International Monetary Fund

Group of Twenty -- Meeting of G-20 Finance Ministers and Central Bank Governors

IMF Note on Global Economic Prospects and Policy Challenges

April 23, 2010 - Washington, D.C.

About the Executive Summary

The Following executive summary is from a note by the Staff of the IMF prepared for the April 23, 2010 meeting of the Group of Twenty Finance Ministers and Central Bank Governors in Washington D.C. Read the Full text PDF Format

Executive Summary

The global recovery has evolved better than previously anticipated, but it is proceeding at different speeds within and across regions. Recovery in advanced economies is being largely driven by extraordinary policy support and the turn in the inventory cycle, while in key emerging economies strong domestic demand, improvement in global trade and higher commodity prices are adding to the growth impetus.

The speed of recovery is expected to vary considerably across G-20 countries, with weaker and more fragile growth in most advanced economies contrasting with robust expansions in most emerging economies, particularly in Asia. After contracting by 0.6 percent in 2009, global output is expected to expand by 4.2 percent in 2010, an upward revision of 0.3 percentage points from the January World Economic Outlook update, with growth projected at 4.3 percent in 2011.

Concerns about advanced country fiscal sustainability and sovereign risks have come to the fore. There is an urgent need to design and implement credible fiscal policy strategies to bring down gross debt-to-GDP ratios over the medium. In the short term, absent such plans, high debt ratios could impede fiscal flexibility, increase the vulnerability of fiscally challenged economies, and constrain growth.

A multispeed recovery means that policy challenges will vary due to individual country circumstances. With recovery in most advanced G-20 economies expected to be weak, the fiscal stimulus planned for 2010 should be implemented fully. Tightening could begin in 2011, when the recovery is expected to become self sustaining.

Looking further ahead, policymakers have outlined strategies for exit from crisis-related intervention policies, although these are not underpinned by sufficiently specific measures in all cases. For countries with high levels of public debt, a clarification of strategies would be essential, with fiscal consolidation taking priority and with monetary policy able to play a balancing role to achieve a desired level of overall stimulus. In some emerging economies, particularly in Asia, monetary policy may have to be tightened relatively soon and ahead of fiscal consolidation due to concerns about overheating, credit quality, and asset price bubbles. In others, particularly some in Latin America, the opposite sequencing will be appropriate.

Some emerging market countries may have to adopt policies to manage large capital inflows. resumption of capital flows to these countries, which is fundamentally welcome, is being driven rapid growth and yield differentials, and has led to concerns about asset price bubbles in some cases. The right responses to inflows will differ across countries, including fiscal tightening to ease pressure on interest rates and greater exchange rate flexibility. Macro-prudential policies aimed at limiting the emergence of asset price bubbles, reserves accumulation, and carefully designed changes to capital controls may also be part of the appropriate responses in certain cases.