Global policy makers gathered at the International Monetary Fund’s meetings in Washington this week have been greeted with a message few like hearing: If they want faster economic growth, it’s going to hurt.
Central banks in advanced economies are weary from a decade of crisis fighting while fiscal spending can only do so much in an era of aging populations and record debt. That leaves the quest for growth hinging on complicated, slow-acting and unpopular changes like raising retirement ages or further loosening immigration barriers that are already proving to be politically difficult.
So while clubs like the Group of 20 have been paying lip service to the dreaded “structural reforms” for years, officials are now beginning to get down to the details of what that actually means. Trouble is, even as next year’s G-20 global growth agenda will be led by reform enthusiast Germany, the oncoming election roster from the U.S. to the euro-zone makes inaction more likely than deals for change.
“Monetary policy cannot deliver an improvement in potential growth and right now on the fiscal side a lot is going into just supporting short-term demand,” said Janet Henry, global chief economist at HSBC Bank Plc, in an interview in Washington. “Governments know what to do, they just don’t know how to get re-elected when they’ve done it.”
