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Transcript of the Press Conference on the Release of the July 2018 World Economic Outlook Update

July 16, 2018

Participants:

Maurice Obstfeld , Economic Counsellor and Director of the Research Department Gian Maria Milesi-Ferretti , Deputy Director, Research Department Olga Stankova , Special Assistant to the Director, Communications Department

MS. STANKOVA: Good morning, and good afternoon to those who are joining us from other parts of the world. Welcome to the Press Conference on the Release of the World Economic Outlook Update which is entitled Less Even Expansion, Rising Trade Tensions.

Before we begin I would like to flag to you our releases in the next few days. First, the Notes prepared by IMF Staff for the upcoming meetings of the G20 later this week. And second, the External Sector Report that will be released early next week.

Now, turning to the release of the World Economic Outlook Update, to my right is Maurice Obstfeld, Economic Counselor and Director or Research. And to Maurice's right is Gian Maria Milesi-Ferretti, he's Deputy Director in the Research Department, Gian Maria oversees the production of the World Economic Outlook.

With this, I will turn over to Maury for his opening remarks.

MR. OBSTFELD: Thank you, Olga. Good morning, everyone.

Amid rising tensions over international trade, the broad global expansion that began roughly two years ago has plateaued and become less balanced. We continue to project global growth rates of just about 3.9 percent for both this year and next, but judge that the risk of worse outcomes has increased, even for the near term.

I would say, parenthetically, and these are not in the written remarks, that whereas in April we rounded our global growth number down, to get 3.9, this time we are rounding the global growth number up, to get 3.9. So, in fact there is a slight weakening if you add up all of our revisions, but not a sufficient weakening to push the rounded growth projection from 3.9 to 3.8.

Growth remains generally strong in advanced economies, but it has slowed in many of them, including countries in the Euro area, Japan, and the United Kingdom. And then these are not huge changes, but they are there.

In contrast, GDP continues to grow faster than potential and job creation is still robust, in the United States, driven in large part by recent tax cuts and increased government spending.

Even U.S. growth is projected to decelerate over the next few years, however, as the long cyclical recovery runs its course and the effects of temporary fiscal stimulus wane.

For the advanced economies, we project 2018 growth of 2.4 percent, down 0.1 percentage point from our April World Economic Outlook projection. We maintain an unchanged forecast of 2.2 percent growth in those economies for 2019.

For emerging market and developing economies as a group, we still project growth rates of 4.9 percent for 2018 and 5.1 percent for 2019. These aggregate numbers, however, conceal diverse changes in individual country assessments.

China continues to grow in line with our earlier projections, and today's release Q2 data supports our projections. In some large economies in Latin America, emerging Europe, and Asia, we now project growth rates below our April forecasts.

Supply disruptions and geopolitical tensions have helped raise oil prices, benefiting emerging oil exporters, for example, Russia and Middle Eastern suppliers; but harming importers, for example, India.

For the aggregate of emerging market economies, the upward and downward revisions largely offset each other.

Overall growth in sub-Saharan Africa will exceed that of population over the next couple of years, allowing per capita incomes to rise in many countries; but despite some recovery in commodity prices, growth will still fall short of the levels seen during the commodity boom of the 2000s.

Adverse developments in Africa, civil strife, or weather-related shocks, for example, could intensify outward migration pressures especially toward Europe.

As always, Federal Reserve policy is central to global financial developments. Given strong U.S. employment and firming inflation, the Fed is on track to continue raising interest rates over the next two years, tightening its monetary policy compared with other advanced economies and strengthening the U.S. dollar.

The dollar has already appreciated broadly since April, and financial conditions facing emerging and frontier economies have become somewhat more restrictive.

These financial conditions remain relatively benign in historical context despite that tightening. However, markets, so far, continue to differentiate among borrowers, and capital account pressures have been most intense for those with evident weaknesses, for example, political uncertainty or macroeconomic imbalances.

Were the Fed to tighten faster than is currently expected, however, a broader range of countries could feel more intense pressures.

But the risk that current trade tensions escalate further, with adverse effects on confidence, asset prices, and investment, globally, is the greatest near-term threat to the world's growth. Global current account imbalances are set to widen owing to the United States’ relatively high demand growth, possibly exacerbating frictions.

The United States has initiated trade actions affecting a broad group of countries, and faces retaliation or retaliatory threats from China, the European Union, its NAFTA partners, and Japan, among others. Our modeling suggests that if current trade policy threats are realized and business confidence falls as a result, global output could be about 0.5 percent below current projections by 2020, that's half of a percentage point.

As the focus of global retaliation, the United States finds a relatively high share of its exports taxed in global markets in such a broader trade conflict, and it is therefore especially vulnerable.

Other risks have become more prominent since our April assessment, political uncertainty has risen in Europe where the European Union faces fundamental political challenges regarding migration policy, fiscal governance, norms concerning the rule of law, and the Euro area institutional architecture.

The terms of Brexit remain unsettled despite months of negotiation. Prospective political transitions in Latin America over the coming months add to the uncertainty.

Finally, although some geopolitical dangers may appear to be in remission, their underlying drivers, in many cases, are still at work.

Financial markets seem broadly complacent in the face of these contingencies, with elevated valuations and compressed spreads in many countries. At the same time, however, high levels of public and private debt create widespread vulnerability.

Asset prices are no doubt buoyed, not only by easy financial conditions, but by the generally still satisfactory global growth picture. They therefore are susceptible to sudden re-pricing if growth and expected corporate profits stall.

Supporting growth into the medium term where trend growth rates are forecast to be lower for advanced economies and many commodity exporters requires that policymakers act now to raise growth potential and resilience through reforms, while re-building fiscal buffers and guiding monetary policy carefully to keep inflation expectations well anchored on targets.

Governments must also pay more attention to economic equity among citizens, and especially protecting the poorest. The widespread political malaise driving many current policy risks, including on the trade front, has roots in several countries’ experiences of non-inclusive growth and structural transformation, heightened by the financial crisis of 2007 to 2009 and the difficulties that followed.

It is urgent to address the underlying trends through equity and growth-friendly policies while assuring that macroeconomic tools are available to fight the next economic slowdown. Otherwise, the political future will only darken.

While rising to these challenges, countries must resist inward-looking thinking and remember that on a range of problems of common interest multi-lateral cooperation is vital. Issues of common concern for a national action is not enough to include strengthening the multi-lateral trade system, reducing excess global imbalances, financial stability policy, international tax policy, cyber and other terrorist threats, disease control and global warming. A truly global effort is also needed to curtail corruption which undermines faith in government in so many countries.

Finally, recurrent surges in international migration pressures which are proven so politically destabilizing recently cannot be avoided without cooperative action to improve international security, support the sustainable development goals and resist climate change and its effects.

MS. STANKOVA: Thank you, Maury, for the opening remarks. Now we will take to questions, please identify yourself and your affiliation. I think Andrew was.

QUESTIONER: Can you walk us though a little bit more your analysis of the trade conflict. I mean, first of all, to what extent are you already incorporating some trade friction into your forecast now. What is kind of your base case right now? What does that include?

And then secondly, the modeling that you mentioned, I think with output declining by 0.5 percent I think by 2020 if I'm not mistaken, how would you characterize that scenario? Is that kind of one of these first case scenarios that people are talking about where confidence starts to erode and we really start to get into a vicious cycle? If you could just delve into these issues a little more.

MR. OBSTFELD: Yes.

QUESTIONER: Thank you.

MR. OBSTFELD: Thanks for that. You know, our baseline only incorporates trade actions that have been taken to date and while these are indeed broadly negative, they frankly apply to a rather small range of exports and so they don't have huge effects on the baseline.

There is a range of announced or threatened measures and counter measures and counter, counter measures which, you know, if implemented would have bigger costs and those we wanted to try to model and what I would say is an illustrative example. So I wouldn't take the number I cited as a prediction. It's more of an illustration and the ultimate outcomes could be better, they could be worse. That’s why we don't build them into the baseline until we see the actual measures but we want to indicate the size of downside risks to our baseline with this example.

So for the number I cited, indeed as you said not only do we assume that the threatened actions that are out there are implemented and retaliated against so this includes the prospect of, you know, an additional 200 billion on Chinese exports and U.S. tariffs. It also includes auto tariffs and relation for those measures.

But we also assume in this simulation that there is a negative shock to confidence which reduces investment in the world economy, more heavily actually in emerging markets than in advanced markets since the former are particularly fragile at the moment. So that is where that figure is coming from.

MS. STANKOVA: Thank you.

QUESTIONER: Hi. I just wanted to follow up on that. When you talk about the half percentage point I guess decline, you are referring to a decline in the growth rate of this --

MR. OBSTFELD: That is relative to our baseline forecast.

QUESTIONER: Relative to the baseline.

MR. OBSTFELD: And this is by 2020 so it is, you know, relative to the baseline.

QUESTIONER: Okay. And I noticed that thus far you have left alone the forecast for both the United States and China.

MR. OBSTFELD: Yes.

QUESTIONER: For the next two years.

MR. OBSTFELD: Yes.

QUESTIONER: No changes from April. At what point do we start to see the trade conflict start to affect those growth rates. Is that this year by the end of the year perhaps or?

MR. OBSTFELD: Well, I think it depends what happens when and how long it take to feed through to the broader economy. You know, as I said, the measures taken to date are not quantitatively huge. If more happens and particularly if it affects business confidence in the U.S., it could also affect some investment in China. But the latter is state determined so that's sort of a different model. But if we see those effects, then we could see growth slowing more into 2019, 2020.

Again, at the moment, our baseline does not incorporate those impacts because we don’t know what they are We could speculate and in fact the number I gave you is an example of speculation. But it is speculation about a downside risk. And, when, and what the timing and magnitude of the measures, where we end up is very unclear because it will depend more on politics and political reactions than forecastable economic trends.

QUESTIONER: All right. So just to be clear, when let's say for example at the time you do the October update of the WEO, if we have 200 billion dollars' worth of U.S. tariffs on Chinese goods in place by then those will be baked in to the baseline.

MR. OBSTFELD: Then we will look at the effects and try to assess also how they might affect confidence, asset prices and that will go into the baseline. Yes.

QUESTIONER: Thanks.

MS. STANKOVA: Thank you.

QUESTIONER: Mr. Obstfeld, would you please explain what you mean by the U.S. growing faster than potential.

MR. OBSTFELD: Well, our long-term potential growth number for the U.S. at present is somewhere between 1.8 and 1.7 percent. So if we see growth rates such as we predict for the next couple of years, 2.9 percent in 2018, which we're clearly on track for, and 2.7 percent in 2019, those are above that potential growth rate. That generally means that more workers may be coming into the labor force and working longer hours, capital is being worked more intensively, et cetera, et cetera and this would normally be associated with rising price pressures.

I think that is why the Federal Reserve has projected a rising path of interest rates over the next couple of years to prevent those inflation pressures from emerging despite the fact that growth is higher than what we would consider as the economy fully employing its set of economic resources.

QUESTIONER: You can conclude from that, I would think, that you're really saying then the U.S. economy is growing too fast because to be more balanced it would not be growing that fast.

MR. OBSTFELD: Well, I don’t think I would say too fast. I think if we don’t get into a situation in the U.S. with high inflation so that output converges to its potential level. Then in the meantime output is higher, people are making higher incomes. That’s not necessarily a bad thing.

What is problematic is the inflation risk. And if the Fed has to raise interest rates very sharply because inflation rates rise more than we expect, there is also a recession risk from that.

The second problematic aspect is that if you have growth being fueled by demand and your own productive resources can't fully meet that demand, then the balance gets imported from aboard in the form of a higher current account deficit. And so when I referred in my opening remarks to bigger current account imbalances, that comes from a larger U.S. deficit and those larger global imbalances themselves pose different sets of risk to the global economy.

We would like to see imbalances come down through the cooperative actions of deficit and surplus countries and that’s why we will be talking about those in the external sector report next week.

MS. STANKOVA: Thank you. And I would like also to welcome our online audience and as we were discussing the United States take a question from online on this country. Is the current projected U.S. fiscal deficit an added cause for concern for economic growth, given their MS conclusion that its exports may be subject to increased tariffs from trading partners? This question is from Paula Sharpe S&P Global Market Intelligence.

MR. OBSTFELD: Yes. We are concerned about the move of the U.S. fiscal deficit to a larger level. U.S. debt is already rather high relative to GDP. And there are a number of problems with moving that debt up. One from a sort of technical point of view is that you eventually have to repay it. And so you have to impose more taxes on future generations to make good on those debts. And it’s not clear whether that is really what is intended, but that is the outcome.

Perhaps a more immediate problem is that if there were a renewed recession say in the next couple of years, you would want to fight it with fiscal policy, especially because interest rates, despite having been raised by the Fed, are relatively low. Typically in a U.S. recession, the fed will cut interest rates by 5 percent or more. So, we’re nowhere near a position where the Fed could do that, which means fiscal policy would have to come into the breach, and that would raise the deficit further at a time when it’s possibly already large. Basically, you kind of want to build up your buffers when times are good. You want to keep your powder dry for when you really need it. And that’s not the direction that U.S. fiscal policy has gone.

Having said that, elements of the set of measures that got the U.S. to this point, cutting the corporate tax, for example, are growth friendly. They are measures that we have recommended in the past. But sort of pairing that with a -- an overall fiscal package that increases the deficit is not necessary, and that part of it is harmful. You could have cut corporate tax, but taken other measures that would have prevented the deficit from rising so much.

QUESTIONER: Thank you. Why don’t we see more price pressure from the American labor market? Is there still (inaudible) American labor market, is the one question. The other one, what went wrong in Germany? Because you -- we do see the forecast for Germany and what could they do about it? And if we look at the worst-case scenario when it comes to trade wars, which country is most at risk?

MR. OBSTFELD: On U.S. wages, we would judge the U.S. now to be at full employment. It’s a little puzzling that wages haven’t risen more sooner, but we also see that the pace of job creation in the U.S. has remained very robust -- I’d say surprisingly robust, given where we are in the economic cycle. The U.S. is now in its ninth year -- ninth consecutive year of expansion following the last recession – so it’s remarkable to see these kinds of job creation numbers.

In the last U.S. jobs report, the unemployment rate actually rose from 3.8 to 4 percent, despite the creation of more than 200,000 jobs. And that reflects the fact that more workers who had previously been out of the labor market entered the labor market, increasing the denominator in that unemployment rate calculation.

So, that suggests there may still be some pockets of slack in the U.S. It’s not totally clear. But that doesn’t seem to be the entire reason and there has been a lot of discussion among economists about the relative bargaining power of firms and workers, of concentration, and the like.

As far as Germany’s concerned, there is a confluence of factors at work. The general export environment is not as good as it was; oil prices have risen; there is somewhat more political uncertainty in Europe, which I mentioned before. So, if you add that all together -- and just to put it in context, it’s not just Germany. We have downgraded France, we have downgraded Italy, the other two big economies. So, some of the momentum has gone out of European growth.

I don’t know if you want to add to that or --

Mr. Milesi-Ferretti: No. Just noting in line with the question earlier that Germany’s still growing at a pretty good pace, certainly above our long-term potential estimates. And this is true for a number of other countries in the Euro area, it’s just that the strength of the recovery has come down a bit earlier this year.

MR. OBSTFELD: Let me come back to your third question about vulnerability to trade wars. The more open your economy is, the more you depend on exports, generally, the more vulnerable you will be. But I’m not sure that that’s the only way to think about it. And again, it depends on what kind of measures and countermeasures we see.

As I said, currently the U.S. is involved in trade tensions with a wide range of countries. And if it were to pursue that course and face retaliation from all of those countries, a fairly large fraction of its exports could be targeted. On the other hand, if you’re the European Union and you’re only facing restrictions on your exports to the United States, but you’re free to export anywhere else in the world, the effect is more limited.

So, in the sense of a vulnerability to a truly global conflict, I think the U.S. is fairly vulnerable.

QUESTIONER: Thank you. And let me expand the question on another European major economy, France. Could you elaborate the reasons why you have been (inaudible) the growth for France for both 2018 and ’19? The question is from (inaudible) United States (inaudible) Press.

MR. OBSTFELD: Well, after yesterday’s World Cup game, we may have to revise in the other direction, but we’ll let you know in October since that was not in time for our current set of projections. France is facing similar headwinds as other large European countries, such as Germany. So -- and these large countries will tend to move together, so there’s nothing special. Again, oil prices play a role, the general external environment also plays a role. I don’t know if you want to add more.

QUESTIONER: (inaudible)

MR. MILESI-FERRETTI: Relative to our forecast, we had a relatively weak first quarter in a number of the large economies in the Euro area, with the exception of Spain. And the indicators for the second quarter do not point to a very strong rebound from that weakness in the first quarter. That matters a lot for our forecast this year, because the first quarter is the one that counts for most for the annual growth figure.

I would say higher oil prices also have a negative impact. It is not a major factor, but it is a factor for all oil-importing countries and Euro area countries are all oil importers.

QUESTIONER: I would like to follow up with a question regarding the loss from the trade wars. So you said that the global growth can go down by half a percentage point by 2020. How much of it will come from the United States and China and the European Union and also, does that number incorporate the possible tariffs on European cars?

MR. OBSTFELD: Yes, it does incorporate the car tariffs. Again, I want to stress that this is an example rather than a projection. At this time, I don’t want to go into the details, country by country because the effects are quite complicated. Consumers facing tariffs on imports from one country will switch to another country, so these can be very complex. I’m not sure it’s really worth it going into them here. If you look at the most severe scenario that we consider, the U.S. is hurt quite a bit. As I said, that’s a scenario in which there is a truly global conflict in which the U.S. faces retaliation from a large number of its trading partners.

QUESTIONER: I would like to ask one more question on emerging markets, if I may. So as your report points out, the U.S. dollar has appreciated quite a bit against some of the emerging market currencies. Argentina, Mexico, Turkey are among those countries. How do you think that will affect the financial vulnerabilities in those countries and do you expect the rise in the dollar to continue?

MR. OBSTFELD: It has clearly led to a tightening of financial conditions facing emerging markets generally in contrast to the loose conditions that continue to prevail for advanced economies. The markets so far have been differentiating among different economies. On the whole, I would say emerging markets have been so far coping quite well. But it’s harder for countries that have either large amounts of political uncertainty or big macro-economic imbalances. For example, you might think about Turkey with its large current account deficit and dependence on short term borrowing, as certainly a country that is seeing more of an impact from the dollar’s strength. Brazil, the ten-day trucker strike took a big chunk out of the quarter’s GDP and that’s also a vulnerability. and there is political uncertainty.

You look around the world, you see a number of countries that look more vulnerable but this hasn’t turned into a general emerging market problem yet. I would say most countries have been able to deal with this so far by allowing their currencies to adjust, by raising interest rates somewhat if necessary.

MS. STANKOVA: I would like to take two related questions from our online audience: I would like to know what can be the impact of a trade war in Latin America. Is it possible that the region’s economy suffers any losses in the short term? This is from Carlos Rodriguez, Columbia, Reppublica. The second question is from Mexico, Yolanda Morales Qurrea. Is the new political order that has emerged from the leftist wing in the Mexican presidency and Congress, a source of economic risk or on the other hand, could this strengthen the governability.

MR. OBSTFELD: Yes, let me try to roll those together. I think clearly some Latin American countries are exposed to the current trade tensions. For example, there has been negotiation over Brazilian steel exports to the U.S. But the one country that is most exposed because of the ongoing NAFTA negotiations is Mexico. We don’t know how those negotiations will go.

We have certainly built uncertainty over NAFTA into our Mexican forecast, although our baseline does assume that negotiations are concluded by the end of 2019. If there were not a successful conclusion and, in fact, supply chains were disrupted in NAFTA--for example, in the auto industry--that would have big effects throughout NAFTA.

Regarding the new government, they will not come into office until December 1st with a budget on December 15th. In his acceptance speech, the new president-elect pledged to follow policies of fiscal rectitude and inflation credibility and basically build on the very strong policy framework that Mexico has established. So those are positions we very much endorse and that would be in Mexico’s interest in our view.

MS. STANKOVA: All right thank you. Next question please from the gentleman in the first row.

QUESTIONER: China just released the second quarter GP data as 6.7. I’m wondering, would you comment on the China climate growth whether it is in line with your expectations so far. Given China’s economic tradition it has achieved over the past several years, do you think that China’s economy is in a better position to handle these trade conflicts or withstand the negative trade shocks. Thank you.

MR. OBSTFELD: I think the data that were released yesterday evening here, yesterday morning in China, were very much in line with what we expect if you look at our forecast. China grew 6.9 percent last year. For this year, our projection is 6.6 and for next year, 6.4. In line with what we have been recommending, but also with complete buy-in from the authorities, there has been a move to slow down the growth of domestic credit in China--simply because the level of debts, especially non-financial corporation debts, is too high and credit growth has been too rapid. We factored that into our baseline projection of 6.6 percent growth for this year, which is also consistent with the rebalancing of the Chinese economy.

I think China is vulnerable to trade tensions because it is a very export-oriented economy. It’s very, very integrated into global value chains. On the other hand, the government does have levers it can use to stabilize the economy, which may not be available elsewhere. But I would say that the most positive and durable response to trade tensions would be negotiations with a broad range of trade partners that open up China even more, especially to imports. The tragedy of the current set of tensions is that it risks creating a very bad outcome compared with what we could achieve if countries would use multilateral mechanisms, including the WTO, to think about where there are weaknesses that have prevented them from addressing the tensions and how they could repair those.

MS. STANKOVA: Thank you. Next question.

QUETSIONER: Thank you very much. I have a basic question. I still have a difficulty understanding to see the state of the global economy. You have maintained the global growth 3.9 while you have revision downward to the major economies such as (inaudible) and Japan. How come you cannot do the global figures. The second question would be, how likely do you think you would revise downward in the global economy in October. Thank you.

MR. OBSTFELD: We present our numbers rounded to a single decimal point because we don’t want to give an impression of precision that is not there. But nonetheless, when we process the detailed forecasts of our teams, we do have the second decimal points. It is just a fact of life that any number between 3.86 and 3.94 will be rounded to 3.9. So basically, in April, we were above 3.9 and now we’re below 3.9 -- but not by enough to change that rounding. So both of those numbers bracket 3.9 very closely but they’re different.

In terms of what we think will happen to our forecast, our baseline is our baseline, meaning we think it is the most likely outcome. But when we say downside risks have increased in the near term, we think that the probability that we revise that baseline downward is higher than it was in April. So at this point, when we say skewed to the downside, there is a better than 50/50 chance that we would revise downward.

MS. STANKOVA: All right, I would like to take one more question online before we go to the second round in the room and that’s on India. What is your assessment of the economic situation of India. The forecast has come down slightly, what is the reason for this. This is from Lalit Cha, PTI.

MR. OBSTFELD: For India, the main factor is the rise in oil prices, and India is an oil importer. But also, the general tightening in global financial conditions is playing a role in affecting India’s growth. Those are the main factors behind the downgrade. I don’t know if you want to add to that, Gian Maria.

MR. MILESI-FERRETTI: Yes indeed with tighter global financial conditions and higher oil prices bringing rising inflationary pressures, monetary policy has tightened. It is a bit tighter than under our forecast in April. That adds to oil and tighter global financial conditions in taking a little bit off growth for next year.

MR. OBSTFELD: Yes, and India’s growth remains quite robust into the future. It is down but it is growing very strongly.

QUESTIONER: One way to circumvent trade barriers is currency depreciation. Would you expect that countries take that path?

MR. OBSTFELD: If we look at advanced economies--and then I would put Mexico in the same bucket of economies with floating exchange rates--I don’t see them intentionally depreciating their currencies because of trade restrictions. It is the case, however, that if a country saw a big domestic slowdown because of trade barriers to its exports, it might use monetary policy to address that domestic slowdown. That would naturally work, in part, by depreciating its currency.

China does not have a fully flexible exchange rate and its currency has depreciated this year. I would not view this as an intentional response to trade policy pressures. In fact, the currency remains stronger than it was 12 months ago and I think this kind of movement, which is not large, is very much consistent with our advice to China to become more flexible. It is probably driven more by the strengthening of the dollar than anything else.

MS. STANKOVA: Thank you. The lady, yes please.

QUESTIONER: So the countries start to retaliate against U.S. trade policy seem to come closer together and seek more trade operation between each other. Like China (inaudible) on exports from India and other Asian countries. So I just want to get your comments on what do you think that could mean to the global trade system. I know you also said that we’re probably not seeing some immediate effects by trade war but if the U.S. and China is not able to reach a deal very soon, what impacts would you see in the future.

MR. OBSTFELD: I think we gave some examples of situations where countries devolve into a wide tit-for-tat conflict over trade policy. The results are noticeably negative for global growth. And conversely, if countries could cooperate to revise the multilateral system in a way that allowed them better to address the tensions that have been out there, that would be very positive for global growth.

There are a number of areas where the current setup of the WTO does not adequately reach. The WTO secretary general himself has acknowledged this but you could think about intellectual property, which has been a big issue in the discussion between the U.S. and China. Services trade, where the U.S., in fact, has a big comparative advantage, is an area where there remain a lot of barriers, non-tariff barriers in particular, that could come down. That would benefit the global economy. Whereas in goods trade, tariffs are already fairly low.

I think for an economy like the U.S. focusing on services would be very, very important. So there are potentially very large gains from countries coming together as they have done throughout the post-war system, the post-war period. The GATT, followed by the WTO, was responsible for successive rounds of tariff reduction from very high levels and has really helped fuel global growth since World War II. There is no reason why further multilateral action couldn’t provide an additional boost to growth.

MS. STANKOVA: Thank you. If we don’t have more questions from the room, I’d like to acknowledge two questions from online if the team is willing to address them. What is the economic forecast for Venezuela in the updated wheel. And any drag on growth for its neighboring countries from the humanitarian crisis spilling over. This is from (inaudible). The second question is what are the challenges facing the Polish economy. Do you think that spending from social programs in Poland is too high. That is from (inaudible) a Polish press agency.

MR. OBSTFELD: On Venezuela, it is difficult to discuss because it is in a state of economic collapse. We have not engaged with them in over a decade on their economic policies. We have not had an Article IV mission. We are also in discussions with them about their data quality. So, anything we say about Venezuela has to be taken with caveats. But we see in the coming years double-digit contraction of output, and we have increased our assessment of the degree of contraction in the most recent round. We’re seeing a hyperinflation that is rivaled only by Zimbabwe and the great historical hyperinflations of the interwar period. So, it is very hard to exaggerate the extent of disruption in the Venezuelan economy.

This has been naturally a source of migration into neighboring economies. Just as in other parts of the world, there is a huge challenge of absorbing these migrants. Of course, there is not a language issue but they will have to be absorbed into economies. Ultimately, what we’ve seen is that that can be a source of economic strength. In the short run, there are costs to housing migrants transitioning them into the labor force.

On Poland, the economy is generally doing well. We were worried about some aspects of recent policies for example, in the pension area. Our general feeling is that expenditures should be more focused toward youth, less toward pensioners and that aspect of their current stance is something that does worry us a little. On the other hand, the economy is growing strongly and doing generally quite well from a macro-economic viewpoint at the moment.

MS. STANKOVA: Thank you, MAURY. With this, we will conclude the press conference today. Thank you for coming.

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