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Group of Twenty

IMF Note for G-20 Leaders Summit

Pittsburgh — September 24, 2009

The IMF provided two background papers for the G-20 Leaders Summit in Pittsburgh on September 24, 2009

Global Economic Prospects and Policy Challenges. This note provides the IMF's assessment of the global economic and financial situation and prospects. It then assesses the policy response to date, and outlines the IMF's views on the policy challenges that lie ahead. This note is a summary of the more in-depth analysis on the global economy provided to the G-20 Ministers and Deputies Meeting in London on September 3-4, 2009. Read the Full text PDF Format

Global Economy Beyond the Crisis—Framework for Sustainable Growth. Sustaining solid global growth in the aftermath of the financial crisis will be a fundamental challenge due to the impact of the crisis on balance sheets and, possibly, productive potential. A framework for achieving sustainable growth should contain the following essential elements—full repair of the financial system and rebalancing the sources of global demand. Restoring efficient intermediation and innovation in the financial system, while safeguarding financial stability, will be vital for supporting economic growth. Second, the sources of global demand will need to be rebalanced—from public to private sector demand, and from internal to external demand in major external deficit countries, matched by counterpart adjustments in major surplus countries. Successful global rebalancing will require a concerted multilateral policy effort. Read the Full text PDF Format

Key Messages of Global Economic Prospects and Policy Challenges

Global economic outlook

  • The global economy is beginning to grow again, but the recovery is likely to be sluggish and policy support needs to be sustained until the expansion is firmly established.
  • Financial conditions have continued to improve, but the global financial system is far from normal, and many markets remain dependent on public support. Banking systems are still undercapitalized and saddled with impaired assets, suggesting that deleveraging pressures will remain a constraint on bank credit for some time.
  • The overarching risk to the outlook is that the recovery stalls, either because of a premature exit from accommodative macroeconomic policies or because measures to restore health to bank balance sheets are not fully implemented. Fiscal sustainability issues are also coming to the fore.

Policy implementation and effectiveness

  • Bold and wide-reaching policy measures implemented by G-20 economies have helped stabilize confidence, limit the threat of further financial instability, and provided an impetus to economic growth.
  • Policymakers must, however, avoid becoming complacent, and should move rapidly to implement policies already proposed. Most notably, greater progress needs to be made in recapitalizing viable banks as needed.
  • Considerable fiscal stimulus remains in the pipeline through 2010 for the G-20 as a whole, and should be implemented expeditiously to maximize the impact on growth and employment.

Exit strategies

  • The key challenges involve mapping a course between unwinding public interventions too early and too late, and maintaining market confidence in the sustainability of public finances. Clear communication of exit strategies will be critical.
  • Central banks will eventually need to unwind their extraordinary liquidity and credit support, but may need to start tightening their monetary stance well before balance sheets are fully restored.
  • Fiscal support should be maintained while the recovery is still fragile. Eventual adjustment will need to be large, particularly for advanced economies where public debts are rising rapidly, underpinned by a major reform of entitlements.