Tuesday, November 23, 2010

IMF World Economic Outlook (Video, Charts) "Recovery proceeding broadly as expected"


IMF World Economic Outlook (October 2010): Recovery, Risk, Rebalancing

IMF: Economic Recovery Is Proceeding Broadly As Expected, But Downside Risks Remain Elevated

World Economic Outlook (International Monetary Fund) "Thus far, economic recovery is proceeding broadly as expected, but downside risks remain elevated. Most advanced economies and a few emerging economies still face large adjustments. Their recoveries are proceeding at a sluggish pace, and high unemployment poses major social challenges. By contrast, many emerging and developing economies are again seeing strong growth, because they did not experience major financial excesses just prior to the Great Recession. Sustained, healthy recovery rests on two rebalancing acts: internal rebalancing, with a strengthening of private demand in advanced economies, allowing for fiscal consolidation; and external rebalancing, with an increase in net exports in deficit countries, such as the United States, and a decrease in net exports in surplus countries, notably emerging Asia. The two interact in strong ways. Increased net exports in advanced economies imply higher demand and higher growth, allowing more room for fiscal consolidation. Strengthened domestic demand helps emerging market economies maintain growth in the face of lower exports. A number of policies are required to support these rebalancing acts. In advanced economies, the repair and reform of the financial sector need to accelerate to allow a resumption of healthy credit growth. In addition, fiscal adjustment needs to start in earnest in 2011. Specific plans to cut future budget deficits are urgently needed now to create new room for fiscal policy maneuver. If global growth threatens to slow appreciably more than expected, countries with fiscal room could postpone some of the planned consolidation. Meanwhile, key emerging economies will need to further develop domestic sources of growth, with the support of greater exchange rate flexibility."

Recovery "Recovery is proceeding broadly as expected, but downside risks remain."

Risk "Underlying sovereign and banking vulnerabilities pose a significant challenge amid lingering concerns about risks to the global recovery. Overall, however, heightened economic uncertainty, continued deleveraging, and sovereign spillovers imply that core banking systems remain vulnerable to confidence shocks and are heavily reliant on government or central bank support."

Rebalancing "First, internal rebalancing: When private demand collapsed, fiscal stimulus helped alleviate the fall in output. But fiscal stimulus has to eventually give way to fiscal consolidation, and private demand must be strong enough to take the lead and sustain growth. Second, external rebalancing: Many advanced economies, most notably the United States, which relied excessively on domestic demand, must now rely more on net exports. Many emerging market economies, most notably China, which relied excessively on net exports, must now rely more on domestic demand. These two rebalancing acts are taking place too slowly."

IMF Video Leaders from academia, civil society, government, and the private sector around the world discuss the global recovery, the rebalancing of the world economy, and IMF governance reform. 

IMF: GDP Actual and Projected by Year (Chart) Below is the IMF GDP Actual and Projected by Year for the World, China, Euro Area, and USA. These are annual percentage growth rates. The chart is for 4 years: 2008 actual, 2009 actual, 2010 projected, and 2011 projected. All peak in 2010 and dip in 2011.

IMF: GDP Actual and Projected by Year (Chart) Below is the IMF GDP Actual and Projected by Year for the Japan, UK, India, and Brazil. These are annual percentage growth rates. The chart is for 4 years: 2008 actual, 2009 actual, 2010 projected, and 2011 projected. Japan, India, and Brazil peak in 2010 and dip in 2011, while UK increases  from 2010 to 2011.

Commentary The IMF World Economic Outlook is  positive in reporting the recovery is overall proceeding worldwide but does note risk to the recovery by both sovereign debt and financial system problems. Of interest is the recognition by the IMF that a rebalancing of trade, and currency valuations, is necessary to increase exports from developed nations, in particular the USA. Of course, the developing nations, the export nations, would need to increase imports and/or decrease exports from developed nations in this rebalancing scenario. The USA and China trade relationship is a prime example of what the IMF is addressing. However, the issue is not just an adjustment of currency valuations but cost of labor. That is, cheap labor will offset the currency valuation adjustments to some extent.

About the IMF

Overview The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

What The IMF promotes international monetary cooperation and exchange rate stability, facilitates the balanced growth of international trade, and provides resources to help members in balance of payments difficulties or to assist with poverty reduction.

Membership The IMF has 187 member countries. It is a specialized agency of the United Nations but has its own charter, governing structure, and finances. Its members are represented through a quota system broadly based on their relative size in the global economy.

How Through its economic surveillance, the IMF keeps track of the economic health of its member countries, alerting them to risks on the horizon and providing policy advice. It also lends to countries in difficulty, and provides technical assistance and training to help countries improve economic management. This work is backed by IMF research and statistics.

Collaboration The IMF works with other international organizations to promote growth and poverty reduction. It also interacts with think tanks, civil society, and the media on a daily basis.

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