LONDON, England - The International Monetary Fund's chief economist described a "nascent" global recovery on Wednesday, but warned that US policymakers walked a tightrope in timing the end of the fiscal stimulus.
Olivier Blanchard wrote that a rebound in US consumer confidence and increased US exports to surplus countries in Asia were needed to replace higher public spending.
But in a cautionary IMF paper, he said "it is clear" that the rebalancing may not take place, "at least not on the scale needed".
Without a pick-up in external demand to the US -- "central to any world recovery" -- the stimulus could be maintained too long, adding an undesirable amount to the country's debt burden, or choked off too soon, putting the recovery at risk.
If fiscal deficits were maintained for too long, he wrote, there could be "worries about US government bonds and the dollar... causing large capital flows from the United States. Dollar depreciation may take place, but in a disorderly fashion, leading to another episode of instability and high uncertainty, which could itself derail the recovery."
Japan, Germany and France returned to growth in the second quarter, according to economic data published in the last few days, while most economists think the US recession has ended or is coming to an end.
Germany's prospects for future growth brightened on Tuesday with the publication of confidence data from the ZEW institute, showing the highest level in more than three years.
"The turnaround will not be simple," said Mr Blanchard. "The crisis has left deep scars, which will affect both supply and demand for many years to come." His paper was published Wednesday on the IMF Web site.
He noted that the recovery would be too slow to check the rise in the unemployment rate in many countries, which is at 9.4 percent the US and above 10 percent in parts of Europe.http://edition.cnn.com/2009/BUSINESS/08/19/imf.recovery.ft.ft/index.html
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