CHAPTER 1 GLOBAL PROSPECTS AND POLICY ISSUES
- International Monetary Fund. Research Dept.
- Published Date:
- September 2006
Notwithstanding recent financial market nervousness, the global economy remains on track for continued robust growth in 2007 and 2008, although at a somewhat more moderate pace than in 2006 (Figure 1.1). Moreover, downside risks to the outlook seem less threatening than at the time of the September 2006 World Economic Outlook, as oil price declines since last August and generally benign global financial conditions have helped to limit spillovers from the correction in the U.S. housing market and to contain inflation pressures. Nevertheless, recent market events have underlined that risks to the outlook remain on the downside. Particular concerns include the potential for a sharper slowdown in the United States if the housing sector continues to deteriorate; the risk of a deeper and more sustained retrenchment from risky assets if financial markets continue to be volatile; the possibility that inflation pressures may revive as output gaps continue to close, particularly in the event of another spike in oil prices; and the low probability but high cost risk of a disorderly unwinding of large global imbalances. From a longer-term perspective, a number of trends—including the aging of populations, rising resistance to increasing globalization, and the environmental consequences of rapid growth—could undermine the buoyant productivity that has underpinned recent favorable outcomes. While remaining vigilant to short-term macroeconomic risks, policymakers should take advantage of the continuing strong performance of the global economy to press ahead with more ambitious efforts to tackle deep-seated structural challenges.