Despite a mild slowdown, the global economic recovery continues but the road to health will be a long one. Downside risks, both old and new, are increasing. Our world forecast is 4.3% growth for 2011, and 4.5% for 2012, so down by 0.1% for 2011, and unchanged for 2012, relative to April. This figure hides very different performances for advanced economies on the one hand, and for emerging and developing economies on the other.
Asia’s vigorous pace of growth has seen the region play a leading role in the global recovery. But there are signs that higher commodity prices are spilling over to a more generalized increase in inflation. Expectations of future inflation have picked up. And accommodative macroeconomic policy stances, coupled with limited slack in some economies, have added to inflation pressures. Against this backdrop, the need for policy tightening in Asia has become more pressing than it was six months ago, especially in economies that face generalized inflation pressures. How should policymakers address these challenges?
Medium-term economic growth prospects in the Caucasus and Central Asia region are strong. But, to secure ongoing prosperity, the eight countries of the region—Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan—will need to look beyond traditional sources of growth. The challenge for policymakers will be to foster new and more diverse growth drivers, outside mining, oil, and gas. There are seven policy pillars that can help them do that, including strengthening economic and financial ties within the region.
As the economic recovery has matured across much of Asia, the region has continued to be a driving force in the strengthening global recovery. Yet, recent tragic events—around the globe, and the earthquake and tsunami in Japan—are an all too poignant reminder of the fragility of our economic circumstances and, indeed, life. Much of this weighs on my mind as I am here in Hong Kong to launch our April 2011 Regional Economic Outlook: Asia and Pacific. While the outlook is by no means gloomy, policies will need to tackle new downside risks that have emerged and how to manage the next phase of Asia’s growth.
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 an interview from Davos, the IMF’s 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.
This past weekend in Washington DC, as the economic leaders of 187 countries gathered for the Annual Meetings of the IMF and World Bank, the mood was tense. The world’s finance ministers and central bank governors were concerned because the global recovery is fragile. And, on top of the risks to the outlook, there is concern that the strong international cooperation that was shown during the crisis is in danger of receding. So, after the meetings, was the atmosphere less tense? Yes...and no. The world made some progress over the weekend. But we shouldn’t be too self-congratulatory. We are not yet out of the woods. The IMF’s analysis indicates that improved economic policy coordination, over the next five years, could increase global growth by 2.5 percent, create or save 30 million jobs, and lift 33 million more out of poverty. With such high potential returns, can we really afford each to go our own way?
Today, fiscal problems are a key concern of policy makers in many industrial countries, and a reassessment of sovereign risk is a palpable threat to global recovery. At the heart of the issue is the extent to which governments have room for fiscal maneuver—“fiscal space”—before markets force them to tighten policies sharply and, relatedly, the size of adjustments needed to restore or maintain public debt sustainability. Yet, much of the talk about fiscal space—how to measure it and the policy implications—has so far been rather fuzzy. In this blog, Jonathan Ostry discusses a new staff position note that he co-authored with several IMF colleagues, which aims to remedy this by providing an operational definition of the fiscal space concept as well as estimates of fiscal space for 23 advanced economies.
The Group of Twenty industrialized and emerging market economies (G-20) has broken new ground over the past year or two. It has embraced the type of collaborative approach to policy design and review that is well suited to today’s interdependent world, where policies in one country can often have far-reaching effects on others. In this spirit, the backbone of the G-20’s “Framework for Strong, Sustainable, and Balanced Growth” is a multilateral process that includes a ‘mutual assessment’ of their progress toward meeting shared objectives. But, what exactly will this G-20 Mutual Assessment Process—or “MAP”—imply in terms of prospective actions? And what have we learned so far?
The IMF said it had revised upwards its earlier forecast for global growth by ¾ percentage point from the October 2009 forecast. Along with the update to its forecast, the IMF also released a new assessment of global financial conditions in its Global Financial Stability Report (GFSR). It said that financial markets have rebounded since the lows of last March, the result of improving economic conditions and wide-ranging policy actions by governments.