WORLD ECONOMIC OUTLOOK

April 2010

Rebalancing Growth

International Monetary Fund

World Economic and Financial Surveys

Cataloging-in-Publication Data World economic outlook (International Monetary Fund)

World economic outlook : a survey by the staff of the International Monetary Fund. — Washington, DC : International Monetary Fund, 1980–v. ; 28 cm. — (1981–1984: Occasional paper / International Monetary Fund, 0251-6365).— (1986– : World economic and financial surveys, 0256-6877)Semiannual.Has occasional updates, 1984–1. Economic history, 1971–1990 — Periodicals. 2. Economic history, 1990– —Periodicals. I. International Monetary Fund. II. Series: Occasional paper (InternationalMonetary Fund). III. Series: World economic and financial surveys.HC10.W7979 84-640155 338.5’443’09048—dc19 AACR2 MARC-SISBN 978-1-58906-915-2Please send orders to:International Monetary Fund, Publication Services700 19th Street, N.W., Washington, D.C. 20431, U.S.A.Tel.: (202) 623-7430 Fax: (202) 623-7201E-mail: publications@imf.org www.imfbookstore.org

iii

Assumptions and Conventions ixPreface xi Joint Foreword to

World Economic Outlook

and

Global Financial Stability Report

xiiExecutive Summary xivChapter 1. Global Prospects and Policies 1

Recovery Is Stronger than Expected, but Speed Varies 1Financial Conditions Are Easing, but Not for All Sectors 3Capital Is Again Flowing to Emerging Economies 4Policy Support Has Been Essential in Fostering Recovery 5Multispeed Recovery to Continue during 2010–11 6Inﬂation Pressures Are Generally Subdued but Diverge 9Important Risks Remain amid Sharply Diminished Room for Policy Maneuvers 11Policies Need to Sustain and Strengthen Recovery 13Global Demand Rebalancing: e Role of Credibility and Policy Coordination 25 Appendix 1.1. Commodity Market Developments and Prospects 27References 41

Chapter 2. Country and Regional Perspectives 43

A Stimulus-Driven U.S. Recovery Is under Way 43 Asia Is Staging a Vigorous and Balanced Recovery 47Europe Is Facing an Uneven Recovery and Complex Policy Challenges 52e CIS Economies Are Recovering at a Moderate Pace 57Latin America and the Caribbean Are Recovering at a Robust Pace 59e Middle East and North Africa Region Is Recovering at a Good Pace 62 Africa Is Coming through the Crisis Well 64

Chapter 3. Unemployment Dynamics during Recessions and Recoveries: Okun’s Law and Beyond 69

Broad Labor Market Dynamics during the Great Recession 71Using Okun’s Law as a Framework 72Step 1: Okun’s Law across Countries and over Time 81Step 2: Analyzing Unemployment Rate “Forecast Errors” 83e Key Issues: Drivers of Great Recession Dynamics and Recovery Prospects 86Conclusions and Implications for the Recovery 98 Appendix 3.1. Data Sources and Construction 99 Appendix 3.2. Methodological Details 100 Appendix 3.3. Analysis on Dynamic Betas Derived from the Employment Version of Okun’s Law 103 Appendix 3.4. Regression Results Using Employment Forecast Errors and a Static Okun’s LawSpeciﬁcation 104