Launch of IMF World Economic Outlook 2022

On the morning of May 11, 2022, the Launch of IMF’s World Economic Outlook was held online. The conference was co-organized by the IMF Resident Representative Office in China and the IMI, Renmin University of China (RUC).

Steven Barnett, Senior Resident Representative of IMF in China; Li Xin, Deputy Resident Representative of IMF in China; Davide Malacrino, Economist at Research Department of IMF; Ting Lan, Economist at European Department of IMF; and Wu Xiaoqiu, former Vice-President of RUC and Dean of Academy of China Capital Market, were invited as keynote speakers. Wei Benhua, former Deputy Administrator of State Administration of Foreign Exchange and former IMF Executive Director for China; Chen Weidong, Dean of Research Institute of Bank of China; Zhao Xijun, Co-Dean of Academy of China Capital Market, RUC; and Qu Qiang, Professor of School of Finance, RUC, were engaged in the discussion. Ben Shenglin, IMI Co-director, Dean of Zhejiang University International Business School, and Dean of Academy of Internet Finance, concluded the discussion with a few remarks. 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.

Prof. Zhuang Yumin, Dean of School of Finance, RUC, delivered opening remarks and extended her warm welcome and gratitude to all the attendees. She pointed out that global economic growth is expected to slow down according to the World Economic Outlook and that the growth slowdown in the Asia-Pacific region might be sharper than previously projected. Therefore, multilateral cooperation among countries across the world is required and should be strengthened. Joint efforts should be made to address international crises, avoid economic fragmentation, maintain global liquidity, manage the debt crisis, tackle climate change and end the COVID-19 pandemic as soon as possible. Dean Zhuang concluded her speech by remarking that she looked forward to strengthening the cooperation between the IMI and the IMF and wished the launch meeting a great success.

Mr. Steven Barnett was the first to deliver a keynote speech. He emphasized that IMF lowered the global economic growth forecast in 2022 due to compound challenges. The global economic growth rate in 2020 was -3.1%, the worst since the Great Depression. The growth rate was 6.1% last year but was deceptive to some extent. The scarring effects after the pandemic will linger for a long time and may cause a long-term setback for the global economy. Countries across the world are facing scarring effects from the pandemic to various degrees. The world average scarring effects rate was -3.7% in 2021, in other words, the global GDP growth rate in 2021 should have been 3.7% higher if not hit by the pandemic.

IMF lowered its estimated global economic growth rate by 0.8 percentage points in 2022 in the latest World Economic Outlook mainly because of negative spillovers of the Russia-Ukraine war into European countries and Russia. As Russia and Ukraine account for a large share of global commodity exports, the conflict between the two led to upward pressure on global commodities. In terms of the labor market, the increasingly tightening labor market and accelerating wage costs in advanced economies resulted in rising inflation pressure. Compared with advanced economies, the tightening of the workforce in emerging markets was less obvious. The monetary policies of countries across the world require adjustment. In fact, many countries already tightened their fiscal and monetary policies. Therefore, it is most likely that the interest rate will rise. Countries with huge amounts of foreign debts will face growing pressure to repay debts and interest. The chart showed that 25% of some low-income countries’ fiscal revenues will go to repaying the interest of their foreign debts.

Regarding multilateral cooperation, Steven Barnett mentioned that he never saw such a large-scale and fast bailout during decades of work at the IMF. In total, 92 countries, including 52 low-income countries received financial aid of over 216 billion US dollars and 25 countries received debt relief. In addition, IMF Executive Board approved the establishment of the Resilience and Sustainability Trust and the implementation of new toolkits for long-term financial support.

Mr. Wei Benhua agreed with Steven Barnett on his analysis. He remained optimistic about China’s growth despite challenges faced by the global economy. The pandemic, the conflict between Russia and Ukraine, and other factors gave rise to downside risks and growing inflationary pressure on the global economy. The source of the inflation came from the quantitative easing policy and the expansionary fiscal policy pursued by the United States for many years. It is necessary to focus on spillover effects of the Fed’s policies of increasing interest rates and shrinking balance sheets on other countries and regions. Such policies may particularly lead to capital outflow, currency appreciation pressure, and financial market disorder in developing countries.

Regarding China’s economy, he was optimistic about the GDP growth target of 5.5%. In terms of pandemic responses, the Chinese population was too large to bear the cost of herd immunity. Therefore, China adopted the zero-COVID policy, which may hurt the economy but can save people’s lives. China’s growth pattern is being transformed into a model that prioritizes quality. When the zero-COVID policy is implemented on large scale, the economic cost is lower than before because many people can afford to work at home. Advanced communication technologies have laid the foundation for the policy. Moreover, China has adequate room for fiscal and monetary policies and can capitalize on policy instruments to boost the real economy.

Mr. Li Xin delivered a keynote speech regarding the Asia-Pacific region’s economic outlook. He pointed out that IMF slashed GDP growth baseline forecast in the Asia-Pacific region by 0.5 percentage points due to the impact and raises inflation expectations at the same time. Concerning baseline projection, the risks and challenges faced by the Asian-Pacific economy include the increasing commodity prices and social chaos due to the aggregating Russia-Ukraine war, more variants of the Covid-19 virus, climate change and natural disasters, tightening global financial conditions, and China’s economic growth slowdown. Asia-Pacific region countries, like others in the world, have to face a short-term trade-off between economic recovery and inflation and debt management. The goals of fiscal support are supposed to protect vulnerable groups from the impact of soaring food and fuel prices, strengthen the middle-term fiscal policy framework and ensure debt sustainability. Monetary policies should be tightened timely according to the domestic inflation and global financial conditions and prudent macro policies should be taken to reduce the risks to financial stability. In order to effectively address the middle and long-term scars caused by the pandemic, the priority is to promote economic reform and boost long-term economic growth.

In addition to negative spillover effects of the Russia-Ukraine war, China’s economy is facing downward pressure including the recent Covid-19 resurgence, pandemic responses, and the pressure on housing market. As a result, China lowered the GDP growth projection of 4.8% in January forecast to 4.4%. Meanwhile, China has issued a series of monetary and fiscal policies to maintain stable growth and still has enough policy room. In terms of fiscal support, it’s necessary to focus on strong policies but also appropriate measures. The shift of policy priority from traditional infrastructure to direct support for household hard-hit by the pandemic boosts short-term recovery of private consumption and promotes middle and long-term re-balance and green transformation of China’s economy.

Mr. Chen Weidong commented on Li Xin’s remarks. According to him, the pandemic and the Russia-Ukraine conflict hit the world economy and particularly developing countries. The pandemic has become a significant factor reshaping the world economy and the economy of the Asia-Pacific region. Strict and science-based responses are vital to pandemic containment and can create a safe environment for economic development and a predictable trend of development. The pandemic resulted in declining employment, accelerating hospital burden, soaring medical expenditures, among others. In the short term, it will affect the labor participation rate and inflation rate, and in the long run, it will reshape the population structure and economic prospects. Therefore, the analysis of the global economy should be based on the average economic growth rate of countries during the pandemic and avoid excessive optimism.

The Russia-Ukraine conflict leads to the shortages of oil, gas, some industrial products and food. Furthermore, the spread effects of the conflicts are noticeable, in particular the shocks to the financial market and governance system as a consequence of the western countries’ sanctions.

While countries in the world are all challenged by the pandemic and inflation, developing countries are in a more desperate plight. Developing countries faced more restraints when easing policies, hence the impact of policy responses on developed and developing economies was asymmetric. Thus, more attention should be paid to the spillover effects and delayed effects when evaluating economic policies.

Mr. Davide Malacrino and Ms. Ting Lan made a keynote address on how global trade and value chains adjusted to and recovered from the pandemic. With the onset of the pandemic, trade collapsed in a dramatic fashion. However, although trade in services remains sluggish, trade in goods bounced back surprisingly quickly. As for global value chains, trade in goods that rely heavily on global value chains (GVC-intensive goods) was more volatile than that in other goods and the speed of recovery in different industries varied. The IMF came to four main conclusions. First, factors specific to the pandemic had an important role in determining trade patterns. Goods imports were larger, and services imports were smaller, in 2020 than would be predicted by a model of import demand. Second, lockdown policies to contain the pandemic had substantial international spillovers. Lockdowns in a country’s trade partners on average accounted for up to 60 percent of the observed decline in imports in the first half of 2020. Third, GVCs were able to adjust to the asynchronous development of the pandemic, as reflected in changes in market shares among GVC regions during the pandemic. Overall, GVCs were more adaptive in Asia. Fourth, resilience to shocks may be gained by further diversification of inputs across countries and greater substitutability in input sourcing. Countries have substantial room to diversify away from domestic sources by sourcing more intermediates from abroad.

Regarding policy recommendations, vaccinating widely across countries and enhancing infrastructure can help minimize spillovers and maximize resilience to shocks. Moreover, governments should play a useful role by filling information gaps in supply chains, reducing trade costs, and lowering trade tensions.

This keynote speech was followed by Prof. Zhao Xijun’s comments. He remarked that the pandemic and the Russia-Ukraine crisis underscore the necessity of GVCs’ restructuring and global cooperation. The GVC restructuring and shifts have been going on since the 2008 Global Financial Crisis. Thanks to the crisis, developed countries realized that hollowing out and over-reliance on some sectors would cause economic imbalances. As a result, many countries proposed the return of manufacturing, which brought about the restructuring of global industrial chains and value chains. This process was catalyzed by the pandemic, especially for goods that rely heavily on global value chains and industrial chains such as semiconductor chips, automobiles, medical products, and PPEs.

The restructuring of GVCs has several new features. First, the way to trade has changed remarkably. The steady rise in the proportion of digital trade or eCommerce is instrumental in boosting resilience to the pandemic shock, and therefore digital trade should be leveraged more effectively. Second, regional trade cooperation has been deepening against the background of deglobalization and the pandemic. For instance, ASEAN countries and RCEP countries are strengthening cooperation and the trade landscape is undergoing new changes. Additionally, the new way to trade for environmental protection is becoming increasingly influential.

The restructuring of GVCs has also been shaped by the pandemic and the Russia-Ukraine conflict. The fundamental solution to disruptions from the pandemic to global value chains and industrial chains is strengthened global cooperation in pandemic responses and trade and investment, which helps remove unreasonable trade restrictions and lift trade sanctions, thereby creating a better trading environment.

Prof. Wu Xiaoqiu then delivered a keynote speech titled “An Analysis of Long & Short-Term Factors That Impact China’s Economy at the Crossroad of History”. He pointed out that the spread of Omicron and the Russia-Ukraine crisis have created great uncertainty for China’s economy and even the global economy, and that we should analyze factors that influence China’s economy and the way forward at this crossroad.

Short-term factors include (1) how to balance pandemic containment and economic growth activities; (2) how micro, small and medium-sized enterprises can survive; and (3) how to cope with drastic commodity price fluctuations worldwide. Long-term factors consist of (1) how to further advance China’s market-oriented reform and improve China’s socialistic market economic system, which will have a profound bearing on expectations and confidence; (2) how to maintain policy continuity and stability and construct a stable expectation mechanism; and (3) how to handle potential, tremendous and long-term risks posed by profound changes in international relations to China’s economy.

The fundamentals of China’s economy remain strong. China’s economy is bound to maintain its strong competitiveness in the world as long as we proceed with market-oriented reform and further open up to the outside world, and handle multilateral and bilateral relationships properly.

Prof. Qu Qiang argued that the role of consumption in stimulating economic growth is sometimes overemphasized, although it is important to stabilize and promote consumption during an economic downturn. According to basic economic theories, consumption plays a vital role in driving economic circulation while economic growth is mainly boosted by investments. Otherwise, how can we explain the fact that consumption was neither included in the classic growth theory nor the endogenous growth theory? Investments require stable expectations. Nonetheless, there is a great deal of uncertainty caused by acts of God such as the development of the pandemic and acts of humans such as geopolitical conflicts and frequent policy changes. Some risks can only be accepted and adapted to, but risks induced by human activities can be mitigated by laying down laws and institutions.

Investments play an important role in fostering economic growth, but the traditional model of public investment would aggravate the problem of overinvestment. It is more important to solicit private investment and identify reasons why private investment weakened in recent years. Investment made by the private sector is efficient, more market-driven and more diversified, and relies heavily on stable and predictable legal and policy environments.

Prof. Ben Shenglin concluded the discussion with three keywords.

The first keyword is divergence. The pandemic caused asymmetric and disproportionate shocks to countries and industries. Developed countries and developing countries, commodity exporters and commodity importers, and regions adjacent to Russia and Ukraine and the outer peripheral areas were all hit hard but differently. Consequently, asymmetric policy responses should be made based on each country’s specific conditions at a specific stage.

The second keyword is deglobalization, which is more worrying. The risk of decoupling is huge due to geopolitical conflicts and the pandemic. Meanwhile, regional cooperation such as RECP is faring well, testifying to the impact of fragmentation on the world as mentioned in the World Economic Outlook.

The last keyword is disruption, in other words, disruption to the supply chain and the international order, which can be mainly attributed to the pandemic lockdowns and global sanctions on Russia. Comfortingly, digital economy and digital trade allow us to work online and exchange with each other via videoconferencing.

During the final Q&A session, Steven Barnett and Li Xin answered questions from the attendees. With respect to globalization, global cooperation is entailed to address issues of climate change, trade and healthcare and the pandemic further highlights its importance. The IMF has been watching closely the development of digital economy and digital currency which have great potential, and recognizes that digital currency should be properly regulated. Regarding the uncertainty, central banks need to carefully guard against the continuous rise in inflation and watch closely market and inflation expectations. As for China’s economic growth, both monetary policy and fiscal policy provide room for short-term growth and promoting household consumption is a viable option of economic rebalancing. To avoid global fragmentation, the IMF spares no efforts to provide valuable public goods for the world, provide good platforms for member states to discuss international issues, and consequently enhance global cooperation.

The World Economic Outlook is the product of the IMF’s systemic survey of macroeconomic conditions and prospects in member countries, as well as an analysis and forecast of global economic and financial developments. It is published twice a year. As a long-term partner of the IMF, the IMI and the IMF are dedicated to studying and exploring monetary and financial strategies. The IMI co-publishes the Outlook every year with the IMF.