deficit reversals, have the current account adjustments tended to be lasting, or have current account balances deteriorated shortly after the reversal episode? Historically, have major current account deficit reversals been associated with sudden stops of capital inflows? To what extent have current account deficit reversals been associated with balance of payments and/or currency crises? Have current account deficit reversals been associated with banking crises? Have current account reversals tended to take place within the context of IMF programs? Have
robust in determining the likelihood of current account reversal episodes—a rapid and large retrenchment of a current account—it is the initial size of the current account deficit in EMs. And fast adjustments of the current account are almost always painful in terms of the real economy. Moreover, once the drag from the debt overhang is worked out and the recovery takes hold in advanced economies, EMs may have to cope with a swift increase in foreign interest rates (as policy rates are returned to more normal levels, and as the private sectors of advanced economies
Abstract
The global economic recovery is progressing better than expected, but the speed of recovery varies, as outlined in the April 2010 World Economic Outlook. Some countries, notably in Asia, are off to a strong start, but growth in others is constrained by lasting damage to the financial sector and to household balance sheets. The challenge for policymakers is to ensure a smooth transition of demand, while maintaining supports that promote growth and employment. There is also a need to contain and reduce public debt and repair and reform the financial sector. This issue of the WEO also explores two other key challenges in the wake of the Great Recession: how to spur job creation in the face of likely high and persistent unemployment in advanced economies, and how countries that previously ran large current account surpluses or deficits can promote growth by rebalancing external and domestic demand.
in the 1970s and the 2010s Figure 4. Change in Real Income per Capita in EMDEs Relative to the United States over Decades Figure 5. Correlation between Country-Specific External Conditions Variables and Global Variables over Time Figure 6. Average Contribution to GDP per Capita Growth Figure 7. Contribution of Other Common Factors to GDP per Capita Growth and Selected Global Variables Figure 8. Growth Episodes in EMDEs, 1970–2015 Figure 9. Persistent Acceleration Episodes by Region Figure 10. Reversal Episodes by Region Figure 11. Cumulative Growth
collapse); and (iv) are not followed by a growth reversal that starts within three years of the end of the acceleration episode, or a banking crisis (as identified by Laeven and Valencia 2013 ) that starts three years before or after the end of the acceleration episode. A growth reversal episode is defined as an interval spanning five years during which: (i) there is a discrete drop in the trend growth rate such that it is at least 2 percentage points lower than during the preceding five-year interval; and (ii) the level of real GDP per capita declines such that its