Refinitiv Newscasts - Lagarde, Georgieva speak at WEF event - Global Economic Outlook 1

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21/01/2022 15:20

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Source: Reuters

Description: From the impact of a new COVID variant to continued inflation,
governments will continue to face economic challenges in 2022. What immediate
and long-term actions will be required to stabilize the global economy and
ensure a sustainable and equitable recovery?
Short Link: https://refini.tv/3FIpXfv

Video Transcript:

>> Divergence in growth. >> Vaccines and, of course, fiscal resources,
inequality of opportunity is now compounded by not only high inflation, but in
some countries, high unemployment rates. And, of course, we've got high levels
of debt and those high inflation rates. So leadership and coherent
policymaking at this point is critical, but my question is, is there a risk in
using the Orthodox playbook in unorthodox circumstances? Have we set the
current policy course correctly? And are we all on the same page effectively
when it comes to how we beat inflation, how we maintain growth, and how we
level out the playing field in terms of livelihoods. Managing director, in
that context, and as we focus on the great unwind in monetary policy and
emergency conditions, can I start with you; how do policymakers respond
appropriately to stopping inflation if ultimately it coincides with slower
growth? We had a jobless claims number in the United States yesterday that
imply perhaps growth is slowing now in the world's largest economy in terms of
employment. That does raise some questions about whether our central banks are
pursuing the right strategy and whether stagflation is not potentially a
higher risk than many have assumed. >> Let me start by saying that the
response to this crisis so far has been anything but orthodox. It was
diagnosed correctly at the beginning of the pandemic as both supply and demand
shock. And in a highly coordinated manner, both central banks and finance
authorities have responded in a way that prevented the world into falling into
yet another great depression. And you are absolutely right, we have to be
data-driven and we have to be flexible. So if I were to use the fact that
we're still in January and offer policymakers, say, new year resolution, it
would be policy flexibility. Why? Because 2022 is like navigating an obstacle
course with all the risks you outlined: inflation, COVID continuing, and high
debt levels. So what is that we anticipate for 2022? On the good news site, we
anticipate the recovery to continue, but it is losing some momentum. And it is
faced with the renewal of infections on top of them the much more persistent
than anticipated inflation. And on top of it, the record high at that level is
$226 trillion in debt. And since your question is specifically on inflation,
we need to understand why inflation is higher and more persistent in many
places. And when we understand the reasons, it will be clear that it is not
just for central bankers to fight it. So what are the reasons? So actually, we
have much more competent than me speakers to step forward, but if you look at
the reasons for inflation, one is demand surging with supply still falling
behind and supply interruptions primarily caused by restrictions that are
associated with the waves of COVID still with us. The pressure on prices comes
from food prices shooting up to a certain degree because of climate impacts
and because of energy prices shooting up. And this is a very complicated story
in which there is also an element of geopolitical tensions. And then we have a
phenomenon that is strictly related to the pandemic. And it is the fact that
labor markets are changing. We see that everywhere, but especially in
countries where unemployment has fallen quite significantly. This aggregate
the reasons for inflation, then you understand that it is for central banks to
be evidence data-driven, to communicate clearly, but it is also for other
segments of policymaking that has to be in place. First and foremost, we need
to recognize the importance to fight the pandemic, to build our response
capabilities everywhere. And unfortunately, this is still not quite where it
should be. We have 86 countries, Jeff, where the target of 40%, at least,
vaccinations by the end of last year has not been met, 86 countries. If you
compare sub-Saharan Africa to advanced economies, in Sub-Saharan Africa
vaccination is 7%. In advanced economies, 70%. Obviously, this also has
significance for supply chain disruptions and it has significance of these
very dangerous divergence that we're seeing in the world economy. So just to
stop here, we have to recognize the complexity of challenges, we also have to
recognize that even this one, inflation, is country-specific. I look at my
dear good friend Kuroda, he has the opposite problem. He needs to lift up
inflation. So that country specificity is what makes '22, in a way, even more
difficult than 2020. Why? In 2020, we had similar policies everywhere because
we were fighting the same problem. An economy in standstill. In 2022,
conditions in countries are very different, so we cannot anymore have the same
policy everywhere. It has to be country-specific. >> And that makes our job in
'22, so much more complicated. >> Absolutely Managing Director. But of course,
as we all know, there are some central banks that have a greater impact on the
rest of the world than others. And in that context, let me just ask you, and
the talk is of the Federal Reserve, "Regaining credibility by hiking interest
rates next week." Now, does that language sound unhelpful in the context of a
pandemic recovery? >> We have to be very humble in terms of how we determine
actions at the time of high uncertainty. The Fed is acting responsibly because
inflation in the United States is turning into an economic and social concern.
We also know that actions by the Fed's very significant for US, so this
delicate balancing act between fighting inflation but protecting the recovery
is something that I'm confident the fact is very mindful of. The issue here is
that what the Fed does has implications for US. It has implications for other
countries, especially for those that have high level of dollar-denominated
bet. And there that could throw cold water on what for some countries is
already a weak recovery. And this is what the Fed is doing to clearly
communicate, to prevent surprises is hugely important. And our message to
countries with high level of denominated that is act now. If you can extend
maturities please do it. If you have currency mismatches, now is the moment to
address them. And I can tell you where my worries high as it is for low-income
countries, where 60% of them are now either in bed distress or in the danger
of that distress. This is twice as much as in 2015. So we have to be careful
how we also support those that without international support, are going to be
in deep trouble. >> We'll come back to the debt story a little bit later on
because I think it's very interesting in the context of Indonesia and its role
heading up the G20 this year. So we'll, if you'll excuse me, come back to that
a little bit later on. But I want to talk some more about this great unwind.
And President Lagarde, I should bring you in. This week as you know, the
markets push the 10 year bond yield positive. We saw in the data the highest
factory gate prices, PPI numbers in Germany since 1949. Now you have
consistently said that you are going to act much less aggressively than the
Fed. So can I ask you, how does a piece of data like that from Germany come
into your considerations? Because there are many who think that this horse has
already bolted and you just haven't got to the stable door in time. >> You see
the beauty of Europe is that it is not just one country, however big it is, it
is, as far as the Euro area is concerned, 19 countries that share a single
currency, the Euro, which has just celebrated its 20th anniversary, by the
way. So what we need to look at is numbers from all such countries to
determine an average, both in terms of GDP, in terms of inflation, in terms of
employment. And then of course, we have to look underneath on a disaggregated
basis to appreciate the differences and value the convergence efforts that
will be undertaken using all policy tools. So what are we seeing at the
moment? We are seeing a recovery that has been stronger than anything we had
expected. If you remember Jeff, a year ago we were together, and we were
hoping for some recovery. Little did we know that recovery would be as strong
and as fast as it has been, particularly in the advanced economies. And I
could not agree more with what Kristalina has indicated about the divergence
that divide the different rhythm at which countries are progressing. But in
the advanced economies, it has just been staggering. In a way we are victim of
our own success. Whether it is scientific success as a result of vaccinations
moving much faster than we had anticipated. Whether it is a combination of
monetary policies and fiscal policies, working hand-in-hand, and deliberately
avoiding this carrying that we would have had, the massive layoffs that we
would have had, had those two policies not joined hands to respond
exceptionally to this exceptional situation. So being victim of our own
success, it doesn't stop us from having to be state-dependent, data-dependent,
numbers dependent. And on that front, if there is one thing that all
economists have learned in the course of this crisis is a lesson of humility.
Because whoever you look at, whether it's the ECB, whether it's the IMF,
whether it's the OECD, whether it's all those forecasters, however
professional they are, we all massively underestimated both the recovery, both
the unemployment participation, as well as obviously inflation. So as far as
I'm concerned from our corner of the world, we look at what is behind the
numbers. So when we see that 5% here on your number in the Sunbelt, which was
a striking number for inflation. We hadn't seen that in years. Because we had
suffered from too low inflation for too long. We have to ask ourselves, where
is it coming from? Is it likely to last? And we are trying to figure out how
long it will last. Because that is going to be critical in really composing
the policy response that will be needed. And what do we see under the numbers?
Well, we see 50% energy prices. And as Kristalina alluded to, it is not just
the recovery. It is also a geopolitical factors that are critically important
at the moment, unfortunately. It is also some idiosyncratic factors. It is
somewhere they're related factors. >> And the rest, essentially taking out a
few base effects that will eventually clear out in the next month, actually,
we see a lot of this super-strong recovery that has outpaced supply which was
constrained. And as a result of that, you all, we all talk about the
bottlenecks, the congestion of ports, the lack of truck drivers, and what have
you. Then you ask yourself, these two big factors, are they going to be with
us for the long-term? Are they going to affect this inflation number, and make
it sustainable? And will that dictate monetary policy response? And on all
those fronts, we have to look at special indicators, one of which is wages.
Are salary negotiations, are collective discussions between unions and
employers actually driving towards what many would fear, which is this second
round effect that would then lead to inflation being sustainable for the
medium-term, and that's a level that maybe it's not desirable because it is
above target? But I think that we have, first of all, we're not seeing in the
Euro area in particular, and in Europe in general, we're not seeing these
wages negotiations being way up. Not yet at the moment, at least. And as a
result of that we are not seeing this sustainable movement that would lead to
inflation spiraling out of control. On the contrary, we assume, and again,
lesson of humility here, there is a lot of uncertainty about it. But we assume
for the moment that energy prices will stabilize in the course of 22. That
those bottlenecks, and those congested ports, and drivers missing in action,
and all the rest of it will also stabilize in the course of 22, and that
gradually those inflation numbers will decline. Now, it doesn't mean to say
that we have to be open to any change to this inflation outlook. And I'm
looking at the numbers that we have since a month ago. We will be having new
projections in a couple of months. That might look different, and at that
point I will have to look at my roadmap. And we have agreed within the Euro
area, a roadmap that is called forward guidance. And I have to look at whether
my three criterias of inflation at target 2% at the end of the projection
horizon, which is three years, midpoint, and currently sufficiently strong to
actually be consistent with inflation being sustainable at 2%, even when those
three criteria are satisfied. And of course we need to act. And we have by the
way, we have actually started. Because we are now scheduling the end of our
exceptional program at the end of March, we are phasing out on net asset
purchases in significant volumes moving from 80 down to 20 billion per month
over the course of 22. We know exactly in which sequence we need to move, and
it's once we have completed our net asset purchases, then we will look at
other tools in the toolbox including interest rate hikes. >> I think when you
spoke to French radio on Thursday, you said, we have every reason not to act
as rapidly, and as brutally that one can imagine the Fed would do. I just
wanted to ask you, as you see the markets trying to re-price European
sovereign paper, and you obviously see the reaction that we had in the Euro
from the news that the council was split. How do you convince the markets that
you are going slower for longer because they seem to be trying to hustle you
into acting? >> Well, again, I think that we have to be data-dependent,
state-dependent, patient, and we have to conduct the right analysis. And what
do we look at? We look at two different markets. When I look, for instance, at
demand, which is clearly a major factor on which monetary policy can have some
impact. Our demand in Europe is not a state of excessive demand as compared
with the US, which is 30% above pre-pandemic levels. We are just about at
pre-pandemic level here in Europe. When I look at the labor market, we are not
experiencing anything like the great resignation, and our employment
participation numbers are getting very close to the pre-pandemic level. So I
think if only those two factors, if you look at them carefully are clearly
indicating that we're not moving at the same speed. And we are unlikely to
experience the same kind of inflation increases that the US market has faced.
I remind you that core inflation in the US is at 5.5% when it is at 2.6% in
the Euro area. As I said, we have afford guidance which is, it's a complicated
one granted. But it is pretty solid. We know what to look at, when to combine
the three, and we will act. There's no question in my mind that once the
criterias are satisfied, we will, but at the moment they are not satisfied. >>
If I might just quickly follow up, we've just seen a Euro group meeting where
they've been discussing adjustments to the fiscal rules in Europe. Do you fear
that if there is a relaxation of the Growth, and Stability Pact that will push
the ECB into a corner where you can't act on the basis of the data you have to
ultimately prop up countries like Italy, and others in the Euro-zone that
maybe have weak sovereign debt profiles? >> I think the discussion that has
now begun, and I was at that Euro group meeting, and the subsequent Ecofin
meeting, which brings together 27 finance ministers. The discussion has just
begun. And in my view, what will be critical, and will be scrutinized by
markets is how much consensus is there, and how effective will the rules be
that are decided ultimately by the leaders, I suppose upon proposal of the
finance ministers. And if there is an agreement about a deal that will provide
for simple criterias, for efficient laws that will be countercyclical in its
impact. And hopefully will be associated with something that will not be the
next-generation EU. But some fiscal capacity that is common to all Euro area,
and possibly all European countries to respond to a crisis collectively which
has served all of us so well in the crisis. I think that would be a very
positive sign as far as markets are concerned. When I look at how welcome the
bond issuance by the commission has been on this common, I will not call it
European bond because it is not, but it is a joint issuance of significant
magnitude. There is appetite there to see a region that is stronger, and more
united in its response from, not just something monitoring point of view, but
fiscal point of view. >> Governor Kuroda, if I could bring you in. Some in the
market are surprised that we're talking about a terminal interest rate from
the United States of as low as 1.8%. I wonder if you can share with us maybe
Japan's experience. Have we misunderstood something in the West? Is it
actually high levels of debt, and leverage that will weaken the recovery this
year, and not actually higher policy rate? So we also condemned to have low
policy rates now in the West going forward. >> Maybe, first- >> To mention
about the COVID situation in Japan. In the last two years about two million
people have been infected and about 18,000 have died. This rate population is
approximately 115 so that in the United States and in Europe. So Japan's
response to the pandemic so far has been relatively successful. However, the
pandemic has had a significant negative impact on the Japanese economy.
Japan's GDP for fiscal 2020 declined by 4.5%. And in the first half of fiscal
2021, it also declined at the annualized rate of 0.7%. So this decline was
driven by the combination of weak consumption of face-to-face services and so
on so forth. And also decreasing export and production deflecting supply chain
disruption in Southeast Asia. Nevertheless, the unemployment rate remained at
a low level of around 3%, even during the worst period of the pandemic. So
since the second half of the fiscal 2021, Japan's economy has improved
significantly. Of course in the short run Japan's economy may again come under
strong downward pressure due to the omicron variant. However, we released this
week the focus for Japan's GDP for fiscal 21 being 2.8% positive. And next
fiscal year positive 3.8%. But [inaudible 00:50:51] inflation rate is still
only 0.5%. And this is of course much lower than the 7% in the US and 5% in
Europe. Why? Three factors. One, the increase in demand due to the reopening
the economy has been somewhat lagged in Japan, compared to US and Europe. And
second, Japan has maintained the sufficient supply capacity to meet her
recovery in demand, as firms have hoarded workers even after the outbreak of
the pandemic. And also firms cautious mindset that has take to hold due to the
experience of deflation from 1998 through 2013, has been exerting still
somehow. But that said, recently firms price setting behavior has shown signs
of becoming active. And so we are paying close attention to this. Now you
mentioned the debt in Japan. If you look at the figures, you can find that the
really big debt is rarely in the public sector. And the private sector,
household as well as corporations, they have relatively small size of debt. So
as far as the debt overhang or debt in Japan are concerned, I don't think
there's any negative impact on the economy through the corporate sector and
household sector. The problem is only the public sector. Public sector debt is
now well over 200% of GDP. So that the government maintains that they would
achieve primary surplus by 2025, and thereafter public debt dividends should
be gradually declining. That is the government position. But anyway, in this
situation, the Bank of Japan's very accommodative easy monetary policy has
been working in some sense quite well. Because after a long deflationary
period of 15 years from 1998 through 2013, because of our very simulative,
expansionary, accommodative monetary policy, the economy started to grow. And
although inflation rate is still 0.5%, but in the last eight years or so
inflation rate fluctuated around 1% compared with negative in the 15 years
until 2013, and the corporate sector increased profit substantially, and the
corporate sector also made some substantial fixed investment in the last eight
years. And if you check the figures among G7 countries, nearly, not per capita
income, but per working-age population, Japan's growth rate is very high, even
the highest in the G7 countries. So I think the extremely accommodative,
stimulative monetary policy worked quite well to reinvigorate the economy. But
inflation rate still farest and the 2% target. So that means that unlike in
the US or Europe, we have to continue our extremely accommodative easy
monetary policy for the time being. Because we expect the inflation rate in
fiscal 2022, as well as '23 being around 1%, still. >> We'll continue our
low-interest rate, the expansionary monetary policy for the time being until
we achieve to 2% inflation tax. This is completely a fact in the US and
European situation. So we were not afraid of inflation because the inflation
is so locked but we are determined to achieve the present inflation target as
soon as possible. >> Governor, Prime Minister Kishida has prepared another
enormous budget for Japan. My question as it relates to that really is, does
not that give you some room to maneuver on taking back some of this easy
policy? Because this fiscal stimulus will be quite strong into the Japanese
economy this year. Or is the problem that Japanese citizens have now a
deflationary mindset and this money is just going to find its way into savings
accounts rather than being spent as the stimulus has been spent in the United
States and in Europe but the Japanese will save it rather than spending. >> I
think you have to differentiate from fiscal 2022 budget from the supplementary
budget for the fiscal 2021. Recently, the parliament approved the supplemental
budget for the fiscal 2021 which included the many kinds of income support for
families and so on and so forth. So as far as that part is concerned, as you
said some of them may be just deposited instead of spent and so on, that you
may say. On the other hand, fiscal 2022 budget now proposed to the diet
include various fiscal investment on technological research, infrastructure
investment, particularly related, and so on so forth which are basically spent
by the government. So as far as that 2022 budget is concerned, once approved
by the parliament then would be spent and would be very stimulatory. As I
said, we expect growth in fiscal 2022 be 3.8% which is far higher than the
potential growth rate of about 1%. So we expect this high growth in coming
fiscal years to be very much affected by stimulatory system, fiscal policy.
That is helpful for the economy. At the same time as I said, even given these
fairly large fiscal stimulus majors and even with 3.8% growth in fiscal 2022,
inflation rate we expect about 1%. So that implies that we will continue our
expansionary monetary policy like in other fiscal countries. >> Thank you,
Governor. Minister Sri Mulyani, Indonesia has both reduced its government
deficit and grown 4% in 2021 while as we've heard many of the countries have
struggled. But Indonesia has, if I could suggest, managed to achieve that
because it's been a big beneficiary of the commodity rates related inflation.
Can you continue to do that in 2022 if commodity price inflation falls? >>
Well, thank you so much. The 2021 as I also hear from Kristalina and
Christine, it is an exceptional year when the commodity boom as a result of a
very fast recovery also on the energy side. As well as in this case, we also
see quite strong recovery in the Indonesia economy. If we look at the revenue
side, one part is of course commodity but this is only explaining around
10-15%. It's generally depend on flex and non-tax revenue. So basically, the
search of the revenue is contributed by a very strong demand-driven recovery
which is I think it's really very encouraging given the fact that 2021 we were
also actually affected severely by the Delta variant. That is on the third
quarter last year when we lockdown or in this case imposing a severe
restriction movement, I was actually quite worried that it will decline very
sharply, the recovery process, which is still at the very early stage for
Indonesia. But we saw that the overall growth in the third quarter is still at
3.7% but the underlying revenue from our tax was still extremely strong. What
is also interesting from the revenue specifically from banks in Indonesia, the
profile 2021 as opposed to what you just described, this contributed
significantly by the commodity. But what is actually the underlying data
showing that manufacturing and trade sector are the two most important
contributors to our tax revenue. So it's definitely also a story of recovery
and rebound on the economy. So that is one thing that we also have to look in
a very more detail how does it mean for us in 2022. From the budget point of
view of our target for 2022 was based on the baseline 2021. If you compare
with the achievement, revenue on a tax, customs exercise as well as non-tax
revenue, they are all way above our target. While the 2022 target for our
revenue which is around 105% for the taxation while others is around 110% from
our target, meaning the target for 2022 will definitely be much easier to
achieve because it was calculated based on the baseline, we're just below the
achievement in 2021. >> Even if the commodity, as I listened very carefully
from Christine as well as Kristalina. If the commodity is going to be
normalized then we are still having a strong source of revenue which is coming
from the non-commodity activity. As I mentioned earlier, manufacturing, trade
as well as information technology and of course, if the COVID is going to be
managed well and we add that I'm swimming into more enemy situation. Then all
sector, for example, like transportation, construction, real estate, as well
as hospitality, like restaurant food. It's going to be also recovered very
strongly. So I'm more optimistic that the 2022 revenue will still continue
strong. In addition to that, we also have already reform on legislation point
of view. I've already pass three law actually during this COVID. First, the
emergency law in which we are putting a very strict discipline, only three
years to allow us to have to visit above 3%. That is a very strict jacket for
Indonesia. We have at that time was actually seen by many of the rating
agency. Are you sure Sri Mulyani, you are going to be able to come back to the
below 3% within three years. Now I'm more confident than last year of course.
But also we pass another two law that is on a harmonizing tax legislation, as
well as job creation, which also including on taxation. These are all very
important legislation reform for the taxation because it's not only addressing
the weaknesses. For example, like addressing the issue of tax avoidance, tax
evasion loophole but also we are addressing the issue, for example, like the
digitalization and the digital economy, which is growing very fast in
Indonesia. So we are going to have a much wider basis for our tax revenue. We
also increase our VAT which is starting next April. We are stopping the
declining of the corporate income tax is supposed to be declined into 20%. We
put it a break at the 22%. We also, as I mentioned earlier, filling the
loophole on compliance. So these are all going to be quite as strong, at least
we are expecting 1% of GDP additional revenue from this reform. This is not
too at the strong recovery which we are witnessing last year and we will hope
that it will continue for this year. So that is going to be like the cushion
for our fiscal, especially on the revenue side. But on the spending, we also
very disciplined in this case. Go ahead. >> Minister, let me just follow up
though. Is the resource nationalism that the President is pursuing going to
distort pricing in the commodity markets and cause further inflationary
pressure. And is it appropriate in a year of recovery for the global economy?
>> It is not nationalism. If you look at the Indonesia economic history, these
are all Christine, Kristalina, Kuroda knows very well. Indonesia has been
independent for 76 years. And if you look at the structure of our economy, I
think we have quite a lot of what do you call it hollow middle. We have a very
strong commodity base as an upstream, but no value-added has been created in
our economy. It can be blamed, from many different excuses. What do you call
it? Investment in climate, policy certainty, sanctity of contract and all
those things. So when Indonesia addressing those structural issue, I think I
remember Kristalina will say reform now, Christine, when she was in the IMF,
do it when the weather is good. So you actually fix your roof when the weather
is good. We are doing exactly that. And that is exactly what we are doing,
structural reform in order for us to be able to create more, what do you call
it? Downstream industry. Because Indonesia is a big country, we had the
biggest economy in Asia. You cannot allow this economy to just depend on
commodity without value-added. And then we have downstream industry we just
[inaudible 01:09:08] that's creating a widening gap as well as a strong
structure of the economy. We are very vulnerable. You still remember when we
have Taper Tantrum 2013, it was identified because Indonesia have a current
account revisit. The current account revisit is because every time we grow by
1% higher, then we are going to suffer for more current account revisit. It
create vulnerable, you cannot run fast enough. So this reform and policy we
just implemented under President Jacobi leadership should not be seen as
nationalism because we are opening up our investment. It is not the
nationalism, as you said, is that this is supposed to be for us only, this is
only for the state on enterprises. No, we are open. Please come and invest. Do
it here we are improving our investment climate. And so the value-added
creation with the competitiveness will create a much stronger and better
competitiveness and stronger structurally for Indonesia. So that is really
because we also see a lot of what do you call it, policy recommendation and
assessment about Indonesia. And we actually act accordingly. And that is
exactly what we are trying to do at this very moment on all commodity. You
talk about nickel, you talk about bauxite, you talk about copper. We are
talking about oil refinery, I think it's just right for Indonesia with the
size of the economy. >> Minister, thank you so much. I'm sure Minister Guedes
would also like people to come to Brazil if they're trying to figure out where
to head this year. But let me ask you, minister Guedes, Brazil responded early
to inflation. You started hiking cycle in March last year, how is the
government trying to offset the impact on growth? >> Well, Jeff, I think the
two points before I go to this point, I would like to make a brief comment on
two very important points that were raised by Kristalina and Christine
Lagarde. If Kristalina and Christine, remember, we met at Davao in 2019 and
the diagnosis was clear that the world was in synchronized deceleration. So
the world was lending. >> Try a soft limit, and then at that point I said,
"Listen, Brazil is out of sync with the rest of the world." We're just taking
off. As a matter of fact, we could not beat the revenues of the first quarter
of 2020 yet. Even now this year that we bounced back strongly and we are above
the level of output that we were before the pandemic hit us. So it was a very
important point that Kristalina had made there, and she made it now another
very important point judgment which is there will be an enormous divergence in
economic policies now. The case of Japan is quite clear. They are in the all
position of the US for instance. The US has to raise interest rates and then
Japan is saying that they will keep easing monetary policy because it's a huge
savings country, a huge savings glut that they have. So I want to mention that
this is very important that Miss Alina said, very asymmetric policies and very
different policies specific to the country, and she also mentioned that the
adverse supply shocks were coming to everybody, and so we had that 2020 very
common. Everybody suffered adverse supply shocks in food and energy, related
also to climate change and all that, and then just add also that all of us
answered commonly with expansionary monetary and fiscal policy, and then
begins the difference with Brazil which is probably the only country that is
exactly where it was before the crisis. Our debt GDP ratio, people were
forecasting moving from 75-100% or 76-100% of our debt GDP ratio. Well,
because we kept pursuing our structural reforms in 2021, our debt GDP ratio is
just 80%. So 20% less than the forecast. Even the IMF came to resume projected
forecasts a drop of 9.4% in GDP. We dropped 3.9 only. A lot of people, they're
skeptical about Brazil bouncing back and then we scrap it from the bottom
creating four million new jobs. Three million new formal jobs just last year
21'. We preserved 11 million jobs in the formal market. We assisted 68 million
Brazilians with direct income transfers, non-orthodox direct income transfers.
We digitalize it then. Well, we won in the World Bank ranking the first place
in Americas, before the US, and before Canada as the digital government. Our
digital government serves 120 million people that use public service
digitally. So we made income transfers to 68 million people digitally every
month. I remembered I told our friends in 2019 that they should not
underestimate New Zealand's resilience, our democracy and our economy. The
first point that she made, I fully agree, very important is we must keep our
eyes on the specifics of each country from now on. The common shocks are there
but the answers were different and we have astrometric situations. We
vaccinate them. Ninety-five percent of our adult population, two shots, 70% of
our whole population. So we are practicing now a safe return to work that's
why GDP bounce back very strongly. Of course, Omicron is it still around. In
fact in people. It looks like it is a little less severe, but we are ready
with the protocol. Should the health crisis aggravate, we are ready to shoot
again. All programs were very successful. The job preservation, the graduate
programs, the direct income transfers. So we are ready to mass vaccinate
third, fourth, 50 doses. As long as you keep producing it, we will be
producing it here in Brazil. Also, we already had agreements with the British
and the Americans, Pfizer, to produce locally. So we will be producing locally
and exporting to our neighbors, and the second very important point before I
go to Brazil was made by Christine Lagarde when she said that she's keeping
her eyes on the labor market, and then I submit through your consideration.
That's why I went back to 2019 because we had a synchronized deceleration.
Then we were hit by COVID. We answered correspondingly, and we then got a very
successful avoidance of a great depression. So degradanation was very
fundamental, but now we're back to that situation of synchronized deceleration
and the advance of economies. We do not have problem now which is inflation.
So we're back to deceleration. It's not surprise to me that they will keep
reviewing downwards your growth forecasts because inflation is there, and now
the question is how transitory, how permanent are the factors. This adverse
supply shocks in one side and this expansionary demand on the other side.
Brazil is probably the only country that removed already. We took advantage of
the V-shape to recover it. Instead of growing five and half or six last year,
we're growing for an a half or five because as soon as the economy bounced
back and got power, we removed instantaneously the fiscal and the monetary. >>
Our central bank is now week 3 of 4% real interest rates. And on the fiscal
side, we were spending 19% of GDP public expenditures as a ratio of GDP
federal government. We went through 26.5 in 2020 as a response to the crisis.
Well, we finished 2021 with 19% again. All our expenditures were for health.
We did not let temporary expenditures with the health problem to become
permanent expenditures with the public machine. So expenditures went from 19%
to 26.5 and then bouncing back to 19%, exactly where they are now. Same thing
with the deficits. The deficit came from 1% of GDP to 10.5. And we finished
this year with a small surplus consolidated surplus. So it is a very
asymmetric situation. We, instead of growing 5, 5.5 or 6, we took advantage of
the recovery to remove gradually the monetary and the fiscal. We have room. We
have fiscal and monetary space to react through the third wave or a forth wave
come. And just to finalize the comment on Mr. [inaudible 01:20:23] because I
think her observation that wages are still under control and these might be an
asymmetric position with respect to the US. I want to remember that for 30 or
40 years, we took advantage of the globalization to write on inflation.
Inflation was muted by the Simon factor price equalization theorem, 3.7
billion Irradiance got out of poverty, jumping into the global labor markets.
So there was an enormous, an increasing discomfort in the Western world,
because wages couldn't go higher. Inflation was muted. And wages were going
higher, and 3.7 people in India and Indonesia, in Russia, and in South
Vietnam, and South Korea getting out of poverty. What Japan did in the '50s
and the '60s, all Asia practiced in the last 30-40 years. So we, Western side,
didn't have inflation. But now my fear is that the beast is out of the bumper.
So I don't think inflation will be transitory at all. I think these supply a
diverse shots will fade away gradually. But there's no arbitrage anymore to be
exploited by the Western side. I think the central banks are sleeping at the
driver. They should be aware. And I think inflation will be a real problem
very soon for the Western world, [inaudible 01:22:18] because we had that very
tragic previous experiences with inflation. We move it faster. >> Minister,
thank you very much for that. And I think it's interesting to say that not
everybody is on the same page on this question of whether inflation will be
transitory. And I thought for a moment that you are offering up an olive
branch to the managing director. But as I understand it, you're still
intending that the IMF closes the task in the middle of the year. But we'll
see what happens. >> We love each other. >> We only have about five minutes
left unfortunately, and there are so many topics we haven't touched upon. But
I think the one story really that affects everybody at the moment is what
happens in the world's second largest economy. So managing director, might I
just come back to you as we close out this panel and say, is it really not
time now that China stepped away from a zero COVID policy? And perhaps, you
can explain a face-saving way that the leadership might be able to do that. >>
But China is slowing down and it is a concern for China, it is a concern for
the rest of the world. And this slow down is due to two things. One is the
interruptions that are caused by COVID. And Zero COVID policy means that if
there is any outwards, it has to be put down with all the impact coming from
it. It is also due to the fact that consumption is not picking up as much as
it was expected. So for now, China is using Zero COVID. But what omicron is
teaching all of us is that the highly transmittable variant of COVID may be
much more difficult to contain without a dramatic impact on the economy. And
our view is that this has to be taken into account. And therefore, we will see
how China integrates this message both in terms of the policy they apply, but
also in terms of how they advance on the direction of what are the vaccines
that are most effective and how that would be integrated in China's action.
China does have policy space. We actually are on the view that perhaps it was
a bit premature to withdraw policy support, that it should have been retained
a bit longer. We're seeing People's Bank of China doing something to ease
conditions, and we might see more of it. So China performs its function for
itself, but also as a factor of growth for the rest of the world. >> So this
Zero COVID policy was a mistake? >> The Zero COVID policy for quite some time
did contain infections in China. It is now that we see, with the highly
transmittable variant, that this contagious effect cannot be achieved easily.
And the restrictions that need to be imposed are more of a burden to the
economy, put more at risk, not only China, but also China as supply source for
the rest of the world. And it is at this time that it is important to
re-assess what is the best way to deal with the pandemic. We don't know what
the future would bring for all of us. One thing we know is that pandemic
policy remains a top economic policy in 2022. Unless we build protections
around the globe, we are going to continue to see disruptions and the future
would not be as bright as we want it to be. So my main message here is to all
of us to recognize that the world must spend the billions necessary to contain
COVID in order to gain trillions in output as a result. >> Managing Director,
thank you so much for that final message, and unfortunately, we are out of
time now. So let me just thank our panelists Kristalina Georgieva, Minister
Paulo Guedes, Minister Sri Mulyani Indrawati , Haruhiko Kuroda, the Governor
of the Bank of Japan , and as always, Christine Lagarde, the President of the
European Central Bank. Thank you all for being on this terrific panel on the
global outlook, and thank you all for watching