G20 china_web

Growing the global economy
Thomas A Bernes
Former director, IMF's Independent Evaluation Office
IN CONVERSATION
Structural
reforms are
necessary, but
are politically
very difficult
Q How fragile is global economic growth
at present?
Thomas A Bernes Once again, the
International Monetary Fund (IMF)
is expected to downgrade its growth
forecasts. Europe has many problems,
compounded by the Brexit vote in the
United Kingdom and banking sector
issues in Italy. There are concerns about
the slowdown in China and the fragility
of its financial sector. The risks seem to
be predominantly on the down side and
starting from a very weak base of growth.
Robert Fauver The Organisation for
Economic Co-operation and Development
(OECD) will probably downgrade its view,
too. We have hoped-for growth that is more
on the hope side than the reality side.
Q Is secular stagnation the new normal
for the years ahead?
TB The evidence seems to point in that
direction. Since the 2008 global financial
crisis we have not been able to return to
the growth rates we had before, even in the
United States, which has performed better
than other countries. Labour participation
is still significantly below pre-crisis levels.
@tombernes
www.cigiownline.org
There is a risk that the uncertainty being
created by the Trump candidacy affects
business decisions, particularly added to
other uncertainties. We are facing declining
productivity growth, which predates 2008.
RF I am more concerned that we have
tried using all of our macroeconomic
policy tools and are coming up short on
implementing policies that bring new
growth. We need new solutions. The global
economy, especially the G7 economies,
needs a new shock, which will come
from the microeconomic side, namely
structural reform. Structural rigidities in the
underlying rules and regulatory approaches
seem to be hamstringing all our economies
these days.
Q Can global growth be stimulated
through coordinated fiscal measures?
TB The G20 responded to the financial
crisis with massive fiscal stimulus, which
proved very helpful. In retrospect, the G20
was premature in declaring victory at the
2010 Toronto Summit. Fiscal stimulus,
while not appropriate for everyone, was the
right thing to do. Where it was working, it
was turned off too soon. Monetary policy is
asked to do too much. Structural reforms are
necessary, but are politically very difficult,
and the payoff is not immediate.
In the 2014 Brisbane Action Plan, the
G20 agreed on implementing structural
measures, so that leaves fiscal stimulus.
Several countries, such as Canada, have
space to carry a deficit and invest in
infrastructure, which both increases demand
immediately and strengthens the economy’s
underlying capacity for the future. Germany
96 G20 China: The Hangzhou Summit • September 2016 G7G20.com