Once again, we face the prospect of weak and fragile global growth. Released earlier this week, the IMF's update to the global economic outlook expects global growth at 3.1 percent and 3.4 percent in 2016 and 2017, respectively, slightly down from April estimates. The global outlook, which was set for a small upward revision prior to the U.K.'s referendum, has been revised downward, reflecting the increased economic, political, and institutional uncertainty.
The setback from "Brexit" adds to mounting concerns that a sustained recovery - with more jobs, higher living standards, and declining debt levels - remains elusive. The risks of a slow growth environment go beyond pure economic costs - they could spur social tensions and the risk of protectionism that could further hurt the global economy. Adding to uncertain economic prospects, increasing geopolitical risks have cast a shadow over the global economy.
How to power the global growth engine will be one of the key themes of the G-20 meetings this weekend in Chengdu, China. An IMF staff note for the G-20 outlines the urgent need for a broad-based policy effort to contain risk and reinvigorate growth both in the short and longer term. The Note explores five main areas to rev up growth. These include:
- Reducing uncertainty around "Brexit" and its repercussions, through a smooth transition to a new relationship between the United Kingdom and the European Union that as much as possible preserves gains from trade.
- Implementing a stronger and more balanced set of economic policies that exploits policy synergies of well-sequenced structural reforms with growth-friendly fiscal policy and continued monetary support.
- Addressing the post-crisis debt overhang that saddles advanced economies and the rising corporate debt that burdens many emerging economies.
- Lifting long-term growth and making it more inclusive, through structural reforms by making workers and business processes more productive.
- Reinvigorating trade, making sure that the gains from trade are widely shared, and reviving the spirit of multilateralism, including to address geopolitical spillovers that could threaten the global recovery.
The G-20 growth strategy stresses the need for more inclusive and sustainable growth. The bottom line, however, is that strong global growth will not return without decisive policy action.