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Economic Recovery Progressing in Line With IMF Forecasts, But Downside Risks Remain

The State of the World Economy

Speaker: Olivier Blanchard, Economic Counsellor and Director of Research, International Monetary Fund
Presider: Abby Joseph Cohen, Senior Investment Strategist, The Goldman Sachs Group, Inc.
January 23, 2014

Event Description

Olivier Blanchard of the International Monetary Fund offers his perspective on the world economy in a conversation with Abby Joseph Cohen of Goldman Sachs. He cites austerity policies as a major factor in holding back the rate of economic recovery in many countries and projects growth to pick up as these fiscal constraints are scaled back. Blanchard does not see the Federal Reserve's tapering of its bond-buying program as a major risk to growth, but he warns of low levels of public investment and the potential for deflation in the eurozone's periphery as areas of concern going forward.

This meeting was part of the C. Peter McColough series on International Economics.

Event Highlights

Olivier Blanchard on the effects of fiscal austerity:

"There was this notion that if you had really strong fiscal consolidation, then you would instill confidence in people, and therefore, they would spend more, so that the second effect would dominate the first. It think this has been thoroughly debunked. The effect of fiscal consolidation is to decrease demand, and to decrease growth in the short run."

Olivier Blanchard on the Federal Reserve's upcoming phase-out of quantitative easing:

"So let me indicate one risk I'm not terribly worried about is tapering. It seems to me that the exit from unconventional monetary policy is conceptually not terribly difficult to achieve; technically, not extremely difficult to achieve. But, it has never been done."

Olivier Blanchard on the need for governments to increase their levels of public investment:

"And it strikes us as—not only in the U.K., but elsewhere—as a good time to do public investment. Governments, states, can borrow at very, very low rates. And this is an environment in which a private firm would think it's a good time to actually bring forward some of the projects, and start them now, rather than later."


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