The global recovery from recession depends on a delicate rebalancing of economies — notably between the US and Asia — to sustain it, the chief IMF economist said.
“The recovery has started. Sustaining it will require delicate rebalancing acts, both within and across countries,” Olivier Blanchard said in an IMF article, released in advance of publication yesterday.
Blanchard cautioned that predictable models based on past recoveries from recessions would not apply to the worst global slump since World War II.
“The world is not in a run-of-the mill recession. The turnaround will not be simple. The crisis has left deep scars, which will affect both supply and demand for many years to come,” he said.
In its latest economic forecasts, the IMF estimated last month a global contraction of 1.4 percent this year, followed by sluggish growth of 2.5 percent next year.
The US, the epicenter of the crisis, “is central to any world recovery,” Blanchard said in the article titled “Sustaining a Global Recovery.”
Blanchard said two rebalancing acts would have to come into play to sustain the global recovery: a switch from public to private spending and the rebalancing of international trade flows.
The latter would require “a shift from domestic to foreign demand in the United States and a reverse shift from foreign to domestic demand in the rest of the world, particularly in Asia,” he said.
Pointing to a decline in US household consumption — which “represents 70 percent of total US demand” — and a rise in the personal saving rate that is expected to persist for some time, Blanchard estimated a 3 percentage point drop in the ratio of consumption to US GDP, a broad measure of economic output.
With the 3 percent drop unlikely to be made up by increased investment and the eventual phase-out of the massive fiscal stimulus, “US net exports must increase” for the US recovery to occur, he said.
Key to the rebalancing act will be an increase in foreign demand for US goods, particularly in countries with large current account surpluses, notably in China and other Asian countries.
“From the point of view of the United States, a decrease in China’s current account surplus would help increase demand, and sustain the US recovery. That would result in more US imports, which would help sustain world recovery,” the top economist at the 186-nation institution said.
China may be willing to pursue that “because it may well be in its own interest,” said the economist, but other emerging market Asian countries that run large current account surpluses have weaker incentives than China to boost internal demand.
Blanchard said that Asia appeared the best-placed to tip the trade balance.
“If rebalancing is to come soon, it probably has to come largely from Asia, through a decrease in saving, and an appreciation of Asian currencies vis-a-vis the dollar,” he said.
In a typical recession model, he said, lower-than-normal growth gives way to higher-than-normal growth for some time, until the economy has returned to its normal growth path.
“The current global recession is far from normal,” he said, citing the breakdown in parts of the economic system.
“In advanced countries, the financial systems are partly dysfunctional, and will take a long time to find their new shape,” he said.
Emerging market countries may not see dwindled capital inflows return to pre-crisis levels for a few years.
One possible end result of the global crisis: a permanently lower potential output, he said.
FORCED LABOR: Customs officials have seized a 11.8 tonne shipment of products made from human hair on suspicion they were produced by people facing human rights abuses Federal authorities in New York City on Wednesday seized a shipment of weaves and other beauty accessories suspected to be made out of human hair taken from people locked inside a Chinese internment camp. US Customs and Border Protection (CPB) officials said that 11.8 tonnes of hair products worth an estimated US$800,000 were in the shipment. “The production of these goods constitutes a very serious human rights violation, and the detention order is intended to send a clear and direct message to all entities seeking to do business with the United States that illicit and inhumane practices will not be tolerated in
IRRESPONSIBLE ATTITUDES? Some experts say the NHI system does not do enough to educate the public, or pay doctors to talk to patients, about healthy lifestyles While the life expectancy of Taiwanese newborns in 2018 reached 80.69 years, the number of years people spent in poor health hit a record high at 8.41 years, Ministry of Health and Welfare statistics showed on Saturday. Healthy life expectancy is calculated by a person’s life expectancy minus the time they spend in ill health, such as the loss of mobility, disabilities and chronic disease, based on medical records and calculations about the years they live with disabilities. The number of years that Taiwanese spend in poor health is increasing slowly, but steadily, rising by 0.46 years, or five-and-a-half months, between 2012
UPTICK IN NUMBERS: The Taipei deputy mayor said the city has services to assist new immigrants, but has established an office specifically to help those from Hong Kong The Taiwan-Hong Kong Services and Exchanges Office today officially opens, where it is to provide humanitarian assistance to Hong Kongers, after Beijing yesterday passed a controversial national security law for the territory. President Tsai Ing-wen (蔡英文) expressed dismay over China’s passage of the law, saying that Beijing has broken its pledge to allow Hong Kong to maintain a high degree of autonomy for at least 50 years following its handover from the UK. “I feel extremely disappointed [about the law’s passage], which means China did not keep its promise to Hong Kong,” Tsai said in Taipei. Beijing’s “broken promise” also
‘BASELESS ACCUSATIONS’: Ker Chien-ming said it was not possible to drop Chen Chu’s nomination, while KMT lawmakers accused their DPP rivals of ‘homicidal behavior’ The Legislative Yuan is to vote on President Tsai Ing-wen’s (蔡英文) nominations for the Control Yuan on July 17 after Democratic Progressive Party (DPP) legislators regained access to the legislative chamber yesterday after it was occupied by Chinese Nationalist Party (KMT) lawmakers for about 19 hours. The Legislative Yuan had been scheduled to meet yesterday morning to discuss its planned extraordinary session, but more than 20 KMT lawmakers on Sunday afternoon broke into the main chamber and occupied the legislative speaker’s podium to protest Tsai’s nomination of former Presidential Office secretary-general Chen Chu (陳菊) to be Control Yuan president. The KMT caucus