Click here for search results
An update to these projections was published on March 31, 2009.
News release | Update (PDF)

But a stronger recovery in demand is also possible

While a less likely outcome than it was just a few months ago, a stronger recovery than currently embedded in the baseline forecast is of course possible. For high-income countries such a result would be unambiguously welcome, and could derive from an improvement in market sentiment, perhaps due to additional progress on the reform agenda or because of better than anticipated outturns. Improved sentiment could help create the kind of virtuous circle, where lower interest rates reduced borrowing costs, improved fiscal prospects and reduced the need for growth sapping expenditure cuts without affecting the overall improvement in the region’s fiscal trajectory.

For developing countries where some post-crisis slack remains (notably many of the economies of Central and Eastern Europe and the Middle-East & North Africa), a stronger than expected recovery in demand would also be welcome and could be relatively easily absorbed and converted into improved living conditions and lower unemployment.

However, for those developing countries operating close to, or above potential output (like Brazil, China, India and Turkey), a pick up in demand (domestic or external) could intensify capacity constraints unless it is met with significant progress on the supply side. If excess demand were to build up, it could stoke inflationary pressures and/or result in a further deterioration in current account balances, which could increase the vulnerability of these economies to a future domestic or external shock. Such countries would likely have to tighten policy much more severely than in the baseline — potentially resulting in an increase in unemployment and economic disruption in the outer years of the projection period.

Permanent URL for this page: