Global policymakers believe that the world economy is today in a “post-crisis” mode, even as they warn of dangers from inflationary pressures in emerging economies, lingering sovereign debt problems in Europe and jobless recovery in the US.
“What we are having is clearly a two-speed economic recovery, where emerging economies have come back strongly and are now facing challenges of overheating, inflation and even bubbles,” the World Bank President, Mr Robert B. Zoellick, said at the World Economic Forum's Annual Meeting here on Saturday.
IMF outlook
This comes even as the International Monetary Fund (IMF) has raised its 2010 global growth estimate to 5 per cent from the earlier October figure of 4.8 per cent. For 2011, the IMF expects growth to slow down somewhat to 4.4 per cent, with advanced economies expanding by 2.5 per cent (against 3 per cent in 2010) and emerging economies by 6.5 per cent (7.1 per cent). According to Mr Zoellick, the US has posted “reasonable, but jobless” growth (2.8 per cent in 2010 and a projected 3 per cent for 2011).
The IMF sees the Euro zone growing by just 1.5 per cent. However, Ms Christine Lagarde, French Minister of Economy, Finance and Industry, felt that the Euro zone has “turned the corner and let us not short the euro”.
She referred to the European Financial Stability Facility's recently oversubscribed, maiden €5 billion bond issue. “We are consolidating,” she added, while disagreeing with the chief of Barclays, Mr Robert Diamond, that the situation in Europe had only gone from “acute” to “chronic” and volatility in the markets still remained.
Europe's challenge
The United Kingdom's Chancellor of the Exchequer, Mr George Osborne, said that Europe's main challenge was to be a region, where the cost of doing business is competitive vis-a-vis the US or the developing world.
Both he as well as the German Finance Minister, Mr Wolfgang Schauble, stressed the need to reduce deficits and shift the mantle of growth from the public to private sector. Mr Diamond said that private corporations were sitting on about $8 trillion of cash in their balance sheets, which they could deploy with the return of business and consumer confidence.
India's monetary policy
The Deputy Chairman of the Planning Commission, Mr Montek Singh Ahluwalia, said that India has completely reversed its earlier loosening of monetary policy and was now withdrawing its fiscal stimulus as well.
He noted that the excessive loosening of monetary policy by advanced economies had led to a huge amount of liquidity sloshing around and causing “collateral damage”.
“We are concerned about being swamped by volatile capital inflows, especially hot money and short-term debt. While these help in financing our current account deficit, we would prefer having foreign direct investment and more long-term flows,” he added.