Europe’s sovereign debt crisis, fiscal challenges in advanced economies, concerns about overheating in emerging market countries, and the impact of rising food prices. These are the hot topics at this year’s World Economic Forum in Davos, Switzerland, and a clear sign of the tensions and risks as the global economy recovers.
In a video interview from Davos, IMF First Deputy Managing Director John Lipsky tells us that, with the return of global growth, the mood is certainly more optimistic than it was a year or two ago. But there is also a clear sense among delegates that this has not solved some of the world’s important economic problems.
On the European debt crisis, Lipsky said that “they hope the worst is over, but not certain yet.” Markets are looking to see the success of policy programs in some countries and for further action, including on a “so-called comprehensive set of measures to deal with these problems in the future,” he said.
As outlined in the latest update of the IMF's Fiscal Monitor, advanced economies face significant challenges in reducing their budgets over medium-term. For them, Lipsky said, “it’s time to start laying out credible plans.”
On the other hand, many emerging market countries have been growing rapidly, but there is now a “combination of worries”—the potential for rising inflation and even overheating, plus the recent run-up in food and energy prices.
Perhaps the real worry for the longer-term health of the global economy is that the lingering global imbalances show “no sign” of letting up. So, there is a desire among policymakers to “address the underlying issues that gave rise to these imbalances,” Lipsky said.