Millions of New Jobs Could Be Created If Governments Spend More, IMF Says
WASHINGTON (CNBC) - Governments should step up public investments to boost their economies after the massive shock from the coronavirus pandemic, the International Monetary Fund said on Monday.
The global economy has been severely damaged by the health crisis with the services sector coming to a halt, many people fearing for their jobs, and governments experiencing soaring debt levels.
The IMF predicted in June a contraction of 4.9% in global GDP (gross domestic product) for 2020 — but the fall could be even higher as many governments are now dealing with a second wave of infections. Now, the IMF is calling on governments to increase public investment to aid an economic recovery and create jobs.
"For advanced and emerging market economies … Increasing public investment by 1 percent of GDP in these economies would create 7 million jobs directly, and between 20 million and 33 million jobs overall when considering the indirect macroeconomic effects,” the fund said in a chapter of its latest Fiscal Monitor.
Calculating the "amplifying effects of public investment” in periods of high uncertainty, the IMF said that increasing public investment by 1% of GDP "could strengthen confidence in the recovery and boost GDP by 2.7 percent, private investment by 10 percent, and employment by 1.2 percent” after two years "if investments are of high quality and if existing public and private debt burdens do not weaken the response of the private sector to the stimulus.”
When governments step up their public investments, they signal their "commitment to growth and stability” and that tends to boost private investment too, the IMF added.
For countries with easy access to finance, "borrowing to finance public investments of good quality will be an effective strategy because the global decline in interest rates has set a lower bar for investment projects to be beneficial,” the IMF said.
Nations that are struggling to borrow should plan for a gradual increase in public investments and may need to re-allocate current spending or find new sources of revenue, the institution led by Kristalina Georgieva said.
The global economy has been severely damaged by the health crisis with the services sector coming to a halt, many people fearing for their jobs, and governments experiencing soaring debt levels.
The IMF predicted in June a contraction of 4.9% in global GDP (gross domestic product) for 2020 — but the fall could be even higher as many governments are now dealing with a second wave of infections. Now, the IMF is calling on governments to increase public investment to aid an economic recovery and create jobs.
"For advanced and emerging market economies … Increasing public investment by 1 percent of GDP in these economies would create 7 million jobs directly, and between 20 million and 33 million jobs overall when considering the indirect macroeconomic effects,” the fund said in a chapter of its latest Fiscal Monitor.
Calculating the "amplifying effects of public investment” in periods of high uncertainty, the IMF said that increasing public investment by 1% of GDP "could strengthen confidence in the recovery and boost GDP by 2.7 percent, private investment by 10 percent, and employment by 1.2 percent” after two years "if investments are of high quality and if existing public and private debt burdens do not weaken the response of the private sector to the stimulus.”
When governments step up their public investments, they signal their "commitment to growth and stability” and that tends to boost private investment too, the IMF added.
For countries with easy access to finance, "borrowing to finance public investments of good quality will be an effective strategy because the global decline in interest rates has set a lower bar for investment projects to be beneficial,” the IMF said.
Nations that are struggling to borrow should plan for a gradual increase in public investments and may need to re-allocate current spending or find new sources of revenue, the institution led by Kristalina Georgieva said.