The IMF has argued for some time that the very high public debt ratios in many advanced economies should be brought down to safer levels through a gradual and steady process. Doing either too little or too much both involve risks: not enough fiscal adjustment could lead to a loss of market confidence and a fiscal crisis, potentially killing growth; but too much adjustment will hurt growth directly. At times over the last couple of years we called on countries to step up the pace of adjustment when we thought they were moving too slowly. Instead, in the current environment, I worry that some might be going too fast.
Amid the heaviest snowfall in Davos for decades, IMF chief Christine Lagarde has been making her case for urgent action to resolve the eurozone crisis, which is at the center of current global economic concerns. The Fund recently sharply revised downward its forecast for global economic growth and in a speech in Berlin Lagarde mapped a way forward.
Many of the root causes of the euro area crisis still need to be addressed before the system is stabilized and returns to health. Until this is done, global financial stability is likely to remain well within the “danger zone,” where a misstep or failure to address underlying tensions could precipitate a global crisis with grave economic and financial consequences.
The issue of how to create more jobs is high on the minds of policymakers everywhere. The economies of the six Gulf Cooperation Council (GCC) countries—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—are no exception. By many measures, these economies are doing very well. However, economic activity is dominated by the oil/gas sector and that sector creates relatively few jobs directly—less than 3 percent of the region’s labor force. Diversification strategies are in place, and the non-oil sector has grown fairly rapidly over the past decade. But can it deliver enough jobs for GCC nationals?
As we slide into another year of tough economic times, it’s easy to understand why policymakers are preoccupied with the next few weeks. But they also need to be thinking about the longer term issue of leaving the planet in reasonable shape for future generations. Without serious efforts to reduce greenhouse gases, scientists predict that by the end of this century global temperatures could be 2.5 to 6.0 degrees (celsius) higher than a couple of hundred years ago. That could mean more heatwaves, more droughts, higher sea levels, more violent storms—and so on. When you start to think about the potential impact of, say, droughts on the livelihood of farmers, especially in poorer countries… well, you get the point. While some progress was made in the latest round of United Nations’ climate change negotiations in Durban, South Africa, we saw two major omissions. There was little progress on either carbon pricing or, related, financing for action against climate change. And there was not enough recognition of what economics has to offer to help tackle the problems.
The global crisis has pushed trade reforms off—or at least to the edge of—the political radar screen. But shying away from improving the trade system may actually jeopardize growth and jobs, and in these tough economic times that seems a little like cutting off your nose to spite your face. The Fund may not be the main player on the trade ‘block’, but we certainly take an interest given its macroeconomic importance. And, in the spirit of moving forward the discussion, and indeed the policies in support of, trade integration, the Fund has three main lines of work in the pipeline.
A few days after the first sunrise of 2012 kissed the shores of Latin America, it is natural to ask: What does the New Year hold for the region’s economies, especially with Europe still under stress? For sure, a dimmer economic environment, here and abroad. Growth has softened in the larger countries of the region. Looking North, the United States is growing a bit more, but elsewhere activity is softening, including in China—an increasingly important customer for the region’s commodities. Perhaps more importantly, global financial markets are still strained, because many questions about advanced economies remain unanswered. What should countries do in the face of this risky outlook? A lot depends on their current macroeconomic situation.