Opinion

A midyear pep talk

(China Daily)
Updated: 2011-06-09 17:04

Amid mounting uncertainties about the ongoing recovery of the world economy, it is brave for the World Bank to predict that global growth will remain strong from 2011 through 2013.

However, policymakers around the world should not count on a rosy growth prospect to overcome country-specific challenges as well as global governance problems.

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If the world economy is to eventually step out of the shadows cast by the 2008-2009 financial crisis, both developing and developed economies need to brace for a complete transformation in order to rebalance their economic growth. Besides, an overhaul of the global governance framework is also badly needed to reflect and regulate the new world economic order.

According to the World Bank's June 2011 Global Economic Prospects, growth in the developing economies will continue to outpace the high income countries in the short term and unexpected events, including the tsunami and nuclear leak disasters in Japan and the social unrest in the Middle East and North Africa, will have limited impact on the world economy.

Given that developing countries have so far sailed through the global downturn with high single-digit growth, it is natural to expect them to keep growing faster in the coming years than most developed economies that are struggling to register any growth at all. Yet, while it is important to recognize the increasing impetus that developing countries provide for the global recovery, it is going too far to take their robust growth as a guarantee that the two-speed recovery of the world economy can last.

On one hand, the growth prospects of most developing economies are still subject to the fluctuations of the global financial markets and trade largely dominated by developed countries.

The World Bank report has correctly pointed out the inflationary pressures confronting many developing countries. But by suggesting that country-specific productivity and sectoral factors have replaced the global financial crisis as the major force dictating the pace of economic activity in developing countries, it risks exposing these countries to too much domestic tightening. Policymakers in these countries need to maintain room to maneuver so as to prepare for the undesirable consequences of the loose monetary policies of rich countries and ample global credit flows.

On the other hand, the risk of underestimating the impact on global growth of the unexpected events so far this year is huge.

The triple-disasters that Japan suffered have already proved more harmful than originally expected. And the political turmoil in Middle East and North Africa shows little sign of ending.

Worse, both Europe's escalating debt crisis and the United States' inability to fix unemployment and fiscal deficits are threatening to derail the global recovery.

The not-so-bad growth picture that the World Bank draws may have prevented a panic in the face of these challenges, but a pep talk is no substitute for the concrete actions required.

(China Daily 06/09/2011 page8)