The global economy has entered a dangerous new phase. The recovery has weakened considerably, and downside risks have increased sharply. Strong policies are urgently needed to improve the outlook and to reduce the risks. Growth, which had been strong in 2010, decreased in 2011. What was going on was the stalling of the two rebalancing acts—internal and external—which, as we have argued in many previous reports, are needed to deliver “strong, balanced, and sustainable growth.” This has been compounded by a sharp increase in financial volatility since the middle of the summer. These developments have, not surprisingly, led us to revise our forecasts down. In light of the low baseline and the high risks, strong policy action is of the essence. It has to rely on three main legs.
The center of global economic growth is moving from the West to Asia. Over the last 30 years, the Asian economy has grown by over 7 percent each year, doubling in size every decade. This success has been based in large part on outward-oriented growth strategies. But, there is growing awareness that Asia’s export-led growth needs to be balanced by a second engine of growth. How to achieve this rebalancing is a key theme of a new book from the IMF, launched in Hong Kong, on Rebalancing Growth in Asia—Economic Dimensions for China.