While growth forecasts for the U.S. and euro area were marked down by 0.2 percentage point, the deepest reductions in advanced economies came in Japan.
A chart of its historical revision is shown below.
In the report, the IMF warns that a prolonged period of slow growth has left the global economy more exposed to negative shocks and raised the risk that the world will slide into stagnation, saying that “the danger of secular stagnation and an entrenchment of excessively low inflation in advanced economies, as well as of lower-than-anticipated potential growth worldwide, has become more tangible.”
So how does one avoid this crunch? More QE, ZIRP, NIPR and so on, of course:
Monetary policy should remain accommodative where output gaps are negative and inflation is too low. In addition, given the uncertain effects of product and labor market reforms on prices, and amid persistent low inflation in many countries, strong and credible monetary policy frameworks are essential. Specifically, such frameworks—including quantitative easing or negative deposit rates, where relevant—can keep medium-term inflation expectations anchored and ease the zero-lower-bound constraint on policy interest rates, thus preempting risks that structural reforms will create deflation, increase the real interest rate, and weigh on aggregate demand in the short term.
And then there is of course the helicopter.
According to Bloomberg, “the weaker outlook is likely to weigh on finance ministers and central bankers from around the globe, who gather in Washington this week for spring meetings of the IMF and World Bank, as well as a Group of 20 session.” The IMF’s recommendation to maintain monetary stimulus will, however, make it easier to do just that with Lagarde’s blessing. After all whatever hasn’t worked so far, will surely work eventually. Just do more of it.
Here are some of the associated remarks:
“Growth has been too slow for too long,” IMF chief economist Maurice Obstfeld said in remarks prepared for a press briefing. “There is no longer much room for error.”
“But by clearly recognizing the risks they jointly face and acting together to prepare for them, national policy makers can bolster confidence, support growth, and guard more effectively against the risk of a derailed recovery,” he said.
The IMF cited among the biggest risks as a “return of financial turmoil itself, impairing confidence and demand in a self-confirming negative feedback loop.”
The fund cited several political and geopolitical pressures, including the rise of populism in the U.S. and Europe; the U.K.’s June referendum on whether to stay in the European Union; and large-scale refugee inflows that add to strains in Europe.
Oddly, there was no mention of failed central planning as the only real risk that matters, because unless somehow Yellen et al. have found a way to print trade, it will continue getting worse as the IMF’s own forecast of global trade growth confirms: as of this moment, 2016 and 2017 trade is projected to grow by a paltry 3.1% and 3.8%, down 0.3% for both from just 4 months ago.
