Via IMF (Den Internationale Valutafond)

Transcript of the October 2019 World Economic Outlook Press Conference

October 15, 2019




Gita Gopinath, Economic Counselor and Director of the Research Department,

Gian Maria Milesi‑Ferretti, Deputy Director, Research Department, IMF

Oya Celasun, Division Chief, Research Department, IMF 

Raphael Anspach, Senior Communications Officer, IMF


Mr. ANSPACH: Good morning. Welcome to the press conference on the World
Economic Outlook. I am delighted that you could join us, both here in the
room, as well as online.

Before we start, I would like to introduce to you the speakers of today’s
press conference. Let me start with Gita Gopinath. She is the Economic
Counsellor and the head of the IMF’s Research Department. Gian Maria
Milesi‑Ferretti. He is the Deputy Director of the IMF’s Research
Department. And Oya Celasun, the head of the division in charge of the
World Economic Outlook in the Research Department. We will try to get to as
many of your questions as possible. But before we do that, Gita will start
with some introductory remarks.

Gita, the floor is yours.

Ms. GOPINATH: Thank you, Raphael. Welcome. It is really a pleasure to see
you all at the release of the new World Economic Outlook. I would also like
to take this opportunity to congratulate the three Nobel laureates in
economics, Abhijit Banerjee, Esther Duflo, and Michael Kremer. I think that
was a wonderful bit of news that we all got yesterday. As for the global
economy, the global economy is in a synchronized slowdown. And we are, once
again, downgrading growth for 2019 to 3 percent, its slowest pace since the
global financial crisis. Growth continues to be weakened by rising trade
barriers and growing geopolitical tensions. We estimate that the U.S.‑China
trade tensions will cumulatively reduce the level of global GDP by 0.8
percent by 2020. Growth is also being weighed down by country‑specific
factors in several emerging market and developing economies and also by
structural forces, such as low productivity growth and ageing demographics
in advanced economies.

Now, we are projecting a modest recovery, to 3.4 percent in 2020, another
downward revision of 0.2 percent from our April projections. However,
unlike the synchronized slowdown, this recovery is not broad base and
remains precarious. The weakness in growth is driven by a sharp
deterioration in manufacturing and global trade, with higher tariffs and
prolonged trade policy uncertainty damaging investment and demand for
capital goods. In addition, the automobile industry is contracting, owing
also to a variety of factors, such as disruptions from new emissions
standards in the euro area and in China that have had durable effects.
Overall, trade volume growth in the first half of 2019 has fallen to 1
percent, the weakest level since 2012.

In contrast to weak manufacturing and global trade, the services sector
continues to hold up, almost across the globe. Now, this has kept labor
markets buoyant and wage growth and consumption spending healthy in
advanced economies. There are, however, some initial signs of softening in
the services sector in the United States and the euro area.

Monetary policy has played a significant role in supporting growth. In the
absence of inflationary pressures and facing weakening activity, major
central banks have appropriately eased to reduce downside risks to growth
and to prevent a de‑anchoring of inflation expectations. In our assessment,
in the absence of such monetary stimulus, global growth would be lower, by
half a percent in both 2019 and 2020. Advanced economies continue to slow
towards their long‑term potential. Growth has been downgraded to 1.7
percent for 2019, and it is expected to remain there into 2020. Strong
labor markets and policy stimulus are offsetting the negative impact from
weaker external demand for these economies.

Growth in emerging market and develops economies have also been revised
down to 3.9 percent for 2019, owing in part to trade and domestic policy
uncertainties and to a structural slowdown in China. The uptick in growth
in 2020 is driven by emerging market and developing economies that are
projected to experience a growth rebound to 4.6 percent in 2020. Now, about
half of this rebound comes from recoveries or shallower recessions in
stressed emerging markets, such as Argentina, Iran, and Turkey, and the
rest by recoveries in countries where growth slowed significantly in 2019,
relative to 2018, such as Brazil, India, Mexico, Russia, and Saudi Arabia.
There is, however, considerable uncertainty surrounding these recoveries,
especially when major economies like the United States, Japan, and China
are expected to slow further into 2020.

In addition, there are several downside risks to growth. Heightened trade
and geopolitical tensions, including Brexit‑related risks, could further
disrupt economic activity and derail an already fragile recovery in
emerging markets and the euro area. This could lead to an abrupt shift in
risk sentiment, financial disruptions, and a reversal in capital flows to
emerging markets. In advanced economies, low inflation could become
entrenched and constrain monetary policy space further into the future,
limiting its effectiveness.

To rejuvenate growth, policymakers must undo the trade barriers put in
place with durable agreements, rein in geopolitical tensions, and reduce
domestic policy uncertainty. Such actions can help boost confidence and
reinvigorate investment, manufacturing, and global trade. In this regard,
we look forward to more details on the recent tentative deal reached
between China and the United States. We welcome any steps to de‑escalate
tensions and to roll back recent trade measures, particularly if they can
provide a path towards a comprehensive and lasting deal.

To fend off other risks to growth and to raise potential output, economic
policy should support activity in a more balanced manner. Monetary policy
cannot be the only game in town. It should be coupled with fiscal support,
where fiscal space is available and fiscal policy is already not too
expansionary. Countries like Germany and the Netherlands should take
advantage of low borrowing rates to invest in social and infrastructure
capital, even from a pure cost‑benefit analysis. If growth were to
deteriorate more severely, an internationally coordinated fiscal response,
tailored to country‑specific circumstances, may be required.

While monetary easing has supported growth, it is essential that effective
macroprudential regulation be deployed today to prevent a mispricing of
risk and excessive buildup of financial vulnerabilities. For sustainable
growth, it is important that countries undertake structural reforms to
boost productivity, improve resilience, and lower inequality. And these
reforms are always more effective when good governance is already in place.

To summarize, the global outlook remains precarious, with a synchronized
slowdown and an uncertain recovery. At 3 percent growth, there is no room
for policy mistakes and an urgent need for policymakers to support growth.
The global trading system needs to be improved, not abandoned. And
countries need to work together because multilateralism remains the only
solution to tackling major issues, such as risks from climate change,
cybersecurity risks, tax avoidance and tax evasion, and the opportunities
and challenges of emerging financial technologies. Thank you.

QUESTION: Good morning. I would like to follow up on your comment after
the U.S.‑China agreement in principle. You welcomed the good step. Does
it change your view on the global growth and outlook?

Ms. GOPINATH: We look forward to hearing the details of the trade
agreement, when they play out. Right now, in our assessment, if you look at
all the tariffs that have been put in place, and if you include the ones
that were supposed to come into effect today, October 15, and the one in
December, that would cumulatively reduce the level of global GDP by 0.8
percent by end 2020. Now, if the October tariffs were never to happen, that
would bring down the estimated negative impact from 0.8 to 0.7. And if the
December tariffs were, again, never to happen, you would come closer to 0.6
percent being the negative impact. We should emphasize that much of this
negative impact comes from confidence effects, which is why it is very
important that these changes or the trade truce has a feature of being
permanent and durable.

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QUESTION: I just wanted to touch on no‑deal, no‑deal Brexit, the
possibilities. What fallout would you expect from a no‑deal Brexit?
What market fallout would you expect? And what preparations should the
U.K. and the eurozone be taking for that potential outcome?

Ms. GOPINATH: Our baseline assumes that there will be an agreement and that
the transition will be smooth. In the absence of that, if there were to be
no agreement and a no‑deal Brexit, then that would reduce the level of GDP
in the U.K. by about 3 percent over the long run and between 3 to 5
percent, depending upon how disruptive the exit is, over a two‑year period.
So those are the numbers that we have. It is about 3 to 5 percent over two
years, if there was ‑‑ depending upon how disruptive the Brexit is. And in
the long run, we are talking about 3 percent.

QUESTION: I was wondering if you could expand a little bit on your
assessment, that the recovery next year will be precarious. Exactly
what would be driving that? And at what point do you consider growth to
sort of turn recessionary? Do we have to see negative global growth for
us to use the “R” word? Or would that be something that would happen
both ‑‑ just in the U.S. and Europe and other places?

Ms. GOPINATH: We describe the recovery as precarious because about half of
it comes from recoveries in what we called stressed emerging markets. These
include Argentina, Iran, and Turkey. And this could be recoveries, or it
could be shallower recessions. And another half comes from recoveries in
some emerging markets, like Brazil and India, where growth in 2019 was
particularly weak, relative to their recent growth numbers.

In your question on recession, I think the way we want to think about it,
from the perspective of global growth, is that if global growth were to go
below 2.5 percent, that is usually a scenario where there are several
countries in a recession; but that is, however, not in our baseline. We do
not project a recession in our baseline over the next 12 months.

QUESTION: I would like to find out your specific findings on Nigeria.
Last week you released the Article IV on Nigeria, where you said there
was a need for a package of measures to reform the economy. You
highlighted the fact that the government is making steps to increase
VAT. You noted the fact that the prior reform is ongoing. What are
those measures of reforms that you think the government should

You also noted the fact that, in the banking sector prudential issues
are improving. I wanted you to highlight more about that.

Ms. GOPINATH: In the case of Nigeria, a lot depends upon oil prices and oil
prospects. And there has been some weakness coming from that. The important
thing to keep in mind about Nigeria is that per capita growth remains weak.
And this is why we call for structural reforms. I am going to ask Oya to
add more to that.

Ms. CELASUN: Thank you. That is right. There was a slight upward revision
for growth this year that came mostly from strong agricultural production
early in the year. But growth is not high enough to lift ‑‑ to turn per
capita growth into positive territory, as Gita said.

For some time now, we have been emphasizing the need for a comprehensive
package to lift growth. One element of that will have to be stronger
non‑oil revenue mobilization. Nigeria has one of the lowest rates of
revenue in the world, which was hit hard by the drop in oil prices. That is
essential for the country to be able to spend more on priorities, such as
social safety net and infrastructure. Other areas are the need for tight
monetary policy and a simpler unified exchange rate system. Foreign
exchange restrictions have also been distorting public and private sector
decisions and holding back investment.

More generally, as you mentioned, strengthening the banking system’s
resilience and continued stronger structural reforms, especially in
infrastructure and the power sector and broader governance, are critical.

Mr. ANSPACH: Thank you, Oya and Gita. Maybe this is a good place to remind
everyone that we will have regional press conferences on Friday, where we
will get into more specifics on individual countries.

QUESTION: Good morning. Between the April WEO and the July update,
there is a slight increase in the prospects of the Brazilian economy.
My question is, is this a sign of an increased pace? Or is the
Brazilian economy just barely walking?

Ms. GOPINATH: So, in the case of Brazil, they have had some recovery, some
improvement. But what remains the case is that there is policy uncertainty
that remains. Now, the pension reform is ‑‑ the progress being made on that
front is very good. But given that debt levels are still quite high, more
needs to be done. Also, in the case of Brazil, there have been other very
specific factors, like there was the mining disaster that negatively
impacted growth. We expect things to improve, if this policy uncertainty
continues to be reduced and more reforms get undertaken.

Ms. CELASUN: So, Brazil has elevated levels of pent‑up demand. It has
barely recovered from the ’15, ’16 severe recession. It has had growth of
about 1 percent for two years, ’17, ’18; now, only 0.9. We expect, as Gita
mentioned, as the fiscal reforms, structural reforms progress, confidence
to spread into the real economy and that pent‑up demand to be realized.

We expect the growth outturn was favorable in that regard. We saw an uptick
in investment and, in particular, growth in the construction sector, which
has been weak for some time.

Mr. MILESI‑FERRETTI: Maybe I can add just one word. Brazil clearly benefits
from the fact that monetary policy has been able to ease. Interest rates
are at historical lows for Brazil. And global financial conditions have
been quite accommodative. So spreads are low. So those elements would
clearly be [helpful] for a recovery.

QUESTION: Gita, you talk about, if the tariffs for today and for
December are not going to happen, that would kind of save global GDP by
0.2 percent. So do you have an estimation of, if all the tariffs that
have been added between the U.S. and China in the trade tensions are
removed, what would that mean for global GDP? Also, just more
generally, what do you think a trade deal between the two countries
would bring for global growth?

Ms. GOPINATH: The answer to your question, of course, depends on the
specifics of a trade deal. But based on what we have right now, if all the
tariffs were to come off, the ones that were put in 2018 and 2019,
including those announced, we would be talking about a boost to the level
of global GDP by 0.8 percent by the end of 2020.

QUESTION: You mentioned climate change. How big of an impact will
climate change have on the African economy? And how much do you support
the green economy being championed by the African Development Bank?

Ms. GOPINATH: Climate risks are an important concern, and it is not a
concern just in the future, but it is a concern today and now. It certainly
has affected some countries more than others, in particular, low‑income
countries are more subject to these disasters. The particular consequences
of that are country‑specific, and we would have to look at the details. But
it is very important for countries to undertake both mitigation policies
and we will soon have the release of the Fiscal Monitor, where there will
be a very detailed discussion of carbon pricing and how that can help. But
then also adaptation because, in the meantime, countries have to put
infrastructure policies into place to adapt to it. This is a challenge
because, of course, it has huge financing needs, but this is something
countries have to address.

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QUESTION: You say that monetary easing has been appropriate in the
industrialized countries, but that very low inflation constrains future
monetary policy. Are there negative impacts globally from very low or
negative interest rates?

Ms. GOPINATH: So, indeed, in our estimates, global growth would have been a
half percent lower in 2019 and 2020 in the absence of monetary easing that
was almost simultaneous around the world; but we absolutely flag some of
the risks from having interest rates be very low for long. And a major one
is, of course, because of a buildup of fiscal risks, very high levels of
corporate debt. A search for yield in a world where interest rates are
negative in many countries are leading to a buildup in financial risks. The
Global Financial Stability Report will be going into that in much greater
detail, but that is a very important factor that we keep in mind; that
during the time when monetary policy remains in this highly accommodative
stance, it is very important for prudential policies to be implemented and
made sure that they are effective.

QUESTION: Just to get a sense of what you see in terms of the shadow
banking crisis that is unreeling in India, you mentioned in your
comments in the report about what the public sector banking sector
still needs to do; but with respect to the overall financial system, as
well as the government’s finances at this point in terms of state
government as well as the central.

Ms. GOPINATH: So in the case of India, there has been a negative impact on
growth that has come from financial vulnerabilities in the nonbank
financial sector and the impact that has had on consumer borrowing or
borrowing in the small and medium enterprises. Appropriate steps have been
taken. There is still a lot more that needs to be done, including cleaning
up the balance sheets of regular commercial banks. So, in our projections,
we have that India will recover to 7 percent growth in 2020. And the
premise is that these particular bottlenecks will clear up.

On the fiscal side, for India, there have been some recent measures,
including the corporate tax cut. There has not been announced anything
about how that will be offset through revenues at this point. So, it looks
optimistic, the revenue projections going forward, but it is important for
India to keep the fiscal deficit in check.

QUESTION: Good morning. I want to know what happened with Mexico this
year because we made the structural reforms in the past six years, and
we couldn’t see big increases in the GDP, and now we have slower
projections for GDP. Last week, you launched the Article IV for Mexico,
and you said that the political uncertainty behind this is slower. So,
again, I want to know what happened with our structural reforms.

Ms. GOPINATH: In the case of Mexico, besides policy uncertainty, it is very
much the case. And this is what Gian Maria flagged. What matters is what
the borrowing costs are. And it is certainly the case that, in the case of
Mexico, interest rates are still high, and there are pretty tight financial

Mr. MILESI‑FERRETTI: When we refer about political uncertainty, we mean
there is uncertainty about the fate of some of the structural reforms. And
that, of course, can take a toll on investment. And it has. We have, as
Gita mentioned, tight monetary policy conditions. And we have had an
under‑execution of the budget, which has taken a toll on activity in the
earlier part of this year. We think that should wane eventually, but it has
weighed on activity. Mexico, of course, has been subject to external
shocks, uncertainty in its economic relations with the United States. Think
of what happened on the migration front relatively recently. And, also,
Mexico is actually a big manufacturing center, and there is a big global
downturn in manufacturing. And while, of course, Mexico can benefit to some
extent by some trade diversion when there are more barriers within the U.S.
and China, it does suffer when global manufacturing activity is under
stress, as is the case at the moment.

QUESTION: I would like to stay in Latin America, if that is possible. I
would like to ask you about Ecuador because it has been in the news
over the last few days. Did President Moreno make the right decision,
cancelling the austerity package, in the IMF’s view? What will happen
with the program in Ecuador? I also would like to ask a more
comprehensive question. Do recent outcomes in both Ecuador and
Argentina hurt the IMF’s reputation in Latin America and globally?

Ms. GOPINATH: I should first start by saying that we express our deepest
sympathies for the people who have been injured and the people who have ‑‑
some have even died in the violence in Ecuador. We very much welcome that
there is an attempt to bring in all the stakeholders and to make decisions
about macro reforms, taking into account the various parts ‑‑ the various
communities, that are going to be affected by it. So, quite simply, we
stand ready. We stand in support of the authorities. These are challenging
times. And we would like to see that the reforms get done and that they are

To your question about Argentina and Ecuador, the only thing I would point
out is that the IMF goes into these countries when there are stressful
times, when there are difficult situations. It is unfortunate that there
are difficulties that the people have to face, but this is the challenge
that we deal with. It is the challenge that the authorities in these
countries deal with. And it is always our intent to do the best for the
people in these countries, working closely with the authorities.

QUESTION: Trade volume growth has dropped dramatically in the first
half, to 1 percent, and is projected to rebound to 3.2 percent. So what
is the main driver of this pickup?

Ms. GOPINATH: There are several factors behind it. On the one hand, there
is the trade policy uncertainty and trade barriers, but there is also a lot
going on in other areas, like in the auto sector.

Mr. MILESI‑FERRETTI: Part of the explanation for the rebound is, of course,
that there is a bit of a pickup in global activity projected for next year.
And that is a recovery in investment. That is a recovery in trade. You also
have to think, we have what we call a base effect. Fundamentally, trade has
been very weak in 2019. So just some normalization in the later part of
2019 and early 2020 will give you a notably positive growth rate.

In terms of specifics, clearly, the car sector has been weighing heavily on
manufacturing activity and growth. And some stabilization, improvement of
the situation in the car sector would lead to a recovery in trade. The same
is true for semi‑conductors. The so‑called tech cycle was one contributor
to the big weakening in global trade. And we have seen it in the numbers
for countries in East Asia, where exports have suffered more than
elsewhere. And, again, there, we see a little bit of a pickup.

So all these factors together lead us to expect some recovery in global
trade. It is not a great recovery. If you look at the overall growth
number, it is still relatively modest, but it is better than 2019.

QUESTION: I noticed you mentioned several factors in the Asian economic
forecast. One is the spillover from the U.S. trade war. The other is
the slowdown of China’s growth.

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I wanted to ask, how concerned are you for the situation ongoing in
Hong Kong for the global economic growth and their financial stability?

Ms. GOPINATH: In Hong Kong, we have actually had a significant revision
down for growth in Hong Kong in 2019. We expect some recovery in 2020. In
2019, it is a combination of the trade tensions, the slowdown in trade, but
also the slowing down, the structural slowdown in China. And it is also an
outcome of the social unrest. We have seen declines in tourism, for
instance, and in retail sales. But we expect there to be a recovery from
Hong Kong going forward. In terms of the spillovers to the global growth,
they remain quite small at this point.

QUESTION: In your report have you assessed the impact of the
implementation of the continent wide free trade agreement for Africa.
And how will this impact growth in Africa and in Senegal?

Ms. CELASUN: So this was a very favorable development in a world where we
see trade barriers rising. African countries do not trade much with each
other. So greater facilitation of trade and lower tariff barriers would
help greatly and create new opportunities for growth. It is a medium to
longer term issue, it creates an upside potential and we would expect this
to have a positive impact over the medium term. Much needed given the
demographics in Africa, many jobs will have to be created given a young

QUESTION: In your view, what is going to be the impact of these renewed
tensions in Kashmir on the Regional Economic Outlook, India and
Pakistan specifically? And since you have already mentioned India, what
is your view about the economic growth outlook for Pakistan?

Mr. MILESI‑FERRETTI: As you know, Pakistan has started implementing an
ambitious program with the IMF. There is need for a substantial fiscal
adjustment. The deficit over the last year has exceeded expectations.
Fortunately, this has been the case mostly for one‑off reasons, and tax
revenues are picking up notably. But, of course, when you do have a fiscal
adjustment ongoing, domestic demand is going to be compressed. Hence, we
have a forecast for the growth rate that, in the short run, is going to
decline: 3.3 in 2019, 2.4 in 2020, but pick up after that. And we think
there are good signs on the confidence front, with increased demand for
local currency assets by foreign investors in light of the fact that we now
have an exchange rate that is more reflecting actual economic conditions,
with some degree of floating. The authorities have been steadfast in their
implementation of the program. Challenges remain, of course. It is a set of
macroeconomic imbalances that needs to be addressed. There are
uncertainties. You mentioned one of them. There are others, oil prices.
Pakistan is a large oil importer and, hence, very sensitive to what happens
to oil prices.

So far, we have seen good signs. And we hope that there will be a notable
pickup in growth over the medium term, which is sorely needed in Pakistan
to lift the living standards.

For India, I think Gita already addressed the general outlook. Overall
growth remains very strong by the standards of the world economy, even
though it is lower than the very high standards at which we were accustomed
to looking at India. A growth rate above 6 percent is still notable and
extremely important in a country that has such a large population.

We have a forecast for a further pickup next year, also helped by tax cuts
on the corporate front. There, again, there are many macroeconomic
challenges. Again, Gita has emphasized the need to keep the fiscal deficit
under control. And, of course, India and Pakistan are not immune to global
geopolitical tensions and to trade tensions that can take a toll on their
manufacturing activity and demand for their exports.

QUESTION: In the World Economic Outlook, page 38, you noted that there
is a sharp decline in foreign direct investment among major economies
last year. And this is especially the case for FDI between China and
the United States. So, my question is, how do you evaluate the FDI
decline’s influence on the world economy? And what is the way to
reverse it?

Ms. GOPINATH: We have this very nice box in the WEO, which is about what is
happening with FDI. And you see this decline in FDI. An important factor
for that is, basically, the changes in tax rules, so including the tax
policy changes in the US. I will have Gian Maria go into it in more detail.

Mr. MILESI‑FERRETTI: Yes. So at the global level, really, the main reason
why we see a very large decline in FDI is fundamentally a restructuring of
the internal financial activities of multinational corporations. There is
repatriation of cash by U.S. multinational corporations, in light of U.S.
tax changes, which have virtually no impact on economic activity. These may
be funds invested in U.S. dollar securities from overseas and, with the tax
change, they are now invested in the very same U.S. dollar securities, but
from the U.S., so absolutely no change.

But you hint a different set of issues, which is definitely of more
relevance for global financial integration, which is what could be the
implications of increased fragmentations or trade tensions. One aspect of
that could be a decline in foreign direct investment among major regions
when we are talking about greenfield investment, about mergers and
acquisitions, and so on. It is clearly way too early to be able to assess
how much is actually happening. These are typically data that are released
with a longer lag. And because they mix together financial operations with
real investment, it is a bit difficult to tell them apart. But, of course,
the potential for increased fragmentation to reduce the efficiency of
production, to reduce productivity growth, is there. And it is one of the
major concerns we have in regard to an increase in trade and investment

QUESTION: The question is on Saudi Arabia. The question is: Do you
believe that the Saudi reforms and non‑oil sector could both bypass the
current forces pushing towards lowering growth projections?

Ms. GOPINATH: In the case of Saudi Arabia, we had a revision down for their
growth for 2019. An important part of that was basically weakness in the
oil sector, so weakness as in lower oil production being tied to new OPEC
Plus rules. So the lower oil production is one of the factors for the
downgrade for 2019.

We are expecting some improvement. In fact, the non‑oil sector has been
doing better over time, so that looks good. But it is clearly the case that
an important downside risk remains, geopolitical tensions in the region.
And also, of course, if the global economy were to slow, the negative
impact of that on oil prices could also be an important downside risk for
Saudi Arabia.

Mr. ANSPACH: With that, I would like to conclude, but Gita has one last

Ms. GOPINATH: Yes. I just wanted to point out and thank my colleague, Oya
Celasun. This is going to be ‑‑ at least maybe for a short while, this is
going to be her last presentation here, while she moves on to higher and
more important things. So thank you so much.

Ms. CELASUN: Thank you so much. It was a pleasure interacting with all of
you. Thank you.

Mr. ANSPACH: Thank you again, and I hope so see you around for the next
couple of days. Thank you.

IMF Communications Department

PRESS OFFICER: Raphael Anspach

Phone: +1 202 623-7100Email: