Good morning. Provost Lizner, Dean Blount, thank you for your generous introduction. And thank you students, faculty, and guests for coming here this morning.
Some of you may not be aware that Chicago was my home for more than five years. Andit is such a pleasure to be home again just before an enormously busy week inWashington, DC next week, when we hold the Annual Meetings of the IMF and theWorld Bank.
Our event today provides an informal opening to these meetings, and I am gratefulthat we can hold it at one of the most respected management schools in America.Kellogg’s success is based on what we at the IMF also strive to achieve: theability of not only adapting to change, but leading it.
I would like to pay tribute to Dean Blount – one of that select group of women tobecome dean of a top-ranked business school in the United States. Yourintellectual experience and vision will help Kellogg continue to anticipate andadjust to tomorrow’s challenges!
As you have rightly said:”In today’s world, sticking with the status quo can beeven riskier than striving for change.”
Indeed, the world has changed fast over the past 20 years, and it will not stand still.
In the emerging and developing countries–home to 85 percent of the world’spopulation – we have seen more progress for more people than at any time inhistory: child mortality is down, life expectancy is up; absolute poverty hasdeclined, school enrollment is on the rise.
A good deal of this development is due to the success of China, but there hasbeen a broader trend of economic convergence betweenthe poor and the rich nations-not as fast as it should be, but a trendnevertheless.
We are also in the middle of a giant move toward the digital age. Six billionpeople now have access to a cell phone, and 3½ billion can access the internet.Innovation is sure to follow.
And who knows, we may be on the cusp of a social revolution. At the UN GeneralAssembly last week, I saw one global leader after another acknowledging thatempowering women is not only morally right, but will also be an economic gamechanger for the planet.
These are all good reasons to be optimistic about the future. And yet, the mood in animportant part of the world-the one we call the advanced economies-has shiftedin the opposite direction.
Rising economic inequality is a phenomenon in many countries today, rich and poor, butit has really hit home in the advanced world right now, where real incomes formany have been declining – or growing at a much slower rate – and past economicachievements seem at risk.
What this tells us is that governments must work harder to make growth inclusive, sothat all people can benefit from the positive trends that I just mentioned.
Of course, the solution to making people better off is not to fall back onprotectionism or other failed economic recipes of the past.
The task at hand is, first of all, to take the right macroeconomic policy decisionsand maintain economic openness, a combination that has delivered so much goodfor the world in recent decades.
Getting everyone a bigger piece of the pie means that the pie has to continue to grow.
I will come back to these themes, but let me first talk about the economicoutlook.
1. The State of the Global Economy: Still Weak and Fragile
For the past several years, the global recovery has been weak and fragile, and thiscontinues to be the case today. Especially for advanced economies – while thereare some good signs – the overall growth outlook still remains subdued.
●The U.S. economy has been recovering for some time but had a setback in thefirst half of 2016, which will lead to a downgrade in our U.S. forecast.However, news on the employment front has been relatively good, and there arehopeful signs of falling poverty and rising median incomes in 2015.
●In the Euro area, growth remains sub-par, although economic activity is nowholding up under strain from high debt and weaknesses among a number of banks.
●Japan also has seen a small rebound, but it will need to implement difficultreforms to maintain momentum.
The prospects of the emerging and developing economies merit some guarded optimism.After driving the global recovery since the 2008 financial crisis, thesecountries will continue to contribute more than three-quarters of total globalgrowth this year and next.
●China is rightly rebalancing from manufacturing to services, from investment toconsumption, and from exports to domestic services – which should produce amore sustainable, albeit slower growing economic model. Even so, it willcontinue to grow at a robust rate of about 6 percent.
●So too will India, which is also embarking on significant reforms, at more than7 percent.
●Moreover, Russia and Brazil are showing some signs of improvement after aperiod of severe contraction.
●Commodity exporters have been hit hard by low commodity prices, and countriesin the Middle East continue to suffer from conflict and terrorism.
●Many low-income countries in Sub-Saharan Africa, which have performed so wellover the past decade, are also facing a challenge from lower commodity prices.
Adding it all up, the good and the bad, we continue to face the problem of globalgrowth being too low for too long, benefiting too few.
And even around that modest recovery, there is considerable uncertainty. Divergingpaths of monetary policy in the major economies could trigger a resurgence offinancial market volatility.
Low productivity growth and high levels of debt could further depress investmentand expectations of future demand. And, of course, geopolitical events such asterrorism and the related refugee surge pose risks that are very hard toquantify, let alone mitigate.
Now, I would not speak for the IMF if I did not have a number of policy suggestionsfor dealing with this forecast, which I admit is not a very uplifting one.
2. Adjusting to Change: Do No Harm
My first policy message would be the one given to students when they enter medicalschool: “First, do no harm.” What do I mean by that?
I just mentioned tentative signs of improvement among some economies, as well assigns of transition and turnaround in emerging markets.These changes have notjust happened by themselves-they reflect a positive impulse from supportivemonetary conditions. They reflect improvements in financial regulation andoversight that have helped the financial sector weather shocks such as thechange in the Chinese currency regime or the UK referendum. And they reflectvery deliberate structural reforms in a number of countries.
Good policy choices – based on expert analysis – matter, even if they take time towork. This is true especially after a crisis of the 2008 magnitude which –unlike in the 1930s – was itself contained only through the exceptional effortsof policy makers around the globe.
The same applies in reverse. Policies that hurt growth will have real consequences-bothfor the world at large, and very often also for the very people they are meantto protect.
Take trade, for example.
Since World War Two, trade has been the engine that has propelled economic progress.Trade was growing at twice the rate of global GDP until the 2008 crisis but hassince fallen below that pace. This is largely due to weak overall demand, but anon-trivial role is also played by the increase in protectionist trade measuresover the past five years.
If we were to turn our backs on trade now, we would be choking off a key driver ofgrowth at a point when the global economy is still in need of every good pieceof news it can get.
Restricting trade is a clear case of economic malpractice. Rather than helping thosesectors of the economy it means to protect, shutting off trade would denyfamilies and workers important economic opportunities, wreak havoc on supplychains, and raise the cost of many basic goods.
And as our esteemed colleagues Robert McDonald and Janice Eberly have shown, policyuncertainty, including in trade policy, can deter investment – a critical driverof growth.
History tells us that this would disproportionally hurt the poor and worsen real incomeinequality, including in the United States.
So we must reverse the trend towardprotectionism and restore a climate that supports a rebound in trade-bycompleting multilateral trade agreements and pushing forward reforms inservices and other areas of the "new economy" such as regulatorycooperation and intellectual property rights.
Inclusive growth
At the same time, of course, the challenge is to make sure that the gains fromtrade are widely shared, and that those at risk of losing out are beingsupported.
Now, I am under no illusion how difficult it is to achieve such inclusive growth. Itrequires actions that go beyond just economics, and they can be very differentfrom country to country.
But we do know some policies that work: well-designed public investment ineducation not only raises underlying growth but increases human capital and theearning potential of low-income people. Education of girls, in particular, is aproven high-return investment.
Another good investment is helping workers displaced by offshoring, outsourcing, or newdigital technologies. Some of the Nordic countries, for example, have hadsuccess with programs that pair retraining with active job counseling-the goalbeing to shorten the duration of unemployment.
Here in the U.S., we have advocated raising the minimum wage and extending theearned income tax credit as measures that can help low-income workers adapt todislocation.
These are not silver bullets – none actually exist – but if we want to keepglobalization alive for the next generation, there is no alternative toensuring that it works to the benefit of all.
3. Boosting Growth: The Immediate Response
Let me now turn to the macroeconomic and structural policy priorities.
Our priority must be to emerge from this prolonged environment of low growth, lowinflation, and low interest rates that I have termed the “new mediocre.” It isbad for financial stability, bad for employment, and as I just mentioned, italso encourages bad, inward-looking policies.
Pessimists believe that our traditional tools of monetary and fiscal policy are exhausted,but I beg to differ. In my view, there is more policy space – more room to act–than is commonly believed. It requires pushing harder on all policy leversand taking more advantage of the synergies between them.
Let us start with what I have called a three-pronged strategy: using structural,fiscal, and monetary policies in a country-specific way to make them mutuallyreinforcing.
First, we need to identify for each country a set of structural reforms that providethe biggest effect on growth and productivity relative to the political capitalthat needs to be spent. For example, breaking down monopolies in the retailsector and professional services has had positive effects on growth, especiallyduring downturns, and we have called for such measures in several advancedeconomies.
All these efforts should be supported by macroeconomic policies to make them morepolitically palatable and accelerate their short-term growth effect.
Second, as for fiscal policies, few would dispute that better roads and airports, morepower grids, and high-speed internet are essential components of modern publicinfrastructure. The current low-interest environment provides an historicopportunity to make these necessary investments-and to boost growth.
Unlike in 2008, we are not calling for broad-based fiscal stimulus today. The basicprinciple is that countries with fiscal space should use it-Canada, Germany,Korea, for example. Not all countries have such space and need to guard againstdebt problems accumulating later on.
But even for countries where public finances are stretched, reallocating spendingwithin a given envelope will help. Think of replacing current spending with taxcredits on R&D that can support technology and promote innovation.
Third, monetary policy in advanced economies needs to remain expansive at this stage.While supporting demand in general, our research also shows that monetarypolicy could add a further boost to GDP when infrastructure investment isdebt-financed. In fact, the impact on GDP would bealmost twice as large and thedebt ratio would fall, compared to the case without monetary support.
In all these cases, it is important for countries to adhere to medium-termmonetary and budgetary frameworks-which provide policy consistency over time,set clear expectations and allow for some short-term expansion withoutundermining the credibility of the overall policy effort.
Coordination
Finally, let me emphasize one important and often overlooked aspect of global policymaking-the one relating to policy cooperation, or even coordination.
Eight years after Lehman Brothers, countries have gone back to their old ways ofpolicy making, largely following their domestic policy priorities.
No doubt, the current situation is different from the 2008 crisis, which requireda prompt, massive, and coordinated fiscal response. But as our “new mediocre”is less acute, it is also more divisive and subtle than a full-blown crisis,and it could prove just as toxic as the recovery has so far proven elusive.
This requires a more sophisticated and coordinated approach. The principle issimple: if all countries act decisively to stimulate their own growth, thepositive spillovers reinforce each other. And as everyone is working to expandgrowth, everyone benefits from the efforts of others, to a much greater effectoverall.
Wewill be providing more detail on the benefits of coordination in a staffpaperbeing released later today.
4. Conclusion
Let me conclude. The bottom line is this:
First, do no harm. Restricting trade and limiting economic openness is sure to worsenthe growth outlook for the world and especially its weakest citizens. But weneed to rethink fundamentally how growth can be made more inclusive, and actaccordingly.
Second, stronger, better growth is possible and will facilitate inclusion. By usingmonetary, fiscal, and structural policies in concert-within countries, acrossthem, and consistent over time-we can make the whole greater than the sum ofthe parts.
The IMF can assist countries in identifying their fiscal space, their medium termanchoring and the sequencing of necessary reforms.
A few weeks ago, G20 leaders in Hangzhou expressed strong support for awell-equipped and well-resourced Fund, and we will continue to be at theservice of our membership.
Michael Jordan once said:”Talent wins games, but teamwork and intelligence winschampionships. Winning the “championship of growth and inclusive globalization”requires teamwork and collaboration across the world.（完）
