The IMF predict that the economic growth in the world is threatened by the euro zone because the public dept in some country’s is increasing and thegovernments are implementing fiscal adjustments to stabilize the government bonds. In addition Japan and EEUU are not implementing credible fiscal polices in the sort-run to combat the public dept.
Inthe developing country’s the expectations of the economic growth are smaller than predicted because the bad economic conditions in the rest of the world and the decreasing on the internal demand in thekey developing country’s.
Moreover the expected inflation in the world seem to be reduced, the mainly reason is for the reducing demand but would remain unchanged in some regions in the developingcountry’s.
The world economy have to be changed in a way that restores the confidence. Could be done in these ways:
Fiscal adjustment: In general the fiscal polices that the governments aretaking are sufficient, but in those economies that have very low interest rate, they don’t have to continue implementing consolidating policies because they can cause a negative effect in the consumptionand in the confidence in the markets.
Monetary policy: As far as the fiscal adjustments are working, the monetary policy have to help it procuring a level of liquidity, but taking into account theexpected inflation and only if the unemployment rate won’t fall.
Bank deleveraging: It’s necessary to inject capitals into the banks to ensure bank recapitalization, but the supervisors have to beaware that the deleveraging process is made in the appropriate speed because a fast deleveraging probably will cause a crash in the credit system.
Financial adjustments: Restoring confidence inthe viability of the euro area hinges on deepening financial and fiscal integration over time and on implementing structural reforms to help resolve internal imbalances. On the financial front, moving...