> International Monetary Fund (IMF):
Strong Growth in Emerging Economies with Weak Recovery in Advanced Countries Executive Summary costly bank financing has boosted bond issuance Financial markets have rallied and near-term by non-financial corporates in both advanced stability risks have eased in response to better and emerging economies. policies, but this is translating to activity very slowly.Decisive actions in the euro area and Background the United States have contained the most During the Great Recession, the global economy 3 experienced its most severe and synchronized immediate threats to the global recovery. Financial markets have rallied and equity price decline in activity since World War II. World volatility has fallen to pre-crisis levels. However, output declined by 0.6 percent in 2009, sources of investment financing, including financing lead indicators suggest that real activity macroeconomic will compared with an external average growth of aboutand 4.0 local strengthen only gradually, as easier financial percent between 2000 and 2008, and world financing through bank credit and capital markets. conditions take time to transmit to the broader with strong capital inflows or still-elevated trade volumes fell by more than 10 percent. economy. credit growth, supervisory and macroprudential So far, the recovery has been unusually uneven measures should be deployed to curb sectorial across advanced and emerging economies. Despite an improving economy and better excesses. policies, significant downside risks remain. • In advanced economies, the recovery has been 3. During the Great Recession, the global economy experienced its most severe and These relate to the potential for stalled policy Abstract very weak. This likely reflects the legacies of the synchronized in activity since World Warcrisis II. World output declined by 0.6Growth percent in implementation in the euro area, unsustainable Since thedecline great recession, investment has been and ongoing fiscal consolidation. public finances in the United States and Japan, very weak in advanced economies, while of both consumption and investment has 2008, been and 2009, compared with an average growth of itabout 4.0 percent between 2000 and and further growth disappointments in emerging has been strong in many emerging economies, appreciably slower compared to past recoveries. volumes fell byAsia. moreGoing thanforward, 10 percent. far, theemerging recovery economies has been have unusually economies. However, there are also upside world risks trade particularly in emerging • In Socontrast, unevencontinuing across advanced and emerging economies. from better financial conditions and confidence. sluggish investment in advanced performed better than in past recoveries. Overall, economies, and to some extent in emerging emerging economies have witnessed strong Policymakers cannot afford to let up their efforts. Europe, may weigh down on potential output, has growth, driven by buoyant consumption In advanced economies, the recovery been verylargely weak. This likely reflects the While near-term threats have been avoided, and growth, over the medium term. Investment and investment growth, vibrant asset markets, legacieshas of evolved the crisis andinongoing consolidation. Growth of both consumption important medium-term challenges remain. financing broadly line with fiscal the strong capital inflows, and expansionary policies. The imperatives remain broadly unchanged. relative economic performance of the G-20slower Emerging Europe istoa past notable exception to these and investment has been appreciably compared recoveries. Specifically: members. FDI inflows to emerging Europe trends, having suffered a financial shock very • The euro area should proceed towards a declined as corresponding outflows from similar to that experienced by many advanced In contrast, emerging economies have better than in past recoveries. Overall, genuine economic and monetary union. Rolling advanced economies receded some, but FDIperformed economies. back financial fragmentation is also essential inflows to emerging Asia and Latinwitnessed America strong growth, driven largely by buoyant emerging economies have to improve the transmission of monetary policy. have remained broadly at pre-crisis levels. Total Investment and its Financing consumption and investment asset markets, strong capitalhave inflows, This will require making tangible progress toward bank credit in emerging Asia and Latingrowth, America vibrant Similar to activity, investment developments a banking union with greater fiscal integration. has strongly, but policies. stagnated Emerging somewhat inEurope been markedly different across advanced and andgrown expansionary is a notable exception to these trends, • In advanced economies, fiscal consolidation advanced economies and emerging Europe, in emerging economies, as well as within emerging having suffered a financial shock very similar to that experienced by many advanced needs to continue at a gradual and sustained part due to reduced foreign bank funding. A economies. Investment in advanced economies economies. pace, supported by accommodative monetary “search for yield” and substitution away from fell sharply in the wake of the crisis (by more policy. Fiscal adjustment and targets in most advanced economies are broadly appropriate. Real GDP growth Global Growth and Trade (Percent; year over year) Consolidation must be supported by the adoption (Percent; year over year) 2012 2011 2010 2009 40 and implementation of concrete medium-term Trade volume (goods and services) 15 6 35 Real GDP growth (RHS) consolidation plans in the United States and Japan, where the recently-announced stimulus 5 30 10 25 makes this even more urgent. U.S. authorities 4 20 should act early and decisively to durably raise 5 15 the debt ceiling and avert automatic spending 3 10 0 cuts. More generally, advanced economies need 2 5 to curtail rising age-and health-related spending. -5 0 • Policy responses for emerging economies 1 -5 vary. With short-term risks to activity abating, -10 0 -10 the general challenge is to rebuild fiscal space. Adv. Emg. Latin Emg. Oil Some emerging economies can afford to -15 -1 Asia America Europe Exporters maintain current monetary policy settings, while 00 02 04 06 08 10 12 Source: IMF, World Economic Outlook. others may have to gradually tighten. In countries Source: IMF, World Economic Outlook.
“Policymakers cannot afford to let up their efforts. While near-term threats have been avoided, important medium-term challenges remain.”
II. Background
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