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Global growth too slow for too long — IMF

Published:Wednesday | April 13, 2016 | 12:00 AMMcPherse Thompson

Washington, DC:

Overall economic growth in Latin America and the Caribbean is expected to be negative for a second consecutive year at 0.5 per cent in 2016, but individually, most countries in the region continue to grow, even if modestly, according to the April 2016 World Economic Outlook.

However, across all countries in the region, economic activity is expected to strengthen in 2017, with growth picking up to 1.5 per cent, says the report, which notes that there are substantial differences across regions and countries.

While South America remains heavily affected by the decline in commodity prices, Mexico, Central America, and the Caribbean are beneficiaries of the United States recovery and, in most cases, lower oil prices, the report said.

However, global growth, projected at 3.1 to 3.2 per cent in 2016, continues at an increasingly disappointing pace that leaves the world economy more exposed to negative risks.

"Growth has been too slow for too long," said chief economist at the International Monetary Fund (IMF), Maurice Obstfeld.

Accordingly, both to support growth and to guard against the downside risks to the projections for 2016 and beyond, "we propose a three-pronged policy approach based on monetary, fiscal and structural policies", said Obstfeld during a press conference on the World Economic Outlook at the Spring Conference of the IMF on Tuesday.

Noting the rising tide of inward-looking nationalism as a result of the refugee crisis and rising threats of terrorism in Europe, the economist said one manifestation is the real possibility that the United Kingdom exits the European Union, damaging a wide range of trade and investment relationships.


He said a British vote, in a referendum slated for June 23, to leave the European Union posed one of the biggest risks to the global recovery, noting that the risk that the world could slip into a permanent cycle of low growth, low inflation and low interest rates was rising.

Although the IMF has not alluded to the impact of a British exit from the European Union - or 'Brexit' - on Jamaica and other Caribbean countries, commentators have argued that if it happens, it would likely require substantial foreign policy reconfigurations by Jamaica and its partners in the Caribbean Community.

Jamaica has long, historic relations with Britain and is a significant market for Jamaica's goods and services, including agricultural products and tourism.

Others have argued that for the Caribbean, Brexit could cause uncertainty and have a negative impact on trade and development flows, a decrease in the region's ability to influence thinking on its policy concerns in Europe and, as Obstfeld also observed, at least two years of uncertainty as Britain's foreign, trade and development policy is reoriented.

The IMF economist, identifying other risks to increased global growth, also said that across Europe, the political consensus that once propelled the European project is fraying. In other advanced economies, as in Europe, including the United States, a backlash against cross-border economic integration threatens to halt or even reverse the post-war trend of trade liberalisation.

Those and other risks could easily undermine the baseline growth outcome that is more fragile owing to lower growth, he said.

In that environment continued monetary accommodation is appropriate, said Obstfeld, noting, however, that monetary policy needs support from fiscal and structural policies.

The IMF economist said that for a number of countries, infrastructure investment looks attractive at the currently low real borrowing rates their governments face.

Balanced budget tax reforms can move fiscal policy in more growth-friendly directions, while also better supporting aggregate demand, labour force participation and social cohesion, he said.

Obstfeld said, however, that policymakers should not ignore the need to prepare for adverse outcomes.

"They should identify mutually reinforcing fiscal and structural policy packages to deploy collectively in the future in case downside risks materialise," he said.

"With the downside possibilities, the current diminished outlook calls for an immediate and proactive response. There is no longer room for error. But by clearly recognising the risks they jointly face and acting together to prepare for them, national policymakers can bolster confidence, support growth and guard more effectively against the risk of a derailed recovery."