"Global spillovers have entered a new phase": the Polish launch of 2014 IMF Spillover Report

Global spillovers have entered a new phase. With crisis-related spillovers and risks fading, changing growth patterns are the main source of spillovers in the global economy currently – reads the 2014 IMF Spillover Report. Its findings were presented during a seminar co-organized on September 29th, 2014 by CASE and IMF by dr. Emil Stavrev, a Deputy Division Chief at the Multilateral Surveillance Division of the IMF Research Department, which led the work on the 2014 Spillover Report. During his talk he highlighted two factors that will be of primary importance in the near future: the end of extraordinarily accommodative monetary policy and the decelerated growth in emerging markets.

Recovery and normalization of monetary policy in key advanced economics will have global spillovers. Led by the United States and the United Kingdom, higher benchmark interest rates will imply higher rates globally. Effects on spillover recipient countries will depend on the extent of their vulnerabilities as well as on the smoothness of the normalization process. As accommodation is removed, spillover implications for financial sector reform will also become more apparent going forward.

Slower growth in emerging markets can have sizable spillovers on the rest of the world through diverse channels. A gradual, synchronized, and protracted slowdown will likely weigh on global growth through trade as well as finance. Given stronger regional integration - including through foreign direct investment and remittances, a slowdown can be a significant source of local spillovers on neighbors through added channels.

Spillover risks warrant stronger policy action at both the national and global levels. Stronger actions at the national level in both source and recipient countries of spillovers would align with better outcomes at the global level. With incentive problems and tradeoffs, however, stronger national actions alone may not be sufficient to address spillover consequences, and collaboration takes on renewed importance in mitigating or insuring against potential downside risks and providing support for more vulnerable economies, if certain key risks were to materialize.

Dr. Christopher Hartwell offered his commentary, agreeing particularly on Stavrev’s point that spillover effects would call a greater attention to structural reform. He added that such spillover effects are not exogenous but rather endogenous events, and are fully subject to the effects of policy. Moreover, in his opinion it was the monetary policies of advanced economies that were the worst offenders in regard to generating high risks of spillover effects.

You can download the full 2014 IMF Spillover Report here.

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