Expressing disappointment over the “persistent underperformance” of world economy, IMF chief Christine Lagarde today called for greater trade integration and warned against retreat from globalisation and multilateralism.
“A retreat from globalisation and multilateralism is a serious risk at a time when international cooperation and coordination are as critical as ever,” the Managing Director said in her global policy agenda as the annual fall meeting of the IMF and the World bank kicked off here.
Finance Minister Arun Jaitley is leading the Indian delegation to the IMF and World Bank meetings.
Despite signs of recovery and resilience in some economies, global growth continues to disappoint, with the expected pick-up driven primarily by emerging markets, Lagarde said in her policy paper.
“This persistent underperformance has exposed complex underlying trends in many countries — including the difficulty for some groups to adjust to rapid changes in the global economy,” she noted.
Lagarde said that policymakers should therefore act and use a balanced mix of all policy levers to revive demand and raise productivity, and ensure the gains from technology and globalisation — which have led to unprecedented global welfare gains in recent decades — are shared more broadly.
Lagarde said in many advanced economies, demand is low with the post-crisis recovery being uneven across countries, and output gaps are still negative.
Productivity growth has not recovered, and while the reasons are not fully understood, it is likely owing to several factors that hinder investment, including debt overhangs, and low and uncertain prospects of future demand.
“Emerging economy growth improved overall, driven by robust activity in emerging Asia and large stressed economies showing some signs of improvement. Yet vulnerabilities, especially in the corporate sector of some large countries, have persisted,” she said.
The IMF chief argued that global economy has benefited tremendously from globalisation and technological change, particularly with regard to expanding consumers’ access to goods and services and helping to lift millions out of poverty in EMDCs (Emerging Markets and Developing Countries).
With hindsight, not enough has been done to address the concerns of those who have been adversely affected, creating social tensions and political backlash, she said, adding that this has added to a political climate that favours inward-looking policies, makes reforms more difficult to enact, and puts at risk the well-established overall gains in productivity from globalisation and technological change.
Lagarde said she felt that multilateral agreements with broad participation are difficult in an increasingly multi- polar world, but the gains from them are large.
Comprehensive and coordinated policy actions exploit synergies so that the whole is greater than the sum of parts — the effects of individual policy actions are amplified through positive cross-border spillovers, Lagarde said.
The G20 stimulus package put together after the financial crisis and the growth strategies agreed at the G20 Brisbane Summit in 2014 provide recent good examples, she noted.
“Policymakers should continue efforts toward greater trade integration. Better coordinated actions to reduce external imbalances and manage spillovers, including by clearly communicating policy stances, also remain essential,” Lagarde said.
She said policymakers should consistently implement and complete the global financial regulatory reform agenda to enhance financial sector resilience. They should also implement a level-playing field regarding international taxation.
“Finally, it is crucial that progress is made toward building a stronger international monetary system, including an adequately-resourced Fund,” she said.