Mr. Sagar is telling on World Wide economy crises

GLOBAL ECONOMIC MONITOR

June 2013

The global economy is slowly getting back on its feet, but it is by no means out of the woods, and prospects may be diverging. A three-speed global recovery is emerging. Sentiment has improved, but growth and jobs are still lagging in many places, some old risks remain and could rekindle tail risks, and new risks are arising. Policymakers must, to varying degrees, continue to nurse the recovery, repair systems damaged by the crisis, strengthen defenses against a recurrence, and anticipate new challenges from stronger expansion. In a world of inter-connections, lagging policy momentum in some corners will soon affect all.

In high-income countries, fiscal consolidation, high unemployment and still weak consumer and business confidence is expected to dampen growth in 2013. Major advanced economies need to balance supporting activity, while grappling with old risks from structural weaknesses that weigh on growth. In the US, while sentiment has improved, the top priority is to raise the debt ceiling in a timely manner and agree on a credible medium-term fiscal roadmap to bring down debt. In the euro area, monetary policy should remain accommodative and fiscal consolidation be properly paced. In addition, national authorities should fix frayed banking systems and rebuild competitiveness as required. Japanneeds to balance upfront stimulus with more ambitious plans to bring down debt and structural reforms to put growth on a permanently higher plane.

                                                               

In contrast, growth in the developing world will be solid but weaker than during the pre-crisis boom period. This is backed by the strengthening activity in emerging market and developing countries, which attracted capital flows due to relatively higher growth. However, emerging markets face the new risk of avoiding potential financial excesses. They should rebuild macroeconomic policy space and further strengthen financial regulation and supervision. Low-income countries need to take advantage of their current strong growth to rebuild buffers and invest in the future, including by reforming subsidy regimes, while meeting infrastructure and social needs.

It is critical to make the global economy more resilient. Policymakers should complete financial reforms to limit financial fragmentation and build a system that safely supports the real economy. Durable fiscal adjustment and institutional reform are needed to get to grips with high public and private debt. Job creation and inclusive growth are foundational priorities. Policies also need to support adjustment of global imbalances and take account of cross-border spillovers. In most of the advanced economies hit by the crisis, banks, households and firms need to redouble their efforts to deleverage and to repair their balance sheets, while policymakers must redouble their efforts to enact far-reaching reforms. Authorities in emerging market economies should continue to augment the macroprudential policies adopted to date with policies to build up financial resilience.