Oil prices have plunged recently, affecting everyone: producers, exporters, governments, and consumers. Overall, we see this as a shot in the arm for the global economy. There is, however, much more to this complex and evolving story.
The International Monetary Fund doesn't want to say it outright, but its latest World Economic Outlook shows more stagnation of the European and Japanese economies, and the possibility of a third EU recession since 2008.
Among advanced countries, the United States and the United Kingdom in particular are leaving the financial crisis behind and achieving decent growth. Even for them however, potential growth is lower than it was in the early 2000s.
Among advanced economies, it is stronger in the US than in Europe, stronger in the euro core than in Southern Europe. In most advanced economies, unemployment remains much too high. And downside risks remain.
International policy coordination is like the Loch Ness monster: much discussed but rarely seen. Going back over the decades, and even further in history to the period between the Great Wars, coordination efforts have been episodic.
The recovery from the crisis continues, albeit too slowly. While the focus at this time is more on emerging market economies, other legacies of the crisis are still very much present and advanced economies are not out of the woods.
After years of strong growth, the BRICS in particular are beginning to run into speed bumps. This means that the focus of policies will increasingly need to turn to boosting potential output growth or, in the case of China, to achieving more sustainable and balanced growth.
Rethinking and reforms are both taking place. But we still do not know the final destination, be it for the redefinition of monetary policy, or the contours of financial regulation, or the role of macroprudential tools.
Emerging market and developing economies are still going strong, but in advanced economies, there appears to be a growing bifurcation between the United States on the one hand, and the Euro area on the other.
The world economic recovery continues, but it has weakened further. In advanced countries, growth is now too low to make a substantial dent in unemployment. And in major emerging countries, growth that had been strong earlier has also decreased.
The world recovery can continue, and can strengthen. The right pace of fiscal consolidation, continuing expansionary monetary policy, getting the financial sector back to health to decrease borrowing costs, and solidarity, especially within the Euro zone, are all of the essence.
As the year draws to a close, the recovery in many advanced economies is at a standstill, with some investors even exploring the implications of a potential breakup of the euro zone, and the real possibility that conditions may be worse than we saw in 2008.
The global economy has entered a dangerous new phase. The recovery has weakened considerably, and downside risks have increased sharply. Strong policies are urgently needed to improve the outlook and reduce risks.
How Europe deals with fiscal and financial problems, how advanced countries proceed with fiscal consolidation, and how emerging countries rebalance their economies going forward will determine if we see recovery or stagnation.