At the “Spring Meetings” of ministers and central bank governors from around the globe, in Washington DC, US, on Wednesday (4/13), the International Monetary Fund (IMF) warned of the possibility that the global economy would continue to slow.
At the “Too Slow for Too Long” press conference, the IMF further cut the projection of global economic growth for this year to 3.2 percent, down from the previous 3.4 percent. Projected growth next year is 3.5 percent.
The IMF’s Director of Research and Economic Advisor Maurice Obstfeld said global economic growth is still sluggish. But, he said that emerging-market countries continue to demonstrate a potential for growth, of between four and seven percent. These estimates appeared to refer to the economic growth of China, India, and several other emerging market nations, such as Indonesia.
Obstfeld suggested that the nations of the world use their monetary and fiscal policies, and structural reform, to address this economic slowdown. Also, countries need to monitor risks in the financial and non-economic markets, such as war and terrorism.
Over the past year, global financial market players have not been consistent in their response to these conditions, resulting in increased volatility of the financial markets. This is demonstrated by the assets sales increase, rapid transfer of funds to avoid risks and the sharp decline in the price of oil and other commodities. “Financial markets reacted more than the changing fundamentals would have warranted, both on the downswing and the upswing. There is a risk that further bouts of volatility will affect the real economy,” Obstfeld said at the IMF press conference, Thursday (4/14).
IMF’s Managing Director Christine Lagarde added that policy makers in all countries must focus on strengthening economic growth. And their second task is to make contingency plans for the future in order to mitigate risks. (Read: ADB Predicts Further Slowdown in Asia’s Economy in 2016)
For both tasks, monetary policy must continue to be accommodated to mitigate the risk of deflation. But monetary policy needs support from fiscal policy and structural reform. In some countries, infrastructure development looks good, especially where borrowing rates are low.
“Continued structural reform could increase potential economic growth, especially if it is supported by fiscal policies. Competitive market reform will also support growth. And in the short-term, the financial state of a country would also be strengthened,” Christine explained.
The coordinating economic affairs minister Darmin Nasution said the slowed global economy will certainly affect Indonesia’s economy. However, he is optimistic that policies that the government has put in place will shore up the Indonesian economy. In other words, the slowdown of the global economy will not have significantly affect Indonesia. “The things that we’ve done have helped protect Indonesia from the effects sluggish global economic growth,” Darmin said in his office.
Indonesia’s solid economy is reflected in the figures for the last two quarters. “Indonesia is getting back on its feet pretty fast. Although [economic growth] is slight, it’s not slowing down,” Darmin said. (Read: Indonesia Leads Asia’s Economic Growth)
During the first quarter of the year, Darmin predicted Indonesia’s economic growth to be 5.1 to 5.2 percent. This prediction is higher than actual growth in the fourth quarter of 2015 of 5.04 percent. This projection matches that previously made by the Finance Minister Bambang Brodjonegoro.
Darmin said that growth for the first quarter of this year should be better than the expected. “But, peak [the economic growth] will be in April and May, so that will not affect the estimates for the first quarter.” (Read: World Bank Revises Indonesia's Economic Growth Projection)