Global Recovery Strengthens, Tensions Heighten

The world economic recovery is gaining strength, but it remains unbalanced. Earlier fears of a double dip recession—which we did not share—have not materialized. And, although rising commodity prices conjure the specter of 1970s-style stagflation, they appear unlikely to derail the recovery. However, the unbalanced recovery confronts policy makers with difficult choices. In most advanced economies, output is still far below potential. Low growth implies that unemployment will remain high for many years to come. And the problems in Europe’s periphery are particularly acute. On the other end of the spectrum, emerging market countries must avoid overheating in the face of closing output gaps and higher capital flows. The need for careful design of macroeconomic policies at the national level, and coordination at the global level, may be as important today as they were at the peak of the crisis two years ago.

Two-speed Global Recovery Continues

The world economic recovery continues. Although global growth is set to slow over the coming year, underlying private demand is improving and we expect the slowdown to be modest. Global growth should remain at 4.4 percent in 2011, down from 5 percent in 2010. But it remains a two-speed recovery: slow in advanced countries, and much faster in emerging and developing economies. As a result, tensions and risks are emerging, which require strong policy responses. In this post, Olivier Blanchard discusses the IMF’s update of the world economic outlook, including the short-term tensions and risks, and what needs to be done, to reduce risks and strengthen the global recovery.

A Problem Shared Is a Problem Halved: The G-20’s “Mutual Assessment Process”

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?

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