Although acute risks in high-income countries are down, more modest downside risks linger as these economies continue to adjust. Importantly, downside risks are now balanced by the possibility of stronger growth should confidence improve more quickly than anticipated in the baseline.
For developing countries that have already recovered from the crisis, or that are expected to in 2013, macroeconomic policy may need to be tightened to contain or prevent inflation, asset-price bubbles, and deteriorating current accounts. Tightening would have the further advantage of restoring depleted policy buffers. In countries where unemployment remains high and spare capacity is ample, notably in developing Europe, a loosening of policy may be in order where policy space exists. The rebalancing effort in China, and its unsustainably high investment rate are ongoing challenges.