Page 49 - Accelerating out of the Great Recession

ACCELERATING OUT OF THE GREAT RECESSION

gram is aimed at domestic infrastructure projects and the devel-
opment of new industries, particularly for the creation of export
goods, rather than at stimulation of domestic private consump-
tion. The program also has protectionist elements that prevent
the participation of foreign companies.
More important is the simple arithmetic. As we have said,
the U.S. consumer accounts for about 18.8 percent of the
world’s GDP. In 2008, the entire Chinese economy accounted
for 6.4 percent of world GDP when using current exchange
rates. Even at growth rates of 8 percent, it will take years for
China to make up for the losses in aggregate demand resulting
from the deleveraging process in the United States.
Thus, as important an economy as China is, it will not
singlehandedly be able to pull the world out of its economic
doldrums.
Olivier Blanchard, economic director of the IMF, sees the
rebalancing of trade flows as a precondition for economic
recovery and fears that it will not be achieved fast enough to
prevent an anemic recovery in the United States. He observes,
“Were that to happen, one can imagine various scenarios:
political pressure may be resisted, the fiscal stimulus could be
phased out, and the U.S. recovery might falter. Or fiscal
deficits might be maintained for too long, leading to issues of
debt sustainability and worries about U.S. government bonds
and the dollar, and causing large capital flows from the United
States. Dollar depreciation may take place, but in a disorderly
fashion, leading to another episode of instability and high
uncertainty, which could itself derail the recovery.” And he
concludes, “Coordination across countries is likely to be as
crucial during the next few years as it was during the most
intense part of the crisis.” 5

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