At the recent annual meeting of world business and financial leaders in Italy the mood was gloomy about the world economy.
The conference was against the background of increasing worries about the slowing down of manufacturing – it being the pivot on which growth revolves in the developed world. Since the onset of the financial crisis manufacturing has been slow. Another issue is the sovereign debt of the banks of Europe.
With the release of news on Friday 2nd September, that last August USA had failed to add any new jobs the stock markets around the world slumped. It added to the apprehensions the largest economy in the world is heading for another bout of recession.
Gianluca Garbi, and Italian analyst said, “The market is forecasting two years of recession”. Professor Hans-Werner Sinn of University of Munich agreed with this view that contraction in the developed world is cause of grave concern. Sinn observed that Europe was definitely running along two tracks – on the one hand Germany and some of the northern European countries performing well while southern Europe continues to struggle with high joblessness, low rate of growth and heavy debts. He forecasted a segmented breakup of the euro with Greece exiting from the euro-union. Addressing the glum Italians Sinn said, “You’ve become too expensive”. He analyzed that a common policy and currency having controls in distant Frankfurt has placed impossible hurdles before slower economies in the south to find their exit rout from debt through increasing exports and inflation by devaluation.
Sinn advised, “There has to be a real restructuring in Europe, as painful as it is (and) for some this is too much – for Greece it will be too much. I don’t see any possibility for a fruitful solution for Greece in the euro”.
Nouriel Roubini, who had forecasted the financial crisis long before its onset, warned that if the monetary union is broken up with the exit of some of the states, the results will be felt on the globe and the system.
Chairperson of the session Jacob Frenkel (formerly of Bank of Israel) of JPMorgan Chase International said that the world economy is being torn apart by the post-2008 efforts of stimulus and apprehensions that the governments are overplaying their part in lending a helping hand.
Min Zhu of China and deputy director of IMF said that the gloom has been ignoring the vital role of emerging economies.