Two-speed Recovery to Extend into 2011, Says IMF

Two-speed recovery to dominate 2011, with growth remaining slow in advanced economies

In emerging economies, challenge for some is to manage possible overheating and capital flows

Number of countries in Europe face tough and long macroeconomic adjustment

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 told IMF Survey, the online magazine of the International Monetary Fund (IMF).

In an interview, Blanchard talked about the central role of the Group of Twenty (G-20) advanced and emerging market economies in helping during the global crisis and the need for continued cooperation to build on the recovery, as well as the prospects for both Europe and low-income countries. Following is the text of the interview:

IMF Survey online: What is your assessment of how the global economy turned out in 2010? What went better than you anticipated, and what does not look so good?

Blanchard: The short answer is that there were no major surprises. We had forecast positive but low growth in advanced economies, fast growth in emerging economies, and, lo and behold, this is how the year has turned out.

Indeed, I just went back and compared outcomes to our forecasts as of last January. For advanced countries, we were right on the dot for the United States; things turned out a bit better than expected for core Europe; Japan had higher growth than we had anticipated, but it looks like a one-time phenomenon. As for emerging countries, we were right on the mark for China; India did better than we had forecast.

To say that there were no major surprises, however, is not the same as saying that things are fine. They are not. The two-speed recovery, low in advanced countries, fast in emerging market countries, is striking and its features are increasingly stark. They will probably dominate 2011, and beyond.

IMF Survey online: What do you mean? Tell us more about this two-speed recovery.

Blanchard: Emerging market countries were affected by the crisis through both trade and financial channels. The turnaround in trade has been nearly as sharp as the earlier collapse. But while trade has not yet fully recovered, most emerging market countries have been able to increase domestic...