LOOK at the world economy as a whole, and you could be forgiven for thinking that the recovery is in pretty decent shape. This week the IMF predicted that global GDP should expand by 4.8% this year—slower than in the boom before the financial crisis, but well above the world's underlying speed limit of around 4%. Growth above trend is exactly what you would expect in a rebound from recession.

Yet this respectable average hides a series of problems. Most obviously, there is the gap between the vitality of the big emerging economies, some of which have been sprinting along at close to 10%, and the sluggishness of many rich ones. Macroeconomic policy is also weirdly skewed: many emerging economies are loth to let their currencies rise to reflect their vigour, even as fragile rich ones are embarking on austerity programmes. And finally there is a crucial missing ingredient just about everywhere: “micro” structural reform, without which current growth rates are unlikely to last.

A world out of balance

Our interactive "Global Debt Clock" calculates and compares all governments' debt

In the emerging world the macroeconomic errors come from politicians behaving as if growth there were more fragile than it is. The pace has slowed a bit, but from breakneck speed to merely very fast. Most vital signs, from productivity to government debt, are healthy. Yet many policymakers are buying boatloads of dollars to stop their currencies rising as foreign capital pours in from Western investors seeking better returns (see article). And emerging economies, as a group, still save more than they invest, which explains why global imbalances—notably the controversial surplus in China and deficit in America—remain so big. That makes little sense. Poor countries, especially young ones, ought in theory to invest more than they save, and so be a net source of demand for richer, older ones, all the more so when the latter are in bad shape.

In the rich world the danger is the reverse: politicians cutting back on the basis that growth is assured. Big asset busts are usually followed by years of weakness as the over-borrowed repair their balance-sheets. Experience suggests that several years of slow growth lie ahead. Rich countries are planning tax rises and spending cuts worth 1.25% of their collective GDP in 2011, the biggest synchronised fiscal tightening on record. In many places a budgetary squeeze is necessary, but not all; and, taken as a whole, cutting this much this early is a risk.

Even if demand remains strong enough to cope with this onslaught, the rich world's longer-term growth prospects are darkening—as our special report this week makes clear. Europe's working-age population is about to start declining; Japan's is already doing so. Even in America the ageing of the baby-boomers points to a slower-growing workforce. In theory, faster productivity growth could offset this, but in most rich economies that was waning before the crisis hit—and the crash has clobbered productive potential. A feeble recovery could make matters worse, as the unemployed lose their skills, public debt builds up and firms put off investment.

A gaping growth gap between the emerging and rich worlds will, of course, shift economic heft more quickly towards emerging economies. A fast-growing emerging world is fine, but a stagnating rich one serves nobody—especially if trade tensions start to rise. Western voters may find it intolerable that the likes of China still run big surpluses, thanks in part to those weak currencies. Protectionist rhetoric is already rising in the United States.

All policies great and small

The world would be better served by policies that both improve rich countries' prospects and reorient growth in emerging economies. These should come in two parts. First, as this newspaper has often argued, macroeconomic policies must be recalibrated. Emerging economies need to allow their currencies to rise more. The rich should tread carefully with fiscal consolidation: sensible budget repairs should be less about short-term deficit-slashing and more about lasting fiscal reforms, from raising pension ages to trimming health-care costs.

Second, and just as important, is microeconomic reform. No matter what Congress threatens about the yuan, China's trade surplus will not disappear until it boosts investment in services, removes distortions that depress workers' share of income and encourages households to save less. From telecoms to insurance, China is full of service oligopolies that need to be broken up.

Similar growth tonics need to be applied in much of the rich world, both to boost domestic spending in surplus economies, such as Germany and Japan, and to raise productivity. America is more productive than the euro zone and Japan largely because the latter both have a lousy record in services (too many rules and not enough competition). Many labour markets also need an overhaul, especially in southern Europe, where it is still far too difficult to adjust wages or fire permanent workers. One advantage of the crisis for Spain and Greece is that they have been forced to make a start on this.

The United States also has its own microeconomic to-do list, albeit of a different sort. The most urgent item is the festering mass of underwater mortgages. Almost 25% of homeowners with mortgages owe more than their houses are worth. Faster, more thorough debt restructuring is needed, to make it easier for workers to move to where jobs are more plentiful and to hasten financial recovery. Schemes for unemployment insurance and training also need attention, so that high joblessness does not become entrenched.

None of these structural reforms is easy. Peer pressure could help. Rather than being fixated on harsher budget-deficit rules, the European Union's members should pledge to complete the single market in services, to open up cosy national markets to greater competition. The members of the G20 big economies could commit themselves to specific structural goals, from raising retirement ages to deregulating things like transport. A bold microeconomic agenda will not yield instant rewards. Nor is it a substitute for getting the macroeconomics right. But without it global growth will eventually falter.