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The global economy has returned to positive growth following dramatic declines. However,the recovery is uneven and not yet self sustaining, particularly in advanced economies. Financial conditions have continued to improve, but are still far from normal. Despite recent momentum, the pace of recovery is likely to be sluggish, since much remains to be done torestore financial systems to health, while household balance sheet adjustment and bank deleveraging will be drags on growth. Downside risks have reduced somewhat. A key risk isthat policy support is withdrawn before the recovery can achieve self-sustaining momentum,and that financial reforms are left to languish.
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The global economy is beginning to grow again, but the recovery is uneven andremains dependent on policy support
. Across advanced economies, following sharpdeclines in the first quarter of 2009, output increased modestly in the second quarter in someeconomies—notably France, Germany, and Japan—and fell at a much more modest paceelsewhere, including the United States. Emergingeconomies, particularly in Asia, are turningaround more strongly. Recovery momentumcontinued to build in the third quarter (seeBox 1). However, the pace of recovery is uneven, particularly in advanced economies, withconsumer confidence remaining subdued. Thewaning of temporary fiscal measures, such ascash-for-clunkers programs in the United Statesand similar programs elsewhere, is slowing production. This underscores the extent to whichthe improvement in demand is largely driven by policy stimulus, with the turn in the inventorycycle also playing an important role.
Conditions across financial markets have continued to improve, but some marketsremain dependent on public support, and banking system weaknesses persist.
Theeffect of exceptional policy action on reducing tailrisks, together with brighter growth prospects andsome recovery in corporate earnings, havecontributed to rising market confidence, although progress has been slow in restoring some parts of the financial system to full health.
The rapid decline of risk aversion to pre- Lehman levels, together with low policyrates, has led to rising prices across a broad range of financial assets
. Investors continue
30354045505560Jan-08Jun-08Nov-08Apr-09Sep-09-30-25-20-15-10-5051015
IndustrialProduction (LHS)Manufacturing PMI(50+=Expansion, SA, RHS)
Global PMI and IP
(Percent change; 3mma annualized)
05001000150020002500070809US High YieldEurope High YieldEMBIG
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