The global economic recovery continues with improvements in long-lagging advanced economies but moderating growth in emerging markets, the International Monetary Fund’s managing committee said on Saturday.
“Growth remains subdued, however, and downside risks persist, with some new risks emerging,” the committee said in its communiqué to conclude the IMF-World Bank annual meetings in Washington.
Immediate risks include the stalemate in the US Congress over budget and debt issues. The IMF called for “urgent action to address short-term fiscal uncertainties” in the United States.
The looming tightening of US monetary policy – which has already affected capital flows and long-term interest rates just from market expectations – presents potential spillovers and “new challenges” especially in emerging and developing economies.
“The eventual transition toward the normalisation of monetary policy in the context of strengthened and sustained growth should be well-timed, carefully calibrated and clearly communicated,” the IMF committee said.
The Fed tapering, looming US debt crisis and continuing budget stalemate, which has forced a partial US government shutdown since October 1, dominated the IMF and World Bank meetings in Washington, moving the eurozone’s woes out of the spotlight for the first time in years.
US Treasury Secretary Jack Lew warned that the United States’ role as “the anchor of the international financial system” could be at stake if Congress fails to quickly authorise borrowing beyond the current legal limit of $16.7 trillion.
“The United States cannot take this hard-earned reputation for granted,” he told the IMF committee.
European Central Bank chief Mario Draghi called any US default “unthinkable,” and said a longer-running debt crisis “would be negative, very negative, for the world economy.” German Finance Minister Wolfgang Schaeuble said that a solution to the US political crisis was simply a “must.” He said Lew had predicted that an agreement with the opposition-led House of Representatives would be reached by Monday.
The eurozone is emerging from recession while stimulus measures “have induced a recovery” in the long-stalled Japanese economy, the IMF said.
Loose monetary policies in the US, Japan and the eurozone “have helped support global growth while maintaining stable prices, and remain appropriate,” the committee said, while calling for “credible” budget policies, and continued repair of the banking sector and structural reforms needed to raise long-term growth, especially in Europe and Japan.
Draghi said the eurozone recession had “bottomed out” earlier in the year, and the region is returning to growth. “The recovery is still weak, it’s fragile, it’s uneven,” he said.
Citing inflation below 2 per cent and falling, he said that eurozone monetary policy “will remain accommodative ... for an extended period of time,” as the bank’s guidance has indicated.
Draghi said that eurozone growth had been mostly “export-led,” but there has been a “slight increase” in domestic demand, which can fuel a more self-sustaining recovery.
“It seems that it’s spreading geographically. It’s also spreading across components of aggregate demand,” he said.
Some of the currency region’s stressed economies are showing signs of regaining competitiveness.