As the world economy undergoes key transitions, the pace of global activity has slowed amid higher financial market volatility. In advanced economies, a modest recovery continues, but unevenly. An expanding U.S. economy, led by consumption and job creation, has enabled interest rate lift-off toward gradual monetary normalization. This transition suggests diverging influences from major central banks over global financial conditions and appreciation pressures on the U.S. dollar. In emerging market economies, growth continues to slow, led by China as it rebalances and by continued stress in several large economies in recession. Financial conditions have tended to tighten and uncertainty has risen amid concerns of slower growth and lack of policy space. Alongside this, commodity prices remain weak—notably, in oil markets where a supply glut has led to appreciably lower prices since last year. Consequently, Canada’s economy is likely to see continued sluggish growth before gradually strengthening as it navigates lower oil prices. The main global risks stem from these ongoing transitions and could derail growth if not managed well. Policy priorities include managing vulnerabilities and rebuilding resilience to transition risks while supporting near-term growth, and enhancing productivity and potential growth through crucial structural reforms.
It is my pleasure to welcome you to this IMF Institute seminar, which over the next week offers you the opportunity to discuss in some detail the linkages between structural reform and macroeconomic stabilization. Perhaps the most logical place for me to begin is with the terms being used. Structural reform is a broad term that encompasses those policies aimed at improving market functioning, while macroeconomic stabilization has as its goals low inflation rates, high employment levels, a sustainable external position, and relatively calm financial markets. Recent experience and policy challenges in all parts of the world have demonstrated the interdependence of these two prerequisites to sustainable growth. For without macroeconomic stability, market signals are no longer clear, and restructuring is hampered by uncertainty. Conversely, a lack of structural reform undermines stabilization policies.
For the countries of central Europe—the Czech Republic, Hungary, Poland, the Slovak Republic, and Slovenia—this is the Accession decade. By contrast with the uncharted waters of transition in the 1990s, the approaches to European Union (EU) membership—and beyond that the euro—are, in many respects, mapped out in advance. And the prospect of EU membership, from the early days of transition, has served as a policy anchor, helping to catalyze and sustain coalitions for reform. But policymakers face continuing challenges as they frame macroeconomic and financial sector policies during the run-up to accession and, in due course, monetary union. These challenges are the subject of the studies presented here.
My remarks will concern economic reform efforts and macroeconomic stabilization in China. There are some remarkable differences between the effects of the Chinese reforms and the results to date of the reforms that have been undertaken in the countries of Eastern Europe and the former Soviet Union (FSU). While valuable conclusions can be drawn from both sets of experiences, China offers some unique lessons.