Outlook for the World Economy and Policy Challenges Ahead: A Multi-speed Recovery

ADDRESS BY MURILO PORTUGAL DEPUTY MANAGING DIRECTOR, IMF

Canberra, 2 March 2010

Outline

 Outlook  Global  Asia  Policy Challenges  Exit Policies  Building a Stable Financial System  Bringing Down Public Debt Levels over the Medium Term 1

2005 Across the Globe Growth is Returning, but at Different Speeds (percent; quarter-over-quarter, annualized) Emerging World Advanced 2006 2007 2008 2009 2010 0 -5 2011 11Q4 -10 15 10 5

2

Growth is Likely be Slower by Past Standards in Most Advanced Economies but Faster in EMs

World Advanced Economies United States Euro area Japan Australia Emerging and Developing Economies China India Brazil Russia WEO Jan 2010 2010 3.9

Consensus Forecasts 1/ 4.0

2.1

2.7

1.0

1.7

2.5

… 2.9

1.3

1.3

2.9

6.0

10.0

7.7

4.7

3.6

… 9.7

7.8

5.4

4.1

WEO Jan 2010 2011 4.3

Consensus Forecasts 1/ 4.2

2.4

2.4

1.6

2.2

3.0

… 3.1

1.6

1.5

3.2

6.3

9.7

7.8

3.7

3.4

… 9.1

7.9

4.5

4.5

1/ Consensus forecasts, Asia Pacific consensus forecasts (Jan. 11, 2010); Latin American consensus forecasts (Jan. 18, 2010); and Eastern European consensus forecasts (Jan 18, 2010). India consensus forecast on fiscal year basis.

3

Sluggish Recovery Should Keep Inflation in Check

4

Global Headline Inflation

(Percent change from a year earlier)

10 8 6 4 2 0 -2 02 03 Emerging World Advanced 04 05 06 07 08 09 10 10Q4

Financial Markets have Continued to Recover and Asset Prices Have Rebounded Asset Class Performance (percent of pre-Lehman levels) Pre-Lehman to Current

5

-22.4

-9.3

17.4

21.7

15.0

15.7

-0.8

6.2

Sovereign Debt Supply Will Remain High Sovereign Debt Issuance (percent of GDP)

6

Emerging Asia is Leading the Global Recovery

7 G2 ( US & Japan)

The Outlook for Investment is More Mixed, but Business Confidence is up

8

Commodity Prices are Rising but Upward Pressures are Likely to Remain Moderate...

9

Selected Commodity Prices

(January 2002 = 100)

Energy Metals Beverages Food Agricultural Raw Materials

65 ... Given Above-Average Inventories and High Spare Capacity OECD Oil Inventories

(in days of consumption)

Global Oil Demand and OPEC-11 Spare Capacity

(million barrels per day)

4 Demand (annual change; LHS) OPEC-11 Spare Capacity (RHS) 9 3 8 60 7 2 6 55 1 5 0 4 50 -1 3 -2 2 45 -3 1 40 00Q1 02Q1 04Q1 06Q1 09Q3 08Q1 -4 10Q4 2000Q1 02Q1 04Q1 06Q1 08Q1 10Q1 0

10

China’s Imports of Commodities Have Helped Australia

11

China: Import Volumes

(January 2007=100) 200 150 100 50 Capital goods (left axis) Iron ore (left axis) Coal (right axis) 400 350 300 250 200 150 100 50 0

Policy Challenges Ahead

  In the near term, the appropriate timing, pace, and mode of exiting should depend on the state of the economy and the health of the financial sector in individual countries.

There are also medium-term challenges:  Rebalancing the sources of growth  Reforming the financial system  Bringing debt levels down to their pre-crisis level 12

Exit from Financial Sector Support and the New Regulatory Framework

13     Exiting from support to shorter-term funding markets and liquidity provision could be relatively easy/fast. High degree of coordination is required to designing and implementing financial sector reform Avoid uneven implementation across countries Some emerging market countries should respond to capital inflows through a variety of measures, including greater exchange rate flexibility

Thank you

14