Subdued world economic outlook discussed at IMF Annual Meeting

The Annual Meeting of the International Monetary Fund (IMF) is being held from 8 to 11 October in Lima against the backdrop of a perceptible deterioration in the outlook for the global economy. As reported in the recently published "World Economic Outlook", global economic expansion slowed in the first half of 2015. The IMF has made a downward revision to its forecast for global growth this year from 3.3% to 3.1%. In 2014, the global economy was still growing at 3.4%.

According to IMF estimates, growth in developed economies will pick up slightly compared to the previous year. However, the Fund expects economic momentum to slow for the fifth year running in developing countries and emerging markets. According to the IMF's analysis, the main reason for this is the gloomier prospects for some large emerging markets and oil exporting countries.

Bundesbank President, Jens Weidmann, deems the outlook for the euro area and the United States to be positive. In an interview with the German newspaper "Die Welt" held prior to the meeting, he said that the economic recovery was continuing in both cases. While incoming orders from non-euro-area countries have fallen recently, "the domestic economy and exports to the rest of the euro area are still doing well," he said.

Structural reforms a top priority

Speaking at a press conference ahead of the Annual Meeting, Andreas Dombret, member of the Bundesbank's Executive Board, stressed that low potential growth of the global economy as a whole could not be increased in a sustainable manner through short-term stimulus measures. "When it comes to improving the medium-term growth outlook, structural reforms should be the top priority," he said. Reducing high public debt levels remains one of the foremost challenges, he added.

According to the IMF, downside risks for growth have increased. Important factors cited by its economists are falling commodity prices, lower inflows of capital to emerging markets, pressure on emerging market currencies, and greater volatility on the financial markets. Mr Dombret pointed out that lower commodity prices have had a positive effect on the economies of commodity-importing countries. "However, all in all the risks for the global economy predominate," he said.

No full-blown crisis in China

The IMF expects a gradual economic slowdown in China. According to the Fund, this is "broadly in line with the forecasts." However, according to the "World Economic Outlook", which is published on a half-yearly basis, the cross-border effects were greater than previously forecast. Mr Dombret said that while the Chinese economy has faltered of late, "there are no signs of it entering a full-blown crisis." The slump in Chinese stock market prices is, in his view, likely to have only a minor impact on the country's real economy and its financial stability. "That said, it is difficult to gauge the possible negative confidence effects on other emerging market economies and the global economy as a whole," he warned. In his estimation, transparent economic and fiscal policy in China is particularly important, as this enables other countries to respond appropriately to developments there.

Reserve currency must fulfil all criteria

Mr Dombret signalled his openness to the inclusion of the Chinese renminbi in the currency basket for special drawing rights (SDRs). "So far, China's progress towards liberalisation has been commendable," he said, while also stating that it was essential that the renminbi meet all the IMF's criteria for inclusion. "In particular, it must be ensured that the IMF is able to recognise the renminbi as a freely useable currency," he said.

Currently, the currency basket comprises the US dollar, the euro, the Japanese yen and pound sterling. A currency's weight in the currency basket depends on that currency's share of world exports. The basket's composition and weights are determined by the Executive Board of the IMF every five years. The next time this occurs will be at this year's Annual Meeting. Speaking ahead of the meeting, Mr Dombret said that the IMF could approve the inclusion of the renminbi in the currency basket as early as November 2015. The technical implementation would then follow in October 2016.

Lima substitutes Washington

The agenda of the IMF's Board of Governors meeting in 2015 largely covers administrative issues such as the budget and the exercising of monitoring obligations. The global political agenda is deliberated on by the IMF's International Monetary and Financial Committee (IMFC). Finance ministers of the 20 leading industrialised countries and emerging markets (G20) use the IMF Annual Meeting as a platform to discuss tax-related matters. Germany’s rights and responsibilities as a member of the IMF are exercised by the Bundesbank in conjunction with the Federal Ministry of Finance. In his capacity as Bundesbank President, Jens Weidmann is Germany's representative on the Board of Governors.

Every three years, the Annual Meeting of the IMF is held in a member state as opposed to Washington DC. The venue in 2012 was the Japanese capital, Tokyo, and in 2018 it will take place on the Indonesian island of Bali.