When someone shares with you something of value, you have an obligation to share it with others.
Thursday, 29 January 2009
Global Recovery Expected To Start By End 2009 - IMF
The global economy will likely slow to a “virtual standstill” this year, but a recovery should begin by the end of the year if the right policy actions are taken, the chief economist of the International Monetary Fund said Wednesday.
Global Recovery Expected To Start By End 2009 - IMF
By Tom Barkley and Meena Thiruvengadam 29 January 2009
The global economy will likely slow to a “virtual standstill” this year, but a recovery should begin by the end of the year if the right policy actions are taken, the chief economist of the International Monetary Fund said Wednesday.
“The main risk is that the adverse feedback loop between the financial and the real sectors intensifies,” said Olivier Blanchard in a briefing to discuss the latest update to the IMF’s World Economic Outlook.
While fiscal stimulus is important, “restoring financial health is a necessary condition for a durable economic recovery,” he said.
In addition, more international coordination is needed, said Blanchard.
“The building blocks of what needs to be done have been assembled to varying degrees in many countries, but a comprehensive framework for restoring financial health and dealing with bad assets remains to be built,” he said.
The IMF downgraded its economic forecasts Wednesday, cutting its 2009 estimate for global growth to 0.5% -- its weakest expansion since World War II -- from a 2.2% projection given two months ago. The slowdown is adding fuel to the negative feedback loop between the economy and financial crisis, with losses from bad U.S. debt alone now expected to reach $2.2 trillion.
In the report, the IMF called for new policies to force the recognition of losses and “sort” firms based on their chances of survival over the medium term. Governments should intervene to help viable institutions with capital injections, while resolving insolvent firms and carving out bad assets either through a “bad bank” approach or some other method, it said.
Jaime Caruana, director of the IMF’s monetary and capital markets division, said in the briefing that dealing with toxic assets is the main priority going forward, including possibly by nationalizing banks.
“It may be that in some cases, some full-blown intervention is needed on the part of the authorities,” he said.
When asked about government help for automakers, Blanchard said assistance for specific industries should be avoided.
“There is a risk that if governments start protecting automakers or helping automakers, this is in effect disguised protectionism,” he said.
Instead, governments or central banks should seek to improve access to credit in general for companies across. the board, said Blanchard.
Growth in China, a beacon of economic strength in recent years, is expected to slow to 6.7% this year, down from 13% as recently as 2007.
Still, China is in a better position to weather the global economic crisis than other nations even as it experiences a traumatic deceleration in growth, a top IMF researcher said Wednesday.
“In 2009, we see strong support coming from policies,” said Charles Collyns, the Fund’s deputy director of research. “In combination with resilient demand, we do see China able to weather this global storm somewhat better than others.”
Demand side indicators are relatively strong and, while slowing, do not appear to be collapsing, he said, attributing part of China’s fourth quarter growth woes to a run-down inventories caused by weakening global demand.
China also is somewhat protected from the deflationary fears that are gripping other parts of the world, Collyns said.
“There is considerable room to lower interest rates further in China were deflation risks to intensify there,” he said.
Even as the rhetoric intensifies between the U.S. and China over the value of the yuan, the IMF’s leading economist warned against making that discussion a priority.
“It is probably not the right time to focus on the Chinese exchange rate,” Blanchard said. “There are many other things we should be thinking about.”
While additional appreciation would be positive, Blanchard said he doesn’t believe China’s exchange rate should be obsessed about at a time when the global economy is nearing a virtual standstill.
“The right question is whether China is following the right macroeconomic policy,” he said.
1 comment:
Global Recovery Expected To Start By End 2009 - IMF
By Tom Barkley and Meena Thiruvengadam
29 January 2009
The global economy will likely slow to a “virtual standstill” this year, but a recovery should begin by the end of the year if the right policy actions are taken, the chief economist of the International Monetary Fund said Wednesday.
“The main risk is that the adverse feedback loop between the financial and the real sectors intensifies,” said Olivier Blanchard in a briefing to discuss the latest update to the IMF’s World Economic Outlook.
While fiscal stimulus is important, “restoring financial health is a necessary condition for a durable economic recovery,” he said.
In addition, more international coordination is needed, said Blanchard.
“The building blocks of what needs to be done have been assembled to varying degrees in many countries, but a comprehensive framework for restoring financial health and dealing with bad assets remains to be built,” he said.
The IMF downgraded its economic forecasts Wednesday, cutting its 2009 estimate for global growth to 0.5% -- its weakest expansion since World War II -- from a 2.2% projection given two months ago. The slowdown is adding fuel to the negative feedback loop between the economy and financial crisis, with losses from bad U.S. debt alone now expected to reach $2.2 trillion.
In the report, the IMF called for new policies to force the recognition of losses and “sort” firms based on their chances of survival over the medium term. Governments should intervene to help viable institutions with capital injections, while resolving insolvent firms and carving out bad assets either through a “bad bank” approach or some other method, it said.
Jaime Caruana, director of the IMF’s monetary and capital markets division, said in the briefing that dealing with toxic assets is the main priority going forward, including possibly by nationalizing banks.
“It may be that in some cases, some full-blown intervention is needed on the part of the authorities,” he said.
When asked about government help for automakers, Blanchard said assistance for specific industries should be avoided.
“There is a risk that if governments start protecting automakers or helping automakers, this is in effect disguised protectionism,” he said.
Instead, governments or central banks should seek to improve access to credit in general for companies across. the board, said Blanchard.
Growth in China, a beacon of economic strength in recent years, is expected to slow to 6.7% this year, down from 13% as recently as 2007.
Still, China is in a better position to weather the global economic crisis than other nations even as it experiences a traumatic deceleration in growth, a top IMF researcher said Wednesday.
“In 2009, we see strong support coming from policies,” said Charles Collyns, the Fund’s deputy director of research. “In combination with resilient demand, we do see China able to weather this global storm somewhat better than others.”
Demand side indicators are relatively strong and, while slowing, do not appear to be collapsing, he said, attributing part of China’s fourth quarter growth woes to a run-down inventories caused by weakening global demand.
China also is somewhat protected from the deflationary fears that are gripping other parts of the world, Collyns said.
“There is considerable room to lower interest rates further in China were deflation risks to intensify there,” he said.
Even as the rhetoric intensifies between the U.S. and China over the value of the yuan, the IMF’s leading economist warned against making that discussion a priority.
“It is probably not the right time to focus on the Chinese exchange rate,” Blanchard said. “There are many other things we should be thinking about.”
While additional appreciation would be positive, Blanchard said he doesn’t believe China’s exchange rate should be obsessed about at a time when the global economy is nearing a virtual standstill.
“The right question is whether China is following the right macroeconomic policy,” he said.
Post a Comment