taxes and expenditure cuts to confront the unsustainable path of projected public debt, and the implementation of new regulations to prevent financial crises. to some extent, this environment of uncertainty may have partly induced the recent reduction of producer and consumer confidence. additionally, the european monetary union ( emu ) is severely affected by the fiscal fragility of some of its member countries, which since the financial crisis have exhibited sharp rises in their public debt - to - gdp ratios, with projected paths that are judged to be unsustainable. some states have already received substantial financial support from the european community and the international monetary fund, and are implementing strict fiscal and structural adjustment programs. however, the perception of credit risk of the corresponding governments, as summarized in the spreads paid for credit default swaps, has continued to portray the deteriorating trend observed since 2010 and has reached worrisome levels. several concerns apparently lie behind market skepticism surrounding remedial actions in the emu. one is the difficulty of resolving the troubled governments ’ debt burden through austerity programs and ever - increasing support funds. another factor is the negative impact that the worsened public finances of any country can have on others within the union, given the fact that their financial systems are interlinked and their institutions, notably banks, are significant holders of government bonds. contagion fears have spread to other regions outside the emu, where financial intermediaries may also have substantial exposures to european sovereign bonds, either directly or indirectly. in the past weeks the urgency of finding a solution to these problems has become even clearer. uncertainty on future developments in the monetary union hinders growth prospects in this area and fuels sharp volatility and an investor rush to safety, factors that have recently deepened in international financial markets. policy challenges the existence of fundamental factors that, to a large extent, explain the meager growth of the world economy poses important challenges to policy makers. first, short - term economic policies are facing significant limits in advanced countries. the high and rising public - debt ratios in many economies call for substantial fiscal consolidation efforts in order to make public finances sustainable and, hence, supportive of financial stability and long - term growth. monetary policy is already extraordinarily accommodative, and authorities will need to continue monitor the anchoring of low inflation while at the same time remain ready to function as lenders of last resort to guarantee the integrity of their payment systems. as noted earlier, slow growth after the crisis seems

manuel sanchez : policy challenges in a decelerating world economy remarks by mr manuel sanchez, deputy governor of the bank of mexico, at the eighth china international finance forum, pudong, shanghai, 25 september 2011. * * * it is a privilege to be back in this beautiful country to participate in the eighth china international finance forum, put together this year with the suggestive theme of green finance development. i would like to thank the organizers of this conference for their invitation to share the podium with distinguished speakers who will address important issues related to the financial opportunities that will continue to support china ’ s outstanding economic development. on this occasion, i would like to discuss some of the policy challenges posed by the global economic situation and outlook. in particular, i am interested in assessing the recent poor performance of the world economy in order to identify possible underlying problems, which may help to design appropriate economic policy measures. i would also like to examine the implications of the weak world economic evolution for developing countries. obviously, my comments are entirely my own responsibility and do not necessarily reflect the views of the bank of mexico. the unusual recovery as you know, since the middle of 2009 the global economy has been in a process of recovery from the deep contraction stemming from the great financial crisis. the improvement has been different from other modern business cycles, because among other factors, this time it has been notably slow and has not followed the typical “ v ” shape that tends to be sharper the deeper output falls. the relatively weak world economic recovery has reflected an anemic turnaround of the advanced economies that were most affected by the financial debacle. specifically, in the united states, the epicenter of the turbulence in 2007 and 2008, real gdp barely attained its pre - crisis level by the second quarter of 2011. moreover, this indicator has remained well below the real value that would have prevailed if growth had kept up consistently with its secular trend of approximately three percent per year. 1 the unsatisfactory behavior of industrialized economies was accentuated during 2011. gdp growth showed a declining path in the first half and several activity indicators suggest that this trend has worsened in the third quarter. furthermore, consensus gdp forecasts for this and the following year have been successively revised downward, at least since last march. although the world economy is still predicted to continue expanding, this is basically due to the higher expected growth momentum in emerging markets. in particular, the united states and most advanced countries are expected to grow only modestly