Transcript

By Olivier Blanchard, Economic Counsellor and Director of Research
With Charles Collyns, Deputy Director of Research, and
Jorg Decressin, Chief of the IMF’s World Economic Studies Division
Wednesday, April 22, 2009, Washington, DC

MR. MURRAY: Good day. I'm William Murray, Chief of Media Relations at the IMF. This is our live briefing on the latest World Economic Outlook. Joining me today is Olivier Blanchard, Economic Counsellor and Director of Research; Charles Collyns, Deputy Director of Research; and Jorg Decressin, who is the Chief of the World Economic Studies Division of the Research Department. Mr. Blanchard will have some opening remarks, and then we'll take your questions.

Olivier?

MR. BLANCHARD: Thank you, Bill. Good morning.

Let me start by giving you the main theme of this spring's World Economic Outlook. The world economy is being pulled by two opposite forces: the first one is pulling the economy down; the second is pulling the economy up. For the time being, the first clearly dominates. Over time, with the right policies, the first force should become weaker, the second should become stronger, and this should lead to recovery, we think, starting early next year. Return to normal, however, will take much longer. So what I want to do is develop this theme in a bit more detail before taking your questions.

The first force, which originated with the financial crisis and was amplified by the collapse of confidence in demand that took place at the end of 2008, continues to pull the global economy down. The collapse of demand has led to sharp cutbacks in production and a dramatic decline in exports. Global GDP went down by an unprecedented 6 percent at an annual rate in the last quarter of 2008 and, as far as we can tell, most likely declined almost as fast in the first quarter of 2009. Be it through a decrease in their exports or through a decrease in the internal demand, now nearly all countries of the world are still suffering from the dynamic effects of that enormous shock.

The second force is pulling the world economy up. It reflects two factors: first, the natural stabilizing forces which typically are at work at some point in a recession, and the macroeconomic policies. Stabilizing forces typically include a turn-around in the housing markets, progress in reducing inventories, a recovery in the demand for durables, but it must be said that at this moment these forces are still weak at best.

The major role is being played and will have to be played for some time by macroeconomic policies, both monetary and fiscal. On both fronts, the policy response has been a strong one. With inflation waning and worries about deflation mounting, central banks have extended their set of tools, not only reducing policy interest rates close to zero, which is traditional monetary policy, but also looking for ways to lower interest rates on a wide range of securities. On the fiscal front, governments have provided strong fiscal stimulus. Total stimulus for the G-20 countries in 2009 will turn out to be close to 2 percent of their GDP--actually, the number that the Fund had suggested in the fall of 2008.

Now, turning to the balance between these two forces, it is clear that today the first one dominates, and thus we forecast negative growth in advanced economies for the rest of the year. But we see the balance shifting as the year progresses. We expect growth in advanced countries will become positive again in 2010 and return to something like its normal rate around the end of 2010.

It is important here to understand the implications of our forecast for unemployment. As long as growth is below its normal rate, then unemployment continues to increase, and, therefore, our forecasts imply that unemployment will crest only at the end of 2010 and then decrease after that. The historical evidence presented in the so-called analytical chapters of the WEO suggest that the recovery may actually be slower than usual, leading to a slow decrease in unemployment over time after 2010.

Now, turning to emerging and developing countries, because their average growth rate is higher on average than in advanced countries, they will see positive growth earlier--sometime this year--but return to normal in the end will ultimately depend on what happens in advanced economies.

To summarize, and just looking at the global picture, overall we expect the global economy to decline by 1.3 percent in 2009--this is year on year--the weakest performance by far of the whole post-war period. Growth would return in 2010, helped by strong policies, but would remain just under 2 percent, so still well below what we would see as a normal growth rate for the average for the year.

Shaping the balance between these two forces--the up one, the down one--and determining when the balance will tip is the state of the financial system and, thus, the measures taken to repair it. As was emphasized in the GFSR presentation yesterday, banks are still very much in the process of retrenching and tightening lending standards. Many securities markets are still poorly functioning, and the longer this goes on, the longer and the deeper will be the recession; and the longer and the deeper the recession, the worse will be the health of the financial system. Together these two feedbacks create the risk of a vicious cycle and a much worse outcome than we have in our baseline. And this is true not only for advanced countries, but it is also true for emerging and developing countries which are facing both a major drop in their exports and a sharp decrease in capital inflows. We see this as the main risk to our forecasts. As the GFSR report emphasized yesterday, this is a risk that must and can be avoided by strong financial policies from the isolation of toxic assets from the balance sheets of banks and other institutions to the recapitalization of undercapitalized financial institutions.

Let me now turn a bit more to emerging and developing countries. These countries face the problems that we have described, that I have described, but in addition they face an additional problem. Not only are they confronted with a decrease in exports, an associated loss in activity, an increase in non-performing loans, but they are also facing a sharp reversal of capital inflows. The source is, again, the financial crisis in advanced countries and the general increase in risk aversion which the crisis has triggered. The ultimate solution, therefore, lies in the repair of advanced countries' financial systems, but we know this will happen slowly at best, and meanwhile a number of countries are likely to face serious balance-of-payment problems. Here the international community must help and, indeed, is helping. The additional funds provided to the IMF should go a long way to alleviate the problem, but it will still be very tough going for a number of countries. In addition, a special effort is needed to ensure adequate flows of what we call concessional resources, low-interest-rate resources, to low-income countries to help them face this global crisis. For many of them, the source of revenues was commodities. Commodity prices have collapsed.

Let me conclude. This is not the time for complacency, and the need for strong policies on both the macro and especially on the financial fronts is as acute as ever. But with such policies in place, there is light at the end of this long tunnel. World growth can turn positive by the end of this year, and unemployment can start decreasing by the end of next year.

Thank you. We will now take your questions.

QUESTION: Just your thoughts on the U.S. economy. Any signs of recovery? And if so, what is your level of confidence in those signs?

MR. BLANCHARD: I'm going to let my colleagues handle the country questions. I may come back with a remark or two, but in this case, I think Charles is the one who will answer the question.

MR. COLLYNS: Certainly there have been some positive signs in the numbers. There was a very sharp contraction of the U.S. economy in the fourth quarter of last year, probably a further significant contraction in the first quarter. But there are signs that at least that rate of contraction is now starting to moderate. Consumer demand has been a little bit stronger, so we're expecting growth in consumption in part because of the decline in petroleum prices, in part because of adjustment in social security at the beginning of the year. There has also been some improvement in business confidence, some signs of bottoming out in housing markets.

But these are very early days. We should not expect a return to growth anytime soon. Business confidence is still at low levels, consistent with further considerable declines in activity. So as Olivier said, we don't expect a return to positive growth in the United States until probably sometime next year. But there are at least positive signs, and the fiscal support and the monetary support that are being provided by policymakers should help to support the process of turning around the U.S. economy.

QUESTION: [Interpreted from French]: A French question for Mr. Blanchard.

Mr. Blanchard, you said that overall there was a 2 percent of GDP for economic stimulation plans. Has this had any positive impact? And my second question has to do with unemployment. What are your forecasts worldwide for the rate of unemployment?

Thank you.

MR. BLANCHARD: Yes, I think fiscal policies have made a gigantic difference. Our estimate is that if there had been no fiscal stimulus across the world, world growth in 2009 would be somewhere between 1.5 percent and 2 percent less than what we're predicting. Therefore, we would be in the middle of something very close to a depression. So I think we have to understand that the strong policies have made a difference. Things are not great. They could have been extremely bad.

Your second question was on unemployment. As I said, unemployment will continue to increase as long as growth is below potential. So it's going to continue to increase for some time. The peak we get for many of the countries is around 10 percent. It varies from country to country, but for the U.S. it is around 10 percent.

QUESTON: Thank you very much. Could you elaborate a little bit about the economic outlook of China specifically? And, also, what's the implication of the forecast? Also, I want to ask what do you expect China to play--what kind of role do you expect China to play in the upcoming Spring Meeting?

Thank you.

MR. COLLYNS: I'll response to the first question on how we see the outlook for China. China, like other parts of East Asia, has been hit by the collapse in global trade, the sharp fall in global demand for manufacturing products produced in China. However, we do see China showing some considerable resilience, continuing to grow at around 6.5 percent this year and then accelerating next year. This is for two reasons. One is that although China has opened up very rapidly in recent years, the contribution of export growth to Chinese GDP growth is actually smaller than in some of the other East Asian economies that have suffered even more severely from the global slowdown. And, second, the Chinese Government has reacted very strongly and very early to offset the negative forces coming from the external side, with both policies to increase the supply of credit in the economy and also to provide very strong fiscal stimulus, increased spending particularly on infrastructure, and we see these policies already beginning to have an effect. We think growth picked up in China in the first quarter of the year, and we are expecting growth to remain reasonably resilient for the rest of the year and continue to accelerate. This is clearly a very positive support for the region and indeed for the global economy at this point.

MR. MURRAY: Thanks, Charles. The role of China?

MR. COLLYNS: I think that's more for the Managing Director when he speaks tomorrow.

MR. MURRAY: Yes, the Managing Director will be here tomorrow morning. You're welcome to ask him about China and its role in the Spring Meetings.

QUESTION: [Off microphone.]

MR. MURRAY: The implications of the forecast.

QUESTION: [Off microphone.]

MR. COLLYNS: I'm sorry, I--what do you mean, the implications? We are expecting China to accelerate. That will provide some support not only for China but also for the region and for other parts of the world.

QUESTION: Thank you. My question is very quick. I want to ask about the GDP outlook of next year of Korea. It was plus 4.0 last outlook, but it went down to 1.5 this time. What is the main reason and the specific background of the downgrade of the numbers outlook?

Thank you.

MR. COLLYNS: For Korea, like other economies, the outlook is being very substantially affected by the downgrade in the outlook for the global economy. Korea suffered a very sharp contraction, as you know, in the fourth quarter of last year. The government has responded quite strongly with policies to support demand in Korea. There are now signs of a turn-around in the manufacturing sector and in exports, in part I think helped by the buoyancy that's also being shown in China. So we do see Korea returning to growth this year and that growth accelerating next year, but against the context of a weak global economy, and Korea depends very heavily on export performance as the engine of growth. And it's going to be difficult for Korea to grow at a strong rate until the global economy returns to a more normal condition.

QUESTION: Thank you. I will touch on 2010 and thereafter. Do you see any chance for surviving in Central and Eastern Europe? If I have a look at the state debt of the U.S. and Great Britain and Ireland and some other countries, I think that most of the IMF credits expire by 2010. Have you got any strategy or idea how to finance these Central European countries and Eastern European countries, including our neighbor Ukraine and the rest of them?

Thank you very much.

MR. DECRESSIN: We see the world economy doing a whole lot better in 2010 than it does in 2009. We see global trade recovering. We're seeing credit conditions in general easing, provided that the policies are implemented that we are forecasting and that we expect to be implemented. So I think 2010 will be easier than 2009.

Now, the Fund will in these countries stay involved for as long as it takes to nurse them through this crisis, and some countries have recently approached us on the precautionary basis. Others we are already actively involved in with arrangements, and we will remain there for as long as it is needed. And so we expect others to help out, too, such as the European Union, with which we are collaborating very closely.

So I think over time we should be getting out of this crisis. We don't foresee a scenario where things are getting worse.

MR. BLANCHARD: Just to add something on this. I think this was probably one of the most important implications of the decisions of the G-20 meeting. The increase in Fund resources really can play a role here and can help us come in if needed. This might have been much more difficult a few months back.

QUESTION: Mr. Blanchard, in terms of fiscal stimulus, in your forecast for 2010, how would you assess the level of fiscal stimulus planned in the major regions in Asia, North America, and Europe?

MR. BLANCHARD: Our estimates are that the degree of fiscal stimulus, if you add the two parts--the discretionary part as well as the automatic stabilizers--is roughly of the same magnitude in 2010 and in 2009. So we think that something is being done, although more of a role is played by automatic stabilizers in 2010 than 2009.

The second part of the answer is whether more should be done. Now, one has to realize that in 2010, what we call the output gap, which is the distance between where you'd like to be and where output is, is going to be even larger than in 2009. And, therefore, if something could be done, it would be good. The question is whether there is a lot more fiscal space to do it, and we know that markets are worrying about the medium-run sustainability of the public debt in a number of countries.

It seems to us that the right answer is that, to the extent that more can be done, it should be done. But at this stage, it should be done in a way which does not compromise medium-run debt sustainability. In concrete terms, I think this means doing two things: doing more in the short run, if more can be done, but also taking measures to reduce the medium-run deficits, through reforms of the retirement system, the health system--that depends across countries--so that the financial markets are not worried about medium-term sustainability. But we think that this combination of measures is highly desirable and governments should try to achieve it.

QUESTION: Thank you. I feel obliged to ask about my own country, obviously. The reversal of fates, as you put it in the report, has been abrupt, and I'm interested in your opinion on what happened and what happens next.

But my real question, actually, when I was doing my embargoed stories last night, I noticed the miracle in the Russian neighborhood, and the miracle is the small nation of Georgia which, as we all know, suffered through a war last year, is suffering through the crisis like everybody else, received a major bailout from the IMF, some other major bailouts, and yet, despite all of that, does not suffer an economic decline, according to your figures.

My question about that is: Is it an economic miracle or is it a miracle of political accounting? In both cases, please explain. Actually, when I was doing a story about Georgia earlier, about an earlier opinion on Georgia, I noticed that you used a different set of figures on inflation than your usual ones, not the averages but year on year. So what figure did you use in this case?

And in the same vein, for Mr. Blanchard, how much of a problem is this for the IMF, the political pressure to cook the books? And does it increase in the crisis?

Thank you.

MR. DECRESSIN: Let me take the questions in turn. Let's start with Russia. Russia is being hit by a trifecta of shocks. First, you've had the large decline in global trade. Second, you had the tightening of credit, the troubles in the banking system. Third, you had the drop in raw material prices and oil prices. So Russia, like the CIS as a whole, is experiencing the largest reversal of fortune, so to speak, among all the regions in the world.

Now, you're asking specifically about the large downward revision that we've done for 2009. Here what is essential is what happened basically in the fourth quarter of 2008 and in the first quarter of 2009. The latest numbers on industrial production and construction are suggesting contractions on the order of 15 to 20 percent on a year-on-year basis. Initially, we thought that these numbers were like temporary phenomena, but then, you know, they were confirmed by other numbers. And that's what prompted us to revise significantly down.

Now, the Russian authorities are using the powers that they have--the room that they have with respect to fiscal to stimulate the economy. They've also injected ample liquidity in their financial system, and we believe that this will help the economy turn around. And so for 2010 we see, again, on an average basis a positive growth of 0.5 after a contraction of 6 percent this year.

The second question regarding Georgia, I mean, it's a little bit--you know, what goes up--the crisis is a little bit here one where what has gone up a lot also falls a lot; where there have been big credit booms and high growth rates, there have been large corrections in the growth rates and in credit afterwards.

Now, Georgia in 2008 was already operating at a fairly low growth rate. They were coming in from growth rates of 12 percent in 2007 and slowed fairly abruptly in 2008 to 2 percent. And so the fall in 2009 will not be quite as deep. That said, in general, for all the countries in that region, with the exception of Russia, we see the risk to growth to the down side, and that also includes Georgia.

As far as your question on prices is concerned, we're showing annual averages. That's what we have in our Table 2.5 of Chapter 2.

Thank you--yes, the annual averages, and they're going from--I'm seeing this here, from 10 percent in Georgia in 2008 down to 5 percent in 2009.

QUESTION: [Off microphone.]

MR. MURRAY: Cooking the books.

MR. BLANCHARD: The IMF does not cook the books. I say this with fairly strong confidence.

QUESTION: Thank you. I'd like to--the IMF is forecasting a minus 1.3 percent GDP for Brazil this year. This is more than double what the market is forecasting in Brazil. What explains this number? What does the IMF have to say about this number?

Thank you.

MR. COLLYNS: Brazil, like other countries in Latin America, is suffering from a combination of shocks: the sharp decline in commodity prices for the products that Brazil exports, a tightening in financial conditions, and the global slowdown in trade. This had a fairly major impact on the Brazilian economy in the fourth quarter. We do see some signs of improvement in the first quarter, in part because the Brazilian authorities are using macroeconomic policies actively to respond to the shock, both with some easing on the fiscal stance and also fairly aggressive interest rate cuts.

I think it's very welcome that Brazil has earned itself room for maneuver to respond in this way, and this is certainly helping to cushion the impact of very large global shocks on Brazil. Nevertheless, our global view is that the world economy is going to continue to struggle this year, only pick up pace gradually and return to growth next year. And our forecast for Brazil has to be affected by this global view. So it's not that we think that Brazil is particularly weak but, rather, Brazil is an important member of the global economy, and the projections for Brazil have been downgraded in line with our projections for the global economy.

MR. MURRAY: I'm going to take a question from the Media Briefing Center here. I think it's for Jorg. “The numbers for Germany are very bad. Should the German Government consider more stimulus?”

MR. DECRESSIN: The numbers are pretty bad indeed. We're seeing growth--we see activity contracting by 5.5 percent in 2009 and then basically continuing contracting on an annual average basis in 2010.

Germany has already deployed a lot of fiscal stimulus. Basically the German Government deficit went from balance in 2008 to a deficit of around 5 percent in 2009, so this is significant support to the economy. And the deficit is expected to widen further to around 6 percent in 2010.

Now, could they do more? The answer is yes. Germany does have the room to do more. Should they do more at this stage? I think our view is that they should definitely consider doing so. It should have measures ready to roll out, especially when downside risks materialize. This is a case where a country has done its homework. During the good times they have adjusted and can take advantage of this during the bad times.

MR. BLANCHARD: Let me add something on this general topic, which is that from the point of view of this crisis, the best fiscal measures are infrastructure projects which were scheduled to happen later and are moved forward in time so that they're implemented now. This has the advantage that it doesn't change the medium-run implications. You're just doing something today that you would have done later.

The problem with infrastructure projects and public investment in general is that it takes a long time to get going, so that typically in a standard recession, when you get ready to do it, you're already past the recession, and it comes at the wrong time. This one is different in the sense that we can be fairly confident that in 2010 or even in 2011, economies will not be back to normal--in terms of level--which means that governments should today think at least about contingent plans for infrastructure spending or investment spending such that if things really turn out to be bad, they are ready to implement them, being able to act fairly quickly, and I think that's something that they have to think about today, not wait until next year to see whether there is a need. Next year will be too late.

QUESTION: This is a question to Charles, I presume. You're forecasting a 0.1 rate of growth for Chile this year, which is quite better than most people in the local market are expecting. I wonder what is the division for that forecast, and I would like also to know your assessment on the policies being undertaken in Chile, in particular fiscal policies.

MR. COLLYNS: The situation of Chile is somewhat like the situation of Brazil. It's a commodity exporter. It's been certainly damaged by the fall in commodity prices. It's been damaged more generally by the fall in global demand and by tightening external financial constraints. But like Brazil, Chile has earned itself a lot of room to respond through policies to counteract the impact of these external shocks. In fact, I think Chile has done particularly well with its fiscal policy, building up a large surplus in the good times over the past five years, with a deliberate policy of being very prudent to build up reserves for a rainy day. And now that the rainy day has come, the Chilean Government is appropriately using the fiscal room that it has built up by pushing fiscal stimulus to the economy. The central bank is also acting to cut interest rates, and we think these policies will be effective at helping to offset the impact of these external shocks so that our overall view of Chile is it will avoid the significant contraction in activity that we're seeing elsewhere and will return to more positive rates of growth as time goes on.

QUESTION: My question is: What's your perspective on Japanese economy? And how would you suggest them to get out of the recession?

Thank you.

MR. COLLYNS: Japan's economy has clearly been very hard hit by the global crisis. Even though its financial system was not directly exposed to the subprime problems in the U.S., its manufacturing sector has been very grievously damaged by the collapse in global demand, particularly for products produced in Japan, such as automobiles, electronics, capital equipment. There's been a dramatic decline in industrial production and trade in Japan, as you know, a very strong decline in GDP in the fourth quarter.

Unfortunately, Japan does not have as much room to respond on the policy front as other countries. Interest rates in Japan were already close to zero so the Bank of Japan is taking steps. It has already lowered--used up all the space it had to lower interest rates. It's beginning to use less conventional means to support credit growth.

In addition, the Japanese Government has been very proactive at introducing fiscal stimulus, including another large fiscal stimulus package last week. We do think that the combination of these measures will help to support the Japanese economy, particularly once the fiscal spending measures come into play around the second half of this year. So we do expect Japan, in fact, to register a couple of quarters of positive growth later this year.

The problem is that, as you know, Japan already has a very high ratio of public debt to GDP, and it doesn't have much more room to add to stimulus if things do not improve. But I think the authorities, therefore, need to try to find ways to combine their short-term efforts to support the economy with longer-term reforms that will help to boost prospects for growth and to boost the prospects for the fiscal consolidation that Japan will need once the current global recession is over.

QUESTION: This is for Mr. Blanchard. I have two questions. One is basic, which is: When was the last time world economic output declined? And the second is more of a broad, sweeping question, which is: With the projected 1.3-percent decline that the IMF is predicting, what does that mean in terms of additional people that will be unemployed, people that--more people being thrown into poverty, the number of home foreclosures? If you have a way to characterize kind of the fallout, the real-world consequences of that.

Thank you.

MR. BLANCHARD: I know the answer to the first question, which is that it has never happened in the post-war era, post-World War II era, and this is worse by quite a bit. The additional unemployment created by this crisis, I actually do not know the number. Maybe Charles or Jorg know it. There was a number given by the ILO a few months back, which I have not looked into in terms of construction, but it is surely extremely large. I'm sorry I can't give you a number.

QUESTION: This is a quick follow-up for Mr. Collyns. You mentioned the impact of fiscal policy on the U.S. economy, but you didn't specifically say any impact on the stimulus that was passed earlier this year. Have you been able to find any evidence that the stimulus is beginning to make an impact?

And the other question is for the entire panel. In your assessment, you have oil prices basically unchanged from your earlier assessment, though dramatically down from a year ago. And I'm looking at this and looking at also your assessment that the lower price is leading to less investment in the area, which may actually have some bad consequences when oil prices begin to rise again because of lack of investment. And I'm looking at--does the IMF see a scenario where the world could tip into a depression if oil prices dramatically rose, perhaps an attack by Israel on Iran that closes the Straits of Hormuz or another similar oil shock?

MR. COLLYNS: On the first question, it's still a little bit early to expect to see the impact of the recent stimulus on the economy in the data, but we are expecting the stimulus to start having a significant impact already in this second quarter. One of the things that the stimulus does is to lower the tax withdrawals on income tax so that there will be an increase in take-home pay starting in this second quarter as a result of the package. We also see state governments taking advantage of the increased transfers from the federal government, which is giving them more room for maneuver. They're being required to cut their spending by less to meet their own balanced budget requirements.

So we do think that the fiscal stimulus package will start to have a significant impact already in the second quarter, and then that impact should grow over time as the spending programs come into force. But that will take a little bit more time to organize the increased spending, for example, on infrastructure given the normal planning and implementation delays.

MR. MURRAY: Thanks, Charles.

I'm going to take a couple--on prices, yes.

MR. COLLYNS: [Speaking to Mr. Blanchard.] Do you want to respond or shall I respond? Okay.

At this point, world oil markets have a lot of spare capacity. In fact, spare capacity is double its rate of the past couple of years. We see much less vulnerability to a political shock in the Middle East or elsewhere than would have been the case if we had been faced by such a shock a year or two ago. Clearly, it would be unfortunate to add the uncertainty that would be created by such an event at this difficult time, but I think the degree of vulnerability is at this point substantially lower than it has been in recent years.

QUESTION: Hello. My question is for Mr. Blanchard. If we see the table that you published today, the euro area and the European Union is the only region where you forecast a recession for two years--this year and next year. Could you explain why? Is it related to the government or is it related to the central bank?

Thank you.

MR. BLANCHARD: While I do speak French, Jorg actually has done the legwork on what happens in each of these countries, so I'll let him start.

MR. DECRESSIN: Yes, on an annual average basis, you're right, we are showing a contraction by 4 percent, about 4 percent in 2008 for the euro area and by a half percent in--sorry, for 2009 and by a half percent in 2010. But if you look at Q4 over Q4, which is in many ways actually the better way to look at the numbers, then what you actually see is you see an acceleration, you see--after a decline of 3.5 percent in 2009, you see close to zero growth in 2010. So this is not a case of--you know, it's not a case of two years of recession.

In fact, if you look at the quarterly numbers, we're seeing growth turn positive in the second quarter of 2010 for most of the euro area countries.

Now, the euro area is coming out of this crisis somewhat later than the U.S. because, to some extent, you know, the stimulus kicked in later, the policy stimulus, both on the monetary side but also on the fiscal side.

And, finally, the other thing that you need to consider is that the potential growth rate of the euro area, in that sense, you know, the natural head wind that the area faces or, you know--sorry, tail wind, the natural tail wind the area has is not as big as the one that the U.S. economy has, and that is because population growth, for example, in the euro area is less high than in the U.S. And so your numbers automatically look lower.

So if you bear these things in mind, then I think, you know, it's quite natural to expect the area not to show as high growth rates in 2010 as the U.S. economy.

QUESTION: We talked almost about all the world's economy. We did not talk about the Middle East. So what's the outlook for the Middle East? And what do you expect them--what kind of role you're expecting for them to play? And if you have time, also I would like to talk about the Lebanese example, because I think if not the only country, like one of the fewest country that was not--they were not affected by the financial crisis. So Mr. Blanchard or anyone.

Thank you.

MR. DECRESSIN: Yes, on the Middle East, we see growth in the Middle East slowing from around 6 percent in 2008 to 2.5 percent in 2009 and 3.5 percent in 2010. So, you know, this is not--this is a much better scenario than the one that we have for the euro area or the U.S., for example.

So what's happening in the Middle East, you have first the oil price decline which is affecting the economies; and, second, you know, the general decline in global trade. And then for some countries in the Middle East, also the financial crisis. There are some instabilities in the banking system.

Now, the governments have, in our view, reacted very forcefully. They had large fiscal surpluses during the oil price boom in 2008 and 2007 and so on. So they've built up large asset positions. And what they are now doing is they are basically running large deficits to support the economies. And in that sense, they will soften the decline that is going to happen to non-oil activity, and we think that this is very important. I mean, Saudi Arabia, I think, among the G-20 is the country that gives the largest fiscal stimulus, and rightfully so.

At the same time, they have also pulled all the stops with respect to monetary easing that they can pull, lowering reserve requirements, for example, and so forth. They have also injected liquidity in the banking systems. Countries have put money on the table for recapitalization. So on the whole, it's a pretty strong policy response, and I think this validates also our forecast of a decline in the growth rate, but still positive growth of around 2.5 percent this year.

Now, as to Lebanon, Lebanon has been a financial center, and our reading is at least that the country will be quite heavily affected. They've had growth rates of around--I mean, I am seeing them here now, 8.5 percent in 2008, and they're also going down to 3 percent. So they've been growing a little more than the average in the Middle East in 2008, and they are falling down to approximately the same level in terms of growth rates. And there the financial sector is playing a big role as well because, well, it's a big part of the economy, and with generally lower activity everywhere in the Middle East, that will also reduce the financial flows from other Middle Eastern countries to Lebanon, and it will reduce the profitability of the banking sector.

MR. MURRAY: Thanks, Jorg.

This is the final question [submitted via the Media Briefing Center]. It's a broad question about the interrelationship between emerging, developing, and advanced economies. “How can emerging and developing economies take the best advantage of the policies being implemented in advanced economies to face the crisis?”

MR. BLANCHARD: I think, unfortunately, that their fate depends very much on what happens in advanced economies, namely, the exports will only pick up when demand picks up in advanced countries, and they can't do much about this. The other problem they are facing are these capital outflows, and, again, that will be repaired only when the financial system in advanced countries is repaired. So very largely their fate is out of their hands.

At the same time, what they can do is face the additional problems they have at home in terms of non-performing loans, in terms of using fiscal policy, in terms of using monetary policy, but it's clear that in the end what happens to them, to most of them, except the ones which are very big and very closed, is going to depend very much on what happens to recovery in advanced countries.

MR. MURRAY: Thank you very much. Thanks for joining us today. This is the conclusion of the World Economic Outlook press briefing.