Complacency dangerous at any time

Outlook improving, but still plenty of hard work economically

In winter, enjoy”, the late British poet William Blake wrote – but in the eyes of the IMF chief Christine Lagarde, who has a particular affinity to intertwine the state of global economy with poetic or historical quotes, Blake’s words, perhaps inspiring complacency, should not be taken to heart.

Yes, global growth is steaming ahead and the IMF has revised up its world forecast for 2018 and 2019 to 3.9 per cent, 0.2 percentage points higher than in its October projections.

But “pleasant as it may be to bask in the warmth of recovery … the time to repair the roof is when the sun is shining”, the words that Ms Lagarde delivered in October – echoing former US president John F Kennedy – ring true again in January. The world is still tiptoeing around vital issues that need to be addressed while the sun is shining.

As Ms Lagarde pointed out, one-fifth of emerging markets and developing countries had their per capita incomes decline in 2017 as growth in the developed world accelerated at full throttle. It is noteworthy to point out that the IMF’s January outlook did not revise growth forecasts higher for emerging and developing markets.

Perhaps the overarching risk is complacency, wrote Maurice Obstfeld, the IMF’s economic counsellor and director of research following the publishing of the World Economic Outlook update.

Already countries facing potential risks are trying to adopt further reforms to avoid falling into the trap of complacency.

At this week’s World Economic Forum in Davos, leaders and CEOs are scurrying to illustrate that they are not resting on their laurels.

China, the world’s second-largest economy, plans to surprise the world with its economic reforms this year, Liu He, the top financial and economic adviser to president XI Jinping told the forum. India, Asia’s third-largest economy, is also wooing investors to help grow its economy to $5 trillion by 2025, prime minister Narendra Modi told the high-profile meeting.

In the Middle East, governments are also forging ahead with reforms, although oil prices have more than doubled from the troughs of less than $30 per barrel in early 2016.

Saudi Arabia, the world’s biggest oil exporter, began this year implementing a 5 per cent VAT and plans to carry out other reforms, including an increase in fuel prices and the sale of a 5 per cent stake in state-owned Saudi Aramco, the world’s biggest oil producer.

Even Egypt, the most populous Arab nation, is undertaking tough reforms to help revive an economy battered by uprisings since 2011. The IMF has praised the North African country’s reform drive that has helped Cairo secure a $12 billion fund package in 2016.

Repairing the leaking roof may not be that far-fetched, after all.