Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the
Speaker 1: global economy to you. If all the international conferences in
Speaker 1: the world get canceled, will global output go up or down?
Speaker 1: I remember putting that question jokingly to a few economists
Speaker 1: in the early stage of the COVID nineteen crisis, back
Speaker 1: when we were just canceling meetings and events, not putting
Speaker 1: all of normal life on hold. The answer we thought
Speaker 1: was it would reduce global output, but deprived of all
Speaker 1: that networking and speechifying, the productivity of the participants would
Speaker 1: surely go up. I thought of that this week because
Speaker 1: one fixed point in the international calendar that hasn't moved
Speaker 1: to the date of the spring meetings of the International
Speaker 1: Monetary Fund and the World Bank. They've all been happening
Speaker 1: this week online, and they might turn out to be
Speaker 1: more important than usual as finance ministers and central bank
Speaker 1: governors think about how best to help the world economy
Speaker 1: come out. The other side was spending most of this
Speaker 1: week's episode talking about that with the I m S
Speaker 1: Chief economist Peter gop Enough, but first, I wanted quickly
Speaker 1: to bring your attention to one other feature of the
Speaker 1: economic landscape that hasn't budged, and that's German policymaker's conviction
Speaker 1: that they are always right. Well. Europe Economy reporter Katherine
Speaker 1: Boseley will tell us more. Sitting in Zurich, Catherine, many
Speaker 1: of us, looking at the way that Germany has responded
Speaker 1: to this crisis might have thought that they had seen
Speaker 1: the light on running budget deficits to support the economy.
Speaker 1: But they don't see it that way, do they. No.
Speaker 1: I think quite the contrary. I think many people in
Speaker 1: the country will see it as a confirmation of their
Speaker 1: their approach of their frugality, where you essentially, to use
Speaker 1: the words of the I M F, repair the roof
Speaker 1: when the sun is shining and then you have reserves
Speaker 1: for a rainy day. In the piece that you wrote
Speaker 1: earlier this week, you talked about this is the black
Speaker 1: zero policy. It's that that every any anyone who wants
Speaker 1: to be a finance minister in Germany basically has to
Speaker 1: sign up to the idea that you really never run
Speaker 1: a deficit unless you absolutely have to. Um but it's uh.
Speaker 1: Many would say that they've gone beyond just mending the roof.
Speaker 1: They've sort of refused to invest in things that they
Speaker 1: maybe should have invested in. So there's certainly that's been
Speaker 1: the criticism for many years from the likes of the
Speaker 1: I m F, that they actually could be spending more,
Speaker 1: particularly on public investment. That is indeed the case the
Speaker 1: Germany has lagged other European countries, other advanced economies in
Speaker 1: public investment. The infrastructure is not what it used to be.
Speaker 1: The train services a catastrophe, Wireless internet reception is very patchy,
Speaker 1: so there are indeed issues which they could have addressed
Speaker 1: and possibly haven't addressed. And there are definitely economists in
Speaker 1: Germany who say that this, this penny penny pinching approach
Speaker 1: has essentially thwarted the economy in the long term by
Speaker 1: giving it enough enough infrastructure to actually support economic activity,
Speaker 1: and it is I was very struck just looking at
Speaker 1: the numbers a while ago that the public investment is
Speaker 1: a share of GDPs even less than the US, and
Speaker 1: we think of the US as being a great, huge,
Speaker 1: the most greatest example of a place that doesn't invest
Speaker 1: enough in its roads and other things. I guess the
Speaker 1: German response would be, and has been in fact in
Speaker 1: the last week or so, that the fact that they
Speaker 1: were so frugal in the past has now given them
Speaker 1: the capacity to really open the floodgates when it comes
Speaker 1: to supporting the economy now, and we worry that countries
Speaker 1: like Italy for example, maybe don't have that same capacity.
Speaker 1: That is exactly right. The Germany Germans have unveiled some
Speaker 1: of the biggest fiscals simulus programs of any advanced economy,
Speaker 1: and then of course there is also the additional Pan
Speaker 1: European package announced in Brussels last week. Italy obviously has
Speaker 1: less firepower because it's public finances are in a more
Speaker 1: precurious place, which is exactly why, of course there are
Speaker 1: now calls for um jointly issued debt to help rebuild economies.
Speaker 1: I mean, if we step back, I guess if you
Speaker 1: think about six months or nine months ago, where Mario
Speaker 1: drug left the European Central Bank, one of his final
Speaker 1: salvos was to have again a call for looser fiscal
Speaker 1: policy in the Eurozone, particularly the likes of Germany, who
Speaker 1: had strong public finances. You know, one way or another,
Speaker 1: we have got that, and indeed at active fiscal policy
Speaker 1: in Europe is helping to supplement what the European Central
Speaker 1: Bank can do. So I guess we have sort ended
Speaker 1: up in the right place. Even if we were that
Speaker 1: maybe Germans are going to be drawing different lessons from
Speaker 1: it than maybe others might do. That is exactly right
Speaker 1: in the sense that there there you know, work halls
Speaker 1: to spend there. Obviously there is a big analysis and
Speaker 1: in terms of the fiscal spillovers, exactly how big they
Speaker 1: would be from German investment into other countries is a
Speaker 1: matter of the late among economists. But we definitely do
Speaker 1: have the the big, big spending now and there are
Speaker 1: indeed calls in Germany for more spending down the road
Speaker 1: as part of this new green deal that you know
Speaker 1: that has been proposed by the EU. Well, it's going
Speaker 1: to be interesting. I just I can't help thinking there
Speaker 1: are so many things that will get changed by this crisis,
Speaker 1: but I can't help thinking we will have this. We're
Speaker 1: having all the same conversations about Germany needing to have
Speaker 1: LUCI policy for many is to come, despite what we've
Speaker 1: seen in the last few weeks. Catherine Bosby, thanks very much. Well.
Speaker 1: I'm delighted to be joined now by Geter Goppenough, the
Speaker 1: chief economist of the International Monetary Fund, sitting in Washington,
Speaker 1: D C. Geter, You've just produced the Funds new forecast
Speaker 1: for the global economy this week. Obviously it's a big
Speaker 1: change from the last time when you went through that
Speaker 1: process at the beginning of the year. What I found
Speaker 1: particularly striking looking at these forecasts was that your baseline
Speaker 1: scenario for the world was also the most optimistic one,
Speaker 1: when often with forecasts you have a baseline and then
Speaker 1: you have how things have might go well or things
Speaker 1: might go badly. But right now you're really only looking
Speaker 1: at how things could go badly. Stephanie, I think what
Speaker 1: you can say is that you should be struck by
Speaker 1: the uncertainty around the forecast more than anything else. We
Speaker 1: started constructing this over the last level weeks and as
Speaker 1: you know are the I m F it's get gets
Speaker 1: built both bottom up and then top down. So this
Speaker 1: is a very elaborate process with a hundred and eighty
Speaker 1: nine member countries. So this estimate reflects that. So another
Speaker 1: question is you know what kinds of scenarios should we
Speaker 1: be constructing. And yes, there are some upside risks and
Speaker 1: we could see that coming about, especially if we have
Speaker 1: good positive news and therapies and vaccines, But right now,
Speaker 1: we do think that most of the risks of the downside,
Speaker 1: and so we elaborate on three scenarios where things can
Speaker 1: get much voice. And some of those alternative scenarios for
Speaker 1: the global economy involve the return of the virus in
Speaker 1: countries after lockdown measures potentially have been lifted or or
Speaker 1: partially lifted in countries maybe maybe later in the year.
Speaker 1: Is that something I wonder that you thought more and
Speaker 1: more about as you've been finalizing these forecasts. So we
Speaker 1: are you know, our baseline assumes that the pandemic and
Speaker 1: the containment measures will peak in the second whatever for
Speaker 1: most countries in the world and then come off gradually
Speaker 1: in the second half, but clearly that's not given and
Speaker 1: talking to epidemiologists and public health officials, there's certainly no
Speaker 1: certainty that will happen. Now, there are some countries where
Speaker 1: you are seeing containment measures working, and there is you know,
Speaker 1: flattening of the curve and the number of new cases
Speaker 1: are coming down, but it's still too early to say,
Speaker 1: which is why we look into these other scenarios where
Speaker 1: the containment measures need to go into the second half
Speaker 1: of this year and even into and if that happens,
Speaker 1: then it will be uh, you know, doubling of the
Speaker 1: of the downturn, which is from three percent a negative
Speaker 1: three percent to negative six percent in twenty and almost
Speaker 1: no recovery than in one. So it would be much
Speaker 1: much worse. And what we're looking at is of course
Speaker 1: already extremely bad. I mean, this new forecast shows a
Speaker 1: declining global output greater than any in our lifetimes, and
Speaker 1: certainly greater than the global financial crisis. We should remember that,
Speaker 1: I guess this week is when you would usually have
Speaker 1: finance ministers and central bank governors around the world gathered
Speaker 1: in Washington for the I m F and the World
Speaker 1: Bank Spring meetings. In fact, you and I were supposed
Speaker 1: to be doing this interview in person at the Bloomberg
Speaker 1: Bureau there, but the meetings are happening virtually and I
Speaker 1: was struck. One of our reporters, Rich Miller, wrote this
Speaker 1: week the world's ability to check the coronavirus contagion and
Speaker 1: fully recover from the worst recession since the Great Depression
Speaker 1: might depend on what international economic policymakers decide this week.
Speaker 1: Do you agree that there's that much resting on the
Speaker 1: meetings happening this week and those conversations. I think it
Speaker 1: it really makes a big difference of the international community
Speaker 1: steps up and and does even more than what they've
Speaker 1: been doing. Now. You know, there are many advanced economies
Speaker 1: of the world that have put in a lot of
Speaker 1: stimulus or fiscal and monetary policy. So we the global
Speaker 1: economy as a whole, we have about eight trillion dollars
Speaker 1: of goal stimulus, discretionary physical stimulus in the system, but
Speaker 1: it's almost all coming from richer countries and advanced economies.
Speaker 1: If you look at emerging markets, developing economies, low income countries,
Speaker 1: they're in a really much more difficult situation. I mean,
Speaker 1: if there's a health crisis, which they have to deal
Speaker 1: with UH, you know, with worse health systems, and then
Speaker 1: on the on top of that is the financial crisis
Speaker 1: with rapid capital outflows, if your commodity explot as a
Speaker 1: commodity price collapse and you have high levels of debt.
Speaker 1: So their abilities to do the kind of spending that's
Speaker 1: needed at this point, given the high dead burdens that
Speaker 1: they have UH is a major issue. And I think
Speaker 1: the meetings this time around, how you know, would be
Speaker 1: addressing those would would be addressing that particular concern and
Speaker 1: how countries and how the international community can step up
Speaker 1: to provide consertual financing, death relief and aid. There is
Speaker 1: already what we would normally consider to be a pretty
Speaker 1: large hot for you to tap into to help countries
Speaker 1: through this. But when we look at what advanced economies
Speaker 1: have done, I mean, their governments are having to take
Speaker 1: much bigger steps, much faster than they might previously had
Speaker 1: to consider, are you going to need even more to
Speaker 1: give emerging economies and developing countries the help they need?
Speaker 1: They so, how are you going to get it? So
Speaker 1: with you know, advanced economies, they have put a lot
Speaker 1: in the system. I think one of these things about
Speaker 1: this crisis is because of so much of uncertainty, you know,
Speaker 1: you have to have the ability to speedly recalibrate what
Speaker 1: you're what you're going to spend, and what even the
Speaker 1: design of the policies. So again I think you know,
Speaker 1: to tell you what a number for them would be
Speaker 1: difficult at this point. But the plus side is that
Speaker 1: you see monetary policy and physical policy now working together
Speaker 1: in many countries. In the US, you have you know,
Speaker 1: monetary policy that's providing support that's being back stopped by
Speaker 1: the Treasury, and you see that in other parts of
Speaker 1: the world too, So this kind of coordination is absolutely helpful.
Speaker 1: I mean, interest rates are still very low in many
Speaker 1: parts of the world now. I think for other countries,
Speaker 1: we've estimated that if you're looking at emerging marketing developing economies,
Speaker 1: they would need about two and half trillion dollars to
Speaker 1: deal with their bounds of payments needs. And that's not
Speaker 1: something that they can entirely meet on their own. They
Speaker 1: have a significant amount of reserves and those would help,
Speaker 1: but they will need its support from the international community
Speaker 1: here well, often you make new policy in moments of crisis.
Speaker 1: I was at the U. S. Treasury during the Asia
Speaker 1: financial crisis in the late nineties and there were some
Speaker 1: new facilities that came out of that, for example, a
Speaker 1: new contingent credit line for countries to get support through
Speaker 1: the quidity crisis without the usual stigma of going to
Speaker 1: the I m F. Do you think we'll need that
Speaker 1: kind of innovation or new facility with this crisis or
Speaker 1: is it just about scale up very quickly what you
Speaker 1: and the World Bank already have. I think both of
Speaker 1: it is happening. You need you need Uh, innovation here
Speaker 1: and you need scaling up. You know, you saw that.
Speaker 1: You know, some of the major central banks are extending
Speaker 1: swap lines to other countries to help with the dollar
Speaker 1: liquidity problems at the I m F. You know, we've
Speaker 1: had close to a hundred countries come to us for
Speaker 1: financing needs in the last four weeks. I mean a
Speaker 1: total of about a hundred. So it's a very large
Speaker 1: number coming in a very shortly. I don't think we've
Speaker 1: had a hundred countries come to us before, so this
Speaker 1: is unprecedented. And then of course the speed of it
Speaker 1: is even more unprecedented. Uh. And what we've had to
Speaker 1: do is that to meet their needs, we figured that
Speaker 1: we need to increase their access to access to rapid
Speaker 1: financing facilities right as opposed to the ones for which
Speaker 1: there's a long process of review and long drawn program.
Speaker 1: And so we have done That's one of the major
Speaker 1: stuffs we've taken easy who increase that access to levels
Speaker 1: where we think about now a hundred billion, which we
Speaker 1: think would be enough given the kinds of demands that
Speaker 1: we're seeing. And then the second piece, of course, is
Speaker 1: that we want countries, low income countries to be able
Speaker 1: to do the necessary spending on on health that's needed
Speaker 1: in this crisis, or kind of medical supplies and so one.
Speaker 1: And you know, the last thing we want them is
Speaker 1: that instead of doing that, that they're actually servicing their
Speaker 1: death to the i MP. So we are also in
Speaker 1: the process of providing death service relief to many countries,
Speaker 1: and we just did that for twenty five low income countries.
Speaker 1: Many other facilities have been thought of this on on.
Speaker 1: We're thinking about newer short term liquidity lines for countries.
Speaker 1: That's another piece that would matter, maybe even more for
Speaker 1: emerging markets. So there are the kinds of facilities that
Speaker 1: we are thinking about, and I think it will be
Speaker 1: important more generally for the for the even for other
Speaker 1: creditors and other international institutions to do the same. Now,
Speaker 1: I wonder if we could step back to what you
Speaker 1: might be writing about in your world economic outlook in
Speaker 1: maybe a year or two time. I mean, one of
Speaker 1: the debates that the i m F had highlighted recently
Speaker 1: and we've thought about a lot on this program, is
Speaker 1: whether the exceptional measures taken during and since the global
Speaker 1: financial crisis had left governments with enough ammunition to respond
Speaker 1: to the next crisis. We talked about the lack of
Speaker 1: policy space, but now we're in that next crisis. Of course,
Speaker 1: we didn't know what it was going to look like,
Speaker 1: and governments in advanced economies have been able to do
Speaker 1: a lot with monetary and fiscal policy. So do you
Speaker 1: think we've learned that there was more policy space than
Speaker 1: we thought or is it just that these extraordinary circumstances
Speaker 1: have kind of created space for governments to undertake a
Speaker 1: level of spending we wouldn't have previously thought they could do.
Speaker 1: But it's definitely I think when we were flagging, um,
Speaker 1: you know, not so long oh, was that you know,
Speaker 1: monetary policy cannot be the only game in town, and
Speaker 1: next time something goes wrong, fiscal policy will have to
Speaker 1: play a bigger role. I don't think we predicted that
Speaker 1: that would be even more the case because this time around,
Speaker 1: in terms of targeting the measures and getting it to
Speaker 1: the right people, fiscal policy really has to play a
Speaker 1: big role. And that's what we've seen this time around,
Speaker 1: which is we have seen fiscal policy stepping up in
Speaker 1: many parts of the world. Uh and and working with
Speaker 1: monetary policy to have the biggest impact. So I so I,
Speaker 1: you know, so that is in line with what we
Speaker 1: had expected. I think a second lesson we should probably
Speaker 1: learn is the importance of automatic stabilizers, which is, countries
Speaker 1: that have much you know, better built in automatic stabilizers
Speaker 1: can respond to these crisis much more fastly because the
Speaker 1: speed with which all of this happens. If you don't
Speaker 1: have the infrastructure in places, you don't have the systems
Speaker 1: in place to deliver income support to people, then you
Speaker 1: know you have a harder time getting out of the crazies.
Speaker 1: And so automatic civilizers, I think are another big factor.
Speaker 1: So I guess we should just explain more automatic stabilizers there.
Speaker 1: That's the bit of fiscal policy that works without government's
Speaker 1: having to do anything. So if you if you enter
Speaker 1: a recession, your economy shrinks, your tax revenues automatically go down,
Speaker 1: and your public spending on things like unemployment benefits automatically
Speaker 1: goes up. That's the automatic stabilizers. But all of the
Speaker 1: fiscal policy support, at least in advanced economies, has been
Speaker 1: about trying to prevent their being permanent costs from this
Speaker 1: shutdown in economies, so preventing companies that are otherwise viable
Speaker 1: from going bust and stopping people going into unemployment who
Speaker 1: might otherwise have just been able to stay in work
Speaker 1: and whose jobs are viable. But at this point, do
Speaker 1: you think advanced economies have done as much as they
Speaker 1: can do to minimize that long term damage from this crisis?
Speaker 1: How optimistic are you? I think there is a substantial
Speaker 1: risk in that. You know, this is a crisis that's
Speaker 1: helped and that's affecting small and medium enterprises along with
Speaker 1: some of the big ones. Uh, and getting to them
Speaker 1: is much harder when you have a deep procession of
Speaker 1: this kind. He tends to leave scars, you know, in
Speaker 1: terms of job losses, in terms of firms that go
Speaker 1: out of business and take much longer to come back.
Speaker 1: There are gonna be issues with you know, private sector
Speaker 1: balance sheets, public sector balance sheet. So I think there
Speaker 1: is a lot to be concerned about here. I mean,
Speaker 1: another thing I would like to want to flag is
Speaker 1: that while in the past, when there's been a crisis
Speaker 1: and you have all the stimulus in the system, it
Speaker 1: is a stimulus, which is you want people to go
Speaker 1: out and spend, you want firms to invest now, But
Speaker 1: that's not what the other side of this crisis is,
Speaker 1: which is the health crisis, and so at the same time,
Speaker 1: all of the stimulus is in the system. We want
Speaker 1: people to stay at home and not exactly lot and spend,
Speaker 1: So it's a very different transmission channel this time around.
Speaker 1: The hope is that you will keep people with sufficient
Speaker 1: income so that they can meet their needs, that farms
Speaker 1: and businesses can stay afloat that once we get past
Speaker 1: this period of lockdown, that that things would would recover
Speaker 1: much faster. But I mean, the economic landscape will look
Speaker 1: very different once we come out of this lockdown. And
Speaker 1: I think there's from medicine certainty, I wonder. I mean,
Speaker 1: you're right that this is a different kind of stimulus
Speaker 1: because a lot of the money being spent isn't by definition,
Speaker 1: can't stimulate the economy right now, We're not people can't
Speaker 1: spend it necessarily. It can only hend hold the economy
Speaker 1: and suspended animation. Do you think that when the economy
Speaker 1: does come back and people can go out and spend,
Speaker 1: but we might actually see some of inflation Finally, as
Speaker 1: a result of all this fiscal spending. I think the
Speaker 1: money that's being handed out, though the overall number looks large,
Speaker 1: it's for an individual household. It's a small amount. I
Speaker 1: think this is more of US sustainments as opposed to
Speaker 1: having excess of funding. No. You know, based on our projections,
Speaker 1: we are looking at economic activity being below potential for
Speaker 1: several quarters, and with that we you know, cannot expect
Speaker 1: to see inflationary pressures um any time soon. It's one
Speaker 1: final subject I wanted to touch on that the I
Speaker 1: m F has put a lot of more focus on
Speaker 1: over the last few years, and that's the relationship between
Speaker 1: inequality and the economy and the economic damage that comes
Speaker 1: from inequality as well as the social damage. I think
Speaker 1: a lot of those costs have been brought home very
Speaker 1: dramatically in this crisis. I mean, we've seen such a
Speaker 1: difference between the situation of people working for large companies
Speaker 1: or traditional companies and the situation of people at the
Speaker 1: fringes of the labor market, for example, who are not
Speaker 1: only on low incomes but potentially in the gig economy
Speaker 1: with no job security and now no income. Do you
Speaker 1: think we might see a rare evaluation of the role
Speaker 1: of the state coming out of this, and maybe a
Speaker 1: greater focus on providing rights, providing a safety net for
Speaker 1: those parts of the workforce that turned out to be
Speaker 1: so vulnerable to this crisis. I mean, for countries to
Speaker 1: come out of this really grim situation, and this is
Speaker 1: true for all countries in the world. It's going to
Speaker 1: be important to get everybody to be able to survive
Speaker 1: this crisis and to come out whold at the other end.
Speaker 1: And so, you know, having this kind of inequality which
Speaker 1: leads to permanent losses of income people coming up saying
Speaker 1: out of the labor force where they can't maintain basic
Speaker 1: livelihoods doesn't help anybody. It doesn't help. It doesn't help
Speaker 1: even from a just a pure growth perspective. So I
Speaker 1: think absolutely, I think it's very important for the world
Speaker 1: to ensure that there are again I would just automatic
Speaker 1: systems in place that get triggered whenever something like this
Speaker 1: happens to ensure that people get the support that they
Speaker 1: need and also to make sure that in normal times
Speaker 1: that there is an equitable distribution of income in the world.
Speaker 1: I'm sorry I said that was the last one, but
Speaker 1: actually I do have one other question because I realized
Speaker 1: I'm talking to you and I'm also reading the analysis
Speaker 1: of our India economist Abishek Gupta about the impact of
Speaker 1: the lockdown in India. As someone who is very familiar
Speaker 1: with the Indian economy, I'm just thinking about the kind
Speaker 1: of lockdown that's now being attempted there, what that means
Speaker 1: for the economy. Do you feel that there's enough understanding
Speaker 1: of the implications of that for a country such as
Speaker 1: India with its enormous slum population and informal economy. Are
Speaker 1: there enough programs there to prevent this kind of shutdown
Speaker 1: being cataclysmic for a big chunk of the Indian population. Well,
Speaker 1: it is essential to do what we're seeing there, and
Speaker 1: I think it's the Indian government was right to UH
Speaker 1: to move speedily and put these kinds of lockdowns in place,
Speaker 1: you know, who have to make sure that this crisis
Speaker 1: doesn't spiral out of control. Now, this has unfortunately had
Speaker 1: a big effect on UH daily wage workers, and you've
Speaker 1: seen this with migrant laborers who are going back to
Speaker 1: the villages. And you know, this requires at the same
Speaker 1: time as you're putting this containment in place, it requires
Speaker 1: that the government supplies food transfers in kind, but also
Speaker 1: cash transfers, and they they are doing several things in
Speaker 1: this dimension. They are providing a relief to a lot
Speaker 1: of workers, and I expect that they will do more
Speaker 1: going forward. Enough, Chief Economists of the I m F,
Speaker 1: thank you very much, Thank you, Sethny, thanks for listening
Speaker 1: to Stephanomics. We'll be back next week with more on
Speaker 1: how COVID nineteen is affecting the global economy. And remember
Speaker 1: you can always find us on the Bloomberg terminal, website,
Speaker 1: app or wherever you get your podcasts. For more news
Speaker 1: and analysis during the week from Bloomberg Economics, you can
Speaker 1: follow as Economics on Twitter. You can also find me
Speaker 1: on at my Stephanomics. This episode was produced by Magnus Hendrickson,
Speaker 1: with special thanks to get Gopinath and Katherine Bosley. Scott
Speaker 1: Lamman is the executive producer of Stephanomics and the head
Speaker 1: of Bloomberg Podcasts is Francesca Levi.