Igniting and Sustaining Global Recovery: Key Macroeconomic Management Challenges

A global economic recovery is expected to be ignited in 2010 but this will be characterized by very different growth trajectories among advanced and emerging economies. The downside risks are formidable. Sustaining this recovery will require skillful macroeconomic management. Exit strategies for fiscal stimulus will need to be carefully timed and credible fiscal consolidation plans need to be designed, implemented and communicated to all stakeholders. Monetary policies that go beyond a narrow focus on consumer price inflation would need to be redesigned and implemented. More effective financial supervision and regulation that incorporate the lessons learned from the financial crisis must be effected and carefully coordinated with monetary policy. Greater flexibility in exchange rates that would curb global imbalances is needed. Looking ahead, a new social compact would need to be determined to both chart the recovery and sustain long-term growth and employment. The crisis is likely to usher fundamental and far reaching changes in economic decision making.