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PRC, Middle East may fuel rebound of economy in US

Posted by smeddum on September 28, 2008

PRC, Middle East may fuel rebound of economy in US

SHIELDED: These regions will likely be affected by sluggish US consumption, but by comparison will see robust growth, WEF participants in Tianjin said
By Elizabeth Tchii
STAFF REPORTER
Monday, Sep 29, 2008, Page 12
“Globalization is changing the ball game [by] exposing the need to build up governance. It’s risk we’ve got to manage better.”

— Peter Mandelson, EU commissioner for trade

The US will most likely recover from its financial crisis sometime next year or in 2010, but participants at a World Economic Forum (WEF) panel discussion in Tianjin, China, said a full rebound would take years, with emerging markets such as China and the Middle East leading the way.

Yoshihiko Miyauchi, chairman and chief executive officer of Japan’s Orix Corp, said via Web cast on Saturday from Tianjin that the US situation was similar to 1990, when Japan entered a recession.

Based on this comparison, Miyauchi said it could take more than 10 years for the US to fully recover.

The “light at the end of the tunnel [will come] sometime at the end of next year,” Miyauchi told a panel discussion on the global economic outlook.

Morgan Stanley Asia chairman Stephen Roach was slightly more pessimistic than Miyauchi. He said an upturn in the US economy could not be expected sooner than 2010.

US GDP growth will bounce back to 5 percent “for a very long time,” he said.

“We have to get used to living in a lower growth economy,” he said.

Roach said the speed of the economic recovery was not as important as the quality.

In the meantime, some participants at the two-day forum expected Asia, the Middle East and possibly Europe to be regions of relatively robust growth, leading the global economy in the next few years.

These regions will likely be affected by the slowdown in US consumption and will not be isolated from the crisis, but by comparison, they will see stronger growth than the US, participants said.

China and the Middle East are both rich in capital, Miyauchi said, which means that the US will depend on them to inject massive amounts of capital into the over-extended credit market.

EU Commissioner for Trade Peter Mandelson, meanwhile, said China, India and Middle Eastern countries should start to assume roles of leadership in talks on global economic issues and participate in finding solutions to the US crisis.

The leadership of these countries would help to gradually balance global economic power, he said.

The future will involve a truly multipolar global economy, Mandelson said.

Experts at the forum also discussed the causes of the US financial meltdown.

Mandelson said the root of the trouble was “between regulators and the people who work” in financial services.

But he said there was nothing fundamentally wrong with the US financial system.

“Globalization is changing the ball game [by] exposing the need to build up governance. It’s risk we’ve got to manage better,” he said.

Miyauchi attributed the crisis to setting a low price tag on high risks.

He said the US had made a mistake by keeping interest rates at 1 percent for too long, which had resulted in asset and equity bubbles.

Roach concluded the panel discussion with a warning that the US market adjustment was spreading from real estate to consumer spending.

Overconsumption in the US has created a country with “no savings, a massive current account deficit and record levels of consumer indebtedness,” he said.

“The reality is we’re purging real excesses of the economy,” Roach said.

He drew a laugh from the audience by conceding that the US would probably experience a recession similar to Japan’s, but that being Americans, “we will give it a different name.”

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