## IMF Survey: Two-speed Recovery to Extend into 2011, Says IMF

_IMF News, December 30, 2010_

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## Bibliographic details
- Authors: Jeremy Clift IMF Survey
- Published: December 30, 2010

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### Two-speed global recovery — assessment and outlook
- The two-speed global economic recovery is likely to dominate 2011, with weak growth in advanced economies and fast growth in emerging markets.
- Advanced economies: growth described as "positive but low"; recovery is "slow" and "barely strong enough to decrease unemployment."
- Emerging markets: rapid rebound in trade and strong domestic demand have returned many to high growth; challenges include avoiding overheating and handling strong capital inflows.
- Quote: “Without this economic rebalancing, there will be no healthy recovery.”

### Performance versus IMF forecasts for 2010
- IMF assessment: "no major surprises" relative to forecasts made in January 2010.
- Specific outcomes versus forecasts:
  - United States: "right on the dot."
  - Core Europe: "things turned out a bit better than expected."
  - Japan: "had higher growth than we had anticipated, but it looks like a one-time phenomenon."
  - China: "we were right on the mark."
  - India: "did better than we had forecast."

### Rebalancing: internal and external
- Rebalancing remains central policy priority for 2011.
- Advanced "deficit countries" should shift toward reliance on external demand (exports).
- Surplus countries, "many of them emerging markets," should shift from external demand to domestic demand and reduce dependence on exports.
- Structural measures highlighted:
  - In Asia: improve financial intermediation; provide more social insurance.
  - In the United States: reforms of the financial intermediation system.
- Exchange rate adjustment is identified as "an integral part of the process."

### Capital flows to emerging markets
- Capital inflows can help:
  - By inducing appreciation that shifts demand from external to domestic.
  - By making borrowing easier and cheaper, boosting domestic demand.
- Concerns for emerging markets:
  - Volatility: flows "will come and go."
  - Intermediation capacity: ability to absorb high flows.
  - Risks of over-appreciation and overheating.
- Current assessment: "we have not seen the tsunami of flows that is sometimes described in the press."
- Policy need: agree on broad "rules of the road" recognizing country circumstances and global links.

### Low-income countries
- Impact mainly via trade channel due to limited financial integration.
- Improved outlook as trade recovers and commodity prices rise from emerging market growth.
- Example: "Sub-Saharan Africa, for example, grew at more than 5 percent in 2010, and we forecast roughly the same for next year."
- Contributing factors: past sound policies enabling fiscal support; strong private domestic demand.

### Europe: adjustment, fiscal and banking issues
- Several European countries face "a tough and long macroeconomic adjustment."
- Causes: excessive domestic demand pre-crisis, large current account deficits for some.
- Euro-area constraint: countries in the euro with a fixed exchange rate face a "long and tough slog."
- Policy emphasis:
  - Medium-term fiscal anchoring: "a credible path to debt stabilization, and eventually debt reduction" rather than dramatic cuts now.
  - Joint EU-IMF programs can help by:
    - Putting a ceiling on government borrowing interest rates to avoid multiple equilibria.
    - Reinforcing credibility of commitments and reassuring markets.
- Banking concerns:
  - Current fears about the banking system are "suspect[ed]" to be overstated.
  - Remedy: increased transparency, timely and credible stress tests, and clearer rules on burden sharing among creditors, national governments, and the EU.
  - Belief expressed that bailout amounts "can be quite limited" once proper assessments are done.

### Role of the G-20 and the MAP process
- G-20 played a central role during the acute crisis; its role is more challenging now as country problems diverge.
- The G-20 mutual assessment process (MAP), with IMF acting as expert consultant, can:
  - Give policymakers a sense of the global landscape.
  - Show implications of current policies and dangers of an unbalanced recovery.
  - Explore alternative policies and improve the quality of dialogue.
- MAP improves the odds of successful coordination but "does not guarantee success."

*IMF Survey: Two-speed Recovery to Extend into 2011, Says IMF (IMF Survey online, December 30, 2010)*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [In The News](https://www.imf.org/en/news/search)
- [Emerging markets fuel recovery](https://www.imf.org/external/pubs/ft/survey/so/2010/NEW120910A.htm)
- [Low-income countries poised](https://www.imf.org/external/pubs/ft/survey/so/2010/POL120710A.htm)
- [Debt and deficits choices](https://www.imf.org/external/pubs/ft/survey/so/2010/POL121710A.htm)
- [Global cooperation is key](https://www.imf.org/external/pubs/ft/survey/so/2010/INT120210A.htm)
- [Blog: Year of IMF reform](http://blog-imfdirect.imf.org/2010/12/28/2010-the-year-of-imf-reform/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sonew123010a_