|Martin Wolf, Associate Editor and Chief Economics Commentator, Financial Times; Global Agenda Council on Systemic Financial Risk, Yoshito Sengoku, Minister for National Policy, Cabinet Office of Japan, Montek S. Ahluwalia, Deputy Chairman, Planning Commission, India, Zhu Min, Deputy Governor of the People's Bank of China, People's Republic of China; Global Agenda Council on the International Monetary System, Dominique Strauss-Kahn, Managing Director, International Monetary Fund (IMF), Washington DC, Christine Lagarde, Minister of Economy, Industry and Employment of France; Member of the Foundation Board of the World Economic Forum, Lawrence H. Summers, Director, National Economic Council (NEC), Executive Office of the President, USA and Josef Ackermann, Chairman of the Management Board and the Group Executive Committee, Deutsche Bank, Germany; Member of the Foundation Board of the World Economic Forum; Chair of the Governors Meeting for Financial Services 2010; Co-Chair of the World Economic Forum Annual Meeting 2010 are captured during the session 'Global Economic Outlook' at the Annual Meeting 2010 of the World Economic Forum in Davos, Switzerland, January 30, 2010. © World Economic Forum swiss-image.ch/Photo by Sebastian Derungs|
Dominique Strauss-Kahn, IMF (International Monetary Fund) Managing Director, said at the World Economic Forum, in Davos, Switzerland, this week-end that too many of the world’s leading economies are fooling themselves in believing foreign export demand will drive their recoveries from the global recession.
In an interview with the Financial Times, Strauss-Kahn warned that national and global growth would be slower than many countries hoped because too many were relying on exports to underpin expansion.
At the G-20* summit in Pittsburgh last September, the leaders of the world's biggest economies, tasked the IMF with the job of collecting national economic forecasts and checking they were consistent with each other. The forecasts for mostly three to five years ahead, have been received by the IMF and Strauss-Kahn said it was clear when the data will be reviewed by the G-20 in April, it “will not add up.”
“What we will show them is the hypotheses they are working on are not the same,” he said.“Exports from one region to another region have to equal imports and it won’t be the case.”
On Saturday, Dominique Strauss-Kahn, warned the world’s economic leaders to remain cautious as they examine exit strategies from the various stimulus packages they have implemented in response to the global economic crisis.
“If we exit too late, public debt will be higher,” he said at a panel on the Global Economic Outlook. “But if we exit too early, there is the risk of a double-dip recession. In that case, I don’t know what we can do because we have used all of the tools. The probability is low, but the risk is high.” He also noted that “Growth is better than expected, but still fragile. In large part, it is still supported by public funding.”
Martin Wolf, the Chief Economics Commentator of the FT said: "Moisés Naim of Foreign Policy, said that the fancy acronym for this recovery which he was giving me, which I mentioned in a blog, is LUV, L-U-V. L is for the shape of the recovery of the European Union, U is for the shape of the recovery of the United States, and V is for the shape of the recovery of Asia and emerging countries. And I rather like this acronym. It seems to me get it very well."
Strauss-Kahn said: "I like your LUV acronym and it shows clearly that the Asian part of the world is now close to the total recovery, goes fast. It’s not exactly the same thing in other parts of the world, including Europe, and so the question of dealing with this different speed in the recovery, especially in the relationship between US and China, is something at which we have to look with great attention. We are not in a system where the recovery looks as if it was everywhere the same thing. It’s bound to be sluggish at least in Europe, maybe in the United States and that’s one of the big problems for the looking forward."
|France's Finance Minister Christine Lagarde, officially titled Minister of Economy, Industry and Employment, walks into the main hall at the Congress Centre for the 'Opening Plenary of the World Economic Forum Annual Meeting 2010' of the Annual Meeting 2010 of the World Economic Forum in Davos, Switzerland, January 27, 2010. © World Economic Forum swiss-image.ch/Photo by Michael Wuertenberg/b>
Christine Lagarde, Minister of Economy, Industry and Employment of France, agreed that the timing of the exit “is absolutely critical.” She added that leaders will also have to carefully manage the frustration of their citizens during this process.
“What we see in the United States and some other economies,” said Lawrence Summers, Director of the US National Economic Council and President Obama's chief economic adviser, “is a statistical recovery and a human recession. The policies to contain the economic collapse have been successful. In my judgement, we will continue to grow at a moderate rate for the next several quarters. But what is disturbing is the high unemployment – which is cyclical, but also structural.” In the US currently, one man in five between the ages of 25 and 54 is unemployed. Even after the recovery, according to projections, one in seven or one in eight will remain jobless.
Josef Ackermann, CEO of Deutsche Bank, said: "Well, I agree with Christine that probably the L is somewhat too pessimistic for Europe, but I also think that the U and the V is somewhat too optimistic for the other regions. If you look on macro numbers, I think that’s somewhat misleading, because as many of you know in the industrial sector, if you look at different segments, where the correction has been 30%, 40%, or 50%, even growth rates of 5% or 7% means that you will have years to wait before you reach the pre-crisis level. That’s why I think the situation is still pretty fragile. If you look at the financial markets, they have become pretty nervous again. There are a lot of threats on the horizon."
Near the end of the session, Strauss-Kahn briefly sketched out the IMF’s plans for a US$ 100 billion Green Fund to promote low-carbon economic growth. “The new growth model will be low carbon,” he said. Efforts to address climate change cannot remain stalled “because we cannot meet the financing needs.”
Video and Transcript
*The G-20 represents about 90% of global gross national product, 80 percent of world trade (including trade within the European Union) as well as two-thirds of the world's population, according to the IMF.
Measured by purchasing power, Asia accounts for more than 35% of world GDP, compared with the US and the EU at 20% each.
The G-20 comprises Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the UK and the US, plus the European Union, represented by the rotating Council presidency and the European Central Bank. The Managing Director of the International Monetary Fund and the President of the World Bank, plus the chairs of the International Monetary and Financial Committee and Development Committee of the IMF and World Bank, also participate at G-20 meetings.
Exports are also seen as key to Ireland's recovery. However, as almost 90% of Irish exports are made by foreign firms; decisions on the destination of exports are not generally made in Ireland and the majority of trade is intra-company, we depend on the demand for the products of mainly American firms.
In the 1980s, it was often suggested that teaching of German should have been given prominence; now it tends to be Mandarin - - making the latter proposal is easy from behind a desk but glossing over the huge challenges of exporting to Asia, when the big potential of the Eurozone market is largely unexploited, shows the urgency of a reality check in Ireland.
Ministers don't even know why Belgium is on of our main export destinations!
Exports to China are insignificant; exports to India are derisory and in regard to another BRIC economy, Brazil, we haven't helped our position by lobbying in Brussels for a total ban on EU imports of Brazilian beef.
SEE Finfacts articles, Jan 2010:
Irish Economy: Economists announce new dawn; "Kickstarting" growth from behind a desk! ECB director terms them delusionists
Foreign-owned firms responsible for 89% of Irish tradable goods and services exports in 2008; Jobs in sector down 44,000 since 2000
UK recovery reliant on a roaring trade with the tiger economies; Decade of painful readjustment to follow decade of debt
Rich countries face years of belt-tightening to reduce high debt levels; Deleveraging following crises lasts six to seven years on average