A further slowdown in the U.S. economy and a deterioration in the euro-zone debt crisis pose potential risks to , which remains weak three years after the global financial crisis, a senior International Monetary Fund global economic growth official said Monday.
Deputy Managing Director Zhu Min said downside risks to the IMF's global economic growth projections have increased "as of late." The IMF two weeks ago slashed its forecasts, predicting global growth will slow to about 4% this year and next year from 5% in 2010.
"One of these risks is that already weak economic activity in the U.S. loses further momentum. Another is that the crisis in the euro area runs beyond the control of policy makers, despite the strong policy response agreed by euro-area leaders in July 2011," he said in a speech in Tokyo.
Mr. Zhu said the global financial crisis and ensuing "Great Recession" have left a deep dent on public finances of advanced economies, with the average general government gross debt in those countries projected to rise to over 100% of gross domestic product by the end of the year for the first time since World War II.
The weakening of the global economy makes fiscal policy management all the more difficult, he said.
"Such high levels of debt expose countries to confidence crises and, even in the absence of crises, are a burden for potential growth," he said, adding that authorities need to send clear signals that they are committed to reducing debt.
"Countries under market pressure have no choice but to begin significant deficit reduction now. Others may have space for a more gradual consolidation, in keeping with the economic cycle, as long as they can make a credible commitment to bring debt ratios down in the medium term," he said.
Mr. Zhu said financial market concerns about government debt have spread beyond the smaller economies in the euro zone, despite progress in cutting budget deficits. The IMF expects euro-zone deficits to fall by an average of 1.25% of gross domestic product this year, while consolidation is proceeding rapidly in Greece, Ireland, and Portugal with financial support from the IMF and the European Union, he said.
The U.S. isn't expected to make much headway in fiscal consolidation this year, but the deficit is on track to decline markedly in 2012, he said.
"A sharp withdraw of fiscal stimulus at a time when downward risks to growth remain significant could be risky. The adoption of an appropriate medium-term fiscal adjustment strategy in the U.S. would allow a more gradual fiscal adjustment, which would be more consistent with the uncertain growth outlook," Mr. Zhu said.
An increase in Japan's budget deficit due to natural disaster-related costs further strengthens the case for laying out specific, detailed measures for medium-term reform, including a tax and social-security reform plan, he said.
Source: http://online.wsj.com
Deputy Managing Director Zhu Min said downside risks to the IMF's global economic growth projections have increased "as of late." The IMF two weeks ago slashed its forecasts, predicting global growth will slow to about 4% this year and next year from 5% in 2010.
"One of these risks is that already weak economic activity in the U.S. loses further momentum. Another is that the crisis in the euro area runs beyond the control of policy makers, despite the strong policy response agreed by euro-area leaders in July 2011," he said in a speech in Tokyo.
Mr. Zhu said the global financial crisis and ensuing "Great Recession" have left a deep dent on public finances of advanced economies, with the average general government gross debt in those countries projected to rise to over 100% of gross domestic product by the end of the year for the first time since World War II.
The weakening of the global economy makes fiscal policy management all the more difficult, he said.
"Such high levels of debt expose countries to confidence crises and, even in the absence of crises, are a burden for potential growth," he said, adding that authorities need to send clear signals that they are committed to reducing debt.
"Countries under market pressure have no choice but to begin significant deficit reduction now. Others may have space for a more gradual consolidation, in keeping with the economic cycle, as long as they can make a credible commitment to bring debt ratios down in the medium term," he said.
Mr. Zhu said financial market concerns about government debt have spread beyond the smaller economies in the euro zone, despite progress in cutting budget deficits. The IMF expects euro-zone deficits to fall by an average of 1.25% of gross domestic product this year, while consolidation is proceeding rapidly in Greece, Ireland, and Portugal with financial support from the IMF and the European Union, he said.
The U.S. isn't expected to make much headway in fiscal consolidation this year, but the deficit is on track to decline markedly in 2012, he said.
"A sharp withdraw of fiscal stimulus at a time when downward risks to growth remain significant could be risky. The adoption of an appropriate medium-term fiscal adjustment strategy in the U.S. would allow a more gradual fiscal adjustment, which would be more consistent with the uncertain growth outlook," Mr. Zhu said.
An increase in Japan's budget deficit due to natural disaster-related costs further strengthens the case for laying out specific, detailed measures for medium-term reform, including a tax and social-security reform plan, he said.
Source: http://online.wsj.com
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