{
  "title": "World Faces Serious New Economic Challenges",
  "publication": "IMF Blog, April 21, 2010",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2010/04/21/world-faces-serious-new-economic-challenges",
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  "summary": "Global growth forecast: 4.2% in 2010 (upward revision of 0.3% from January forecast) and 4.3% in 2011.",
  "sections": [
    {
      "heading": "Global outlook and summary findings",
      "content": "- Global growth forecast: 4.2% in 2010 (upward revision of 0.3% from January forecast) and 4.3% in 2011.\n- Global trade and capital flows: strong rebound.\n- Financial market conditions and stability: improved (as discussed in the newly released Global Financial Stability Report).\n- Recovery is asymmetric: tepid recovery in many advanced economies versus much stronger recovery in most emerging and developing economies."
    },
    {
      "heading": "Advanced economies: performance and risks",
      "content": "- Growth forecasts: 2.3% for 2010 and 2.4% in 2011.\n- Output gap: output is now 7% below its pre-crisis trend; this “output gap” is expected to remain large for many years.\n- Unemployment forecasts: 8.4% in 2010 and 8.0% in 2011.\n- Main factor behind weak performance: weak private demand.\n  - United States: consumers are being more prudent.\n  - Europe: weak banking sector limits credit supply.\n  - Japan: reappearance of deflation leading to higher real interest rates and endangering recovery.\n- Policy priority shift: from emergency fiscal stimulus to fiscal consolidation to contain risks of a debt explosion caused by loss in fiscal revenues associated with the loss in output."
    },
    {
      "heading": "Emerging and developing economies: performance and risks",
      "content": "- Growth forecasts: 6.3% in 2010 and 6.4% in 2011.\n- Developing Asia: forecasts of 8.7% for 2010 and 8.6% in 2011.\n- Demand composition: while fiscal policy supported activity in 2009, private demand is strengthening and can sustain growth.\n- Main challenge: large capital inflows driven by higher growth prospects and higher interest rates.\n  - Risks: booms and busts from large inflows.\n  - Policy issues for recipients: how to accommodate flows; how much to let the currency appreciate; how to use macroeconomic policy, macro-prudential tools, reserves, and capital controls to avoid excesses and maintain stable growth."
    },
    {
      "heading": "Policy linkages and mutually reinforcing solutions",
      "content": "- Interaction between advanced and emerging economies:\n  - Advanced economies need fiscal consolidation, which is likely to reduce domestic demand and adversely affect growth.\n  - To offset adverse demand effects and maintain growth, advanced countries, as a whole, may need to depreciate their currency to increase net exports.\n  - This implies emerging and developing countries, as a whole, should allow their currencies to appreciate and reduce net exports to support global rebalancing.\n- National example:\n  - China: a shift away from exports toward domestic consumption is desirable; this requires structural measures to decrease saving and an appreciation of the currency."
    },
    {
      "heading": "Policy recommendations and tasks for policymakers",
      "content": "- Advanced economies:\n  - Prioritize fiscal consolidation to avoid a debt explosion.\n  - Manage the adverse effects of consolidation on demand, potentially through exchange rate adjustments (depreciation as a group).\n- Emerging and developing economies:\n  - Manage large capital inflows to avoid booms and busts.\n  - Use a mix of tools: allow currency appreciation where appropriate, apply macroeconomic policy, deploy macro-prudential measures, build reserves, and consider capital controls if needed.\n  - Pursue structural reforms to rebalance demand toward domestic consumption (example cited: China).\n- Global coordination:\n  - Recognize that exchange rate adjustments and demand rebalancing across countries are interconnected and in the global interest to sustain balanced growth."
    },
    {
      "heading": "Conclusion: new stage of the crisis",
      "content": "- Outcome to date: a global depression has been averted; the world economy is recovering and better than previously expected.\n- New challenges: achieving strong, sustained and balanced growth will require fiscal consolidation in advanced countries, exchange rate adjustments, and a rebalancing of demand across the world.\n- Time horizon: these are the tasks facing policymakers over the next few years.\n\nSource: Olivier Blanchard, April 21, 2010 — World Faces Serious New Economic Challenges\n\n---\n\n\n References\n\n- forecast\n- Global Financial Stability Report\n- unemployment\n- capital inflows\n\nSource: https://www.imf.org/en/blogs/articles/2010/04/21/world-faces-serious-new-economic-challenges"
    }
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    "Authors: Olivier Blanchard",
    "Published: April 21, 2010",
    "Global growth forecast: 4.2% in 2010 (upward revision of 0.3% from January forecast) and 4.3% in 2011.",
    "Global trade and capital flows: strong rebound.",
    "Financial market conditions and stability: improved (as discussed in the newly released Global Financial Stability Report).",
    "Recovery is asymmetric: tepid recovery in many advanced economies versus much stronger recovery in most emerging and developing economies.",
    "Growth forecasts: 2.3% for 2010 and 2.4% in 2011.",
    "Output gap: output is now 7% below its pre-crisis trend; this “output gap” is expected to remain large for many years.",
    "Unemployment forecasts: 8.4% in 2010 and 8.0% in 2011.",
    "Main factor behind weak performance: weak private demand.",
    "Policy priority shift: from emergency fiscal stimulus to fiscal consolidation to contain risks of a debt explosion caused by loss in fiscal revenues associated with the loss in output.",
    "Growth forecasts: 6.3% in 2010 and 6.4% in 2011.",
    "Developing Asia: forecasts of 8.7% for 2010 and 8.6% in 2011.",
    "Demand composition: while fiscal policy supported activity in 2009, private demand is strengthening and can sustain growth.",
    "Main challenge: large capital inflows driven by higher growth prospects and higher interest rates.",
    "Interaction between advanced and emerging economies:",
    "National example:",
    "Advanced economies:",
    "Emerging and developing economies:",
    "Global coordination:",
    "Outcome to date: a global depression has been averted; the world economy is recovering and better than previously expected.",
    "New challenges: achieving strong, sustained and balanced growth will require fiscal consolidation in advanced countries, exchange rate adjustments, and a rebalancing of demand across the world.",
    "Time horizon: these are the tasks facing policymakers over the next few years.",
    "[forecast](http://www.imf.org/external/pubs/ft/weo/2010/01/index.htm)",
    "[Global Financial Stability Report](http://www.imf.org/external/pubs/ft/gfsr/2010/01/index.htm)",
    "[unemployment](http://www.imf.org/external/pubs/ft/survey/so/2010/RES041410A.htm)",
    "[capital inflows](http://www.imf.org/external/pubs/ft/survey/so/2010/NEW041310A.htm)"
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