Always consider hidden risks
Global Economy Trend Since the Crisis
( From US Treasury, Stockhart )
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The global economic environment continued to weaken in the second half of 2012. Output in both Japan and the Euro Area declined. Growth weakened in emerging market economies in the second and third quarters of 2012 before rebounding in the fourth quarter. This weakness reflects ongoing synchronized fiscal consolidation and private sector deleveraging in the advanced economies, and inadequate global demand rebalancing.
Economic data suggest some pickup in activity in early 2013, but overall the IMF is projecting only a marginal improvement in global growth in 2013, reflecting in part an export driven pickup in growth in some emerging market economies as private demand in the United States is expected to remain solid.
Nearly four years after the recovery from the financial crisis began, output in many advanced economies has yet to return to its pre-crisis level. Even among the countries where output has moved above pre-crisis levels, growth remains below pre-crisis trends. Only Australia, which saw the mildest recession among the advanced economies, has seen a robust recovery as shown by the graph below.
Output in all the major emerging market economies has expanded beyond pre-crisis levels. China and Indonesia, which did not experience a decline in growth during the 2008-09 period, and India, which saw a mild recession, have all experienced strong expansions. Output is between 30 and 45 percent above pre-crisis levels. Other major emerging market economies have seen output increase by about 10 percent from pre-crisis levels, with the exception of Russia where output has increased by less than 5 percent.
A key imperative is to strengthen global growth. This will require action by current account surplus countries to boost domestic demand, in part by allowing necessary adjustments in exchange rates. In this regard, progress has been made by the international community to strengthen exchange rate commitments. In February 2013, G-7 members reaffirmed that their respective monetary policies would be oriented toward domestic objectives using domestic instruments and that they would not target exchange rates.
This affirmation was followed by adoption by the G-20 of a critical new commitment not to target exchange rates for competitive purposes, while reaffirming the importance of moving rapidly toward market-determined exchange rates and exchange rate flexibility reflecting underlying fundamentals, and avoiding persistent exchange rate misalignments.
It will be essential that these new commitments be adhered to in action as well as word. Treasury will continue to urge the G-20 to follow-through on existing commitments and push for even stronger exchange rate disciplines, including greater transparency of foreign reserve data and intervention operations, and agreement to avoid official public statements intended to influence exchange rate levels.
Global imbalances have declined in recent years, but much of the decline reflects a contraction in demand on the part of current account deficit countries rather than strong domestic demand growth in current account surplus countries. For example, while European deficit countries have
sharply reduced their current account deficits, surplus European countries have not reduced their current account surpluses, and the Euro Area's overall current account has swung into surplus. Germany, for example, maintains a current account surplus in excess of 6 percent of GDP as does the Netherlands. Thus, adjustment in Europe is essentially premised on demand emanating from outside of Europe rather than addressing the shortfalls in demand within Europe.
It is interesting to note that since the crisis, the cyclicals economy ( Australia and Canada ) were the best performer : but recently, the price adjustment of the commodities ( as shown by the graph below using the CRB Index ) can bring a halt to that growth...