Do something now, or things could get nasty!
International Monetary Fund researchers say the world’s biggest economies should agree a coordinated stimulus program to boost sluggish global growth.
Countries with “fiscal space” — i.e. those not running big budget deficits — should spend more to boost demand.
“The global economy needs bold multilateral actions to boost growth and contain risk,” the IMF report states.
In a note previewing the G20 meeting of top developed and emerging economies in Shanghai starting Friday, they warned that growth is already weaker than previously expected.
The IMF cut its growth forecast for this year in January, to 3.4% from 3.6%. In the G20 briefing note, IMF staff said that another downgrade was “likely” in April.
“Global activity has slowed unexpectedly at the end of 2015, and it has weakened further in early 2016 amid falling asset prices,” the IMF said.
The world is facing an increasingly grim economic reality, with a number of “headwinds” including low oil prices and China’s slowing growth.
Market turmoil and falling asset prices are making the situation even worse. “These developments point to higher risks of a derailed recovery,” the IMF said.
At the same time central banks are running out of ammunition. The IMF urged G20 countries to step up their game and introduce reforms to boost growth, rather than relying on low or negative interest rates and printing money.
The U.S. should take steps to boost productivity and growth, including an increase in the federal minimum wage and family benefits, migration reform, as well as spending more on infrastructure and innovation, the IMF said.
The G20 should also consider introducing new financing mechanisms for struggling emerging markets.
Many developing economies have been hit hard by collapsing oil prices. The Russian economy is expected to shrink again this year, while Brazil’s recession has turned out to be deeper and more protracted than previously expected. Low oil prices and unrest have also weakened prospects for the Middle East.
