Heed the IMF warning

Updated: 2011-09-22 07:59

(China Daily)

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POLICYMAKERS AROUND THE WORLD SHOULD take deadly serious the latest warning by the International Monetary Fund (IMF) that the world economy has entered a "dangerous new phase".

Three years after the collapse of Lehman Brothers threw the world economy into the worst recession in more than 70 years, global growth is now increasingly threatened by a double-dip recession that could and should be avoided.

Thanks to stronger growth in China, India, Brazil and other developing countries that may offset weaker output in the United States and Europe, the IMF predicts global growth of 4 percent for this year and next.

The overall picture of global growth, which is a little dimmer than three months ago, seemingly does not, in itself, justify such a harsh warning as a "dangerous new phase".

However, a closer look at the economic outlook for the United States and Europe indicates that the IMF is not overstating the dangers to compensate for its failure in 2008 to sound the alarm.

The stubbornly high unemployment and meager growth in the US and Europe are good reason for the international lending organization to sharply downgrade its economic outlook for the two areas through the end of next year.

Yet, much worse than the economic conditions are policymakers' lack of deeds in dealing with fundamental problems that have accumulated over an extended period of over-consumption.

On one hand, while the downgrading of debt in one European country after another - Italy being the latest - shows that Europe's crisis is snowballing in a fairly dangerous fashion, European policymakers are apparently stymied by the absence of a fiscal union in a zone with a single currency.

On the other hand, US policymakers are practically paralyzed by bipartisan politics that have turned ugly before a presidential election, thus preventing any concerted effort to resolve their financial problems and revitalize the world's largest economy.

It is true that the global economy is still growing as a whole and global vigilance against another Lehman-like debacle will spare the world another contagious crisis for a while. Nevertheless, the fact that self-proclaimed guardians of global finance are shying away from talking about a double-dip recession, not to mention taking bold action to avoid it, provides no guarantee that a black-swan event will not recur, say, in just a few years.

With debt-laden rich countries dragging their feet on undertaking painful but necessary reforms to put their fiscal and economic houses in order, the international community should hope for the best but prepare for the worst.

The IMF's warning has not come too late, though the global recovery has already weakened considerably. It is high time the international community fight the looming global slowdown with stronger policy support and closer cooperation.

(China Daily 09/22/2011 page8)