The global economy is now expanding after the profound crisis over the last three years, but the recovery is facing several major challenges and risks in the near term, said U.S. Treasury Secretary Timothy Geithner on Thursday.
The world economy is advancing at different speeds with emerging markets continue to grow robustly and advanced economies grow relatively sluggish.
"The IMF forecasts that emerging markets will grow by 6.5 percent this year, while it expects growth in Europe and Japan to be 1.5 percent," Geithner said in a testimony before the U.S. Senate Foreign Relations Committee. "The U.S. recovery stands in between, with growth gathering momentum and inflation risks modest, but with unemployment still unacceptably high."
He noted that the multi-speed recovery faces several major challenges and risks.
First, the historic changes in North Africa, including Egypt and Libya, have posted uncertainty to the global recovery.
Second, the sovereign debt crisis remains unsolved in Europe.
"Leaders are undertaking the difficult task of designing a financing mechanism that can help support the very challenging, multi-year programs of fiscal and financial reform that are underway in several of the member states," Geithner said.
Third, the largest emerging market economies, such as China and India, are facing the usual pressures associated with strong growth. Inflation is accelerating in these economies.
Fourth, rising global commodity prices -- including for food and oil -- are causing hardship in many parts of the world.
"The IMF estimates that commodity prices, in the aggregate, increased 25 percent in 2010. This is having a serious impact on inflation and the living standards of the lowest income groups in emerging markets, where food and fuel tend to comprise a larger share of consumption," he said.
Fifth, the durability of the expansion will depend in part on the ability of advanced economies, including the United States, to deliver credible multi-year reforms to restore fiscal sustainability.
He said that G20 Leaders committed in Toronto last June to halve fiscal deficits by 2013 and to stabilize debt-to-GDP ratios by 2016.
The U.S. debt-to-GDP ratio, which is expected to increase to 10. 9 percent in 2011, is widely considered as unsustainable.