Two-speed Global Recovery Continues

IMF Blog, January 25, 2011

Source details

Canonical URL

Two-speed Global Recovery Continues

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Authors: Olivier Blanchard
• Published: January 25, 2011

The outlook

• Global growth is set to slow as fiscal stimulus and restocking of inventories—previous drivers of activity—are "essentially over."
• Global growth projection: 4.4 percent in 2011, down from 5 percent in 2010.
• Emerging and developing countries:
  • Gross Domestic Product increase projected at 6.5 percent in 2011, compared with 7.1 percent in 2010.
  • Most have "few scars from the crisis"; some (e.g., South Africa) benefit from strong commodity prices.
  • In many emerging market countries, output is now back to potential and the policy challenge is to avoid overheating.
• Advanced countries:
  • Growth anticipated at 2.5 percent in 2011, compared to 3 percent in 2010.
  • Growth at this pace is "barely enough to dent high unemployment" and raises social concerns.
  • Advanced countries still need to work off pre-crisis excesses and fully repair financial systems; many face fiscal challenges, "most pressingly in the euro area."
• Global imbalances:
  • Little progress is being made.
  • U.S. growth expected to be based on domestic demand while net exports deteriorate; risk of replicating pre-crisis growth dynamics with public dissaving replacing low private saving.
  • Without fundamental changes in China, the current account surplus is expected to rebound from its lower level this year.

Tensions and risks

• Four main short-term tensions and risks stemming from the uneven recovery:

1. Rising commodity prices

• Actual prices remain below pre-crisis peaks.
• Food price increases driven mainly by one time supply-side factors; effects should wind down over the course of 2011.
• Oil price pressures come from the demand side: "In the second half of last year, unexpected consumption growth of 2 percent resulted in a price increase of roughly 10 percent."
• Strong world growth likely to be associated with further increases, with important implications for emerging and developing economies.

2. Capital flows into emerging markets

• Inflows have increased but for most countries remain below previous peaks and have been receding in the last couple of months.
• The recent decrease suggests that the U.S. Fed’s QE2 "may not be having the impact that many emerging markets anticipated."
• These flows raise policy choices on currency appreciation, macroeconomic policy, macro prudential tools, and capital controls.

3. Risks in "peripheral" Europe

• Macro and fiscal adjustment in some countries is likely to be long and painful.
• Markets worry that implementation could go off track, leading to concerns about sovereign debt and banks, and reverse spillovers from banks to sovereigns.

4. Risks from continuing global imbalances

• If rebalancing does not take place, absent an improvement in net exports, U.S. growth likely to remain subdued, complicating withdrawal of fiscal stimulus.
• If stimulus is not withdrawn, long-term fiscal challenges will intensify; either way, problems will emerge later for the U.S. and the rest of the world.

Three-pronged policy strategy

• A three-pronged strategy is necessary to reduce risks and strengthen the global recovery:

1. Emerging and developing countries

• Macroeconomic policies need to shift to avoid overheating.

2. "Peripheral" Europe

• Urgent measures include clarifying banks' exposures, backed by recapitalization schemes if and where needed (as outlined in the IMF’s update of global financial stability).
• Importance of "give time to time": back fiscal and macroeconomic commitments with deeds, provide adequate multilateral funding if and where needed, and ensure ECB liquidity to remove panic scenarios.

3. Reducing global imbalances

• For China and other surplus countries: structural reforms and currency appreciation.
• For the U.S. and other advanced countries: fiscal consolidation and credible medium term fiscal adjustment plans (many advanced countries, including the U.S., "have not yet put in place a credible medium term fiscal adjustment plan," and this is urgently needed).
• Dealing with global imbalances is framed as "essential to achieve a sustained, lasting, world recovery."

Olivier Blanchard — January 25, 2011

Content in this bundle

• 012511aa
  • 012511aa (PDF)
• 全球经济继续双速复苏, 2011 年1 月25 日
  • 全球经济继续双速复苏, 2011 年1 月25 日 (Markdown version)
  • 全球经济继续双速复苏, 2011 年1 月25 日 (PDF)
• 二極化が続く世界経済の回復
  • 二極化が続く世界経済の回復 (Markdown version)
  • 二極化が続く世界経済の回復 (PDF)
• По-прежнему два темпа глобального экономического подъема
  • По-прежнему два темпа глобального экономического подъема (Markdown version)
  • По-прежнему два темпа глобального экономического подъема (PDF)

References

• our latest World Economic Outlook update
• update of global financial stability