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April 30, 2009 Where Are We In the Global Crisis? Olivier Blanchard Economic Counsellor and Director Research Department International Monetary Fund.

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Presentation on theme: "April 30, 2009 Where Are We In the Global Crisis? Olivier Blanchard Economic Counsellor and Director Research Department International Monetary Fund."— Presentation transcript:

1 April 30, 2009 Where Are We In the Global Crisis? Olivier Blanchard Economic Counsellor and Director Research Department International Monetary Fund

2 Two Cross Currents One pulling down. Dynamic multipliers. One pulling down. Dynamic multipliers. One pulling up. Natural stabilizers? Demand policies. One pulling up. Natural stabilizers? Demand policies. Balance. Today, the first strongly dominates. Balance. Today, the first strongly dominates. With right policies, balance should shift later this year. With right policies, balance should shift later this year. Growth should turn positive at the end of Growth should turn positive at the end of Unemployment should crest at the end of Unemployment should crest at the end of Central: Health of financial system. To avoid vicious cycles, and determine the strength of recovery. Central: Health of financial system. To avoid vicious cycles, and determine the strength of recovery. 1

3 Real GDP Growth (in percent; QoQ; saar) World Emerging and Developing economies Advancedeconomies Growth Projections 2

4 Unemployment Rate Projections U.K. U.S. Japan Euro area Unemployment Rate (in percent) 3

5 Advanced: Real GDP Growth (in percent; QoQ; saar) Apr. 09 Growth Revisions, and 2008 Q4 Jan. 09 Apr. 09 Jan. 09 Emerging: Real GDP Growth (in percent; QoQ; saar) Q408Q4 4

6 Natural Stabilizers? Housing Indicators (in millions of units) Mar. 09 1/ NAHB index; a reading over 50 suggests Good conditions for current and prospective home sales. Total Inventories Permits U.S. Vehicle Sales (in millions; sa) U.S. Auto Sales (RHS) U.S. Inventories (LHS) Mar. 09 5

7 Overall Deficit: Contributions from Automatic Stabilizers and Discretionary Measures (fiscal deficit in percent of GDP; change from 2007) Fiscal Policies in 2009 and / PPP GDP-weighted average. 6

8 Sustainability Concerns and Fiscal Projections Fiscal Balance (LHS; inverse) Public debt (RHS) G-20 Advanced Countries Fiscal Balance and Public Debt (in percent of GDP; PPP GDP weighted) G-20 Advanced Countries Public Debt (in percent of GDP; PPP GDP weighted) Baseline Low growth ContingentLiabilities 7

9 Sovereign CDS Spreads (5yr; in basis points) 4/23 Fiscal Sustainability and Financial Strains Bank of Ireland Sovereign Allied Irish Bank Governmentguarantees Ireland CDS Spreads (5-year CDS Spreads; in basis points) 4/23 8

10 Central Bank Policy Rates and Balance Sheets Policy Rates (in percent) Central Banks Total Assets (index, 1/5/2007=100) Euro area U.K. Japan Canada U.S. U.K. Canada Japan U.S. LehmanBrothers 4/174/23 9

11 Credit and Quantitative Easing 90-day U.S. Commercial Paper (n percent unless otherwise noted) 4/17 10yr Government Bond Yield (in percent) Financial (AA; LHS) CPFF U.S. 4/23 U.K. Net Holdings (RHS;$ bil.) CPFF Non-Financial (AA; LHS) 10 QE

12 Changes in Credit Standards (index of tightening; bank lending standards) U.S. Output Gap (in percent of potential; based on GPM) Apr WEO Baseline Bank lending tightens further Credit conditions improve 1/ Simulations using the Global Projection Model (GPM). Tightening Loosening Bank Lending and Economic Recovery 1/ 2010Q1 2010Q4 11

13 International Credit Provision Emerging Economies: Net Capital Flows (US$ billions) 08Q4 12

14 In Summary Need for strong policies still acute. Need for strong policies still acute. With those policies (especially financial): With those policies (especially financial): Turnaround in growth (advanced) at the end of Turnaround in growth (advanced) at the end of Turnaround in unemployment at the end of Turnaround in unemployment at the end of Emerging and developing countries: higher but in sync. Emerging and developing countries: higher but in sync. Need to start thinking now about exit policies. Debt, money, regulation, external imbalances. Need to start thinking now about exit policies. Debt, money, regulation, external imbalances. 13


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