The global economy remains resilient despite a series of challenges, with some countries growing faster than others, International Monetary Fund (IMF) chief economist Pierre-Olivier Guranza told AFP.
Pierre-olivier Guranza spoke to AFP in Marrakech, Morocco, on the eve of the launch of the IMF's World Economic Outlook report on Wednesday.
Q: Why is the United States outperforming Europe?
Gulansha: There are many reasons. By far the most important reasons are Russia's invasion of Ukraine and disruptions to energy markets. Europe is an energy importer, and when Europe has to pay higher energy bills, it basically sends the check elsewhere, so the region becomes poorer. The United States is not an energy importer, so when energy prices rise, the United States is more likely to become richer. So there's a big difference.
I think the second difference is probably because the American consumer is very resilient. How do they do that? They have been dipping into their savings. In many advanced economies, so-called excess savings accumulated during the pandemic. In Europe, households as a whole have yet to draw on these savings.
A third factor may be some differences in the transmission of monetary policy. In both the eurozone and the US, we have seen a massive tightening of monetary policy. But in the United States, there are a lot of long-term fixed-rate mortgages in the housing market. Home buyers borrow for 30 years and lock in the interest rate when they buy, so [if] you signed up for a 2 percent loan three years ago, assuming it's 7 percent now, it's not going to make any difference to you.
Finally, there is the question of how much impact fiscal policy is likely to have. During the pandemic and the energy crisis, we saw a lot of support policies in the eurozone. Energy prices have been falling and the pandemic is over, so a lot of the support policies are being phased out. And the US budget deficit is still very large.
Q: The International Monetary Fund predicts that the German economy will contract by 0.5% this year. Is there a long-term worry?
A. For Germany, there are two very powerful forces coming together right now.
We have already mentioned one of these forces when we talk about the difference between the eurozone and the United States, which is the energy shock, whereas the German economy is largely dependent on manufacturing, which is a very energy-intensive sector that is very dependent on Russian energy supplies. So it was a huge shock to the German economy.
Moreover, the combination of tighter monetary policy, reduced purchasing power in the context of inflation and a cost-of-living crisis explains why German manufacturing, consumption and investment have all been relatively weak.
I think the German economy has a lot of resources. With fiscal space, adaptability, strong industry and technology, and a skilled workforce, Germany is not necessarily a concern.