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The world economy is on the mend, with quarterly GDP growth rates in an increasing number of countries moving into positive territory again and international trade and industrial production indices showing continued upward trends. While the latest debt debacle in Dubai seems to have been contained, it provides a vivid reminder that financial sectors are still exposed to high risks.

 

The recovery, led by the Asian countries, remains uneven across the regions, and conditions for sustained growth remain fragile. Credit conditions are still tight in major developed economies, while high unemployment rates and the large output gap in most countries continue to pose challenges for policymakers worldwide. As private sector demand remains sluggish, they will need to sustain fiscal stimulus despite already strongly widening fiscal deficits and mounting public indebtedness.