Global Economy Remains Fragile, Says IMF

Unemployment remains major economic, social challenge

Need to revive private sector growth in advanced economies, while rolling back large fiscal deficits

Emerging markets should shift toward more domestic-led growth

With the world still trying to bounce back from the global economic crisis, the IMF says in its latest World Economic Outlook that the recovery remains fragile and uneven. Unemployment remains a major economic and social challenge. More than 210 million people across the globe may be unemployed, an increase of more than 30 million since 2007. Three-fourths of the increase has occurred in advanced economies, the IMF said.

“The world economic recovery is proceeding,” IMF Chief Economist Olivier Blanchard told a press conference. “But it is an unbalanced recovery, sluggish in advanced countries, much stronger in emerging and developing countries.”

Achieving more balance

The key policy challenge is to effect a smooth transition from public to private sector-led growth in many advanced economies, and from external to domestically driven growth in key emerging economies. While short-term macroeconomic policies are broadly appropriate, completing the two rebalancing acts will require tackling the medium-term fiscal, financial, and structural challenges raised by the crisis.

Blanchard said that the pieces of the global economy were interconnected and countries should act in coordination. “Unless advanced countries can count on stronger private demand, both domestic and foreign, they will find it difficult to achieve fiscal consolidation. And worries about sovereign risks can easily derail growth,” he warned.

Blanchard: “Unless advanced countries can count on stronger private demand … they will find it difficult to achieve fiscal consolidation” (IMF photo)

“If growth were to slow or even stop in advanced countries, emerging market countries would have a hard time decoupling. The need for careful design at the national level, and coordination at the global level, may be even more important today than they were at the peak of the crisis a year and a half ago.”

Different speeds

The report notes that economies are recovering at different speeds and intensities (see table). Recoveries in most advanced and a few emerging economies are moving at a sluggish pace and unemployment is high, holding back consumption. Improvements in business investment in the hard-hit economies have not translated into substantially lower...