São Paulo – The recovery of the global economy has already begun, but for it to be sustainable, actions are necessary to rebalance the trade and financial flows. This evaluation is included in an article by the chief economist at the International Monetary Fund (IMF), Olivier Blanchard, to be published today (19th) on the site of the organisation and in the September edition of magazine Finance & Development, edited by the IMF.
"The turnaround will not be simple. The crisis has left deep scars, which will affect both supply and demand for many years to come," said the economist. Up to now, according to him, the greater public expenses of many countries and the replacement of stocks by companies has been guaranteeing the maintenance of global economic activity and generating optimistic forecasts regarding future growth.
Blanchard pointed out, however, that the growth forecasted for many countries should not be enough to reduce the unemployment rates. Furthermore, the movement of greater public spending and company stocks should drop.
To guarantee continued economic activity in this scenery, the economist says that two important processes should be put in movement. To avoid high levels of debt and, consequently, higher taxes, the private initiative should start spending what is now being spent by governments.
Blanchard declared that the stimulus through public spending cannot continue for long, especially in the more developed economies. In this case, according to him, the private sector will have to take on this part, be it through consumption or investment.
In second place, a change in international demand is necessary, with the Untied States changing the focus of its production to the foreign market and other countries, especially Asia, turning more to its domestic markets. Somehow, this is what has already been taking place in Brazil.
The economist recalls that, apart from being the origin of the crisis, the United States play a central part in global recovery. The consumption of families, according to Blanchard, represents 70% of the country demand and is falling, whereas savings are on the rise. The crisis has made the North Americans more careful.
He pointed out that the Federal Reserve, the central bank of the United States, has nulled the benchmark interest rate, so there is little to do in this respect to stimulate consumption and investment.
In this scenery, the way out for recovery of the United States is expanding net exports, with a reduction of its current account deficit. For such, the rest of the world must reduce the trade surpluses they have with the country.
This responsibility, according to Blanchard, is in the hands of countries that have high surpluses with the Untied States, like China. "From the point of view of the United States, a decrease in China’s current account surplus would help increase demand, and sustain the U.S. recovery," says the article.
The economist recalls that China may foster this movement, as the country has great international reserves and large repressed demand. Turning funds to expanding domestic consumption, according to him, is of interest to the Asian country as, up to now; the Chinese economy had been growing based on exports, made possible by great international demand that is no longer present.
He used China as his main example, but the same logic may be used for other countries that have large foreign reserves and may expand domestic demand. Blanchard believes that the recovery in the short-term should come mainly from Asian countries, with lower domestic saving and appreciation of their currencies as against the dollar.
The economist pointed out, however, that despite the recovery, the global economy should return to growing at the same levels it had before the crisis, as the financial system continues partially affected and it should take a while to get on track again. This means less money available for doing business.
"Sustaining the nascent recovery is likely to require delicate rebalancing acts, both within and across countries. An understating of the issues and the dangers, and some coordination across countries, is likely to be as crucial during the next few years as it was during the most intense part of the crisis," finished off Blanchard.
*Translated by Mark Ament
