Each year, as ministers gather from all corners of the world for the World Bank/IMF Spring Meetings, Washington DC resounds with a cacophony of differing perspectives on future prospects, like a giant, multinational orchestra tuning up. Yet this time, in both public and private gatherings, with both developed and developing country dignitaries, as well as leading technocrats from the international financial institutions, one refrain kept recurring, defining the mood of the whole symphony. I would summarize it as 'The numbers are looking better, so why don't I feel good about them?' This was the most common explicit or implicit refrain I heard from a wide variety of policymakers. I see three factors behind it.
The numbers are indeed better but in many cases still not good enough.
For the advanced economies, the upgrading of the US growth projection for 2017 to a healthy 2.3 percent is a significant reason for optimism, with Europe and Japan also showing firmer recovery. (All numbers are from the IMF April World Economic Outlook.) For emerging markets, almost every region is forecast to do a little bit better in 2017 than it did last year but, except for Asia, still remains short of potential or what is needed to deal with high unemployment and stagnant living standards. Sub-Saharan Africa is coming off its worst growth performance in a decade to grow at a projected 2.6 percent which hardly keeps up with population growth. And Nigeria, South Africa, and Angola, the big anchor economies in the continent are struggling for different reasons (in his recent CGD Podcast, President Adesina of the African Development Bank explain how his institution at least can help tackle Africa’s worrying growth trend.)
Latin America's improved performance reflects to a large extent the ending of recession in Brazil, with storm clouds looming over the region's commodity exporters and the threat of protectionism affecting Mexico. For the Middle East, there is some improvement in the outlook for both oil importers and oil exporters (notwithstanding the lower headline growth numbers for the latter which reflect lower oil production even as the non-oil economy, which is what matters for jobs and economic activity, is picking up as fiscal drag eases because of firmer oil prices). But in both groups of Middle Eastern countries, the 2017 numbers fall short of what is needed, as do, more worryingly, the longer term protections for growth under current policy frameworks.
To be fair, in every region there are some countries that are doing much better and whose prospects look good but it is hard for them to realize their full potential when their neighbors aren't making progress.
It's really only in Asia that growth rates around 6 percent provide a strong basis for optimism, even allowing for the well-known risks that come from China's rebalancing and growing political tensions in a number of regional hotspots. By contrast to the pallor of the World Bank/IMF Spring Meetings, at the Asian Development Bank Meetings in Yokohama last week, I was struck by the difference in the substance and atmospherics of the conversations. The talk there was about how to cope with the challenges that come from sustained of high growth: inclusivity, urbanization, inequality, environmental sustainability, and a doubling of infrastructure that needs over $1.5 trillion of financing per year.
These better numbers are subject to a variety of downside risks.
The most obvious of these is the risk of protectionist policies by the US and others. Attempts to downplay the significance of the absence of the usual statement on resisting protectionism in the recent G20 ministerial communique were only half convincing. A second risk is whether financial—especially equity—markets are being too complacent in pricing risk. I was struck by comments to this effect both in some of the public seminars and—more forcefully—in private meetings.
Populism is a real and present danger.
Finally, there was a generalized sense that the liberal, open, cooperative economic model, for which the World Bank, IMF and many of the policymakers at the meetings have been advocates, is under serious threat from the backlash against the downside effects of globalization and technology, exploited by populist political forces (the meetings took place before the first round of voting in France). The more thoughtful participants recognized that fixing this will require more than tinkering at the margins of current policies (a bit more money on worker retraining and some action on 'fair' trade). They also saw that technology induced changes yet to come will impact the nature and organization of work in ways that will pose deep and difficult challenges for most rich countries, challenges which their institutional political systems are not yet equipped to bear.
Overall I would characterize the mood of the Meetings as a sigh of relief at the breathing space provided by somewhat improved economic performance in the year ahead but a recognition that if we don't address some short term risks and fundamental challenges, the light at the end of the tunnel could well be the proverbial freight train.