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Global economic recovery is now strong & broad-based: IMF chief
THE global economy is enjoying a strong and broad-based recovery, and will grow even faster in 2018, but there are still risks that need attention, according to International Monetary Fund (IMF) managing director Christine Lagarde.
In an exclusive interview during a two-day visit to Singapore, Ms Lagarde pointed out that about 75 per cent of the world economy is now growing. Moreover, the drivers of the recovery are "not only the usual suspects of domestic consumption and trade, but also investment - which had been lagging for many years".
In its latest World Economic Outlook report released last month, the IMF raised its forecasts for global economic growth to 3.6 per cent this year and 3.7 per cent in 2018, compared with 3.2 per cent in 2016, noting that "broad-based upward revisions in the euro area, Japan, emerging Asia, emerging Europe and Russia more than offset downward revisions for the United States and the United Kingdom".
However, Ms Lagarde added that concerns remain about the 40-odd countries that are not participating in the global recovery, most of them in sub-Saharan Africa. "We also need to be concerned about growth potential, which is certainly lower than we would like to see," she said, "and that has to do with productivity issues - productivity is still quite low."
She also flagged other risks, including high inequalities as well as demographic, geopolitical and financial risks.
Noting that financial risks "can arise from unexpected places", the IMF boss cautioned that one possible source could be the incipient tightening of monetary policies in advanced economies which could have spillover effects, including capital outflows from emerging economies and changes in investment patterns.
In a wide ranging interview, Ms Lagarde, a former finance minister of France, also touched on the possibly disruptive impact of artificial intelligence (AI) and robotics, issues related to globalisation and changes in the IMF's agenda since she took over as head of the institution in 2011.
She called on governments to step up investments in education and training to prepare workforces for possible economic disruptions from new technologies. How disruptions would play out is uncertain, she said, adding: "We don't know which jobs will continue to exist, what percentage of tasks will be transformed by automation, or the speed at which this will happen. So we better be prepared and be able to adjust . . . and take changes as they come."
Partly in response to the pressures on job markets being created by automation, the IMF has started to study the concept of "universal basic income" (UBI) - under which governments unconditionally transfer an equal amount of income to all citizens. Explaining the rationale for the IMF's focus on this issue, Ms Lagarde said: "We have decided to study the conditions under which it's beneficial and positive, as a substitute to other payments of benefits that are poorly targeted and inefficient. UBI can be a more efficient way of helping people out." But she added that the IMF was "not advocating the UBI as a panacea", saying: "We're only studying it to see if it can work better in lieu of existing inefficient systems."
Commenting on the popular backlash against globalisation - as reflected in election results in the United States, the United Kingdom and several European countries - Ms Lagarde noted that globalisation has had "immense benefits", having lifted hundreds of millions of people out of poverty, made goods cheaper and improved productivity.
However, it has also negatively affected a range of people and economic sectors because of changes in supply chains and the transfer of activities to other countries. "Those negative impacts have been underestimated," she said. "The financial crisis revealed that not everybody was doing well."
She pointed out that many of the transformations have been driven by new technologies, and not by "globalisation induced by foreigners, as is often portrayed". But whatever the cause, "we just have to make sure that the globalisation process is efficient and is also inclusive".
Nor is the problem only related to living standards or the cost of living, she added. "There is also the sentiment that there are language issues, cultural issues and a sense of belonging - which are all precious to people, and need to be preserved."
Commenting on the changes within the IMF during her seven years as managing director, Ms Lagarde said: "The IMF (which some commentators have remarked stands for 'it's mostly fiscal') is now not only focused on fiscal policies but is also concerned with a range of issues, including inequality, the role of women in the economy, climate change, financial technologies, money laundering and corruption.
"All of that is not entirely new, but it is definitely more on the map than when I joined as managing director in 2011. I hope it continues to be that way because all those issues are macro-critical and have an impact on how societies develop, how economies can be strengthened and how stability can be provided to people."
During her visit to Singapore, Ms Lagarde attended the FinTech Festival and held meetings with government officials including Deputy Prime Minister Tharman Shanmugaratnam and Monetary Authority of Singapore managing director Ravi Menon.