Policy implementation can boost growth progress in many G20 economies

Since the founding conference of the Group of Twenty in Pittsburgh in 2009, there has been modest progress towards its goal of strong, sustainable, balanced and inclusive growth.

While the G20 economies have demonstrated remarkable resilience in the face of numerous shocks, medium-term growth prospects have moderated to just 2.9%, the lowest figure since the global financial crisis. At the same time, the disinflation process has not yet concluded in many of these economies, and public debt reached 102% of GDP last year, an unprecedented level. Furthermore, excessive external imbalances are increasing again.

Still, there are encouraging signs. Our latest annual report (link) for the Group – whose members account for around 85% of the world’s economic output – highlights some positive developments recorded over the last year.

A study by IMF country teams reveals that many G20 economies moved toward stronger growth, including more than half of emerging market economies. In some cases, such as Germany, where growth momentum was supported by reforms to fiscal rules, the improvement has been considerable.

At the same time, falling inflation and fiscal consolidation efforts are improving the sustainability of growth in most G20 advanced economies and half of the European Union countries.

Now this is only part of the story. Progress over the past year has been somewhat moderate in the last two dimensions:

• Balanced growth – without the accumulation of internal or external imbalances, such as increasing dependence on one sector or external demand – is proving difficult to achieve across the G20. A moderate deterioration was recorded in China and the United States due to rising current account surpluses.
• Inclusive growth – ensuring that the economy benefits everyone – saw only slight improvement, particularly in the G20 advanced economies and the African Union, which joined the Group in 2023.

Given that short-term uncertainty remains high and the list of adverse factors is extensive, the prospects for achieving solid, sustainable, balanced and inclusive growth in the coming years appear complicated. In this context, it is more important than ever to strengthen momentum, however tenuous, in all dimensions of growth.

Smart fiscal policy is essential to meet the challenge. Governments must rebuild their fiscal reserves to contain rising debt while meeting growing spending needs. Fundamental economic reforms are also needed to help restore domestic balance and foster stronger growth.

Of course, these structural reforms vary from country to country. However, to assist in prioritizing and sequencing reforms, IMF country teams have identified the measures most likely to impact growth. Reforms of labor market institutions, together with improved tax policies and business regulation, consistently occupied top positions in the G20 and the European Union.

For African Union members, the most important benefits could come from fundamental improvements in governance as well as tax reforms.

The benefits of G20 economies taking concerted action would be significant. The simulations suggest that the application of the structural reforms identified as most likely to have an impact, together with the recommended macroeconomic policies, could raise the growth of the entire Group by around 7 percentage points accumulated over the next decade. This would especially benefit emerging market economies.

Furthermore, the debt burden would be reduced by more than 8 percentage points of GDP within five years in countries with limited fiscal space, as a result of the combined effect of the recommended fiscal adjustments and structural reforms.

These concerted reform efforts would also contribute to restoring domestic balance by helping to reduce current account balances, and this could translate into important improvements for both surplus and deficit major economies.