World Business

Global economy not yet out of the woods, say experts

By Lan Lan (China Daily)
Updated: 2010-05-05 09:57

Global economy not yet out of the woods, say experts

A customer looks at luxury products at a Kenneth Cole store in New York. [Bloomberg News]

BEIJING - Chinese economists on Tuesday said the world economy is not out of the woods yet, despite the recent bailout package for Greece and the surging capital markets.

"The Greek rescue package is definitely good news. It will help stabilize the eurozone economy and somewhat reduce the hurdles for a global economic recovery," said Zhuang Jian, a senior economist with the Asia Development Bank.

Eurozone members and the International Monetary Fund (IMF) agreed on a 110 billion euro ($146 billion) financing package for the embattled Greek economy over the weekend, while the German government cleared a $30 billion contribution on Monday.

"The bailout from the IMF and EU will certainly help Greece avoid a default crisis at least for now, and reduce the near-term risk of a contagion-induced crisis in Europe. It will also indirectly reduce the risk of a double-dip in global recovery," said Wang Tao, chief economist with UBS in China.

Wang said there are still difficulties in implementing policies and the market needs more definite answers that Greece can continue to keep its house in order.

Zuo Xiaolei, chief economist with China Galaxy Securities, however, said the bailout was disappointing as rich countries like Greece "ate its own corn on the blade" and now want others to help.

Economists also said that while the US economy has started to show signs of a recovery, there are still risks of a double-dip recession.

Despite the recent Wall Street gains, the capital markets are yet to indicate any real economic confidence, said Zuo.

Not all is however gloomy. "Even if there is a real double dip, the impact will be weaker than the global financial crisis of 2008," said Chen Xingdong, chief economist of BNP Paribas Securities (Asia) Ltd.

The US economy grew 3.2 percent in the first three months of this year, the third consecutive quarter of positive growth, according to the US Commerce Department.

"But the growth is still below 2008 levels. The US economy lacks new engines for economic expansion in the short term," Chen said.

Xia Yeliang, an economist at Peking University, said that the absence of new industrial engines puts a question mark on the long-term growth of the US and European economies.

High-tech industries have often played a key role in the US economic development. But the economy is now facing a vacuum and it will take two to three years for emerging industries like new energy or biotechnology to spur investment, said analysts.

Consumption in the US rose 3.6 percent from January through March, according to the US Commerce Department, but analysts said the spending growth would be limited in the absence of employment and income growth.

The US is stepping up trade promotion under President Barack Obama's new National Export Initiative. Through the new initiative, the US plans to double its exports over the next five years and support 2 million jobs.

"If the US wants its exports to grow faster, it must rethink its strategies and lift restrictions on high-tech exports," said Chen.

Zuo Xiaolei said China could also do its part in this regard. "The Chinese government should study the new US initiative and discuss with American counterparts on what high-tech products could be exported to China ... It's an opportunity for both," he said.