Ravi Menon: Global economic outlook - renewed optimism, higher uncertainty Speech by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the UBS' Wealth Insights Conference, Singapore, 16 January 2017. * * * Ladies and gentlemen, good morning. The global economy in 2016 – resilient but uninspiring 2016 was an eventful year for the global economy. If you recall, we began the year with anxiety over China’s financial markets but breathed easier over the course of the year as China steadied its economy and avoided the hard landing feared by many. We saw economic momentum in the US slip, and then pick up towards the end of the year, which also saw the second rate hike by the Fed in 10 years and an unexpected presidential election outcome. The EU economy was stirred but not shaken by the shock of the Brexit vote in June, with accommodative monetary policy providing support while domestic demand gradually improved. Japan saw further innovations in monetary easing – with negative interest rates and yield curve control – with some but not decisive improvement in growth outcomes. In the ASEAN economies, growth was respectable but below potential, as a pick-up in private consumption was offset by weaker investment and exports. Overall, I would say the global economy in 2016 was resilient but uninspiring. Economic growth was sustained in the face of shocks but remains sub-par.
But they should be supported by strong institutions with discretionary powers. Mario Draghi pointed out 1 the fundamental difference between a monetary policy institution and fiscal rules, which are exemplified by the track records of the ECB and SGP respectively. Third, there is room for an intermediate level of integration, as shown in a simple but illustrative matrix. I would call it “full coordination of national policies”, a presently missing link between integration, as we have for monetary policy decision-making, and rule-based surveillance, such as is currently the case for national fiscal policies in Europe and which is clearly lacking teeth. 1  2  Speech by Mario Draghi, President of the ECB, at SZ Finance day 2015, Frankfurt am Main, 16 March 2015. BIS central bankers’ speeches  To be sure, the highest level of policy integration would logically involve building a genuine fiscal union, as well as completing the Single Market; but that would surely require more ex ante convergence and resolution of legacies from the past. My view is that we should leave the door open to further integration for countries that are willing and ready to consider it. Yet the most urgently needed part of EMU reform, is to set up a strong institution, led by a Euro area Finance Minister, to fully coordinate national fiscal and structural policies. In economic terms it would help internalize negative externalities (e.g. demand spillovers, or financial contagion) from asymmetric shocks across jurisdictions, as well as optimize positive externalities between fiscal and structural policies.