International outlook for 2011.

• Author: Mafi-Kreft, Elham

The world economy is slowing again and is expected to grow at 4.2 percent in 2011. There are no doubts that the advanced economies are facing the greatest economic challenge since the Great Depression. Mounting tensions between the advanced economies and the emerging economies (particularly China) are further complicating things, as the pace of recovery is very uneven (2.2 percent for the developing countries and 7 percent for the emerging countries). The advanced economies are unoptimistic because the sluggish growth has yet to create jobs, particularly in the United States, Europe and Japan.

In the western world, the effects of the massive fiscal and monetary stimulus packages are dissipating while unemployment rates are still historically high a year after most of those economies have been technically out of recession. What are the immediate options of the developed-economy governments: austerity measures, more stimulus, protectionism or global collaboration? Further questions that remain to be answered include the following: Is it possible to ensure fiscal sustainability without dampening the recovery? How do we make sure that recovery efforts create jobs? And does sustainable recovery need global collaboration and rebalancing of the world economies?

Reflecting on recent financial meltdowns, such as the run on Northern Rock Bank in the United Kingdom in September 2007, the bankruptcy of Lehman Brothers in the U.S. in September 2008, and the Euro crisis of 2010, it is clear that we operate in a highly intertwined global financial market where what happens in one country affects the standing of financial institutions in other countries. This implies that the answers to the above questions cannot come from one country's perspective.

This year's global forecast may further mark the start in the shift of global economic weights as most of the developing economies will grow faster than the United States and their richer peers. Economists tracking advanced economies as a whole worry that without faster internal growth the world's rich economies will be stuck in unprecedented high unemployment rates and idle capacity. The remainder of this paper will emphasize the divide between the advanced and the developing economies, focusing on the challenges each group is facing, the solutions formulated by their respective governments, and my take on what is coming next.

Advanced Economies

The sluggish growth in the advanced economies comes from two...