Disproportionate economic recovery tops Davos agenda

2010-01-27 13:50

THE risks of an uneven global economic recovery – powered by a

booming China and held back by unemployment in the US and other wealthy nations

– dominated the agenda on Wednesday as the World Economic Forum opened in the

Swiss Alps.

The five-day gathering of movers and shakers was assessing a host

of issues facing the planet, from disaster aid in the aftermath of Haiti’s

devastating earthquake to reforms aimed at preventing another collapse in

financial markets.

But the most pressing concern was steadying a shaky world economy

that is likely to face tough challenges in 2010 as developed world unemployment

remains high and governments are forced to pull back from lavish bailouts and

stimulus packages that have propped up banks and other industries.

Economist Nouriel Roubini, who gained prominence as a soothsayer of

the current economic crisis, warned: “China alone cannot be the only engine of

global economic growth. In the first half, you are going to see the effects of

the fiscal stimulus ... in the second half of the year you will see a fall in

the US, Europe and Japan.”

About 2 500 participants – from presidents and chief executives to

philosophers and artists – will debate economic recovery, job creation and the

way forward in this picturesque Swiss resort, celebrating its 40th birthday as

host of the world’s pre-eminent forum for economic and political

brainstorming.

French President Nicolas Sarkozy will formally open the event later

on Wednesday, with other headliners including Presidents Luiz Inacio Lula da

Silva of Brazil and Jacob Zuma of South Africa.

Former US president Bill Clinton will encourage big business to

support Haiti’s reconstruction, while blockbuster film Avatar director James

Cameron and classical pianist Lang Lang are the event’s top cultural

representatives.

While in the past Davos has often been a key site for diplomacy,

the focus of this year’s meeting was clearly the economy and how to rebound from

record unemployment.

The UN labour agency said 27 million people lost their jobs last

year, with almost half of the losses in North America, Japan and Western Europe.

The agency predicted an additional 3 million people in the rich world could lose

their jobs or fail to find employment in 2010.

Dennis Nally, global chairperson of PricewaterhouseCoopers, said he

was “cautiously optimistic” about growth this year.

But he warned that a number of problems remained, not least the

stubbornly high unemployment in the US and other industrialised economies.

“It’s not a robust recovery from a job creation standpoint,” he

said.

Roubini, once dubbed Dr Doom for his grim economic assessments, saw

some scope for optimism despite crunched credit markets and constrained

banks.

“(US President Barack) Obama’s proposals on banking regulation are

finally going in the right direction ... but they are not enough,” he said on

Wednesday. “We should separate commercial banking from investment

banking.”

Roubini also warned against a return to the “business as usual”

approach that created the crisis.

David Rubenstein, the Carlyle Group managing director, said the US

Congress was facing major challenges in reining in its massive spending and

trimming its record $14 trillion deficit.

But for emerging economies, the mood was mostly positive. While

there was concern about an over-reliance on these new engines of growth, Nally

suggested that China and India no longer be included among their ranks.

“It’s a little bit unfair to call China an emerging market, India

an emerging market and they’re in the same category as Chad or Mozambique,”

Nally said. “In 2014, the GDP of the emerging markets will surpass the GDP of

the developed markets. Some of these countries have emerged already. We should

come up with a better term.”

Some participants found the current economic uncertainty oddly

reassuring.

Angel Gurria, who heads the Organization for Economic Cooperation

and Development, said: “You see that everyone else is as worried as you are.

They have the same doubts.”


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