This work must take place before the Seoul conference in November 2010. Restoring the private sector as the primary engine of growth certainly requires infusions of government cash but will also involve potentially painful structural changes to raise productivity. Such structural changes include freeing up labour markets, reducing costly entitlements, deregulating the supply of services to make those industries more competitive and greater exchange rate flexibility in East Asia. At Toronto, the need for these changes received little official attention.
Dobson reports that the consequences of inadequate action were spelled out at Toronto in two ways that need more public prominence. First, leaders received the results of the IMF’s Mutual Assessment process which pointed out that global output could be $4 trillion higher in the medium-term if they choose a more ambitious path of reform than the programs and plans reported to the IMF. Second, Canada’s central bank governor warned publicly of the huge cost to the global economy if G20 governments fail to rebalance global growth. The Bank estimates that by 2015 a worst-case deflation scenario where debt–strapped economies (read the United States, Europe and Japan) cut spending and other countries fail to pick up the slack will cost as much as 10 per cent of global GDP that would be realised in a scenario in which the needed rebalancing between surplus and deficit countries occurs.
‘These estimates’, argues Dobson, ‘graphically illustrate what is at stake for the G20. Things are not returning to normal. Not only is more determined follow-though required to rebalance global growth but greater determination is needed to reform the serious structural problems in the financial sector revealed by the global crisis. Better regulation and realistic capital requirements are needed that replace casino-like behaviour with a more sustainable relationship between finance and the real economy.’
Come the G20 Summit in Seoul, the serious financial sector reforms being recommended by the experts at the BIS and FSB ‘will need a laser-like focus’ and huge political effort by President Lee, the summit host, to secure the way forward in recovery.
Andrew Sheng, in his perceptive piece on what Asian economies should take away from the Euro crisis, hints at what Asia might bring to the table in Seoul on this front.
Asian financial integration depends first and foremost, he argues, on the deepening of Asian financial institutions, not on the premature institutionalisation of currency arrangements. Hence, the next phase of Asian financial integration needs to be led through the market, by the removal of the barriers to Asian financial institutions integrating within the region. Allowing more Asian and other financial institutions into domestic markets is a concrete step towards regional integration. Developing a regional reform agenda along these lines can give real impetus to global reform, and will also be essential to sustaining Asia’s own growth momentum.
The Great Recession and Its Implication for the World Emerging from the harness of global financial crisis,the world economy is being haunted by fear of double-dip recession.Not only has the sluggishness of US economic growth been threatening global economic growth prospect, but also it has put every country long run interest at stake.In addition to the worst, the extraordinarily whopping debts of European Countries and Japan indicate that second wave of Domino Effect is anything but an unlikely scenario.None of the aforesaid issues are far from making headlines.
On the contrary, I believe that ,rather than being in a in holding pattern or in crisis, the global economy is in transition.The collapse of Lehman Brothers served as a powerful finishing touch to the tranformation of global growth paradigm.So severe as the crisis was,China,aka world factory,is able to maintain its status as a rising star.The core end of US-made crisis is to promote China rises;hence,China is nearly untouched.
By the same token,Brazil and India are on a par with their counterpart.Should Emerging Markets not grow fast enough,US runs a risk of long-term trade deficit. The Economic Miracle of China,Brazil and India,albeit during the crisis,will enable greater flow of trade and services which is at the expense of no country.
The economic crisis also gave rise to the reform of US financial market which is otherwise ,given the status quo,would have been difficult to initiate ,let alone come into effect.Moreover, it is a highly likely scenario that US,in conjuction with other advanced countries,will find a way of cutting back on budget deficit by taxing the banks.
Many analysts predict that influence of the EU will greatly diminish thanks to its frail economic growth.Economic crisis is the best pretext for most of European Governments to lauch austerity measures resulting hundred million dollars of savings.
Russia is an exception.Russian economic growth during the crisis is not that strong.At the same time,the economic crisis is sending a useful message to Kremlin The current economic structure has to be changed.So, I expect that Russia will experience economic re-structuring at some point in the future.