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Wednesday, August 19, 2009

To Sustain Gains, U.S. Must Change Tack, IMF Says

To Sustain Gains, U.S. Must Change Tack, IMF Says
'* The Wall Street Journal

AUGUST 19, 2009

REUTERS NEWS SERVICE

WASHINGTON -- The global economic recovery has begun, but sustaining it will require refocusing the U.S. toward exports and Asia toward imports, the International Monetary Fund's chief economist said.

In an article released by the IMF on Tuesday, Olivier Blanchard also said potential economic output may be lower than it was before the financial crisis struck. 'The crisis has left deep scars, which will affect both supply and demand for many years to come,' Mr. Blanchard said.

U.S. consumption, which accounts for about 70% of the U.S. economy and a large chunk of global demand, wouldn't quickly return to precrisis strength as households cope with losses from the falling housing and stock markets.

He said the financial crisis had made Americans more conscious of 'tail risks' -- events that are unlikely to occur, but that, when they do, have devastating consequences. That means American consumers are unlikely to return to their free-spending ways, and both the U.S. and its trading partners will have to adjust. Emerging Asian nations, especially China, must play a big role.

If the rebalancing fails, the future looks far more grim, the article said, as there would be pressure for more fiscal stimulus.
Printed in The Wall Street Journal, page A3

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