FRANKFURT (MNI) – Prospects for economic growth in Europe and the
United States are likely to stay limited despite deviations from
expectations last quarter, International Monetary Fund Chief Economist
Olivier Blanchard said in an interview published Monday.

“One swallow does not make springtime,” Blanchard told France’s Le
Figaro. Notwithstanding better-than-expected 2Q GDP data in Europe and
the opposite in the U.S., “growth will probably remain weak both in the
United States and in Europe.”

Blanchard said he did not agree that the sovereign debt crisis was
over and its real consequences limited, noting the “painful process of
adjustment” facing countries like Greece and Portugal.

“For the moment, the measures taken by the European authorities,
with the help of the IMF, have calmed the markets,” he said. “But the
countries in difficulty must at the same time rebalance their budgets
and respond to their problems of competitiveness, which will take
years.”

Whether Europe brings its overall budget deficit within the
3%-of-GDP limit by 2013 or 2014 “matters little,” Blanchard said. What
matters is that “each government present a plan for medium-term
consolidation that is coherent and credible.”

If markets are confident of medium-term success, governments will
have short-term breathing room, he said.

Economic weakness in leading economies will limit the short-term
performance of emerging nations, Blanchard asserted. A renewed U.S.
slowdown would have a “not enormous, but nonetheless significant” effect
on Asia.

Only in the medium term might there be a decoupling between
emerging markets and G-7 countries, he said.

Asked if the G-20 should make exchange rates part of its agenda,
Blanchard implied that it would not be a good idea. The “great
structural change” implied by a reorientation toward internal demand
within, for example, China, will take place in time and include a
revaluation of the currency as one of “a multitude of measures,” he
said.

“It would be counterproductive to focus on the exchange rate; it is
only one of the pieces of the puzzle,” Blanchard said.

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

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