Global economic upswing offers window of opportunity for reforms:IMF

IMF projects global economy to grow at 3.6 percent this year. [Dong Leshuo/China Daily]

WASHINGTON - The current broad-based global economic upswing offers an ideal window of opportunity to undertake critical reforms, the International Monetary Fund (IMF) said Tuesday.

Broad-based acceleration

In its latest World Economic Outlook, the IMF forecast that the global economy will grow by 3.6 percent in 2017 and 3.7 percent in 2018, both 0.1 percentage point higher than the previous forecast in July. That's an acceleration from the 3.2-percent global growth rate in 2016, which was the lowest since the global financial crisis.

The pick-up in global activities that started in 2016 gathered steam in the first half of 2017, reflecting firmer domestic demand growth in advanced economies and China and improved performance in other large emerging market economies, the IMF said.

"We see an accelerating cyclical upswing boosting Europe, China, Japan, and the United States, as well as emerging Asia," IMF chief economist Maurice Obstfeld said, adding that the current global acceleration is notable "because it is broad-based more so than at any time since the start of this decade."

The IMF expects the Chinese economy to grow 6.8 percent this year and 6.5 percent next year, both 0.1 percentage point higher than the July forecast.

Growth forecast for the euro area was revised upward from the July projection by 0.2 percentage point to 2.1 percent in 2017 and 1.9 percent in 2018.

The fund also revised up its US growth forecast to 2.2 percent in 2017 and 2.3 percent in 2018, respectively 0.1 and 0.2 percentage point higher than its projection in July.

Zhang Tao, deputy managing director at the IMF, told reporters Tuesday that the latest outlook confirmed that global recovery was back on track, the result of policymakers using a combination of fiscal policy, monetary policy and structural reforms for a period of time.

Stronger chinese growth

The IMF said the upward revision to China's growth forecast for 2017 reflects the stronger-than-expected performance in the first half of the year, "underpinned by previous policy easing and supply-side reforms."

China's economy expanded by 6.9 percent in the first half of this year, well above the government's yearly target of 6.5 percent.

The upward revision to China's growth forecast for 2018 mainly reflects the expectation that "authorities will maintain a sufficiently expansionary policy mix" to meet their target of doubling the real gross domestic product (GDP) between 2010 and 2020, the IMF said.

James Daniel, assistant director of the Asia and Pacific Department of the IMF and its mission chief for China, told Xinhua in a recent interview that the strong growth momentum this year has paved the way for policymakers to accelerate needed reforms and achieve safer and more sustainable growth in the medium and long terms.

"Now it is time to do so," he said, stressing that reforms should make growth less reliant on credit, debt and investment.

Zhang hoped China would stick to implementing the reform agenda so as to keep the strong and sustainable growth momentum.

While the IMF has frequently urged the Chinese authorities to intensify efforts to rein in credit expansion, Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, a Washington, DC -based think tank, said China will not resume rapid credit expansion soon to fuel growth.

The Chinese leadership has made controlling financial risks a top priority and encouraged regulators to crack down on risk-increasing practices, he said, citing the sharp decline of interbank market lending, particularly to non-bank financial institutions.

As major risks in the insurance sector are being addressed and the profitability of state-owned enterprises is recovering, Lardy said China's financial risks are under control.

Window of opportunity

While short-term global growth could increase further due to stronger confidence and favorable market conditions, the IMF also warned of the downside risks facing the global economy in the medium term. These include persistently low inflation in advanced economies, financial stability risks in emerging markets, geopolitical tensions and protectionist pressures.

"Although the chances of advanced economy policies turning inward appear to have diminished in the near term, pressures for increased protectionism have not disappeared and ought to be resisted," the IMF said.

It also called on policymakers to seize the opportunity to push for critical reforms, as research showed that structural reforms are easier to implement when the economy is strong.

"The welcome cyclical upturn after disappointing growth over the past few years provides an ideal window of opportunity to undertake critical reforms, thereby staving off downside risks and raising potential output and standards of living more broadly," the IMF said.

"If the strength of the current upswing makes the moment ideal for domestic reforms, its breadth makes multilateral cooperation opportune," observed Obstfeld, the IMF chief economist, noting that multilateral cooperation is also vital to solve numerous global problems.

"Priorities for mutually beneficial cooperation include strengthening the global trading system, improving financial regulation, enhancing the global financial safety net, reducing international tax avoidance, and fighting famine and infectious diseases," he said.