by Xinhua writer Ming Jinwei

    BEIJING, July 6 (Xinhua) -- Under the cloud of the international financial crisis, the real picture of the world economy is difficult to ascertain.

    It's only after we've turned all the stones that we can see the "constants" and "variables" of the crisis and the economy.

    The obvious "constants" that we notice this year are the gradually stabilizing economies in some countries and regions, after the economic stimulus measures take effect and the risk of a global economic collapse declines.

    John Lipsky, first deputy managing director of the International Monetary Fund, is one of the many economists who sense "cautious optimism" when it comes to growth prospects for the world's economy.

    "As I am sure you have heard already, the latest economic news from around the world gives some reason for cautious optimism," Lipsky said late last month at an international conference in Paris.

    "Tentative signs are emerging that the rate of decline in global output is moderating and that financial conditions are improving," he said.

    While noting the progress that has been made around the world in fighting the crisis, the senior IMF official also warned against becoming complacent too soon.

"These grounds for optimism surely are welcome but caution is still appropriate," Lipsky said. "Clear signs of recovery are visible in some emerging markets, particularly in Asia, but the recovery still appears to be struggling to become established in most advanced economies."

In other words, the world economy might be headed for more rainy days after a devastating thunderstorm and it is still premature to try and forecast just when sunnier days might return.

    In general, the world economy has the "constant" characteristic of being gradually stabilized, yet it also bears the "variable" characteristic of sporting huge uncertainties and risks.

    In the short term, the major risks include the still slowing advanced economies like in the United States and Euro zone; uncertainties concerning the major financial markets' abilities to keep up with the recovery and jobless rates that continue to climb in many wealthy economies and restrain consumer spending.

    From the medium and long term perspective, risks associated with the world economy stand out more conspicuously.

    First, the prospects for macro-economic adjustments to ease global imbalances in the world economy are uncertain.

    The so-called global imbalances refer to the fact that consumers in major advanced economies are over-spending while their counterparts in major developing countries are over-saving. Many believe global imbalances are one of the underlying causes of the financial crisis.

    The current world economic and financial system, which is blamed by some for failing to detect and responding effectively to the crisis, has a lot of work to do to reform itself.

    Investors are worried that the unprecedented level of liquidity released by central banks around the world to fight the crisis might eventually lead to another round of asset bubbles or widespread inflation pressure or even stagflation in which inflation and economic stagnation occur simultaneously.

    They are also concerned ballooning fiscal deficits in countries that are major reserve currency distributors might cause greater volatility in foreign exchange markets.

    Stephen Roach, chairman of Morgan Stanley Asia, has long warned against declaring a premature end to the recession in the United States, even though some kind of economic growth might be recorded in the second half of this year.

    "It would be premature to declare an end to America's recession at the first sign of a resumption of growth," he wrote in an opinion piece published in The New York Times earlier this year. "Any whiffs of growth are likely to be a false dawn, because the consumer remains in terrible shape."

    Roach predicted that the U.S. recession would not end until late 2010 or early 2011.

    Roach's remarks also apply to the world economy. Due to the risks, every country, every region should be alert to the "false dawn" and prepare for a lasting battle.

    Having a good understanding of the "constants" of the world economy gives people inspiration to put more effort into the fight against the financial crisis. Realizing the existence of the "variables" of the economy cools people's heads and makes them prepare sufficiently for the fight.

    It also will help the world economy step out of the mess at an early date.

Special Report:  Global Financial Crisis