and rising stresses in financial markets, global sentiment has further deteriorated in recent months. it now appears that some of the downside risks which had been previously identified have materialised. looking ahead, short - term indicators as well as the latest survey data suggest that global growth is expected to remain sluggish. however, looking at the global economy as a whole masks the considerable degree of heterogeneity which prevails. indeed, a key characteristic of the global economy relates to the divergence in global growth patterns not only between advanced and emerging economies but also within these country groupings. in advanced economies, growth sapping headwinds persist with annual gdp growth expected below potential. in particular, these headwinds relate to the continued need for public and private sector deleveraging as well as the persistent weaknesses in labour and housing markets in some advanced economies. these factors, combined with the ongoing tensions in financial markets, are expected to restrain global growth over the medium term. bis central bankers ’ speeches conversely, in emerging economies, growth has remained relatively robust. while growth has recently experienced some moderation, largely on account of weaker external demand., this should assist in alleviating some of the overheating pressures. the resilience of emerging economies throughout the crisis has been impressive. however, emerging economies are not immune to developments in other parts of the globe. more than four years after the beginning of the financial crisis, uncertainty continues to remain high, with substantial downside risk to the economic outlook notably for the euro area. downside risks in particular relate to a further intensification of tensions in euro area financial markets and their potential spillover into the real economy. additional downside risks also relate to the global economy, which may turn out to be weaker than expected, as well as protectionist pressures and the possibility of a disorderly correction of global imbalances. * i would like to focus now on key global policy challenges confronting the global economy. the first of these challenges is the persistence of large real and financial imbalances at the global level, which is a key source of vulnerability in the medium term. a few figures are worth recalling. combined together, the current account deficits and surpluses of the main systemic economies are projected to stand at roughly 2 % of world gdp over the next five years. this is less than before the crisis ( 3 % of world gdp in 2007 ), but twice as much as in the late 1990s. a large share

. bond and equity prices and that perhaps disrupts other national markets as well. i have seen little evidence to suggest that this scenario is likely, notwithstanding its popularity. the fall in the dollar since early 2002 has not disrupted financial markets, nor did the dollar's previous correction in the 1980s. moreover, most u. s. external debt is in dollars, so currency depreciation is unlikely to lead to the balance - sheet problems that arise during financial crises in developing countries, although obviously some parties that have not taken precautions would take losses. that said, central bankers are paid to be prudent and watchful, and we will obviously continue to monitor closely international financial markets and their effects on the u. s. economy. looking ahead, i see no obvious indications that the external sector poses significant concerns for growth or stability. not only has the decline in the dollar to date failed to disrupt u. s. financial markets, but most would judge that, on balance, it has had only modest effects on inflation. consumer spending is continuing to rise strongly and, although activity in housing markets has eased a bit, on balance, from the brisk pace of late last year, both sales and construction remain at high levels. in the business sector, spending on equipment and software appears to be increasing quite strongly, although outlays for nonresidential structures have remained weak. as has been the case over the past half - year, because of sizable increases in productivity, businesses seem to be able to boost production without adding much to their payrolls. going forward, policy makers will have to determine whether the improvements signaled in some recent labor market measures indicate that the economy is on a sustainable path to closing the pool of underutilized resources. although it has depressed job creation in the short run, increasing productivity is positive for the economy's long - run outlook and the creation of wealth. due, in part, to these same increases in productivity, inflationary pressures have generally been muted. now the process of disinflation appears to have ceased, and inflation has apparently stabilized. however, we cannot be complacent regarding inflation and inflation expectations. should the federal reserve conclude that the maintenance of price stability is in jeopardy, i am confident that it will act appropriately. conclusion to conclude, a change in the tone of international financial markets that required a substantial adjustment of the u. s. current account would obviously have important implications for spending and economic activity, both here and abroad. however