On the Adjustment of the Global Economy

Carlos de Resende, Claudia Godbout, René Lalonde, Eric Morin and Nikita Perevalov
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Nikita Perevalov: Bank of Canada, https://www.bankofcanada.ca/

Bank of Canada Review, 2012, vol. 2012, issue Spring, 1-15

Abstract: This article discusses three scenarios for the adjustment of the global economy. In a “baseline” scenario—which encompasses fiscal consolidation in major advanced economies, growth-friendly structural reforms in Europe and Japan, and greater exchange rate flexibility and reforms in the emerging-market economies of Asia to induce rotation of demand away from net exports—global current account imbalances are resolved over the medium term and strong global economic growth resumes. In one alternative scenario, in which these conditions are delayed, global imbalances persist and growth is substantially reduced. In the second alternative scenario, in which advanced economies front-load fiscal consolidation, but no rotation of demand takes place in the emerging-market economies of Asia and no structural reforms are implemented in Europe and Japan, even weaker global economic growth occurs in the near term.

Date: 2012
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