IMF says governments need to do more to stimulate economic growth
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Version 0 of 1. The International Monetary Fund has warned that the world’s major economies risk a long period of low growth unless governments do more to overcome the after-effects of the financial crisis and the longer-term problem of ageing populations. The Washington-based organisation, best known for acting as lender of last resort to Greece, Ireland and Portugal, said without a switch to policies that spur growth, governments would struggle to shift excessive debts and cut long-term unemployment. Highlighting Germany, Canada and Japan as three of the worst-affected countries, the IMF said that only by adopting a list of policy reforms that include greater spending on research and development, infrastructure projects and workers’ skills could potential output be raised to nearer levels seen before the 2008 financial crash. It said governments should also consider action that also includes “better-designed tax and expenditure policies to boost labour force participation, particularly for women and older workers”. Looking forward, the IMF said potential growth in advanced economies was expected to increase slightly from an average of about 1.3% a year in the last six years to 1.6% until 2020, but not reach the 2.25% average seen between 2001 and 2007. The warning comes in the IMF’s spring outlook, part of which has been released ahead of its full publication next week. It marks a growing frustration in the organisation at the lack of action by governments after the flurry of activity following the banking crash. Output v pre-crisis expectations IMF officials are known to be concerned that the impetus for reforms has wained and in some cases descended into wrangling over bailout programmes, as is the case in Europe between Brussels and Athens. But the organisation has itself come under fire from critics who argue that it has forced countries such as Greece to adopt unsustainable debt repayment programmes, undermining their recovery. While the organisation is split between those who believe governments should emphasise public investment over supply-side reforms, such as cuts in subsidies and benefits, the report side-steps the need for organisations such as the IMF to write off some or all of the debts accumulated by countries worst hit by the 2008 crash. The UK escapes mention as one of the countries likely to be hit by declining labour participation rates after several years of policies that have increased immigration and encouraged greater participation by older workers and women. Since 2005, the UK’s population has increased by almost 5 million to 64 million and its workforce reached a record of more than 30 million, partly offsetting a sharp rise in the number of pensioners. Recent employment figures have shown a jump in the number of over-50s in the workforce and those over 65 as employers look to retain those with high skills. Working age women have re-entered the labour market in greater numbers over recent years, partly in response to severe cuts in tax credit entitlements and other benefits affecting younger families and the equalisation of the pension age for women over 60. The IMF said the reduced prospects for potential growth “have important implications for policy”, especially as “lower potential growth will make it more difficult to reduce high public and private debt ratios” and lock in low interest rates, making it more difficult for central banks to deal with future financial crises. It said: “The reforms needed to achieve this objective vary across countries. In advanced economies, these policies would involve product market reforms, greater support for research and development – including strengthening patent systems and adopting well-designed tax incentives and subsidies in countries where they are low – and more intensive use of high-skilled labour and information and communications technology capital inputs to tackle low productivity growth; infrastructure investment to boost physical capital; and better designed tax and expenditure policies to boost labour force participation, particularly for women and older workers.” |