RTTNews - The world economic recovery is underway, but the process will not be simple, International Monetary Fund chief economist Olivier Blanchard warned, reports said Tuesday.
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 an article titled Sustaining a Global Recovery.
Blanchard's comments followed the news on Monday that the Japanese economy became the latest major economy to return to growth in the second quarter after Germany and France. At the same time, the British and the U.S. economies continued to contract.
In July, the international lender had said the world economy is beginning to pull out of a recession, but stabilization is uneven and the recovery is expected to be sluggish.
While saying that global output would be less, compared to the pre-crisis period, Blanchard said countries must rebalance their economies to make it sustainable. Consumption-dominated economies such as the U.S. would remain below pre-crisis levels for a long time.
Moreover, he said the financial systems in advanced economies are partly dysfunctional, and will take a long time to find their new shape. The economist noted that emerging Asian countries, especially China, would have to play a big role in sustaining the recovery.
From the point of view of the United States, a decrease in China's 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, he said.
Blanchard said the current global recession is far from normal and noted that in a typical recession model, lower-than-normal growth gives way to higher-than-normal growth for some time, until the economy returns to its normal growth path.
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