Crossing the Chasm of the World Economy - The conundum of Consumption/Production

New York, New York, Brooklyn Bridge

Published by the IMF, the World Economy Outlook Oct. 2009  provides some quick facts about our economy and the possibility of a recovery.

According to these forecasts, the current rebound will be sluggish, credit constrained, and, for quite some time, jobless. Global growth is projected to reach about 3 percent in 2010, following a contraction in activity of about 1 percent in 2009. During 2010–14, global growth is forecast to average just above 4 percent, appreciably less than the 5 percent growth rates in the years just ahead of the crisis. Financial and corporate restructuring will continue to exert considerable downward pressure on activity, and wide output gaps will help keep inflation at low levels. Demand is likely to be dampened by the need in many advanced economies to rebuild savings. Downside risks to growth are receding gradually but remain a concern.

There is also a glimpse about balancing the global demand between countries who consumes more than they save while other countries save much more than they consume.

Achieving sustained healthy growth over the medium term also depends critically on rebalancing the pattern of global demand. Specifically, many current account surplus economies that have followed export-led growth strategies will need to rely more on domestic demand growth to offset likely subdued domestic demand in deficit economies that have undergone asset price (stock and housing) busts. By the same token, many external deficit countries will need to rely less on domestic demand and more on external demand. This will require significant structural reforms, many of which are also necessary to boost potential output, which has taken a hit as a result of the crisis. Key are measures to repair financial systems, improve corporate governance and financial intermediation, support public investment, and improve social safety nets.

Obvsiouly the reports does not say much about those structural reforms and which appearance they migth take.