The IMF has cut its global growth forecast in the October update to its World Economic Outlook (WEO), basically, because the risks it was anticipating in that report have intensified or already been realised: the tariffs war and capital flight from emerging markets. Therefore the Fund has reduced across the board its July expectations for growth for both 2018 and 2019 (-0.2 percentage points in both cases, so that it forecasts global GDP growth stable at the same rate registered in 2017 (3.7%).
Facing this scenario of reduced growth expectations and clear downside risks from the protectionist threat, the IMF calls for a recovery in the margins of political economy so as to be able to deal with the next cyclical slowdown and a correction in excessive internal and external imbalances. For example, as recorded by researchers at Bankia Estudios, chapter 2 of the October Report reflects how those countries who confronted the last financial crisis with a better fiscal position were those countries who suffered smaller falls in GDP.
Ten years after the collapse of Lehman Brothers, the global economy is characterised by the following features: An average public debt above 50% of GDP (36% before the crisis; central banks which, especially in the advanced economies, have multiplied their balance sheets, and finally emerging economies which account for 60% of GDP, whereas they only accounted for barely 40% before the crisis.
In this scenario, the IMF carries out an analysis of 180 countries, both developed and emerging, through which it analyses: (i) how many countries have returned to pre-crisis trends (adjusted to exclude the credit boom effect); (ii) what factors have determined this process of recovery; and (iii) to what point economic policy decisions had influences the current cycle.
In the first place, the IMF highlights that more than 60% of the economies are still growing below their pre-crisis trends. This lose of economic activity has been general and persistent between economies, but more intense among those economies which suffered a banking crisis in 2007-2008 (85% of those have not recovered their previous dynamism).
In second place, the Fund considers that the lack of greater investment in capital had been key to this lost of activity (in 2017 it was on average 25% below pre-crisis trends). As well as the smaller stock of fixed capital, it also noted lower growth rates in productivity and a slower adoption of new technologies. This investment gap has been even more obvious in the economies which suffered a banking crisis, doubtless because of the lack of credit and the lower expectations of returns on investment.
As for the economic policy decisions before, during and in the years after the crisis, the IMF considers that these have been determinant as far as the adjustment during the crisis and the subsequent process of recuperation. In this sense, it highlights three main groups. Firstly, those economies with stricter banking and financial regulation were those who suffered smaller falls in GDP in the years after 2008. Secondly, the economies with a stronger fiscal position and, therefore, with a greater margin for introducing fiscal measure, were those who experienced the smallest fall. Lastly, those countries which adopted exceptional and unconventional monetary policy measures, managed to soften the severity of the crisis.