(RFE/RL) -- According to a new report by the International Monetary Fund (IMF), the world has begun to recover from recession but the process will not be simple. And sustaining any recovery will require refocusing the United States toward exports and Asia toward imports.
The IMF's chief economist, Olivier Blanchard, says the global recession had "left deep scars, which will affect both supply and demand for many years to come."
In a study released this week by the IMF, Blanchard describes the current economic difficulties as not a “run-of-the-mill recession.” He notes that models used to understand past recessions cannot be applied to this economic slowdown.
Blanchard writes that there are two elements central to a sustained global economic recovery.
First, economies must move beyond their dependence on fiscal stimulus by national governments and inventory building by private firms. Such expenditures must sooner or later come to an end.
Second, international trade patterns should be rebalanced. The United States must export more and Asia must import more. This sought-for equilibrium would lower the enormous U.S. current-account deficit and the Asian current-account surplus. But rebalancing world trade flows is not going to be easy and will depend on a reordering of consumption patterns.
The Big Question
On one end, that may be happening to a degree.
U.S. consumption has until now represented roughly 70 percent of gross domestic product (GDP). But the huge losses sustained in the U.S. housing and stock market have made many Americans less willing to spend than before.
To offset declining U.S. consumption, China and other Asian countries should begin to spend more. The big question is whether that will happen.
Blanchard notes that the GDP of the emerging Asian economies together is now roughly half of the U.S. GDP, and the figure is expected to reach 70 percent by 2014.
The IMF economist describes the financial systems of advanced countries as unhealthy. Meanwhile, emerging market countries may not receive capital inflows at pre-crisis levels for several years.
Blanchard predicts a future in which potential output will be at lower levels than before the crisis. He does not foresee growth vigorous enough to decrease unemployment in the short term. He notes that unemployment will not peak until some point next year.
Blanchard notes a concern that a slow recovery might bring political pressure to bear in the United States to extend the fiscal stimulus.
If this pressure is opposed, then stimulus spending would come to an end and a drawn-out U.S. recovery would ensue, he says.
However, if political pressure were to force continued stimulus spending, high government deficits would continue. This would lead to doubts about the sustainability of U.S. debt. Capital would leave the United States in a disorderly fashion, leading to a chaotic depreciation of the dollar and a chain of events that could derail any future economic recovery.
RFE/RL correspondent Michael Hirshman contributed to this story.