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25 January 2010
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Recovery hinges on exit strategies
The Wall Street Journal, Asia, Monday, January 25, 2010
Recovery hinges on exit strategies – Massive interventions by governments and central banks are helping the world economy recover from the Great Recession. At some point, however, economies will have to remember how to walk without crutches. Avoiding a bumpy ride could well depend on export dependent countries, such as China and Germany, mending their ways, and on indebted U.S. consumer failing to do so. When the global financial elite gathers at the Swiss ski resort of Davos this week for the World Economic Forum’s annual gabfest, many will praise the surprisingly strong recovery. A year ago, the specter of global depression haunted Davos Man. Today, short-term economic prospects look fair in the U.S., strong in Asia, and shakier but still positive in Europe. The next two to five years could prove more challenging. Current upturns in consumption, investment, exports and asset prices depend on highly expansionary fiscal and monetary policies. Those supports come at a rising price. Gaping budget deficit in the U.S. and Europe are causing concern about the sustainability of public debts. Worries are also growing that central bank’s ultra-low interest rates are inflating news asset-price bubbles around the world.
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