Launch of IMF World Economic Outlook 2021

On the morning of December 8, 2021, the launch meeting of IMF’s World Economic Outlook, jointly hosted by the IMF Resident Representative Office in China and the International Monetary Institute (IMI) of Renmin University of China (RUC), was held via video conferencing. Steven Barnett, Senior Resident Representative of IMF in China; Li Xin, Deputy Resident Representative of IMF in China; Christoffer Koch, Economist at Research Department of IMF; Wei Benhua, Former Deputy Administrator, SAFE and Former IMF Executive Director for China; Zhao Xijun, Co-Dean of Academy of China Capital Market, RUC; and Guan Tao, Global Chief Economist at BOC International, were invited speakers. The conference was chaired by Zhang Zhixiang, Former Director General of International Department, People’s Bank of China, and Former IMF Executive Director for China.

In his welcome speech, Zhang Zhixiang extended his warm welcome and gratitude to all the attendees, briefed them on the purpose of this press conference, the organizers and the meeting agenda, and then gave the floor to the invited speakers.

Steven Barnett was the first to deliver a speech. He pointed out that the global economic recovery slowed down and emerging markets suffered from the scarring effect. He also touched on issues of inflation and labor market and policy responses, COVID-19 vaccination, and climate change. According to Mr. Barnett, this year’s economy demonstrated very strong momentum of recovery, but this momentum was gradually weakening, and emerging markets and low-income countries were afflicted by even stronger scarring effect. Looking ahead, the global economy faces substantial uncertainties due to the dynamics of the COVID-19 pandemic. Mr. Barnett believed that powerful policy objectives were key to mitigating the impact of the pandemic in developed countries and China. Moreover, the IMF provided large-scale emergency financing and SDRs for low-income countries and exempted these countries from their debts. The IMF will also set up a trust fund next year to support these countries’ economic transition and will focus on increasing green investment to promote employment and economic development.

Wei Benhua agreed with Mr. Barnett on his analysis and made some comments. He pointed out that the IMF revised down its global growth projection mainly because of the pandemic, or more specifically, because that the speed of vaccination varies from country to country. Therefore, the world economic growth trend is diverging, and international cooperation must be strengthened to contain the pandemic so as to maintain steady global economic growth. Mr. Wei contended that China would remain the best performer in terms of economic growth both in 2021 and 2022 mainly because that after more than four decades’ reform and opening-up, China’s economy has become extremely resilient. Furthermore, China worked and will continue to work closely with the IMF and other international organizations to learn the lessons of global financial crises and manage risks strictly. In addition, the People’s Bank of China has been implementing prudent monetary policy and flexibly using a variety of monetary policy tools. Last but not the least, China has been adhering to the basic state policy of reform and opening-up and has progressed significantly in foreign trade.

As the next speaker, Li Xin delivered a speech titled “The Attack of New COVID Variant Decelerates Recovery in the Asia-Pacific Region”. He mentioned that the Delta variant led to differences in the recovery process of different countries. Currently, Asia-Pacific countries are faced with multiple risk factors such as the tightening of US monetary policy exceeding expectations. To cope with that, in terms of fiscal policy, countries shall extend financial support as long as possible and create fiscal space for high-priority expenditures. As for monetary policy, financial risks shall be watched closely, and corporate restructuring shall be supported. With regard to trade policy, emerging economies’ high non-tariff barriers shall be lowered. Additionally, Asian countries’ measures to reduce carbon emissions would also exert relatively large positive influence.

Zhao Xijun then remarked on the speeches of Steven Barnett and Li Xin. He asserted that the pandemic would exercise an even longer impact on the economy. Then he clarified new changes that may occur in the long run due to the pandemic from four dimensions, namely the development of the pandemic, economic recovery, economic concentration, and inflation and CPI. As for policy risks and policy coordination, Mr. Zhao argued that two issues shall be taken into consideration. Firstly, spread of the pandemic and vaccine distribution shall be paid attention to. Secondly, the spillover effect as a result of monetary policy adjustment shall be addressed.

Christoffer Koch, as the next speaker, shed light on the inflation problem since early 2021, how to anchor inflation expectations and policy significance. He pointed out that inflation could be influenced by various factors such as accumulated savings rate, commodity price and continued supply chain disruptions. The overall inflation rate was expected to peak at the end of 2021 and recover to pre-pandemic levels by mid-2022 both in developing and developed countries. However, upside risks to inflation remained. According to the World Economic Outlook, economic slowdown and inflation were strongly correlated, and a robust recovery would increase the inflation rate. Once there were risks of de-anchoring, actions shall be taken immediately by policy makers. Central banks could see through temporary inflationary pressures and avoid overtightening unless they identify changes in potential prices. They shall also implement fiscal monitoring based on a sustainable medium-term framework, which was critically important to inflation anchoring.

Guan Tao then offered insights into the inflation problem. He shared Christoffer Koch’s views and asserted that this round of inflation was a short-term shock. Inflation would peak by mid-2022 for developed countries but a little bit latter for developing countries. It should also be noted that this round of inflation may be different from what the public expected due to some medium-to-long term factors, and facts already proved that this round of inflationary risks was underestimated. Mr. Guan also claimed that four medium-to-long term factors may lead to a higher level of inflation in the world in the future. First, overissue of notes was very likely to be translated into inflation. Second, the new energy revolution may result in a surge in the market demand for lithium, copper, cobalt and nickel. Third, the scarring effect of the pandemic. Fourth, international division of labor was rethought from an economic perspective attributable to this supply chain crisis, and it could not be ruled out that the global industrial chain and supply chain would accelerate restructuring in the post-pandemic era, against which background the efficiency of international division of labor may be sacrificed to some extent. Lastly, Mr. Guan opined that it was necessary to reflect on the policy response to the pandemic as traditional monetary policy instruments were mainly adopted to address asymmetric economic shocks. Whether traditional or structured instruments were more effective deserved more attention.