The global economy is slowing, but performing better than expected. This is the IMF’s main conclusion, projecting medium-term global growth at around 3%, compared with 3.7% before COVID, and below 4.5% at the start of the millennium.
Naturally, the economic outlook could be worse given today’s highly uncertain environment—from geopolitics to growing imbalances, mostly financial. The IMF has referred to this risk- and vulnerability-dominated scenario as the “new normal”: high uncertainty, but with a limited impact on growth.
A scenario that, according to the international organisation, is “better than feared, but worse than we need”. This resilience of the global economy rests on four pillars: 1. Better policy fundamentals, such as coordination of monetary policy in the major countries; 2. The private sector’s adaptation to the new environment; 3. The less severe-than-expected impact of tariffs and the benefits of past globalisation; 4. Very favourable financial conditions.
It is worth highlighting the second and fourth points. Because it is important to recognise the value of private initiative in trade, reorganising supply chains, and the strengthened balance sheets of companies and households following debt adjustments since the financial crisis. Also, the strength of banks, as the ECB reminded us a few days ago, with improved results, thereby contributing to a very favourable financial environment. But it is not enough.
Because it is necessary to increase private-sector productivity; in Europe, for example, by cutting red tape and enabling better regulation. All of this will support confidence and investment. And we need the authorities to continue developing structural reforms and set out a clear strategy to reduce public debt, to strengthen the robustness of growth and ensure it is reflected across all economic and social indicators.
José Luis Martínez Campuzano, Spokesperson for the Spanish Banking Association
