The International Monetary Fund (IMF) has again warned governments around the world that they cannot rely on low or negative interest rates alone to avert recession and drive growth. Sighting factors such as low productivity, the lack of firepower from monetary policy and persistently low inflation the IMF is worried that there are still a number of factors that could blow global growth off course. Also, in a statement from the G20 there was a grave warning, “Growth remains modest and uneven, and downside risks and uncertainties to the global outlook persist against the backdrop of continued financial volatility, challenges faced by commodity exporters and low inflation.”
Whilst the IMF supports the policy of negative interest rates it believes it should not be the only economic policy that should be used. Boosting reforms to raise productivity and employment, as well as not being overly aggressive with austerity measures if countries can afford it are areas that should be addressed. The UK’s Chancellor of the Exchequer summed up the mood stating, “It’s fair to say there’s a fairly anxious mood around the various tables here about the state of the global economy.”
Hammering home the point the IMF was making was US Treasury Secretary, Jack Lew. He said, “All major economies need to deploy a full toolkit of economic policy measures, including monetary and fiscal policies and structural reforms, to address weak demand, boost employment and raise standards of living,” adding, “While the US economy is on a solid path, the global recovery remains uneven and downside risks have become more pronounced due in large part to a continued shortfall in aggregate demand.”
Also over the weekend OPEC ended the meeting in Doha, Qatar, without reaching an agreement to cap oil production. US crude (West Texas) plunged 6.7% at $37.70 a barrel and Brent was down 6.9% at $40.14 a barrel after the news, although both have now recovered somewhat. At the meeting, the oil producers that supply nearly half of the world's output failed to reach a deal to curb their production after Saudi Arabia appeared to walk away from any agreement that didn't include geopolitical rival Iran. It would have been easier to reach a deal had all the members of OPEC been at the meeting, however the Iranian oil minister did not turn up.