WASHINGTON, 11 October 2007 — Income inequality has increased in most countries during the past two decades as incomes have jumped amid a more recent spurt in world growth, according to an International Monetary Fund (IMF) report yesterday.
The International Monetary Fund made the comments in portions released from its global economic outlook ahead of the IMF and the World Bank autumn meetings scheduled for Oct. 20-21.
“Over the past two decades, income inequality has risen in most regions and countries,” the report found.
But IMF economists also found that per capita incomes have leaped higher across most regions even for the world’s poorest, showing “the poor are better off in an absolute sense during this phase of globalization.” Technological advances and heightened financial globalization have stoked inequality, the IMF experts said.
More recently, the report’s authors said that since 2004, world growth has accelerated more rapidly than at any other time since the early 1970s.
Between 2004 and 2006, world economic growth was 3.25 percent while the global economy has also displayed greater stability.
Improved monetary and fiscal policies have helped underpin growth and stability, according to the Washington-based Fund.
Despite the burst of world growth, the report cautioned that future stability should not be taken for granted by governments and policymakers, as it warned that “occasional recessions” can not be ruled out.
“Recent turmoil in global financial markets provides a reminder that the task of maintaining expansions requires policymakers to identify and adapt to new risks and challenges in the global economic system as they arise,” the report said.
The IMF report also said global economic growth has been faster, broader and more stable since 2004 than at any time in the previous 30 years.
The Fund was established following World War II to promote international monetary stability and foster economic growth. It counts 185 member countries.
Moreover, the recent global credit squeeze caused by the meltdown of risky US mortgage loans may test the ability of the world’s economy to keep expanding as it has over the past several years, the IMF said yesterday.
The IMF also said government policymakers would be confronted with new problems from the continuing process of globalization and warned against overconfidence that economic stability would continue indefinitely.
In the analytical chapters of its World Economic Outlook released in advance of the Oct. 17 publication of the forecast, the IMF said the durability of the global economic expansion is likely to persist.
“Nevertheless, with financial markets around the world now being affected by the fallout from the US subprime mortgage difficulties, a broader economic slowdown cannot be ruled out,” the IMF said.
Commenting on the released chapters, Simon Johnson, the IMF’s chief economist, said at a news conference that financial globalization “is beginning to enter territory we have not seen before.” He said the rapidity with which the credit crunch in the United States spread to other countries demonstrates that “the interconnections between different kinds of financial institutions and between countries are becoming more complex and when sparks fly they fly quite a long way and they jump over firebreaks.” Rodrigo de Rato, outgoing head of the IMF, said Monday in an interview with the Financial Times that the credit crisis was “not a storm in a teacup.” While the crisis may not continue to rage with the same intensity as before, de Rato said, it will take “a few months, probably into next year,” before liquidity, availability of credit and risk spreads would return to more normal levels.
The IMF report is issued in advance of meetings of the Group of Seven major industrialized nations and the annual meetings of the IMF and its sister organization, the World Bank, on Oct.20-22 The IMF warned against overstating prospects for future stability.
“The process of globalization continues to present policymakers with new challenges as reflected in the difficulties in managing volatile capital flows, increasing exposure of investors to developments in overseas financial markets and the uncertainties associated with large current account imbalances.” The IMF said interest rates had returned to more neutral levels in most major advanced economies.
But the 185-nation lending organization said, “The correction of asset prices in some countries and the current rise in risk premiums and tightening credit market conditions may also test the strength of the current expansion.”
In a chapter titled “Globalization and Inequality,” the IMF said the debate on the effects of globalization is polarized between two points of view. One school argues that globalization leads to a rising tide that lifts all boats.
The opposing school argues that although globalization may improve overall incomes, the benefits are not shared equally among the citizens of a country.
The IMF said available evidence “does suggest that income inequality has risen across most countries and regions over the past two decades, although the data are subject to substantial limitations.
“Nevertheless, at the same time, average real incomes of the poorest segments have increased across all regions and groups,” the fund said.
Among the largest advanced economies, the IMF said, inequality appears to have declined only in France. Among major emerging market countries, trends are more diverse, with sharply rising inequality in China, little change in India and falling inequality in Brazil, Mexico and Russia.
