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Finance Ministers Cautiously Optimistic About Global Economy

French Finance Minister Christine Lagarde speaks during a session at the World Economic Forum in Davos, Switzerland, January 29, 2011
French Finance Minister Christine Lagarde speaks during a session at the World Economic Forum in Davos, Switzerland, January 29, 2011

A panel of distinguished economists and finance ministers expressed cautious optimism about global economic growth, but warns risks persist.  The panelists discussed a wide-range of issues from financial regulation to youth unemployment during an in-depth discussion at the World Economic Forum in Davos, Switzerland.

The global economy in 2010 grew at a healthy rate of five percent.  Associate Editor and Chief Economics Commentator of the Financial Times newspaper of London, Martin Wolf, says this was much better than anyone expected.

He notes the growth rate represents a very divergent picture of a two-speed economy.  Wolf says the advanced countries grew at 3 percent and the emerging countries at 7.1 percent.  In the big developed countries, he says the U.S. grew by 2.8 percent and 1.8 percent in the Euro zone.

While these numbers have raised spirits, he warns of big risks and challenges ahead.  These include fears of inflation, particularly in the emerging markets, uncertainty regarding oil and commodity prices and events now occurring in the political sphere.

“Currency wars, quote-unquote,” he said.  “The broader issue of rebalancing.  There has been a lot of shifting in the global current account balances, but there is a lot of concern that this will reverse and clearly the friction over exchange rates, exchange rate policy focusing particularly between the U.S. and China remains very significant.

The President of the World Bank, Robert Zoellick, says the emerging markets have come back so strongly, there is a risk of their economies overheating.  He says there are risks of inflation, of potential bubbles and, ultimately, the risk of boom and bust.

“In the case of the U.S.… some reasonable growth numbers, but still a big challenge in creating jobs and, of course, breaking the wave of the debt and deficit that overhangs the country,” he said.  “In the case of Europe, the focus is on some of the issues related to sovereign debt and trying to navigate through that iceberg.”

Minister of Economy, Finance and Industry of France, Christine Lagarde notes growth is picking up in the Euro zone, with acceleration at the end of 2010.  She says the numbers on the deficit, debt and growth are not bad, so there is no reason to fear the Euro zone is going to go bust.

“Having said that, growth is picking up, but it is not picking up at a very rapid speed, unlike in emerging markets, which I do not find particularly stressing because there is currently this big catching up process that is taking place between the developed countries and the emerging, re-emerging, emerged countries, which is good,” she said.

Last year, India grew by 8.5 percent.  Minister of Finance of India, Pranab Mukherjee, says with smart investment and more foreign direct investment, India could reach nine percent growth this year.

“On the whole, things look quite good,” he said. “But, you know there are uncertainties, which are pretty much what the global community is worried about.  Clearly oil prices are very important and if we had an unexpected and large spike that would create problems.  We are also concerned about financial stability possibly because of the concern about sovereign debt, dangers in the Euro zone.”

Mukherjee says stability in the global system is very important.  He says emerging markets could not carry on growing without stability and balance in economies around the world.

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