Friday, April 24, 2009

IMF Sees a Light at the End of this Long Crisis Tunnel

Sources: IMF Survey, Global Economy Contracts, With Slow Recovery Next Year

On April 22, the International Monetary Fund (IMF) released its April World Economic Outlook. The gist of the outlook? Conditions will worsen in the coming months, but they may improve slightly by the end of 2010. While the IMF does not foresee that the global economy will contract as drastically as it has been since 2008, it still expects some contraction during the remainder of 2009. IMF experts predict that the global economy will begin to bounce back in early 2010, but that it will do so at a relatively slow rate when compared to past periods of recovery.

The IMF's Chief Economist, Olivier Blanchard, says that the global economy is currently being pulled in two directions. On one hand, it is being pulled down by investor and consumer uncertainty. On the other, it is being pulled up by government stimulus plans. According to Blanchard, the emergence of stimulus plans and other such policies present a possible light at the end of the tunnel. If the development of these policies continues, says Blanchard, we may begin to see a decrease in unemployment rates and an increase in world economic growth.

Some have wondered if the most recent meeting of the Group of 20 (G-20) in London will positively affect economic growth. Blanchard's response? It may, but recovery from this crisis will still be slower than past recoveries. Advanced economies, after all, have taken a strong hit as a result of the financial crisis. Blanchard argues that, while it may be tempting to view the financial crisis as being restricted to the United States' banking system, it has reached truly global dimensions. Western Europe and advanced Asian economies have been hit by both the global financial crisis and by their own internal financial problems. Emerging economies have also been hit by the crisis. The crisis, in other words, has reached unprecedented heights. It should not be surprising, then, that recovery will be slower than it has been in the past.

How may we get closer to the light at the end of the financial crisis tunnel? Blanchard, speaking for the IMF, urges countries to move forth with their policy-making efforts. In his view, the priority at this point should be to re-structure the global economy. At least for now, policy reform seems to be the answer to our financial crisis woes.

Discussion Questions:

1- What do you think of the idea that policy reform will be the key to recovery? Who do you think is likely to lead efforts to reform economic policy?

2- Are there any countries or actors that are left out of the IMF's current recovery scheme?

No comments: