Euro woes threat to world growth: Roubini
Rebalancing, commodity prices among concerns, Davos panel says
By William L. Watts, MarketWatch
DAVOS, Switzerland (MarketWatch) — The euro zone’s ongoing sovereign-debt crisis remains a major threat to the global economy, but overall risks are balanced as emerging markets continue to lead growth, economist Nouriel Roubini told an audience at the World Economic Forum’s annual meeting on Wednesday.
In the same panel discussion, Zhu Min, special adviser to the International Monetary Fund and former deputy governor of the People’s Bank of China, said he worried that U.S. stimulus measures focused on demand ran the risk of pushing the world back to the “old normal” of the United States serving as the world’s consumer, hampering efforts to shift China’s economy from a model focused on exports to a model that incorporates more domestic consumption.
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Roubini, who earned the nickname “Dr. Doom” for his prescient calls on the financial crisis a few years ago, said the world economy can be viewed as a glass ether “half empty” or “half full.”
The euro zone’s problems, along with high U.S. unemployment and concerns about the finances of U.S. states and localities and the municipal bond market, are among risks backing the “half-empty" label, he said.
Food and commodity price inflation, which is a negative for consumption, particularly in emerging economies, is another concern, he said.
Meanwhile, growth in most advanced economies remains below trend and is unlikely to grow more quickly as households continue to “deleverage,” or pay down debts.
Backing the “half-full” view, emerging markets are showing an acceleration of growth beyond heavyweights China and India, while risks of a double dip or outright depression have faded — even counting Britain's unexpected fourth-quarter contraction in gross domestic product, he said.
Roubini and Zhu are both regular participants in the perennially popular panel discussion on the economic outlook held on the opening morning of the gathering of top CEOs, world leaders, economists and others in the Swiss Alps.
On the euro zone, Roubini acknowledged that markets have appeared more optimistic in recent weeks over efforts to resolve the crisis, but warned that “fundamental problems of the euro zone remain unresolved.”
Greece, which received a 110 billion euros ($150 billion) rescue package, will still see public debt top 150% of gross domestic product over the next three years even if it sticks to the letter of the fiscal goals demanded by the European Union and International Monetary Fund, he said.
Meanwhile, there is no strategy for growth in peripheral euro-zone countries, which will otherwise struggle to get their fiscal house in order even as austerity measures take hold, he said.
The International Monetary Fund on Tuesday said the global recovery was continuing, but also warned of problems in the euro zone. The IMF boosted its forecast for world growth in 2011 to 3% from its October estimate of 2.7%, while the euro zone is expected to grow 1.5% and China is forecast to expand by 9.6%.
Martin Sorrell, chief executive of advertising giant WPP PLC /quotes/comstock/23s!e:wpp (UK:WPP 790.00, +13.00, +1.67%) , said the 2011 economic story would be about more balanced growth, after stimulus measures worldwide contributed to a stronger-than-expected rebound.
“If you put $12 trillion into the world economy, there has to be a bounce,” he said.
William L. Watts is a reporter for MarketWatch in London.
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