Comments out of The World Economic Forum which has just wrapped up in Davos were generally more upbeat this year. Mind you, “up-beat” is a relative concept in the post-GFC world.
I’d characterise the mood of the Forum as
one of cautious optimism. There was
general acknowledgment that a lot of good work had occurred during 2012 which
has helped reduce finance sector tensions.
However, a lot still needs to be done if developed economies are to
achieve a higher level of sustainable growth.
European Central Bank President Mario
Draghi summed it up nicely. He said that
while conditions had improved considerably in financial markets, policymakers
are still waiting for signs that the real economy has turned for the
better. “We haven’t seen an equal
momentum on the real side of the economy.”
There was general acknowledgment that more
needs to be done. The disappointment was that, apart from continued commitment
to more active monetary policy and medium- term fiscal consolidation, there was
a dearth of ideas about what to actually do.
The risk is that reduced financial tension will contribute to broader policy
That doesn’t change our view of a better
global growth environment in 2013, however it makes me concerned that the key
developed economies might remain stuck in a low growth high unemployment
rut. Our forecast for average developed
economy growth for the next three years doesn’t get above 2% per annum. Sure, some economies will do better than
others but the overall picture is not one of robustness.
It remains the case that monetary and
fiscal policy can only do so much. The
OECD’s Angel Gurria said countries should “go structural” and implement difficult
reforms to boost long term growth. Yep. A learned colleague just asked me “What’s the
point to Davos?” I replied “The more
politicians hear the same message, the more inclined they may be to do
something about it.”