IMF World Economic Outlook

Oct 8, 2009 | Economics

The IMF has recently released its monthly World Economic Outlook, the IMF’s premier publication on the state and health of both the global economy and member country economies.

The report states that a global recovery has taken root but that it will likely be some time before employment begins to improve. Unemployment has been on the rise since mid-2007 and rose in September to 9.8 percent, the highest level since June 1983. The report also credits governments and IGOs across the globe for having successfully “allayed concerns about systemic financial collapse...”

However, the IMF notes several key policy challenges for the coming years, urging governments to:

  • Sustain fiscal stimulus until the economic recovery has taken a firm hold
  • Ensure continued short-term support does not distort incentives and endanger public balance sheets
  • Begin to address medium-term challenges, including financial reform, boosting potential growth, and rebalancing global demand

Directly focusing on fiscal policy, the report states that:

"fiscal policy is likely to become increasingly less effective in supporting demand in the absence of reassurances to investors and taxpayers that deficits and debt will eventually be rolled back. This is likely to require major efforts to constrain spending by initiating entitlement reforms and by committing to large reductions in deficits once the recovery is on a solid footing. The credibility of such reduction could usefully be supported with more robust fiscal frameworks, including suitable fiscal rules that help rein in spending pressures when good times return."

Such “exit strategies” from public support, the report said, need to be “clearly articulated” to send clear signals to markets. In addition, such exit strategies need to phase out stimulus programs gradually.