Statement by the Managing Director to the International Monetary and Financial Committee on the Global Economy and Financial Markets
Policy Papers, April 13, 2011
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- Published: April 13, 2011
- Series: Policy Papers
Summary findings
- "The recovery is solidifying."
- "Old policy challenges still need to be fully addressed and new challenges are arising, especially on account of rising commodities prices."
- In many advanced economies "the handoff from public to private demand is proceeding."
- Unemployment "remains high" in many advanced economies.
- "Weak public balance sheets and still vulnerable financial sectors mean that the recovery is subject to downside risks."
- In many emerging market economies "overheating and financial imbalances present growing policy concerns."
- Absent major progress on recommended policy fronts, "the recovery will remain vulnerable and job creation will continue to fall short of requirements in many parts of the world."
Analysis: advanced economies
- Monetary policy stance: "Monetary policy should stay accommodative in advanced economies."
- Demand dynamics: Transition from public to private demand is underway but incomplete.
- Fiscal and financial vulnerabilities: "Weak public balance sheets and still vulnerable financial sectors" increase downside risks to the recovery.
- Labor market: Unemployment is still elevated.
Analysis: emerging and developing economies
- Inflation and credit dynamics: Monetary policy "needs further tightening in a number of emerging and developing economies to rein in inflationary pressure and rapid credit growth."
- External policy: In "emerging surplus economies, real exchange rate appreciation is needed to help contain inflation and support global demand rebalancing."
- Financial stability: "Overheating and financial imbalances present growing policy concerns."
Policy recommendations
- Monetary policy
- Advanced economies: "stay accommodative."
- Emerging and developing economies: "needs further tightening ... to rein in inflationary pressure and rapid credit growth."
- Exchange rate policy
- Emerging surplus economies: implement "real exchange rate appreciation" to contain inflation and support global demand rebalancing.
- Fiscal policy
- "In most economies, the time has come to begin fiscal adjustment by implementing measures to steadily reduce debt ratios toward more prudent levels."
- Financial sector
- "Financial sector repair and reform need to accelerate."
Risks and outlook
- Commodities: "new challenges are arising, especially on account of rising commodities prices."
- Downside risks: Elevated unemployment, weak public finances, and vulnerable financial sectors leave the recovery exposed to downside risks.
- Conditional outcome: Recovery resilience depends on progress across monetary policy, fiscal adjustment, exchange rate adjustment in surplus economies, and accelerated financial sector repair and reform.
Statement by the Managing Director to the International Monetary and Financial Committee on the Global Economy and Financial Markets, April 13, 2011.