2023-10-13 04:00:00
Challenges – How can we explain the persistence of a form of optimism in the global economic outlook that you have just presented?
Pierre-Olivier Gourinchas – The global economy is limping a little but has not been devastated. It withstood a series of violent shocks: the war in Ukraine, the resulting energy shock, all the complications linked to the end of the pandemic and finally the sharp rise in rates by central banks, which had the effect to slow growth. Despite all this, we have not seen a global recession, a huge surge in unemployment, the entry into crisis of large emerging countries nor a generalized recession in the countries of the euro zone… It must be emphasized However, global growth, estimated at 3% for 2023 and 2024, is at a level well below historical average growth. It was rather around 3.6% between 2000 and 2019.
Were you surprised by the robustness of the economy in the face of shocks?
It was a form of surprise in the sense that the sharp rise in rates might have caused an even more marked economic slowdown. Beyond the most advanced countries, there was a particular fear that the rise in key rates in large countries – in the United Kingdom, in the Eurozone countries, in the United States – would have a strong impact on emerging countries. . In the past, monetary tightening had had significant consequences in these countries, such as when rates were raised by Paul Volcker’s Fed in the early 1980s, which led to the debt crisis in Latin America. This time it didn’t happen.
“Green corridors” to stabilize the world economy
For several months, you have been warning of the dangers of a fragmentation of the global economy, of a world that is shrinking. What are the most tangible signs of this phenomenon?
First we see an explosion of trade restrictions, particularly in commodity markets, critical minerals or in bilateral relations. These measures are sometimes justified for reasons of security or support for the green transition. One aspect is also linked to the sanctions taken by the G7 countries once morest Russia. In all cases, these measures go in the direction of increased fragmentation.
Fragmentation is also emerging in direct investments, such as foreign equity investments by companies. A study has produced a fascinating result: for investors, geopolitical distance – measured by indicators such as voting alignment at the United Nations – is now more important than geographic distance. The phenomenon is already in place and it might become more pronounced. The third dimension of deglobalization is reflected in raw materials. When trade becomes more complicated, the same good, the same raw material sells at different prices in different regions. However, this price dispersion has increased enormously over the past two years. The price of food products can be very high in some countries in the world, much lower elsewhere.
What are the dangers linked to deglobalization? What are the IMF’s options for stemming the phenomenon?
We would like green corridors, multilateral agreements to allow certain essential raw materials to be exported all over the world. This is a way to stabilize the global economy. This would reduce food insecurity but also facilitate the climate transition. If rare earths are produced in China and restrictions weigh on exports, how can batteries and photovoltaic panels be produced? We must not put artificial barriers that will prevent us from ensuring this transition. Behind all this, the general principle is that of pragmatic globalization. We can clearly see that tensions exist. They are not going to disappear overnight but we must still find agreements on issues of common good.
Do you think you can move forward on these subjects?
It is possible to work on common topics. What we do at the IMF is the best example: we manage to put in place common programs despite disagreements. But we have to be able to do more.
Adapting to a much more multipolar world
What are the reasonable chances of a reform of the IMF’s governance – to increase its financial capacities – in the face of well-identified political and institutional blockages?
A discussion is underway as part of the quota review. This is a decision for member countries. But the main thing is that the resources we have are adequate. In a more uncertain world, where physical risks are much greater than before, where geopolitical risks wreak havoc on third countries, international institutions must have the firepower to help the most vulnerable countries. The question of the financial resources available to the IMF and that of its governance are not necessarily linked.
The IMF has never stopped evolving since its creation. In a world facing gigantic and unprecedented challenges, in which direction should it go?
The fund was created in 1944 in an environment that has nothing to do with today. But its mission has not changed. It always involves helping countries in financial difficulty and promoting macroeconomic stability, particularly in capital flows and trade. In this changing world, expertise and tools must be adapted and we have been able to take the right developments. But we are facing a very important project: the emergence of a much more multipolar world, with the rise in power of emerging countries. Until now, we were in a world more organized around the economies of the G7 countries. In its way of managing the pressure points that appear, the IMF must adapt to this transition. This is the ultimate construction site.
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