Paris: Most countries around the world have steered clear of catastrophic outcomes arising from the financial crisis, but must carefully time moves to shift away from fiscal stimulus, the International Monetary Fund’s (IMF) chief economist said on Monday.
Olivier Blanchard also told an investment forum that “fairly substantial adjustments” might be needed in the value of the dollar in order to achieve the big export boost needed for a sustainable recovery in the US economy.
Advanced nations were likely to see growth or an economic reading of close to zero by the end of this year, prompting the need for policymakers to reconsider how best to foster recovery, Blanchard said. “The crisis is not quite over,” he said.
While fiscal stimulus was still a crucial tool to cope with the downturn, and probably would remain so for the coming year or two, governments had to think hard about timing their exit strategies, he said.
“We basically have to move away from this—and there, there is a really delicate balancing act which is that timing is of the essence,” he said, referring to fiscal stimulus.
Rolling back on the fiscal push too early, as some governments were tempted to do, could result in an unwelcome decrease in public demand, he said. Waiting too long could spur uncertainties in financial markets over perceived risks, he added.
To ensure sustainable recovery, the US needed to put more of an emphasis on external rather than internal demand, he said.
But such a strategy could be hard to achieve without changes in exchange rate levels.
“For the US, it is absolutely no question that a sustained recovery has to come from a large increase in exports. That may not be very easy to do,” he said. “This may require fairly substantial adjustments in the dollar.”
IMF was currently in the process of revising its economic forecasts, he said, adding that the pace of recovery was likely to prove relatively weak.
“We are going to get steady improvement in net exports in the US, some limited adjustment in Asia, some retrenchment of public spending but not enough at this stage to basically ensure a very strong recovery and clearly there are risks on the downside,” he said.
Anna Willard contributed to this story.