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DAVOS-UPDATE 1-Policymakers see growth reviving, still fragile

Published 01/30/2010, 08:24 AM
Updated 01/30/2010, 08:27 AM

* Strauss-Kahn says growth faster than expected, Asia leads

* Summers sees moderate US growth, high unemployment

* China c.banker pledges more balanced economy

By Natsuko Waki and Krista Hughes

DAVOS, Switzerland, Jan 30 (Reuters) - World economic growth may be springing back faster than expected but recovery remains fragile and a better balance is needed between exporting and importing nations, top policymakers said on Saturday.

An acceleration in U.S. GDP has fanned optimism about the outlook for global growth but top White House economic advisor Larry Summers told delegates at the World Economic Forum a heavy price of unemployment would be paid for some time to come.

"What we are seeing in the U.S. is a statistical recovery and a human recession," he said at a panel discussion.

"My judgment is ... that GDP growth will continue at a moderate rate at least for the next several quarters ... What is disturbing is the level of unemployment. This is not just a cyclical phenomenon but also a structural phenomenon."

The U.S. economy grew at a faster-than-expected 5.7 percent pace in the fourth quarter, the quickest in more than six years. . But the jobless rate is at 10 percent.

International Monetary Fund chief Dominique Strauss-Kahn said Asia was leading the world out of recession.

"Growth is coming back and faster than expected, but is still fragile ... Private demand is still rather weak," he told the same panel. "The Asian part of the world is now close to total recovery."

Policymakers are acutely aware that to pull the plug too early on the massive amounts of stimulus pumped into the world economy could risk a fresh downturn.

When to changed tack is the key question for 2010.

OECD Secretary General Angel Gurria told Reuters Insider television he did not expect another dip into negative growth.

"There are downside risks, yes, but we're having a generalised recovery and that's a fact," he said. "Economies are coming out of recession, sluggishly, and it's modest growth on the positive side for a foreseeable future. I don't see a double dip."

The Paris-based organisation sees global growth in 2010 of 3.4 percent from the 2.3 percent it predicted in June, after an estimated contraction of 1.7 percent of 2009.

The IMF has sharply raised its growth forecasts, saying on Tuesday the world economy will expand by 3.9 percent in 2010, much higher than the 3.1 percent it projected in October.

REBALANCING

China is already roaring -- growing by 8.7 percent last year -- but policymakers say the world economy will not be stable until the imbalance of massive debt in the west and sky-high savings rates in the east are addressed.

China's deputy central bank head, Zhu Min, told delegates the emerging economic powerhouse was working to achieve more balanced growth and boost domestic consumption this year.

"We want to reach more balanced and consumption growth for this year," he said.

Summers and Zhu skirmished politely about global imbalances.

"Not everyone can have export-led growth," the White House adviser said. "Countries (that) traditionally have export-led growth desire to continue that growth; countries that have been substantial borrowers want to reduce that borrowing. There's a mismatch. It's serious."

Strauss-Kahn saw some signs of progress.

"On the one hand U.S. consumers are saving more, that's going to last for a rather long time because of important changes to household behaviour," he said.

"If you are looking for new sources of growth, everybody's eyes are turning to emerging countries including China, hoping a decrease in U.S. consumption is offset by an increase in demand there." (Reporting by Natsuko Waki and Krista Hughes, writing by Mike Peacock; Editing by Hans Peters)

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