In 2016 the global economy will continue to face major transitions. China is shifting to a more sustainable growth model. In the United States monetary policy is expected to change. Commodity prices are likely to be much lower than they have been in recent years, and to remain so for a prolonged period.
There are also broader questions to be answered. How can we achieve stronger and more balanced global growth? What can we do to tackle excessive inequality? And how can we conserve our fragile planet in the face of climate change?
The good news is that I see a growing awareness of the need for urgent action among the 188 members of the International Monetary Fund. The next step must be implementation—doing the right things, and doing them now. Here are my top three “right things” for the year ahead.
1. Lifting today’s growth
The IMF expects only a modest acceleration in global growth, to 3.6%, in 2016, compared with 3.1% in 2015 and 3.4% in 2014. The immediate priority therefore is to apply more potent policy recipes in order to bring down uncertainty and reinvigorate the current level of growth.
This is why I have called for a combination of moves aimed at achieving this. What is needed from policymakers is support for demand, financial-stability measures and structural reforms in an all-out effort to raise expectations, boost investment and reduce unemployment.
We have also called for some further “policy upgrades”. For example, major central banks need to give greater consideration to the spillover risks from their policy decisions. And emerging economies need to address firmly the build-up of corporate leverage and foreign debt.
The bottom line is that all countries need to implement the policy mix that is right for them—and they need to start doing so without delay. The IMF will play its part to ensure that national policies contribute to a coherent global recipe for growth.
2. Boosting growth over the medium term
The second priority is to raise potential growth over the medium term. This means doing the right things now to tackle low productivity, the impact of population ageing and the legacies of the global financial crisis. In this respect there are a number of possible game-changers
One is investing in high-quality infrastructure. IMF research shows that, in advanced economies, an increase in investment spending worth one percentage point of GDP raises the overall level of output by about 0.4% in the same year and by 1.5% four years after the spending increase
Reforms to labour and product markets are also essential to enhance growth over the medium term, because they remove barriers to opportunity and innovation. And investing in education can give young people new hope for the future.
Another potential game-changer is gender equality. Research suggests that if the number of female workers were to increase to the same level as the number of male ones, GDP in the United States would expand by 5%, while it would grow by 9% in Japan and in India by 27%. By empowering women, countries can create greater fairness and prosperity for all their citizens.
3. Fostering sustainable, long-term growth
The third priority is to make growth sustainable over the long term.
Here, a key task is to deliver on the promises made in 2015, the year of international development. The UN’s recently adopted Sustainable Development Goals provide an ambitious blueprint for progress over the next 15 years. We must strengthen our efforts to reduce poverty, promote economic diversification and invest in human-capital development.
The IMF is in the forefront of this effort. We have increased access to all our concessional-lending facilities by 50%. In addition, we are maintaining an interest rate of zero on our loans for countries that face major shocks and disasters.
Finally, a key long-term challenge is implementing an effective response to climate change. All countries need to integrate the implications of global warming into their macroeconomic frameworks. Energy pricing is at the heart of this. The IMF has projected global energy subsidies at $5.3 trillion for 2015, or 6.5% of global GDP—a massive economic distortion. To get it right, we need to price it right.
To be sure, the global economic agenda for the next 12 months is broad and complex. But procrastination is not a sensible option. That is why 2016 must be the year of doing the “right things”.