IMF: Recoveries in USA, Japan and China

The G-20's major economies experience a slum during the global recession in the past year. Although challenges remain, there are significant signs of recovery in USA, Japan and China.

Recovery in the U.S. economy has been lukewarm thus far after declining for four quarters. Financial markets have shown signs of improvement, and interbank lending has mostly returned to normal. The on-going job losses and though credit conditions are still affecting consumer spending, however, it has been stabilised. Home sales and new home construction are also picking up.

"The recession is very likely over at this point," Federal Reserve Chairman Ben Bernanke said last week. But he also added, "It's still going to feel like a very weak economy for some time."

Many economists believe that companies are mostly done with their cuts. The massive US$787.2 billion stimulus bill is also expected to give GDP a boost in the current quarter. Most of them foresee an economic growth this quarter.

Emerging from the recession after a massive decline in GDP in the beginning of the year, Japan's economy made a major comeback in the last quarter.

The US$275 billion stimulus package has helped its economy to recover. The plan included huge public-works projects, cash-for-clunkers program and pays out of about US$130 to each consumer. The plan had resulted in increased consumer spending up in the last quarter for the first time since last October.

However, economists are staying vigilant before labeling Japan's economic turnaround as a true recovery.

China had battered its economic downturn better than the other G-20 nations. The powerhouse appeared to be have emerged where it left off before the global recession.

China's GDP rebound in the second quarter. The economy was relieved by a US$586 billion stimulus package, ramped-up bank lending and government support for exports.

Its was reported that the Asian Development Bank, China's state-controlled banking system lent $1.2 trillion more to Chinese businesses and consumers in the first seven months of 2009 compare to the same period last year. Factory output and construction has also soared and auto sales grew 82% last month. The Chinese government expressed that GDP can grow 8% for 2009 and continued to be the world's fastest-growing economy.

IMF’s analysis shows that Fund-supported programs aid countries to withstand the global crisis

The analysis of the Review of Recent Crisis Programs revealed that the Fund-supported programs are garnering response and financing required to ease the blow from the global crisis. The International Monetary Fund (IMF) said that “a mix of increased resources, policy flexibility, and more focused conditionality has allowed to better support emerging market countries hit by the recent global financial crisis, said an internal IMF review released today.”

“What this study tells us is that, with IMF support, many of the severe disruptions characteristic of past crises have so far been either avoided or sharply reduced.” He added that “Serious challenges remain, especially restoring sustained growth in output and employment, but there are encouraging signs of stabilization. The governments and peoples of the countries concerned deserve the credit for these efforts,” said Dominique Strauss-Kahn, IMF Managing Director.

“It is clear that this new generation of programs incorporate the lessons of the past,” Reza Moghadam, IMF Director of Strategy, Policy, and Review said, “While it is certainly too early to draw firm conclusions, this assessment is useful in providing real-time feedback to country authorities, IMF staff, partner institutions and policymakers elsewhere, so that we can continue to learn and improve further.”

Other contributing factors are:
Hefty and timely financing: The Fund helped mobilise large financing packages for countries affected by the financial turbulence of late 2008. Financing packages included support from other official creditors and enabling risk sharing. Private sector involvement has also been sought in various European programs. Notably, official financing has been used to meet actual funding constraints of the private and public sectors instead of replenishing central banks reserves.

Focused conditionality: There are fewer structural conditions in the recent programs than previous arrangements. The study showed a sharp decline in measures outside the main areas of Fund competency and an increase in the share of financial sector conditions at the root of the current crisis.

Increased ownership: the programs for individual countries are different depending on the choice of currency regimes. This is required to tailor support to each country’s specific development. In the past, the IMF had failed to acquire the full co-operation of all the countries.

Major challenges remains although early stabilization of the global crisis has been achieved. The study cautions that the suitable unwinding of financial and monetary stimulus, adjustment to external competitiveness factors, and deficits in bank balance sheets as potential mishap.


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