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.
‘HERO OF THE ERA’: President Tsai Ing-wen expressed deep sadness at Lee’s passing, and told the government to assist his family with all their needs Former president Lee Teng-hui (李登輝) passed away at 7:24pm yesterday at Taipei Veterans General Hospital. He was 97 years old. The hospital stated the cause of death as septic shock and multiple organ failure. Lee had been hospitalized there since February, when he choked on a mouthful of milk at home. He was later diagnosed with pulmonary infiltrates and aspiration pneumonia. The hospital said that Lee had been treated with antibiotics, but that his health had not improved, as his advanced age and diabetes had inhibited his immune system and led to recurring infections. During his hospitalization, Lee underwent daily kidney dialysis, which removed
‘WEAK POSITIVE’: The man arrived in Taiwan in May and was quarantined for two weeks, Chen Shih-chung said, adding that he might be infected a long time ago The government is considering tightening mask-wearing rules again in light of a potential domestic COVID-19 infection, Minister of Health and Welfare Chen Shih-chung (陳時中) said yesterday. The Central Epidemic Command Center (CECC) confirmed seven new COVID-19 cases, six of which are imported. The other case involves a Belgian engineer who entered Taiwan on May 3 and remained in quarantine until May 17, said Chen, who heads the CECC. Although the source of infection has yet to be identified, the case could end the nation’s record of not having any domestic cases in the previous 110 days. The Belgian, in his 20s, is a technician
RECEIVING TREATMENT: President Tsai Ing-wen, Vice President William Lai and Premier Su Tseng-chang visited former president Lee Teng-hui yesterday morning Taipei Veterans General Hospital yesterday rebutted speculation that former president Lee Teng-hui (李登輝) had died a day earlier, saying that he was weak, but receiving treatment. The hospital said the 97-year-old Lee was not in good condition and needed ongoing care, adding that if there are any changes in his condition, it would make those public. The comments came after rumors emerged online on Tuesday that Lee had died after being hospitalized since early February. Soon after the unsubstantiated rumors emerged, reporters started flocking to the hospital seeking confirmation. Lee was admitted to Taipei Veterans General Hospital on Feb. 8 after choking while drinking
THAI CASE UPDATE: Twenty-nine close contacts of the worker have been tested with two types of tests, including 18 dorm mates, with 28 negative results so far Five imported cases of COVID-19, four from the Philippines and one from Hong Kong, were reported yesterday, bringing the total confirmed cases in Taiwan to 467, the Central Epidemic Command Center (CECC) said yesterday. The four returning from the Philippines were on the same flight, and the local health department has identified 15 people who had direct contact with them — including 10 passengers in the two rows in front or behind them, who have been put under 14-day home isolation, and five crew members, who will practice 14-day self-health management, said Centers for Disease Control (CDC) Deputy Director-General Chuang Jen-hsiang