## After the Crisis: Lower Consumption Growth But Narrower Global Imbalances?

_IMF Working Papers, January 1, 2010_

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## Bibliographic details
- Authors: Franziska L Ohnsorge, Ashoka Mody
- Published: January 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451961966.001

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### Summary findings
- The paper estimates consumption dynamics in the G-7 economies, emphasizing the possibility of precautionary behavior in the face of uncertainty.
- In the short run, continued income uncertainty will significantly dampen consumption growth.
- Consumption in the G-7 economies is unlikely to be the engine that revives global growth.

### Analysis of drivers and heterogeneity across G-7
- Precautionary behavior driven by income uncertainty is a central mechanism reducing consumption growth.
- Differences in the pace and timing of consumption moderation across G-7 countries matter for global outcomes.
- The U.S. experienced a sharper rise in unemployment and, perhaps, more widespread loss of financial wealth than elsewhere in the G-7:
  - The relative rise of the U.S. savings rate is helping narrow global imbalances.
  - With a likely earlier recovery in the U.S., this narrowing could be short-lived.
- Long-term sources of imbalances include:
  - Differences in economic and financial volatility.
  - Differences in demographic structures.
- These long-term differences have been important sources of global imbalances and could soon reassert their prominence.

### Policy-relevant implications
- Short-run: Continued income uncertainty implies weaker consumption-led global growth, reducing the effectiveness of relying on household consumption as the primary engine of recovery.
- Medium-run: Country-specific trajectories (especially a faster U.S. recovery) can reverse temporary narrowing of global imbalances.
- Long-run: Structural factors—economic/financial volatility and demographics—require policy attention because they can reestablish imbalances even after short-term adjustments.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/after-the-crisis-lower-consumption-growth-but-narrower-global-imbalances-23465_