Boosting the global economy

The global economy in 2013 remained suspended between the poles of hope and uncertainty. While recovery gained momentum, particularly in some advanced economies, the world economy is not yet flying on all engines - and is likely to remain underpowered next year as well.

The International Monetary Fund's latest forecast puts global GDP growth at 3.6 percent in 2014, which is decent, but still below potential growth of around 4 percent. In other words, the world could still generate considerably more jobs without fueling inflationary pressure.

This means that International Monetary Fund members - whether advanced, emerging-market or developing economies - have more work to do. A strong and lasting recovery that lifts all countries and all peoples requires policymakers to press ahead on all fronts - fiscal, structural, and financial. At the same time, the international community must reinvigorate its efforts to strengthen cooperation through the G20, the IMF and other actors. Indeed, only through such collaboration can we overcome the lingering impact of the global financial crisis.

We have certainly avoided the worst-case scenario (Great Depression II) over the past five years, thanks to the efforts of global policymakers - particularly the determination of central banks to keep global interest rates low and to support the financial system, coupled with fiscal stimulus in some countries. But the time has come to push further, including by using the room created by unconventional monetary policies to implement structural reforms that can jump-start growth and create jobs.

What happens in advanced economies is central to global prospects; and, despite their stronger performance recently, the risks of stagnation and deflation continue to loom large. Central banks should return to more conventional monetary policies only when robust growth is firmly rooted.

The United States has long been the main engine driving the global economy, and private demand there has regained vigor. But key challenges lie ahead. For example, it is vitally important that policymakers follow through on the recent budget agreement and end the political wrangling over the country's fiscal future. Greater certainty about the direction of policy could restore growth to a level that would lift the entire global economy.

In Japan, recovery has been spurred by the mix of aggressive monetary and fiscal policies known as "Abenomics". This is an important development. The challenge now is to agree on medium-term fiscal adjustments and implement the structural reforms - including deregulation of product and service markets and measures to boost the share of women in the workplace - which are needed to give growth a firm foundation and finally banish the specter of deflation.