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WASHINGTON -(Dow Jones)- The crisis is receding, but leaving in its wake a damaged global economy that must be rebalanced to achieve strong growth rates again, the chief economist of the International Monetary Fund said Wednesday.
"The recovery has started. Sustaining it will require delicate rebalancing acts, both within and across countries," Olivier Blanchard wrote in an article in the IMF's Finance & Development magazine.
"The turnaround will not be simple. The crisis has left deep scars, which will affect both supply and demand for many years to come," he said.
Warning the crisis has lowered the growth potential of the world economy and sparked unsustainable government spending levels, Blanchard said there must be a shift toward more reliance on demand from the private sector and from countries outside the U.S.
Pushed up by stimulus packages, debt levels in Group of 20 advanced economies are projected to exceed 100% of gross domestic product on average in the next few years, he said.
"The stimulus can be prolonged if, at the same time, structural measures are taken to limit the future growth of entitlement programs - whether from rising health care costs or from the effect of aging populations on retirement costs," said Blanchard noting that the fiscal cost of future increases in entitlements is estimated at 10 times the fiscal cost of the crisis.
Meanwhile, the fall-off in U.S. consumption, which was the main cause of the global economic slump, is unlikely to be fully reversed, he said.
The U.S. savings rate has jumped to about 5% from close to zero in 2007, and will probably remain around that level, he said, which would mean a 3-percentage-point decline in consumption as a portion ofGDP. While low interest rates could offset some of the impact of lower consumption, higher exports could be an alternative driver of U.S. growth, said Blanchard.
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