In the run-up to its Annual Meeting from 7 to 9 October in Washington, DC, the International Monetary Fund (IMF) is warning against the effects of low global inflation. "By 2015, inflation rates in more than 85 percent of a broad sample of more than 120 economies were below long-term expectations", it was reported in a part of the semi-annual "World Economic Outlook" that was published in advance. Global trade has also been growing only slowly since 2012 according to data from IMF economists. Growth has decelerated to somewhat above 3% a year since 2012 - which is less than half of the average growth rate during the past three decades, according to the report. The IMF will publish its latest forecasts for the global economy next Tuesday.

Bundesbank Executive Board member Andreas Dombret nevertheless believes the global economy to still be on the path of recovery, despite the muted outlook. "We believe the risks of sliding back into secular stagnation have been overstated", he said at a press conference ahead of the meeting. The Bundesbank discharges Germany's financial rights and obligations in the IMF and is represented on the IMF's Board of Governors by Bundesbank President Jens Weidmann, and - as his deputy - Executive Board member Andreas Dombret.

Structural reforms necessary

Given demographic developments in a number of countries, "some kind of slowdown in the growth trend rate is [...] unavoidable", said Mr Dombret. In this connection, he principally stressed the importance of structural reforms, which are needed to boost potential growth.

In their economic outlook, IMF economists, too, underscore the necessity of structural reforms in strengthening demand and investment. The IMF is furthermore arguing for a comprehensive and coordinated approach to make effective use of all available mechanisms and to benefit from international spill-over effects.

However, the Bundesbank does not think that a "global, coordinated package of precautionary monetary, fiscal and structural measures" is necessary. "It is rather about the right policy mix that is compatible with stability in each individual country, which should be designed to fit their particular situation", said Mr Dombret.

New credit lines

Besides the quota-based funds paid in by member states, bilateral credit lines are a major source of funds for the IMF. These credit lines will gradually run out from October 2016. The Bundesbank participated in these lines in 2012 with €41.5 billion. Dombret believes the Fund has now "fundamentally improved" the conditions compared with this arrangement four years ago. The newly introduced voting rights for lenders and an 85 per cent majority threshold instead of a simple majority of the IMF's Executive Board were particularly welcome. These conditions strengthened lenders' rights to participate in decisions and were proportionate to the resources provided, said Mr Dombret.

Milestone for China

On 1 October 2016, the renminbi (RMB) became the fifth currency to be included in the IMF's currency basket. This basket is the basis for the Fund's "special drawing rights" (SDRs). This is a kind of artificial currency which the Fund can use to create liquidity. The share of the Chinese currency in the basket will be around 11 per cent from October - the third largest share after the US dollar (around 42 per cent) and the euro (just under 31 per cent). Mr Dombret described the inclusion of the RMB in the basket of currencies as a "milestone for China's integration into the global financial system."