When it comes to adjusting public spending, getting the balance right is important. Fiscal adjustment is taking place in economies around the world, but risks remain high. Bringing debt and deficits down to more moderate levels is important to easing risks.
From one perspective, the sooner this happens, the better.
But, slashing budgets too abruptly can impede the overall economic recovery. And if the recovery stalls, debt and deficits will rise, and so will unemployment.
According to our analysis, what is needed is a steady but gradual adjustment. So, as we’ve been saying at the IMF for a while now, the pace of adjustment needs to be appropriate—not too fast, not too slow, but just right, for countries where financing conditions allow.
Compared to six months ago, there has been some decline in risks. This is primarily because of progress in policy implementation, with progress being made particularly in Europe.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Finance, Fiscal policy, growth, recession | Tagged: Carlo Cottarelli, consolidation, Europe, Fiscal Compact, Fiscal Monitor, GDP, Goldilocks, iMFdirect, Japan, just right, recovery, spillovers, United States | 2 Comments »