The recovery of the Asia-Pacific from the global economic crisis of 2008–09 is underway but incomplete. Despite encouraging progress, major risks remain, ranging from slow growth and persistent unemployment to reemerging global imbalances and renewed financial volatility.

The policies that stopped the economic freefall — massive stimulus and financial bailout packages — were urgent, relatively easy to sell politically, and to a large extent forced by circumstances (particularly the fall of Lehman Brothers). Sustained recovery now requires tackling different problems, including international imbalances among the United States, China, and other economies. U.S. consumers are not likely to drive world demand in the medium term, and the slack will have to be taken up in part by Asian consumption and investment. The early policy responses, successful as they were in averting a larger calamity, were not designed to address longer-term issues, and some are even counterproductive from that perspective.

INCLUSIVE, BALANCED, SUSTAINED GROWTH

This report argues that given the progress already made, inclusive, balanced, sustained growth in the region — in other words, full recovery — is feasible. But renewed growth is not assured and calls for new, difficult policy choices. These include structural reforms that change economic relationships within economies and among them. International cooperation will be essential for forging and implementing this strategy.

The term “rebalancing” is now widely applied to policies for sustaining the recovery. This report seeks to bring greater precision to the analysis of these issues, and in particular to policies addressing global imbalances. In 2009, the short-term effects of the crisis brought the current account imbalances of the United States, China and Japan to levels that are generally considered sustainable. But as the recovery proceeds, and assuming no major policy changes, imbalances are again likely to grow. Should markets conclude that imbalances are no longer under control, currency and asset prices would become volatile again, perhaps triggering another downturn.