Notwithstanding higher oil prices and natural disasters, global growth has continued to exceed expectations, aided by benign financial market conditions and continued accommodative macroeconomic policies. Looking forward, the baseline forecast is for continued strong growth, although—as illustrated in Figure 1.1— risks remain slanted to the downside, the more so since key vulnerabilities—notably the global imbalances— continue to increase. With the risks associated with inaction rising with time, the principal challenge for global policymakers is to take advantage of the unusually favorable conjuncture to address these vulnerabilities. In particular, an orderly resolution of global imbalances will require measures to facilitate a rebalancing of demand across countries and a realignment of exchange rates over the medium term, with the U.S. dollar needing to depreciate significantly from current levels, and currencies in surplus countries— including in parts of Asia and among oil producers— to appreciate.

Globalization and Inflation