global economic expansion remains broadly solid, Professor Maurice Obstfeld, the IMF’s Economic Counsellor and Research Department Director, shared that it had become less balanced across countries and plateaued earlier than expected in major economies.
Global growth for 2018 and 2019, is now projected at 3.7% for both years, this downward revision is an effect of outlook deterioration in some emerging market economies and a weaker early 2018 out-turn in several advanced economies.
Prof Obstfeld speaking at a symposium on “The World Economic Outlook, Implications for Kuwait and the Region” organized by the IMF Middle East Center for Economics and Finance (CEF) in Kuwait, jointly with the Arab Fund for Economic and Social Development (AFESD), stressed that action was needed to raise both medium-term growth and resilience to negative shocks.
The panel discussion was chaired and moderated by HE Dr Yousef Al-Ebraheem, Economic Advisor at Al-Diwan Al-Amiri and included as discussants Professor Kamiar Mohaddes of Cambridge University, and Dr Christopher Payne, Economic Advisor to the Governor at the Dubai International Financial Center participants from the public sector, the banking and business community, academia, as well as representatives from international organizations.
Dr Al-Ebraheem stated that the symposium was the ninth high-level forum organized by the CEF jointly with the AFESD, aimed at stimulating an open debate on the evolving economic challenges faced by policymakers in Kuwait and the wider Arab community. He highlighted recent global economic developments of the rebirth of protectionism, the rise of nationalism in developing economies, and the changing landscape of economic activities through technological innovations, and also stressed that key reforms were necessary to better prepare the Arab world tackle the challenges of conflicts, the refugee crisis, high unemployment especially among the youth, uncertain prospects for private sector growth, and volatile oil prices.
Professor Maurice Obstfeld, in his presentation, also pointed out that financial market conditions have differentially tightened for emerging and developing economies in a setting of high policy uncertainty – especially on trade and monetary policies. Beyond the short-run prospects, medium-term global growth will fall due to lower potential growth, unwinding of procyclical US fiscal stimulus.
Professor Obstfeld documented that emerging markets spreads have widened, and currencies generally depreciated, while capital inflows have shrunk, especially for countries with weaker fundamentals. He predicted that spillovers from trade disputes could tighten their financial conditions further.
Past favourable financial conditions have left a legacy of higher corporate and sovereign debt exposures worldwide, but EMs might be especially vulnerable to global shocks from trade, slowdown in China, unexpected financial tightening in advanced economies, tensions within the European Union, and adverse geopolitical events.
He shared that multilateral cooperation remains vital to preserve the expansion and avoiding trade wars and urged policymakers to embrace comprehensive policies to sustain growth while strengthening fiscal buffers while underscoring the need for structural and fiscal reforms to be well-tailored to country needs in order to boost productivity, resilience and equity.
Reflecting geopolitical concerns, including the US secondary sanctions relating to Iran and supply failures such as that, in Venezuela, he noted that oil prices have risen this year despite some softening more recently. This development has helped lift the current and projected growth in GCC countries. For Kuwait in particular, a period of faster growth provides an opportunity to accelerate key fiscal and structural reforms, Professor Obstfeld said. He shared that there are abundant avenues to enhance the global trading system to produce higher growth for all countries.
One important opportunity is in services trade which has not plateaued as compared to goods trade. While global GDP could be raised substantially through reductions in trade barriers, including behind-the-border barriers, he noted that the political climate at present isn’t favourable towards further trade liberalization, despite the gains it offers.
Professor Obstfeld pointed out that should current risks lead to a sharp slowdown, policymakers have less monetary and fiscal policy space to act compared with ten years ago. The lack of monetary space is especially concerning for advanced economies, where core inflation rates as well as nominal interest rates generally remain low.
He pointed out that Research for OECD economies shows that policy responses to crises are more effective when initial public debt levels are lower. His policy recommendations include building buffers and tackling medium term challenges to boost resilience and potential growth by implementing country specific policies, implementing procyclical fiscal policies, anchoring public debt and improving government balances and enhancing transparency.
Advanced economies need to cautiously steer inflation to target, rebuild fiscal buffers for the next downturn and curb excess imbalances while emerging markets and developing economies must ensure sound macroeconomic policy frameworks. In order to enhance fiscal and financial stability by reducing vulnerabilities, investors and policymakers must remain attuned to risks stemming from sudden tightening of financial conditions, and broad-based macroprudential tools must be employed actively in countries where financial conditions remain accommodative and vulnerabilities are high. He pointed out that financial stability requires new macroprudential tools for addressing vulnerability outside the banking sector and added that in the event of external pressures, flexible exchange rates can serve as key buffers.
By Cinatra Fernandes Arab Times Staff