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Yahoo! My Yahoo! Mail Yahoo! Search Search: Sign InNew User? Sign Up News Home - Help Navigation Primary Navigation Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Secondary Navigation Singapore Asia Pacific World Search Search: Global recovery requires US, Asia rebalancing: IMF AFP - Wednesday, August 19 WASHINGTON (AFP) - - The global recovery from recession depends on a delicate rebalancing of economies -- notably between the United States and Asia -- to sustain it, the chief IMF economist said. ADVERTISEMENT "The recovery has started. Sustaining it will require delicate rebalancing acts, both within and across countries," Olivier Blanchard said in an IMF article, released in advance of publication Wednesday. Blanchard cautioned that predictable models based on past recoveries from recessions would not apply to the worst global slump since World War II. "The world is not in a run-of-the mill recession. The turnaround will not be simple. The crisis has left deep scars, which will affect both supply and demand for many years to come," he said. In its latest economic forecasts, the IMF estimated in July a global contraction of 1.4 percent in 2009, followed by sluggish growth of 2.5 percent in 2010. The United States, the epicenter of the crisis, "is central to any world recovery," Blanchard said in the article titled "Sustaining a Global Recovery." Blanchard said two rebalancing acts will have to come into play to sustain the global recovery: a switch from public to private spending and the rebalancing of international trade flows. The latter would require "a shift from domestic to foreign demand in the United States and a reverse shift from foreign to domestic demand in the rest of the world, particularly in Asia," he said. Pointing to a decline in American household consumption -- which "represents 70 percent of total US demand" -- and a rise in the personal saving rate that is expected to persist for some time, Blanchard estimated a 3.0 percentage point drop in the ratio of consumption to US gross domestic product, a broad measure of economic output. With the 3.0 percent drop unlikely to be made up by increased investment and the eventual phase-out of the massive fiscal stimulus, "US net exports must increase" for the US recovery to occur, he said. Key to the rebalancing act will be an increase in foreign demand for US goods, particularly in countries with large current account surpluses, notably in China and other Asian countries. "From the point of view of the United States, a decrease in Chinas current account surplus would help increase demand, and sustain the US recovery. That would result in more US imports, which would help sustain world recovery," the top economist at the 186-nation institution said. China may be willing to pursue that "because it may well be in its own interest," said the economist, but other emerging market Asian countries that run large current account surpluses have weaker incentives than China to boost internal demand. Blanchard said that Asia appeared the best-placed to tip the trade balance. "If rebalancing is to come soon, it probably has to come largely from Asia, through a decrease in saving, and an appreciation of Asian currencies vis-a-vis the dollar," he said. In a typical recession model, he said, lower-than-normal growth gives way to higher-than-normal growth for some time, until the economy has returned to its normal growth path. "The current global recession is far from normal," he said, citing the breakdown in parts of the economic system. "In advanced countries, the financial systems are partly dysfunctional, and will take a long time to find their new shape," he said. Emerging market countries may not see dwindled capital inflows return to pre-crisis levels for a few years. The end result of the global crisis: possibly a permanently lower potential output, he said. Blanchard said the IMF's upcoming edition of the twice-yearly World Economic Outlook will cover 88 banking crises over the past four decades in a wide range of countries. "While there is large variation across countries, the conclusion is that, on average, output does not go back to its old trend path, but remains permanently below it." Email Story IM Story Printable View Blog This Sign in to recommend this article » 0 users recommend Related Articles: China's Economy CORRECTED - CORRECTED-UPDATE 3-China Everbright Sec up 30 pct in Shanghai deReuters - 2 hours 14 minutes ago Brazil-China ore trade slows; Australian sales steadyReuters - 2 hours 41 minutes ago Macquarie, Everbright in China JV to raise $1.5 blnReuters - Wednesday, August 19 Study: Financial executives see growth in 2010AP - Wednesday, August 19 Related Articles: Business FOREX-Yen rises broadly as Chinese shares fallReuters - 1 hour 54 minutes ago Australia's CSL profit up 63 pct on flu vaccineAFP - Wednesday, August 19 'Superpower' Australia inks huge China energy dealAFP - Wednesday, August 19 Asia stocks edge up but wary of China, oil jumpsReuters - Wednesday, August 19 Global recovery requires US, Asia rebalancing: IMFAFP - Wednesday, August 19 Enlarge Photo Global recovery requires US, Asia rebalancing: IMF Related Photos Slideshow Full Photo Coverage: Business & Economy Related Full Coverage China Economy china economy All Full Coverage Most Popular – Business Viewed UK UFO sightings spiked when blockbusters released Sleep disorders linked to premature deaths: study Michael Jackson's 51st birthday to be his burial day: father Egypt warns pharaohs' tombs could disappear Canadian singer Celine Dion pregnant with second child View Complete List » Search: Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Copyright © 2009 Yahoo! 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