Think Tank 20: New Challenges for the Global Economy, New Uncertainties for the G-20


As G-20 leaders prepare for their seventh meeting in Los Cabos, Mexico, strengthened hopes are struggling against renewed fears in the world economy.

The stronger hopes are due primarily to the more rapid output and employment growth in the U.S. economy that have come in better than expected in late 2011. It now appears possible that GDP in the United States might grow at a rate close to 2.5 percent in 2012, compared to 1.7 percent in 2011. Moreover, for several months, job creation has exceeded new entries into the labor force, reducing unemployment to well below 9 percent for the first time since the employment plunge in 2009. While this is modest progress compared to the challenge ahead— it would take almost a decade to reduce unemployment to pre-crisis levels at the pace of recent months— it has triggered a significant stock market surge, reinforcing a positive dynamic in the U.S. economy.

There also is considerable uncertainty in the outlook for Europe with median forecasts suggesting another year of zero growth. The long awaited deep Greek private debt restructuring finally took place without the catastrophic effects that some who had argued against it had forecast. The European Central Bank provided ample medium-term liquidity to the banking system, calming markets and providing time for greater structural adjustments. A decision to augment the size of the eurozone’s financial firewall was finally taken in late March. The latter involves a temporary enlargement of the eurozone bailout system to €700 billion by setting up the new bailout fund, called European Stability Mechanism (ESM) with a permanent €500 billion in capacity, but allowing the €200 billion from the European Financial Stability Fund already committed to Greece, Ireland and Portugal, to be set aside and not be folded into the ESM as originally planned.

Growth in the emerging and developing countries has slowed, but still continues at a robust pace, with their internal growth dynamics playing an increased role compared to their exports to the advanced world.

A surge in oil prices at the start of the year, linked partly at least to political uncertainties surrounding Iran and security of supply in the Gulf, signaled a new danger in the early months of 2012. A massive surge in oil prices remains a short-term threat for the world economy, but at time of writing this threat seems to have moderated, notably because of the strong resolve of Saudi Arabia to stabilize prices, although this resolve would not be of much help if there were serious disruptions of supply routes.

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Chapter 1

1 Euro = 1.325 U.S. Dollars: The Surprising Stability of the Euro


Chapter 2

The Eurozone Crisis Still Threatens Global Growth


Chapter 3

Rethinking Japan’s “Lost Decade”: Some Post-Crisis Reflections


Chapter 4

Déjà Vu All over Again: The Depressing Debate on the Financial Crisis and Democratic Politics


Chapter 5

The False Dilemma between Austerity and Growth


Chapter 6

Global Shift, the G-20, and Europe’s Double-Move


Chapter 7

The U.S. Economy: Sustaining the Recovery—Policy Challenges, Political Differences and an International Context


Chapter 8

Global Growth and Adjustment: The Energy Dimension


Chapter 9

New Challenges for the Global Economy, New Uncertainties for the G-20


Chapter 10

Addressing the Eurozone Crisis: Lessons from Latin America


Chapter 11

Can Asia Help Power the Global Recovery?


Chapter 12

A Monetary Tsunami? Brazil in the Cross-Fire of New Style Currency Wars


Chapter 13

Stronger Hopes and Renewed Fears: The Governance Legacy


Chapter 14

Internal Imbalances, State Finance and the Global Recovery


Chapter 15

Macroeconomic Coordination: What Has the G-20 Achieved?


Chapter 16

The Eurozone: How to Grow out of the Crisis?


Chapter 17

Greening the G-20 Agenda: A Way Forward


Chapter 18

What Should Other Countries Learn from the U.S.’s Regulatory Response to the Crisis?


Chapter 19

Investment, Recovery and Growth