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Outlook for the World Economy and Policy Challenges Ahead: A Multi-speed Recovery ADDRESS BY

Outlook for the World Economy and Policy Challenges Ahead: A Multi-speed Recovery ADDRESS BY MURILO PORTUGAL DEPUTY MANAGING DIRECTOR, IMF Canberra, 2 March 2010. Outline. Outlook Global Asia Policy Challenges Exit Policies Building a Stable Financial System

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Outlook for the World Economy and Policy Challenges Ahead: A Multi-speed Recovery ADDRESS BY

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  1. Outlook for the World Economy and Policy Challenges Ahead: A Multi-speed Recovery ADDRESS BY MURILO PORTUGAL DEPUTY MANAGING DIRECTOR, IMF Canberra, 2 March 2010

  2. Outline • Outlook • Global • Asia • Policy Challenges • Exit Policies • Building a Stable Financial System • Bringing Down Public Debt Levels over the Medium Term

  3. Across the Globe Growth is Returning, but at Different Speeds (percent; quarter-over-quarter, annualized) Emerging World Advanced 11Q4

  4. Growth is Likely be Slower by Past Standards in Most Advanced Economies but Faster in EMs

  5. Sluggish Recovery Should Keep Inflation in Check Global Headline Inflation (Percent change from a year earlier) Emerging World Advanced 10Q4

  6. Financial Markets have Continued to Recover and Asset Prices Have Rebounded Asset Class Performance (percent of pre-Lehman levels) Pre-Lehman to Current -22.4 -9.3 17.4 21.7 15.0 15.7 -0.8 6.2

  7. Sovereign Debt Supply Will Remain High Sovereign Debt Issuance (percent of GDP)

  8. Emerging Asia is Leading the Global Recovery G2 (US & Japan)

  9. The Outlook for Investment is More Mixed, but Business Confidence is up

  10. Commodity Prices are Rising but Upward Pressures are Likely to Remain Moderate... Selected Commodity Prices (January 2002 = 100) Energy Metals Beverages Food Agricultural Raw Materials

  11. ... Given Above-Average Inventories and High Spare Capacity Global Oil Demand and OPEC-11 Spare Capacity (million barrels per day) OECD Oil Inventories (in days of consumption) 09Q3 10Q4

  12. China’s Imports of Commodities Have Helped Australia China: Import Volumes(January 2007=100)

  13. Policy Challenges Ahead • In the near term, the appropriate timing, pace, and mode of exiting should depend on the state of the economy and the health of the financial sector in individual countries. • There are also medium-term challenges: • Rebalancing the sources of growth • Reforming the financial system • Bringing debt levels down to their pre-crisis level

  14. Exit from Financial Sector Support and the New Regulatory Framework Exiting from support to shorter-term funding markets and liquidity provision could be relatively easy/fast. High degree of coordination is required to designing and implementing financial sector reform Avoid uneven implementation across countries Some emerging market countries should respond to capital inflows through a variety of measures, including greater exchange rate flexibility

  15. Thank you

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