IMF on accelerating global growth
The FT's Chris Giles talks to Maury Obstfeld, chief economist of IMF, on how the global economy is growing at its fastest rate in almost seven years.
Filmed by Ben Marino and Donell Newkirk. Edited by Paolo Pascual.
The International Monetary Fund has just released its latest World Economic Outlook. And it shows the global economy growing at its fastest rate in almost seven years. There have been forecast upgrades, particularly for Europe and Japan.
I sat down with Maury Obstfeld, the Fund's chief economist. And I asked him what's going on in the global economy.
The news is rather good right now. We're seeing a broad-based expansion covering Europe, Japan, China, elsewhere in East Asia. And it's really the biggest that we've seen and most broad based since the beginning of the decade.
I think we can see some of the way the world economy's moving from looking at some charts. Could you just talk to us about these two charts here, both the manufacturing PMIs-- so what's happening in manufacturing industry-- and what's happening to consumers around the world?
Well, the PMIs are so-called soft indicators of sentiment by purchasing managers. And as you can see, they've jumped up quite dramatically since the middle of 2016.
Another confidence indicator, of course, is consumer confidence. And that has also jumped up since the middle or even the start of 2016, more so for the advanced economies, but also for emerging economies.
And are sort of these lines where we see, both in consumer confidence and essentially in business confidence or business output-- are these at levels now which are consistent with really quite fast expansion for the global economy?
Yes. They absolutely are.
And it's not all good news, though, is it? So if we see this sort of as a big picture-- things are looking good-- but there's some wrinkles behind that where other parts of the global economy aren't quite working as we might expect.
Right. Well, one of the puzzles of the recovery is that even as labour markets have returned to their state before the great financial crisis and unemployment rates have come down, the growth in nominal wages has really not accelerated. Normally, you think that with tighter labour markets, more competition for workers, wages would go up. But that has not happened.
So we're sort of seeing unemployment coming down. The economy's growing. But people aren't necessarily feeling better off. Do we understand why that's the case?
We have a chapter in the new World Economic Outlook that looks at that. One issue is simply that productivity growth has been very low. And that limits the extent to which firms can raise wages.
And is there something that governments can do about this problem?
I think this is a long-term problem and one that requires investments in people, in educational investments, which will make them more agile, more able to take advantage of opportunities in the future as technologies change. We also need big investments in youth particularly because youth unemployment is quite high in advanced economies, also in many emerging economies.
Now, I think you've got the final chart. It sort of shows the sort of the bleak picture if nothing is done what happens to the global economy in the very long term. Do you want to talk us through-- these are the potential [INAUDIBLE]-- so how much countries can grow by per capita, per person, in the longer term.
Well, now is an ideal time during the cyclical upswing for some of the investments, human and otherwise, of the sort I just mentioned because for some economies, the outlook is not as good as in the past.
Particularly on the left, the advanced economies, it's a much worse situation than the mid-'90s to 2005 period.
Right. So the orange bars here are forecasting to 2017, 2022. And you can see that compared to what was true in '95 to '05, there's a substantial fall in per capita, per person, expected growth. This is also true in emerging and developing economies generally.
That's the second [INAUDIBLE] there.
But that reveals some big differences. First of all, China has slowed. And that is actually a positive development because they're rebalancing away from heavy manufacturing toward consumption.
But emerging and developing fuel exporters are facing disastrous conditions going forward. And for those economies, there's a huge challenge of diversifying in the future, which if they don't meet will lead to much lower per capita growth than they've enjoyed in the past.
For non-fuel exporters in the emerging and developing world, things are actually not all that bad.
They're looking up for them. So we have this sort of divergence. In the short term, things are looking good. But in the medium to longer term, things are looking a little bit more challenging. What should people take away from this-- that the global economy is set fair or that there's things that really need to be done by governments around the world?
I think people should view this as an opportunity, one they should not let pass, to make investments in a number of areas-- in people, possibly in infrastructure, in structural reform. And for some economies, fiscal buffers need to be built up because someday, there will be another recession.
Maury Obstfeld, thank you very much.