Is a global economic recovery likely to happen?

Many countries in the Middle East and worldwide expect economic recovery in the next few years in line with the improving global oil prices on one hand, and IMF financial data in relation to global growth on the other hand. Despite the talk of IMF data and its operations, policies and decisions regarding the affairs of many countries and their economies, such data cannot be dismissed in learning some of the facts of interest to the world.

A month ago, IMF issued some reports indicating that periodic global recovery is still gaining strength since mid-2016. Prior to that, the global economy was experiencing a slowdown in growth and turmoil in financial markets, but the current picture looks very different with the acceleration of growth in Europe, Japan, China, India and the United States.

The financial situation remains strong across the world, although financial markets expect some unrest in the upcoming period, while the Federal Reserve continues to restore normal monetary conditions and the European Central Bank marches steadily in the same direction.

According to IMF officials, these positive developments are a good indicator of restored confidence. However, neither policy makers nor markets can be complacent since the cautious outlook suggests that global recovery is unsustainable, inflation is often below the target level, and wage growth is weak and medium-term prospects remain disappointing in many parts of the world.

While IMF is optimistic about the world’s future economic developments, it also notes that there are major risks threatening the current recovery. Hence, financial markets that ignore these risks are subject to confusing repricing and misleading messages to policymakers, which, in turn, need to maintain a longer-term vision and cease any opportunities to implement the necessary structural and financial reforms in order to enhance resilience and raise productivity and investment.

Therefore, it is important to follow this course, as governments often wait for some crises to make crucial decisions, which is by itself a source of risk that threatens the prospects for the economy and impedes achieving the required growth.

The recently achieved economic progress represents a global environment full of opportunities, and policy-makers should not miss the opportunities at hand in this regard. Countries are required from within to fill the negative output gaps in advanced economies, where nominal and real wage growth is currently weak compared with the previous recovery periods as seen by the IMF.

Meanwhile, weak wage growth is a source of weak inflation, which is also a cause for concern. These developments have caused a large public reaction against globalisation — a major threat to the global economy — although both technological developments and government policies have played a greater role in increasing inequality in income distribution. Moreover, there are current concerns about the rapid transition to automated systems.

Generally speaking, the IMF believes all countries have ample room to take action that will enhance economic resilience and possible growth, and that for some countries that have already closed output gaps, it is time to consider fiscal discipline gradually, to reduce bloated public debt levels and create protective margins to be used in the upcoming recession.

For example, these countries can make necessary investments in productive infrastructure or spending to support structural reforms, as this global financial package could also help reduce excessive global imbalances.