Putting the global back into the global economy
A worldwide slowdown requires more ‘synchronized’ policies between countries to ensure the greater good prevails.
Two years ago, the global economy was in “synchronized growth,” as the International Monetary Fund put it. More than 70% of economies were on a healthy upswing. In recent months, more than 70% have been in a slowdown. The IMF calls this a “synchronized deceleration.”
It would be easy to focus only on the IMF’s concern about the declining rate of growth, which may be about 3.3% globally this year compared with 3.6% last year. The IMF’s real worry, however, is that nations are becoming less synchronized on how they run their economies. They are cooperating less when it is clear that past cooperation for the greater good contributed to lifting billions out of poverty. At recent summits, both the Group of Seven and the Group of 20 “clubs” of wealthy nations have been hard-pressed to agree on much in specific detail.
In a recent talk, IMF Managing Director Christine Lagarde asked nations to come together on the most important drivers of prosperity, such as debt reduction, better protection of intellectual property, and coordinated efforts against cross-border corruption. Many countries, for example, are dealing with older populations and stagnant productivity. Solutions are more readily available with greater collaboration.
Major economies are also now in major trade disputes. China and the U.S. are trying to rebalance their trading relationship. Britain cannot decide whether to stay in the European Union. And more countries are involved in disputes at the World Trade Organization.
Such frictions, which create market uncertainty, are a big reason for the economic slowdown. Yet it is the existing global cooperation that is helping prevent a recession.
More than 40 countries, for example, have agreed to penalize companies that pay bribes to gain business abroad. Central banks are coordinating better on when to raise interest rates and by how much. And institutions like the IMF are shining a bright light on countries with a high debt load – and offering help to reduce it. In addition, countries are trying to solve one big problem: International corporations are parking income in low-tax areas.
The global economy is at a “delicate moment,” says Ms. Lagarde. “Let us work together to do something worthy to be remembered.” In this new world, no economy is an island, able to think of only itself.