The Keynes Society was honoured to host Dr Jianhai Lin virtually. Dr Lin joined the IMF in 1989 and, from March 2012 to August 2020, was the Secretary of the International Monetary Fund, its Board of Governors and the International Monetary and Financial Committee. He had previously served in senior positions in the IMF’s Finance, Policy Development and Review, and Asian and Pacific Departments, working across a wide range of policy matters during his 31 years at the IMF. He was also a member of the Global Governance Council of the World Economic Forum, and is currently Vice Chairman of the International Finance Forum and a frequent speaker at universities and international discussions. He is also working on a book about the IMF, its role, and its history. He is also the
His presentation, “The Changing Global Economic Landscape: Challenges and Opportunities”, took the audience through a wide range of macroeconomic and financial developments and prospects in depth. Dr Lin’s overall message was that, while the impact of Covid-19 on the global economy has been severe, the outlook is looking brighter this year, which is good news for the whole world.
Covid-19 caused a turbulent economic year in 2020, with world GDP shrinking by 3.2%, the worst since the Great Depression. However, world GDP is projected to bounce back by 6% in 2021, marking a significant improvement. Dr Lin explained this recovery by focusing on the health, fiscal, and monetary policy responses. In terms of health, the increase in vaccine rollout and lifting of restrictions will boost growth. Fiscal policy response has been very strong over the past year: the IMF estimates that 16 trillion USD (20% of world GDP) have been spent by governments. In the absence of such stimulus, the world economic recession could have been three times worse. Monetary policy has also been exceptionally supportive, which Dr Lin attributed to lessons learnt from the Great Depression of the 1930s and the 2008 financial crisis.
Despite the positives, the future is uncertain, and Dr Lin identified key challenges in the time ahead. The Covid-19 pandemic is not over yet, with the uneven distribution of vaccines threatening the economic recovery. Currently, vaccines are concentrated in the West and even by the end of 2021, Africa and other regions are forecast to see far fewer jabs than other regions. However, there is an opportunity to add more than 9 trillion USD in global GDP over five years if the vaccine rollout is faster than expected. Even so, there may be a divergence in the recovery of different countries, i.e., the income gap between advanced economies and those with less vaccine capacity will increase. For instance, emerging markets apart from China will, on average, lose 6% of their incomes over the next two years while advanced economies will only see a 2% decrease.
This inequality may have severe repercussions in the future. Progress in poverty reduction may be reversed; 100 million people were pushed into extreme poverty over the past year. Inequality will also affect certain demographic groups more, as shown by lower employment rates for women. The exceptional policy responses could also result in undesirable side effects, as displayed by the current debate between those who feel that the economy may overheat and those who believe in increased economic stimulus. If there is excessive inflation, a sharp contractionary monetary policy reversal to remedy it may end up causing more economic damage. The last current challenge was the rising levels of government debt in proportion to GDP: in 2007, debt to GDP in advanced economies stood well below 60%, whereas in 2020, it was close to or exceed 100%. Dr Lin cited a study by Rogoff and Reinhart, which explained that if the government debt to GDP ratio rises above 90%, a country is likely to suffer from slower economic growth. At this point, Dr Lin challenged the audience to do some research about Japan’s high debt levels through two questions: What is unique about Japan’s debt situation? Can Japan borrow forever?
The last section of the talk focused on eight long-term trends and issues for the future:
- The shift in the economic landscape will change the structure of the world economy. Emerging markets and developing countries currently comprise 40% of world GDP compared to 20% in 1980.
- The interconnectedness of the world economy is rapidly increasing due to complex trade and financial flows.
- Increasing geopolitical tensions present difficulties for future global cooperation.
- There is a slowdown in globalisation. Prior to 2008, world trade grew twice as fast as the economy. In 2020, trade fell by 8.5% while the economy shrank by 3.3%.
- Technology provides opportunities through innovation as well as challenges faced by those whose roles may be automated.
- Climate change is taking on ever-increasing importance, and the benefits of taking environmental action far outweigh the economic costs.
- Income inequality is constantly rising and is the highest in decades. For instance, in the UK, the richest 1% earn 13% of total income.
- There is a wider devolution of power from states due to a rise in the number of non-governmental organisations as well as the increasing prominence of the private sector.
Dr Lin ended his presentation by telling the audience that “to survive and prosper, as individuals we must keep learning and innovating” and that the eight long-term trends would shape the future we will live through as the next generation.
Dr Lin addressed a question on the IMF’s criticisms by acknowledging that after the Asian Financial Crisis in the late 1990s, the IMF has become a better listener and adopter. This, together with improved transparency and communication, has put it on a much better track. He also believes that developing countries may reach net zero by 2050, explaining that it will be a difficult aim, but by no means impossible. This would require efforts by these countries themselves, as well as support by advanced economies.
We were immensely fortunate to have such an experienced and brilliant speaker. On behalf of everyone present, the Keynes Society would like to thank Dr Lin for such an engaging and informative talk.
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