The Future Global Economy and the Future Fund
Chairman Frieden, President Kim, Governors, Excellencies: I am delighted to welcome you, on behalf of the IMF, to our Annual Meetings.
Coming into these Meetings, I spoke of the Great Transition underway in the global economy: the changing patterns of growth; the changing dynamics of monetary policy; and the changes taking place in the financial sector as well as in the real economy. These transitions will be with us for some time.
Even as we grapple with them, we have a responsibility to raise our eyes—and look toward some of the major changes that will transform the global economy over the next generation. I want to take the opportunity today to ask what this might mean for you, our member countries; and what it might mean for the Fund, your institution.
Our “constitution”—the Articles of Agreement that our founders devised nearly 70 years ago—have proven to be a feat of engineering: strong enough to stand the test of time, yet supple enough to respond to the many challenges that have faced our membership.
I am reminded of a Greek proverb about how a society grows great when old people plant trees whose shade they know they shall never sit in.
Our founders planted the trees that shade us today. Together, we must plant the trees that will provide shade for the generations to come.
Over the next generation, the rate and reach of change will be great. With that, the needs of our members will change. So too must the Fund.
The IMF must be flexible in its approach and focused on its core goals to best serve you, our members. Flexibility, focus, service—those are our guiding principles.
In that spirit, I would like to share with you my thoughts on:
i. The road we have taken;
ii. The road we are on; and
iii. The road ahead—some of the long-term trends that will
shape our future.
The Uncertain Future of the World Economy
Five years into the crisis, growth in the U.S. is still below potential, Europe is struggling to pull out of recession and major emerging economies are slowing rapidly after an initial resilience during 2010-2011.
Longer-term prospects are not much brighter largely because the key problems that gave rise to the most serious post-war crisis – income inequalities, external imbalances and financial fragilities – remain unabated and have indeed been aggravated.
The world economy suffers from an under-consumption bias because of low and declining share of wages in the gross domestic product (GDP) in all major advanced economies including the U.S., Germany and Japan, as well as China.
Still, until 2008-2009 the threat of global deflation was avoided thanks to consumption binges and property booms driven by credit and asset bubbles, particularly in the U.S. and the European periphery.
The crisis has not removed but reallocated global trade imbalances.
Longer-term global prospects depend a lot on the U.S. due to its central position in the world economy and the international reserves system. It is highly unlikely that the U.S. can move to wage-led growth in the near future.
Nor can it shift to export-led growth. This would require, inter alia, exports to grow faster than domestic demand and the share of private consumption in GDP to fall. This is difficult to achieve since for several decades the U.S. has constantly lived beyond its means thanks to its “exorbitant privilege” as the issuer of the central reserve currency.
Thus, a key question is if the U.S. would be inclined to go back to “business as usual” and allow credit and asset bubbles in search of relatively rapid growth. This is closely connected to its exit from the ultra-expansive monetary policy.
Clearly, exit implies not just increased policy interest rates but also the normalisation of monetary policy – the federal funds rate to become again the main instrument of policy, a significant contraction in the size of the balance of the Federal Reserve (Fed) sheet and the volume of excess reserves that depository institutions hold at the Fed, and a large shift of the Fed’s asset composition back to short- and medium-term Treasuries.
THE FUTURE OF THE GLOBAL ECONOMY: Towards a Long Boom?
PDF by the OECD.
The Future of the Global Economy Depends on the U.S.-EU Trade Deal
The future of the global economy is at stake. With both the United States (U.S.) and the European Union (EU) economies generating over $15.6 trillion in GDP and accounting for about half of the entire world GDP, we must pay close attention to negotiations for the Trans-Atlantic Trade and Investment Partnership (TTIP).
Slated to be the largest trade deal ever negotiated once completed, TTIP would not only spur economic growth and job creation in the U.S. and the EU but also serve as a blueprint for future negotiations between third country trading partners. Given the magnitude of this trade deal, the Internet Association urges the U.S. and EU to incorporate policies that sustain the Internet industry's future -- a proven catalyst for economic growth.
Reaching 2 billion users across the globe and facilitating about 8 trillion dollars in e-commerce annually, the Internet affords market access to new competitors and revolutionizes daily transactions. Once dominated by traditional industries, small and mid-sized businesses now have the ability, because of the Internet, to participate in the global market. A McKinsey Global Institute study found that small and mid-sized enterprises reap significant benefits from Internet use. More specifically, the total revenue shares earned from small and mid-sized exports that utilized the Internet was more than twice that of others.
The flourishing Internet economy, which the global economy relies upon, is made possible by laws that preserve the vitality of an open, consumer-oriented platform. U.S. and EU negotiators must ensure that TTIP reflects this modernized landscape by enacting policies that encourage growth in the Internet industry and ultimately across global markets.
First, being able to access information or transfer data no matter the country where the information originated allows businesses in every sector to flourish. From instant communication to prompting real-time responses in business operations, providing businesses with the capacity to share data across borders increases efficiency and productivity. Free flowing data also plays an important role in a company's ability to innovate by creating an open, collaborative environment. Despite these benefits, many governments have adopted restrictive policies preventing the free flow of information. Historically, the European Union falls under this category of taking a prescriptive approach to data flows. The EU policy is to restrict international data flows unless there is a legitimate reason to free its data -- which is the opposite approach taken by the U.S.
I think there is plenty of scope here for anyone to comment about even though there are other related threads. Is the global economy going to continue to grow or decline? Your thoughts on this please.