The global economy is experiencing its strongest growth since the early 1970s, and its benefits are widely distributed, but lawmakers should not take good times for granted, warns the International Monetary Fund (IMF).
Rapid growth in global trade and access to financing have helped mitigate fluctuations in business cycles, prolonging expansion while reducing recession, but policies must remain flexible to address new risks, the IMF states in the introductory paragraph of its World Economic Outlook, which is set to be fully released on October 17. Deteriorating credit conditions arising from the crisis in the U.S. real estate market only highlight how tightly interconnected global financial markets are – and how closely lawmakers must monitor signs of pressure, the IMF further states.
"Although the business cycle has changed forever, lawmakers must not forget that it has not disappeared," researchers Martin Sommer and Nikola Spatafora note in a section dedicated to changes in the dynamics of the global business cycle. They warned against excessive confidence in the ability of the current policy framework to provide unlimited stability and found that a low level of volatility does not preclude occasional recessions."The task of supporting expansions requires lawmakers to adapt as trade and financial globalization processes can create new risks and vulnerabilities," the researchers wrote. "For example, losses associated with large investments in the U.S. subprime mortgage market have created problems in the banking sector in many developed economies, raising concerns about a possible credit crisis."
