Economic

WASHINGTON: The global economic recovery has begun but sustaining it will require refocusing the United States toward exports and Asia toward

imports, the International Monetary Fund's chief economist said. In an article released by the IMF on Tuesday, Olivier Blanchard also said potential economic output may be lower than it was before the financial crisis struck.

"The turnaround will not be simple," Blanchard said. "The crisis has left deep scars, which will affect both supply and demand for many years to come." He said US consumption, which accounts for about 70 per cent of the US economy and a large chunk of global demand, would not quickly return to pre-crisis strength as households cope with trillions of dollars in losses from the falling housing and stock markets.

He said the financial crisis had made Americans more conscious of "tail risks" -- events that are unlikely to occur, but when they do have devastating consequences. That means US consumers are unlikely to return to their free-spending ways, and both the United States and its trading partners will have to adjust. Emerging Asian countries, especially China, must play a big role.

"From the point of view of the United States, a decrease in China's current account surplus would help increase demand and sustain the US recovery," he said.

"That would result in more US imports which would help sustain world recovery." But in order for China to boost domestic demand, it will need to provide a stronger social safety net and increase household access to credit, which will encourage its consumers to save less and spend more. "Both higher Chinese import demand and a higher (yuan) will increase US net exports," he said.

source:the economic time

HONG KONG, Aug. 8 (Xinhua) -- Leading indicators suggest that the global recession is coming to an end and the world economy is on the road to a policy-induced recovery, a senior economist of the Moody's Economy.com said in a latest report.

"The OECD's composite leading indicators signal that the worst is over," Tu Packard said in the global outlook report released Friday by Moody's Economy.com, the research unit of Moody's Corporation, which is independent of Moody's Investors Service.

The OECD refers to the Organization for Economic Cooperation and Development.

Packard said he saw significant improvement in the world economic map in July, as compared with that in January.

Ample liquidity provided by central banks has helped stabilize the financial markets and credit conditions and bank liquidity has been improving, he said.

In Asia, China and India are again picking up growth momentum and are the first to recover from the impacts of the global financial turmoil and economic slowdown. Indonesia and Bangladesh are still members of the expanding growth club.

Turkey and South Korea, which enjoyed broad-based growth in the second quarter, are projected to have an early recovery. South Korea and other industrialized Asian economies are also benefiting from a strong recovery in the electronics industry.

But Japan remains in the slowdown phase, still troubled with high unemployment and massive overcapacity in manufacturing.

In the Middle East, Egypt and Syria are still growing.

In Latin America, the recession will be brief and mild thanks to the help of monetary expansion and increased government spending on infrastructure.

The Eurozone gross domestic product is forecast to contract by over 4 percent this year, but the seasonally adjusted pace of decline will slow in the second half.

Most notably, China has been trying to shift its growth drivers and deploying vast resources to strengthen domestic demand and further develop infrastructure, including green technologies. Household spending is holding up well, with retail sales growth averaging about 15 percent year on year.

The import composition also shows China's effort to shift to domestic demand-led growth. Moreover, it is also contributing to the recovery of other economies with its demand for raw materials resulting from increased spending on infrastructure.

"This ... also helped spur industrial production" in Taiwan as well as South Korea, Japan and Germany, Packard said in the report.

The Chinese locomotive will help shore up the world economy for a time. Nevertheless, a strong global recovery will only take place when the United States economy starts to grow again in earnest, which will depend on easing credit conditions.

Packard said the main downside risks have to do with the still fragile financial sector, especially non-performing loans extended by Europe to East Europe, and that the influenza A/H1N1 was also a source of further uncertainties.