The current global recovery and imbalances in a longer-term perspective

Abstract

Recovery and sustained growth in the global economy has been subject to two challenges since the 1997 Asian crisis, one being on the real side and the other involving the financial sector. The first threat was the impact on developed economies of the expected sharp increase in competitiveness and exports from East Asia as the crisis-stricken economies benefited from massive currency devaluations, requiring large swings in trade balances. The second threat was that of a global collapse of financial markets as a result of the rush to liquidity following the Russian debt default in late summer 1998. Both developments gave rise to widespread forecasts of a global slowdown and concerns over a risk of recession.