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Flashes of optimism over global economy

Leaders note US system’s strengths and growth in nascent economies

DAVOS (SWITZERLAND) – COATS and jackets are off as blue skies and glorious sunshine soften the stark beauty of the icy Swiss Alps.

And in the nearly non-stop discussions between the world’s top political and business decision-makers gathered for this year’s World Economic Forum, flashes of optimism could be found in the largely gloomy countdown to a slowdown.

The news of a US$150 billion (S$214 billion) deal to revive the world’s largest economy brought cheer and a reminder that policymakers are not sitting on their hands, waiting for the markets to make the ‘healthy correction’ to the excesses in the US economy.

The US package will put between US$300 and US$1,200 in the pockets of more than 115 million Americans – the all-important consumers who drive the world’s economy.

And next Wednesday, Federal Reserve chief Ben Bernanke may present an encore – another interest rate cut to ease the credit crunch and edgy financial markets.

There are inherent strengths in the US economy, India’s Finance Minister Palaniappan Chidambaram told a forum discussing the possibilities and the impact of a US slowdown.

‘The US is a highly knowledge-based, innovative society. Their economy may slow down for two or three quarters…It is resilient and is bound to bounce back,’ he said. He quoted former Fed chief Alan Greenspan, who said in a media interview that there was ‘no clear proof’ of a recession in the data emerging from the US economy.

Another ground for optimism was seen in the number of nascent economies dotting the globe with their ‘shiny eyes and can-do spirit’, as a Nigerian leader described them in a session exploring the next emerging markets.

Adding to the ranks of the well-known ‘BRIC’ combination of sunrise economies of Brazil, Russia, India and China, are new investment destinations with promise: Vietnam, South Africa, Turkey, Jordan, Morocco, Nigeria, Colombia and Mexico were mentioned.

‘I remain optimistic about prospects,’ said Mitsubishi president and chief executive Yorihiko Kojima.

He said he saw many opportunities daily as he toured the Japanese giant’s 220 offices in 80 countries.

Sovereign wealth funds with their trillions of investible funds were being counted on, too, to provide the liquidity needed to bail out distressed financial institutions.

They perform the vital task of recapitalising drained-out banks, said KPMG chairman Timothy Flynn. He added that a slowdown could be ‘healthy’ for the global economy to the extent that it would force companies to reexamine their business models, risk architecture and governance.

Still, the slowdown expectations are hard to beat.

For all the excitement about China and India, the world continues to be heavily dependent on the US consumer to keep the factories running.

When asked how much the world could look to Chinese and Indian consumers, Mr Chidambaram shrugged.

‘Not much,’ he said, pointing to some figures that show that while the Americans accounted for annual consumption worth US$9 trillion, the best figure for annual consumption in China and India could not top US $1.75 trillion.

Meanwhile, British Prime Minister Gordon Brown, who also spoke at the forum, urged countries in Europe and elsewhere to open up more to trade and investment to help offset the risk of a downturn in the global economy. ‘We have to be less protectionist,’ he said.

‘I think there is a danger. I see it in parts of Europe where people resort to protectionism,’ he said, without identifying countries he was referring to.

In an op-ed article published in the Financial Times on Thursday, Mr Brown criticised reckless investors for global economic turbulence and called for the International Monetary Fund to be given broader powers to keep watch on the world economy.

 

Source: The Straits Times 26 Jan 08

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