A risky recovery — on IMF’s global growth predictions – The Hindu—–*****

broad-based recovery in global growth may be gathering steam, but the price the world will have to pay for it is still unknown. According to the IMF’s January update of the World Economic Outlook, the global economy is all set to clock its best growth rate in seven years in 2018 following a pick-up since mid-2016. The IMF estimated that the global economy could accelerate to 3.9% in both 2018 and 2019, an upward revision of 0.2 percentage point over its previous estimates in October for both years, boosted by a cyclical recovery in global growth and the historic tax cuts in the U.S. India’s economy is projected to grow at 7.4% during the financial year 2019, and at an even faster pace of 7.8% the following year. If the IMF’s predictions come true, India will be the fastest-growing major economy next year as China’s growth is expected to slow from 6.6% this year to 6.4% in 2019. What comes as a further surprise is the upward revision in growth forecasts for many countries in Europe, thanks to stronger demand. The IMF, however, was not oblivious to the threats that could severely derail the broad-based economic recovery. In particular, it warned about the “troubling” rise in debt levels across countries, including the U.S., which could pose a huge risk to financial stability and drag down economic growth.

It is no secret that since the 2008 financial crisis the global economy has been propped up mainly by the unprecedented easy money policies adopted by global central banks. In fact, the absence of substantial structural reforms to complement central bank stimulus measures has been another feature of the present global economic recovery. Such a recovery comes with the inherent risk of being derailed whenever easy monetary conditions that fuelled it cease to exist. While central banks until now have been careful not to spook markets with the prospect of higher interest rates, it is unlikely that they can keep markets calm forever. As the IMF has pointed out, the possible end to the era of abundant liquidity and debt-fuelled economic activity is likely to cause disruption by affecting asset prices. As interest rates reach higher levels, it is likely to also expose the various real economic distortions created by a low interest rate policy, particularly across borders. While it is hard to predict the next downturn, it seems the day of reckoning may not be too far as consumer price inflation begins to push central banks to rethink their dovish stance. The IMF is right to urge countries to make use of the current rosy conditions to enact useful structural reforms. It is time countries recognise that monetary policy alone won’t solve all growth problems.

via A risky recovery — on IMF’s global growth predictions – The Hindu

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s