2014 will be a milestone in many respects. It will mark the hundredth anniversary of the start of the First World War, the 70th anniversary of the Bretton Woods conference that gave birth to the IMF, and the 25th anniversary of the fall of the Berlin Wall. It will also mark the 7th anniversary of the financial market jitters that quickly turned into the greatest global economic calamity since the Great Depression. This crisis still lingers. Yet, optimism is in the air: the deep freeze is behind, and the horizon is brighter. My great hope is that 2014 will prove momentous in another way-the year in which the “seven weak years”, economically speaking, slide into “seven strong years”. Is this wishful thinking? No, but it will not simply happen on its own. Getting beyond the crisis still requires a sustained and substantial policy effort, coordination and the right policy mix. Let me talk about this-I will start with the global outlook, and then touch on the policy path I have in mind.
Global outlook and risks
In just a few days, we will be releasing our updated forecasts. While our numbers are still being finalized, I will talk about the main trends as we see them. • Momentum strengthened in the latter half of 2013, and should strengthen further in 2014-largely due to improvements in the advanced economies. • Yet, global growth is still stuck in low gear. It remains below its potential, which we think is somewhere around 4%. This means that the world could create more jobs before we would need to worry about the global inflation genie coming out of its bottle. • Even for the advanced economies, however, the outlook is still subject to significant risks. With inflation running below many central banks’ targets, we see rising risks of deflation, which could prove disastrous for the recovery. If inflation is the genie, then deflation is the ogre that must be fought decisively. • During the years of crisis, we have relied on emerging markets to keep the global...
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