Davos Predicts A ‘Fragile’ Recovery

Davos Predicts A ‘Fragile’ Recovery:
"Davos Predicts A ‘Fragile’ Recovery"

The news emerging from the recently ended World Economic Forum at Davos predicts that economic growth in China, India and Brazil will continue to be strong, while that in Japan will and Europe remains negative, and the US will be somewhere in between the two extremes.
However, this is not enough for the world’s business leaders to heave a sigh of relief. Increasing fears of a ‘double dip’ recession and sub-par growth are worrying them, and no-one wants to hazard a guess as to where things are heading, though the consensus is that things are definitely better than last year.
Economists are still not sure if the recession will take the hoped for V pattern, where the rise corresponds to the dip, or the slower U curve. No-one wants the much feared double dip or W pattern of economic progression, but no-one agrees on a single issue. Multiple issues such as looming government-bond defaults by the EU nations and others are giving everyone sleepless nights.
Though production levels are at their highest after August 2004, the main criterion has now shifted to jobs. With unemployment across the US and Europe at a rampant 10% for several months now, the estimated job losses are humungous, and unless a quick rise is seen, the situation will take a long time improving. And the recent hike in production is nothing more than an inventory recovery, not a consumption rise.
Economists argue that the only thing sustaining the world’s economy are the growth figures coming out of Asia, from countries like India and China. However, thanks to the high level of intervention by the Chinese government, experts increasingly fear a real estate bubble building up in China, whose bursting could spark panic in world financial markets, as the Dubai World collapse nearly did.
In the US, the real-estate price drop has slowed down significantly in the residential segment, though the commercial real estate segment continues to worry policy makers and economists alike. The market continues to be flooded by fire-sale homes and a number of real-estate firms are near collapse. According to a recent report, the recent jump in GDP in the final quarter of the year was mainly due to the stimulus program. But how long can the stimulus continue is a question on everyone’s lips. Even to bring down the unemployment rate from 10 to 5% means creating over 10 million jobs, a task that might take till 2013 or 2014.
The next year will appear little different from the past year or so, as recovery continues to be slow and job creation even slower. But another stimulus could overheat the economy causing runaway inflation, a situation the Obama administration would like to avoid. What steps the government takes to move the economy will definitely bear watching in the days to come.