rate, the labour force has contributed negatively to gdp growth in almost every year since 1998. a firm turnaround in the japanese economy requires a sustained increase in productivity, which entails structural reforms to enhance product market flexibility and spur competition and innovation in the services sector. emerging asia : the rise of domestic demand 12. in comparison, emerging asia has weathered the financial storm best, with the region ’ s total production now one - third higher than what it was in 2008. 13. china secured a quick and vigorous rebound from the depths of the global trade collapse in early 2009. it has since reined in inflationary pressures and indications are that it has achieved a “ soft landing ” of its economy, registering an estimated 7. 8 % growth last year on the back of solid consumer demand and infrastructure investment. while china faces significant economic restructuring challenges, its impressive growth trajectory appears intact for now. 14. india too rode through the global financial crisis comfortably but is now going through a weak patch. but if it regains its reform momentum and begins to address its infrastructure deficit, growth should pick up to levels closer to those seen in the last decade. 15. in the asean – 4 economies of indonesia, malaysia, thailand and the philippines, domestic demand has displayed surprising resilience. this has held up economic growth, despite prolonged weakness in external demand and continuous terms - of - trade shocks. 16. but emerging asia is also not without its risks. while the advanced economies are deleveraging, emerging asia is re - leveraging. credit growth has been climbing steadily, from an average 8 % in 2009 to 15 % in 2011, before easing to 12 % in last year. the private bis central bankers ’ speeches credit - to - gdp ratio for the region, at 120 %, is higher than during the asian financial crisis. there is good reason for policymakers to be on their guard. macro policies : the unfinished agenda 17. so, where is the global economy on its post - crisis journey? while economic prospects for 2013 look slightly brighter and tail risks have diminished, the global economy and financial markets remain fragile and vulnerable to shocks. 18. but this halfway point provides us, perhaps for the first time since the crisis, the opportunity to look ahead and pose the question of what is required to ensure a smooth return to normalcy. • the advanced economies need to achieve fiscal consolidation alongside economic growth and chart an effective exit strategy from unconventional monetary policies. • the emerging market economies need to deal with

. let me now turn to the last, and perhaps most important, set of policies that will determine how successfully the global economy secures a return to normalcy. these are the structural reforms needed to strengthen the underlying potential of economies. let me highlight those which i think are most important. advanced economies : labour reform, tax reform, pension reform 45. in the advanced economies, i would put labour market reform, tax reform, and pension reform at the top of the list. 46. labour markets need to become more flexible, especially in europe. even in the us, production patterns are changing rapidly, increasing skills mismatches and generating structural unemployment. labour market policies must seek to facilitate the shift of workers from domestically - oriented sectors facing weak demand to export - oriented sectors, and from depressed regions to resurgent ones. and wages must become more flexible, so that firms can ride out cyclical downturns without losing competitiveness. 47. next, tax reform. the debate needs to shift from the rate of taxation to the structure of the tax system. the us could do with a broader tax base, simpler tax codes, and less exemptions. in europe, similarly, there are opportunities to increase the efficiency of the vat system including in broadening its base. 48. lastly, pension reform. government spending in many advanced economies needs to be overhauled in the face of impending demographic challenges. effective pension reform requires a judicious combination of increases in the statutory retirement age and reductions in the generosity of benefits, with the balance varying from country to country. emerging asia : domestic demand, financial deepening, productivity 49. in emerging asia, the key structural reforms are in the areas of boosting domestic demand, deepening financial markets, and raising efficiency and productivity. 50. boosting domestic demand is perhaps the most important medium - term imperative for emerging asia. public and private sector deleveraging in the advanced economies has at least dented, if not extinguished, the export - powered growth model that has been largely responsible for the “ asian miracle ”. reforms are needed to stimulate private consumption in some asian economies, and investment in others. 51. in china, the issue is consumption, not investment. china needs to lift its consumption ratio from its current low of 36 %. ongoing efforts to bolster the social safety net, enhance consumer protection, reform tax systems, and liberalise interest rates, are steps in the right direction. 52. in india and the asean economies,