Advanced Economies Strengthening, Emerging Market Economies Weakening


WEOBy Olivier Blanchard

(Versions in عربي, 中文Français日本語, Русский, and Español)

The issue probably foremost on everyone’s mind, is the fiscal situation in the United States, and its potential implications.

While the focus is on the shutdown and the debt ceiling,  we should not forget the sequester, which is leading to a fiscal consolidation this year which is both too large and too arbitrary. The shutdown is yet another bad outcome, although one which, if it does not last very long, has limited economic consequences.  

Failure to lift the debt ceiling would, however, be a game changer.  Prolonged failure would lead to an extreme fiscal consolidation, and surely derail the U.S. recovery. But the effects of any failure to repay the debt would be felt right away, leading to potentially major disruptions in financial markets, both in the U.S. and abroad.   We see this as a tail risk, with low probability, but, were it to happen, it would have major consequences.

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The World’s Three-Speed Economic Recovery


WEOBy Olivier Blanchard

(Versions in عربي , 中文, 日本語, Русский, and Español)

The main theme of our latest outlook is one that you have now heard for a few days: we have moved from a two-speed recovery to a three-speed recovery.

Emerging market and developing economies are still going strong, but in advanced economies, there appears to be a growing bifurcation between the United States on the one hand, and the Euro area on the other.

This is reflected in our forecasts. Growth in emerging market and developing economies is forecast to reach 5.3% in 2013, and 5.7% in 2014. Growth in the United States is forecast to be 1.9% in 2013, and 3.0% in 2014. In contrast, growth in the Euro area is forecast to be -0.3% in 2013, and only 1.1% in 2014.

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Blanchard Sees Continued Two-Speed Recovery in 2011


Interesting interview with the IMF’s Chief Economist Olivier Blanchard in the Fund’s IMF Survey magazine. He says the two-speed global economic recovery is likely to dominate 2011, with weak growth in advanced economies barely enough to bring down unemployment and emerging markets facing the challenges of success, including how to avoid overheating and handle strong capital inflows.

In an assessment of the global economy at the end of 2010, and the prospects for 2011, Blanchard said that countries should continue to focus on rebalancing their economies in the coming year, including structural measures and exchange rate adjustments.

“Without this economic rebalancing, there will be no healthy recovery,” he says. Read the full interview here.

Changing Times: Global Governance Reform and the IMF


By John Lipsky

The economic and financial crisis of the past two years has placed in high relief profound changes in global economic and financial realities. Most notably, the crisis has underscored the shift in relative economic weight in favor of dynamic emerging market economies. In response, the G-20— a grouping that includes both advanced and large emerging economies—has stepped forward as the premier political venue for addressing economic and financial policy challenges.

These changes are exerting significant influence on the evolution of global governance, and they directly involve the IMF in two concrete ways. First, new advances are taking place in multilateral economic policy cooperation, with Fund participation. Second, realignment of Fund governance has been put on a fast track, with delivery scheduled for January 2011.

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