Kristalina Georgieva, managing director of the International Monetary Fund
Krisztian Bocsi/BloombergThe global economy is on the road to recovery, but the hard part may be ahead as policy makers grapple with structural changes needed to deal with the economic scars left by the pandemic, Kristalina Georgieva, managing director of the International Monetary Fund, tells Barron’s.
The world economy shrank 3.5% last year, the worst contraction in peace time since the Great Depression. But it was less dire than the IMF feared last fall as global policy makers unleashed nearly $16 trillion in fiscal measures and $9 trillion in monetary accommodation to create a floor under the global economy. The arrival of the vaccine and learning how to function with the pandemic also helped.
“As terrible as 2020 was, that may have been the easier part of the job,” Georgieva says in an interview. “Solving the problems and dealing with the scarring and moving toward a more inclusive greener growth—this is the challenge we will face. We have to be determined to get to a more resilient place because this pandemic isn’t going to be the one and only shock we face.”
Barron’s caught up with Georgieva, who has made her second appearance on our list of 100 Most Influential Women in U.S. Finance, about the state of the global recovery and looming risks, needed structural changes and lessons that will emerge from this pandemic for the next crisis. An edited and condensed version of our discussion follows.
Barron’s: What’s the global economic outlook for this year?
Georgieva: We are projecting 5.5% growth. With the actions taken in the United States and arrival of vaccines, that may even further improve. But there are two problems to wrestle with: new variants are a significant obstacle, with Europe now seeing restrictions, and there is a huge unevenness in how the recovery is progressing.Our estimate is for 150 economies not to reach pre-pandemic levels this year, and even in 2022 some 110 countries won’t return to pre-pandemic levels. The danger of what we call the great divergence—a world in which some do well and do it fast and others fall further behind—isn’t only dramatic for people who are affected but a risk for the speed and scale of the recovery—and for global security.
How does the world deal with this divergence?
In 2021 and possibly 2022, the most important economic policy is going to be vaccine policy. One of the reasons we see risk of a prolonged drag on economies is the projections for how vaccinations are likely to evolve. A very important investment for the world, especially for advanced economies, is to support accelerated vaccinations. We calculated the benefits of it to be an additional $9 trillion of global output between now and 2025, of which 60% would go to emerging and developing countries; 40%—$4 trillion—would go to advanced economies.
The global financial crisis left the world with lasting lessons. What will emerge from this one?
We are in a fast changing world that is vulnerable to shocks, and we are interconnected. Therefore, we ought to be focused on building resilience and expand on what we did after the global financial crisis. We built strength in the banking system, and that resilience is paying off today.We have to continue to build resiliency in our societies in a more comprehensive manner. [That includes] resiliency in people—who are educated, healthy and have social protection at times of shock. It means expanding resilience in the economic system; nonbanking financial institutions [like asset managers and insurers] have to be a priority and included in regulatory actions. We need to look at competition and how the concentration in market power that has accelerated in the pandemic isn’t turned into an obstacle to innovation and growth, and we need to have a resilient planet.
You have described climate as potentially an even greater threat than the pandemic. What are the milestones to look for in the next year or two to see if policy makers are getting that message?
[We want to see] the right signal in pricing carbon and the right signal in terms of public investments. We believe that investing in green infrastructure can add 0.7% to growth over the next 15 years. It’s great for growth and jobs because many of the climate resilience investments are job-rich—whether reforestation, dealing with land degradation, building resilient infrastructure or electric mobility. And we want upfront, intensive investment so that parts of the economy and people in high carbon intensity sectors—think coal miners—don’t end up getting hurt in the process of greening our growth prospects.
Where are you most worried about the long-term scars from the pandemic?
The most significant concern we have is increasing inequality. This pandemic affected different parts of the economy and society very differently. If you are in the tourism sector or hospitality, your job is gone. Low-skilled workers, women and young people [have been] more severely impacted. After crises of this nature, unrest in a society a year to a year and half later goes up unless there is very strong policy actions to alleviate this increasing inequality, helping people to have access to opportunity—like education and access to the internet.
A lot of stimulus is supporting the global economy. What’s the exit strategy?
That will be a very important action to be taken properly because you have to gradually withdraw support and carefully assess what is coming next. One big message I want to convey: 2020 was the year when bankruptcies were less than average because of policy supports. But risks are still [there], and when support is withdrawn we ought to be prepared for an increase in bankruptcies or we are going to face a phenomenon of zombie firms that negatively impact the prospects of growth. Our advice: Concentrate on insolvency regimes now. For example, frameworks or bankruptcy rules that provide for unwinding unviable businesses while allowing viable ones to be turned around and save jobs. Don’t wait until you have to rely on them.
What risk does the pileup in debt around the world pose?
If there is a tightening of financial conditions unexpectedly and we don’t manage the transition to post-pandemic well, that could cause quite a lot of turbulence. Even if we are in this low-for-longer period of rates, for developing countries the situation is difficult. We already have countries with no access to markets. This is where the current support coming from international financial institutions is very important but [so is] the prudent approach to translate growth into debt reduction.
What type of policies are needed for this next stage of the recovery?
We have to look into support in a different way. Now it has to be [about] structural transformation. Therefore, it becomes very important to direct support for greening the economy, digitization, access to opportunity and support to those who may fall behind, like women, in the labor market.
U.S.-China tensions have loomed over the market. What do you want to see in this relationship in the coming months?
We have upgraded projections for growth in both places, and the spillover impact on the rest of the world is very important and positive. We hope to see constructive engagement in areas where the world needs the U.S. and China to come together, from climate to reforming trade. The moment is now to resolve the problems that have been irritants in the past and modernize the World Trade Organization. Obviously, these countries are competitors, but they are also systemically important for the rest of the world. I’ll finish with Spider-Man: “With great power comes great responsibility.”
Thanks, Kristalina.
Write to Reshma Kapadia at reshma.kapadia@barrons.com
March 22, 2021 at 06:00PM
https://www.barrons.com/articles/the-global-economy-was-kept-afloat-in-the-pandemic-why-the-imfs-chief-says-the-hard-part-may-be-ahead-51616189171
Hard Part for Global Recovery May Be Ahead, IMF's Chief Says - Barron's
https://news.google.com/search?q=hard&hl=en-US&gl=US&ceid=US:en
No comments:
Post a Comment