From the Press Conference on the International Monetary Fund’s World Economic Outlook and Global Financial Stability Report, comments by Olivier Blanchard, Economic Counselor and Director of Research:
To give you the basic numbers of the update, our forecast for world output is for a decline of 1.4 percent in 2009 and for an increase of 2.5 percent for the world as a whole in 2010. Now, 2.5 percent, the number that we have for 2010, presents a positive revision of about .6 percent relative to what we had forecast last April, and that's clearly good news. But 2.5 percent is also substantially less than the rate of growth that would keep unemployment constant so that our forecast implies further increases in unemployment probably all the way to the end of 2010.
So, the forces pulling the economy down originate in the financial crisis and the collapse of confidence that took place at the end of 2008, decreases in demand that led to decreases in production to decreases in unemployment, to further decreases in demand and so on and so on. And these dynamic effects were so strong that in most countries the decrease in output in the first quarter of 2009 was nearly as large as the decrease in output in the last quarter in 2008. The good news is that these forces are abating. The financial sector is stabilizing. As José Viñals described, liquidity has returned, risk appetite has increased, capital flows across countries have partly recovered. Banks, however, are still not in great shape and continue to retrench and tighten lending standards.
In short, and returning to the global economy, the worst is behind us and the recovery is coming. The recovery is fragile, however....
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